As filed with the Securities and Exchange Commission on December 20, 1999
Registration No. 333-78591
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM SB-2
REGISTRATION STATEMENT
under the
SECURITIES ACT OF 1933
Amendment No. 4
Streamedia Communications, Inc.
(Name of small business issuer in its character)
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Delaware 7375 22-3622272
(State or jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification Number)
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James Douglas Rupp
Streamedia Communications, Inc.
244 West 54th Street
New York, NY 10019
(212) 445-1700
(Address and telephone number of principal
executive offices and principal place of business)
James Douglas Rupp
Streamedia Communications, Inc.
244 West 54th Street
New York, NY 10019
(212) 445-1700
(Name, address and telephone number of agent for service)
Copies of all communications to:
Louis E. Taubman, Esq. Bruce A. Cheatham, Esq.
Kogan & Taubman, LLC Winstead Sechrest & Minick, P.C.
39 Broadway, Suite 2250 5400 Renaissance Tower
New York, NY 10019 1201 Elm Street
(212) 425-8200 Dallas, Texas 75270
(212) 482-8104 FAX (214) 745-5400
(214) 745-5390 FAX
Approximate date of proposed sale to public: As soon as practicable after the
effective date of the Registration Statement.
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering.
If this Form is a post-effective amendment filed pursuant to Rule
462(c) under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering.
If 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
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.
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(Registration Statement cover page cont'd)
Calculation of Registration Fee
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Title of Each Class of Amount to be Proposed Maximum Proposed Maximum Amount of
Securities to be Registered Registered Offering Price Aggregate Registration Fee
per Unit Offering Price
(1) (1) (1)
Units 1,150,000 $8.50 $9,775,000 $2,883
Common Stock, par
value $0.001 (2) 1,150,000 (2) (2) (2)
Redeemable Common Stock
Purchased Warrants (2) 1,150,000 (2) (2) (2)
Common Stock, par
Value $0.001 (3)(4) 1,150,000 $12.75 $14,662,500 $4,076
Underwriter's Warrants (5) 100,000 $0.001 $100 $1
Units Underlying the
Underwriter's Warrants 100,000 $10.20 $1,020,000 $284
Common Stock, par
Value $0.001 (4)(6) 100,000 (6) (6) (6)
Redeemable Common Stock
Purchase Warrants (6) 100,000 (6) (6) (6)
Common Stock, par
Value $0.001 (4)(7) 100,000 $12.75 $1,275,000 $354
Total $26,732,600 $7,432
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(1) Estimated solely for the purpose of calculating the registration fee.
(2) Included in the Units. No additional registration fee is required.
(3) Issuable upon the exercise of the Redeemable Common Stock Purchase
Warrants.
(4) Pursuant to Rule 416 there are also registered an indeterminable number
of shares of Common Stock which may be issued pursuant to the
antidilution provisions applicable to the Redeemable Common Stock
Purchase Warrants, the Underwriters' Warrants and the Redeemable Common
Stock Purchase Warrants issuable under the Underwriters Warrants.
(5) Underwriters' Warrants to purchase up to 100,000 Units, consisting of an
aggregate of 100,000 shares of Common Stock and 100,000 Redeemable
Common Stock Purchase Warrants.
(6) Included in the Units underlying the Underwriters' Warrants. No
additional registration fees are required.
(7) Issuable upon exercise of Redeemable Common Stock Purchase Warrants
underlying the Underwriters' Units.
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SUBJECT TO COMPLETION DATED December 20, 1999
1,000,000 Units
Consisting of 1,000,000 Shares of Common Stock and
1,000,000 Redeemable Common Stock Purchase Warrants.
STREAMEDIA COMMUNICATIONS, INC.
This is an initial public offering of 1,000,000 units. Each unit consists of one
share of common stock and one warrant. Each warrant entitles the holder to
purchase one share of common stock at a price of $12.75 per share until
____________, 2004 (five years from the date of this prospectus). Currently,
there is no public market for our common stock.
The underwriters have an option to purchase an additional 150,000 units to cover
over-allotments if any.
Streamedia Communications, Inc.
244 West 54th Street
New York, NY 10019
The Offering:
Per unit Total
Public Offering Price $8.50 $8,500,000
Underwriting Discounts $0.85 $ 850,000
Proceeds to Streamedia $7.65 $7,650,000
Trading Symbols
Nasdaq SmallCap Market "SMIL"
Boston Stock Exchange "STA"
This investment involves a high degree of risk.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
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.
------------------------------
INSTITUTIONAL EQUITY CORPORATION CAPITAL WEST SECURITIES, INC.
Prospectus dated _______ 1999
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TABLE OF CONTENTS
Page
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Prospectus Summary.............................................................................3
Selected Financial Information.................................................................6
Risk Factors...................................................................................7
Use of Proceeds................................................................................12
Dividend Policy................................................................................12
Dilution.......................................................................................13
Capitalization.................................................................................14
Plan of Operations.................................... ........................................14
Business.......................................................................................19
Additional Information.........................................................................24
Management.....................................................................................25
Prior Offerings................................................................................27
Certain Relationships and Related Transactions.................................................27
Principal Shareholders.........................................................................28
Certain Federal Income Tax Matters.............................................................29
Description of Securities......................................................................30
Shares Eligible For Future Sale................................................................31
Plan of Distribution...........................................................................32
Legal Matters..................................................................................33
Experts........................................................................................33
Glossary.......................................................................................34
Index to Financial Statements..................................................................36
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FOR CALIFORNIA RESIDENTS ONLY:
THE SECURITIES OFFERED HEREBY SHALL NOT BE OFFERED OR SOLD IN CALIFORNIA TO ANY
PERSON UNLESS THE PROSPECTIVE PURCHASER HAS (i) AT LEAST A LIQUID NET WORTH
(EXCLUSIVE OF HOME, HOME FURNISHINGS, AND AUTOMOBILE) OF $250,000 AND AT LEAST A
GROSS ANNUAL INCOME OF $65,000; (ii) AT LEAST A LIQUID NET WORTH OF $500,000;
(iii) AT LEAST A NET WORTH OF $1,000,000 (INCLUSIVE); OR (iv) AT LEAST A GROSS
ANNUAL INCOME OF $250,000.
2
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PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and financial statements, including the related notes appearing
elsewhere in this prospectus. Unless otherwise indicated, the information in
this prospectus assumes the underwriters' over-allotment option and the
underwriters' warrants are not exercised. The units offered involve a high
degree of risk. Investors should carefully consider the information set forth
under "Risk Factors."
Profile of Streamedia Communications.'
We will deliver audio and video programming over the internet and through other
media. Our business will be divided among four vertically-integrated divisions:
Streamedia Broadcast; Streamedia Networks; Streamedia Webcast Technologies; and
Streamedia Publishing. Each center of activity will be developed around multiple
sources of potential revenue. Text, as well as audio and video broadcasts that
we develop or distribute, will be made accessible via the internet. These
broadcasts will include a variety of topics such as parenting, romance, careers,
hobbies, gardening, food, cooking, and restaurants.We will not charge users to
access our sites. Our goal is to capture the maximum possible internet audience.
No special hardware or software will be required to experience our basic content
beyond that of the standard media players and browsers routinely supplied by
computer manufacturers.
Streamedia's Corporate Offices and Contacts.
Our principal executive offices are located at 244 W. 54th Street, 12th Floor,
New York, NY, 10019. Our general corporate contacts are at 212-445-1700, and
[email protected]. Our Investor Relations contacts are 1-800-511-4216, or by
email to [email protected].
3
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The Offering
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Securities to be offered.................... 1,000,000 units, each unit consists of one share of common
stock and one warrant, each warrant entitles the holder to
purchase one share of common stock at a price of $12.75 until
_____ 2004. The shares and the warrants included in the units will automatically
separate 30 days from the date of this prospectus, after which the common
stock and warrants in the units will trade separately.
Description of warrants..................... The warrants included in the units will be exercisable commencing 12 months
after the offering. The Company may redeem some or all of the outstanding
warrants for $.05 per warrant 12 months from the date of this
offering if the closing price of the common stock is at least $12.75 per share
for 10-consecutive trading days.
Common Stock to be outstanding
after the Offering........................ 4,295,490 shares
Warrants to be outstanding after
the Offering.............................. 1,000,121
Nasdaq SmallCap Symbols
Units....................................... "SMILU"
Common Stock................................ "SMIL"
Warrats..................................... "SMILW"
Boston Stock Exchange Symbols
Units....................................... "STAU"
Common stock................................ "STA"
Warrants.................................... "STAW"
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The 4,295,490 shares of common stock to be outstanding after the Offering do not
include the 1,089,000 shares issuable upon the exercise of warrants included in
the units which were sold on August 24, 1999, in a private placement; the
1,000,000 shares issuable upon the exercise of the warrants included in the
units to be sold in this offering which will be outstanding upon completion of
the offering; the 300,000 shares to be issued upon exercise of the underwriters'
over-allotment option; and the exercise of the warrants thereunder; and the
options issued under the 1999 stock option plan.
The 1,000,121 warrants to be outstanding after the Offering do not include the
up to 150,000 warrants issuable upon the exercise of the over-allotment option,
and the 100,000 warrants underlying the underwriters' warrants.
4
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SELECTED FINANCIAL INFORMATION
The following table sets forth our selected financial information. This
table does not present all of our financial data. You should read this
information together with our financial statements and the notes to those
statements beginning on page F-1 of this prospectus and the information under
"Plan of Operation."
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Period from April 29, 1998 Nine Months Ended
(date of inception) to December 31, 1998 (1) September 30, 1999
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Operating Data:
Revenues $ - $ -
Cost of Revenues - -
Gross Profit - -
Operating Expenses 296,760 1,065,492
---------- -------
Net Loss (296,760) (1,065,492)
Basic and Diluted Loss Per Common Share
(0.10) (0.33)
December 31, 1998 September 30, 1999
----------------- -------------
Balance Sheet Data:
Working Capital (deficit) $ (137,460) $ 930,203
Current Assets 1,225 1,092,540
Total Assets 77,425 1,670,977
Total Liabilities 138,685 162,337
Current Liabilities 138,685 1,712,099
Notes Payable - 1,549,762
Stockholders' Equity (deficit) (61,260) (41,122)
Common Shares Outstanding 3,025,000 3,295,490
- -----------------
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(1) From April 29, 1998, to September 30, 1998, we did not incur any revenues or
operational costs.
5
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RISK FACTORS
Investing in our securities involves a high degree of risk. Prospective
investors should consider the following factors in addition to other information
set forth in the prospectus before purchasing the units.
We may not be able to continue our operations unless we can achieve several of
the mentioned criteria.
Streamedia is currently in the development stage. To date, we have not generated
any revenues. We have experienced losses of $1,362,252 through September 30,
1999, and our accumulated deficit as of such date was $1,362,252. We anticipate
that our upcoming launches of websites currently in the development stage will
transition Streamedia to operating status. However, you should consider
Streamedia and our prospects in light of the risks, difficulties and
uncertainties frequently encountered by companies in an early stage of
development. You should not invest in this offering unless you can afford to
lose your entire investment. To achieve and sustain profitability, we believe
that Streamedia must, among other things:
Provide compelling and unique content and technologies to internet users,
Successfully market and sell our business services,
Effectively develop new relationships, and maintain existing
relationships, with advertisers, content providers, business customers and
advertising agencies,
Continue to develop and upgrade our technology and network infrastructure
and respond to our competitors,
Successfully improve our existing products and services to address new
technologies and standards, and
Attract, retain and motivate qualified personnel.
We may not be able to obtain the financing and capital required to maintain and
grow our business.
As a result of Streamedia's current financial condition, our independent
certified public accountants have modified their report on our financial
statements as of and for the period from April 29, 1998 (date of inception) to
December 31, 1998. Our independent certified public accountants' report on the
financial statements includes an explanatory paragraph stating that
Streamedia's existence is dependent upon its ability to obtain additional
capital, among other things, which raises substantial doubt about our ability to
continue as a going concern.
Our limited operating history makes it difficult to determine our future
success.
Because of Streamedia's limited operating history and the emerging nature of the
markets in which we compete, we are unable to forecast our revenues with
certainty and precision. Streamedia's operating results are also dependent on
factors outside of the control of Streamedia, such as the availability of
compelling content and the development of broadband networks that support
multimedia streaming. There can be no assurance that we will succeed in
addressing these risks, and failure to do so could have a material adverse
effect on Streamedia's business, results of operations and financial condition.
The market for Streamedia's business services and the long-term acceptance of
Web-based advertising are uncertain. We currently intend to increase our
operating expenses in order to:
Expand our distribution network capacity,
Increase sales and marketing activities,
Acquire additional content,
Develop and upgrade technology and proprietary content,
Purchase equipment for our operations, and
Complete potential acquisitions.
6
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The loss of key personnel could adversely affect our business and decrease the
value of your investment. Streamedia does not have key man life insurance.
While we believe that these activities will increase our opportunity for
profitability, there can be no assurance that Streamedia will be profitable.
Streamedia's sucess depends on the efforts of certain members of senior
management, particularly James Rupp (President and Chief Executive Officer),
Gayle Essary (Vice President of Strategic Development), and Nicholas Malino
(Executive Vice President, Chief Operating Officer and Chief Financial Officer).
The loss of one or more of these individuals could adversely affect Streamedia's
business operations or prospects. These individuals have entered into employment
agreements, but Streamedia cannot guarantee that any of these individuals will
continue to serve in his current capacity or for what time period this service
might continue. Streamedia has not obtained key man life insurance policies with
respect to any of these individuals.
The intense competition in our markets may lead to reduced revenue and increased
losses.
Although we believe our approach to establish Streamedia as an emerging
leader in its fields reduces the threat of competition, the market for internet
broadcasting and news distribution services is highly competitive. Streamedia
expects that competition will continue to increase. We compete with:
OtherWeb sites, internet portals, dial-up software applications
and internet broadcasters to acquire and provide content and
act as a gateway to attract users,
Videoconferencing companies, audio conferencing companies and
internet business services broadcasters,
Online services, other Web site operators and advertising networks,
as well as traditional media such as television, radio and print, for
a share of advertising budgets,
Other news aggregators and content generators, and
Other press release distributors.
There can be no assurance that Streamedia will be able to compete successfully
or that the competitive pressures will not have a material adverse effect on our
business, results of operations and financial condition. Competition among
websites that provide compelling content, including streaming media content, is
intense, and we expect competition to increase significantly in the future.
Traditional media may expend resources to establish a more significant internet
presence in the future. These companies have significantly greater brand
recognition and greater financial, technical, marketing and other resources than
Streamedia. We also compete with other content providers for the time and
attention of users and for advertising revenues.
We may not be able to generate sufficient advertising revenues on the internet
to be profitable.
The market for internet advertising has only recently begun to develop. This
market is rapidly evolving and is characterized by an increasing number of
market entrants. As is typical in the case of a new and rapidly evolving
industry, demand and market acceptance of new products and services are
uncertain. Streamedia's ability to generate advertising revenue will depend on,
among other factors:
The development of the internet as an advertising medium,
Pricing of advertising on other websites,
The amount of traffic on Streamedia's websites,
Streamedia's ability to achieve and demonstrate user and member
demographic characteristics that are attractive to advertisers, and
Establishing and maintaining desirable advertising sales agency
relationships.
Streamedia's business, results of operations and financial
condition could be materially adversely affected if widespread commercial
use of the internet does not develop, or if the internet does not develop
as an effective and measurable medium for advertising.
7
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We are dependant on the continued growth of the internet to support our business
operations and our ability to be profitable.
Rapid growth in use of and interest in the internet is a recent phenomenon.
There can be no assurance that acceptance and use of the internet will continue
to develop or that a sufficient base of users will emerge to support
Streamedia's business. Our future revenues will depend largely on the widespread
acceptance and use of the internet as a source of multimedia information and
entertainment and as a vehicle for commerce in goods and services. Our business,
results of operations and financial condition could be materially adversely
affected if:
Use of the internet does not continue to grow or grows more slowly than
expected,
The internet infrastructure does not effectively support the growth that
may occur, and
The evolution of broadband connectivity is slower or less widespread
than anticipated.
We must adapt to technology trends, the frequent introduction of new products,
and evolving industry standards to remain competitive.
The market for internet broadcast services experiences rapid technological
developments, frequent new product introductions and evolving industry
standards. Therefore, Streamedia must:
Effectively use leading technologies,
Continue to develop technological expertise, and
Enhance our current services and continue to improve the performance,
features and reliability of our network infrastructure.
Also, the widespread adoption of new internet technologies or standards could
require us to make substantial expenditures to modify our websites and
services. If we fail to rapidly respond to technological developments, it could
have a material adverse effect on our business, results of operations and
financial condition.
Evolving government regulation of the internet may increase our cost and slow
our internet growth.
Although there are currently few laws and regulations directly applicable to the
internet, new laws and regulations will likely be adopted in the United States
and elsewhere. These laws and regulations could cover issues such as broadcast
license fees, copyrights, privacy, pricing, sales taxes and characteristics and
quality of internet services. The adoption of restrictive laws or regulations
could slow internet growth or expose us to significant liabilities associated
with content available on our websites. The application of existing laws and
regulations governing internet issues such as property ownership, libel and
personal privacy is also subject to substantial uncertainty. There can be no
assurance that current or new government laws and regulations, or the
application of existing laws and regulations will not expose us to significant
liabilities, significantly slow internet growth or otherwise cause a material
adverse effect on our business, results of operations or financial condition.
You will incur an immediate and substantial dilution of $6.89 per share, or
81.06%, by purchasing securities in this offering.
Our current shareholders acquired their shares at a cost per share substantially
below the price in this offering. After the offering, the current shareholders
will experience a substantial increase in the value of their holdings. Also, the
public offering price of the units will be substantially higher than the current
book value per share. Therefore, you will incur an immediate and substantial
dilution of $6.89 per share, or 81.06%, on your investment as it relates to the
book value of the shares after completion of this offering.
Principal shareholders will own 72.3% of the shares outstanding, and you will
have minimal influence on shareholder decisions.
Our officers and directors will own approximately 72.3% of the outstanding
shares after this offering. These shareholders will be able to control the vote
on election of directors and to substantially impact the vote on other matters
submitted to shareholders. If these shareholders act together they will be able
to substantially impact any vote of the stockholders and exert considerable
influence over our affairs. You and the other investors will have minimal
influence on shareholder actions.
You may be unable to sell your shares due to an inactive trading market.
Prior to this offering, there was no public market for the units, common stock
or warrants. Following this offering we cannot assure that an active trading
market for the units will develop or continue. Therefore, you may be unable to
sell your units, common stock or warrants at a favorable price. Future
non-public sales of our securities may be on terms more favorable than the terms
of this offering causing dilution of share value.
In order to raise additional working capital, we could make a limited number of
offers and sales of our common stock or other securities to investors in
transactions exempt from registration under the securities laws. These
purchasers may acquire our securities on terms more favorable than offered to
you. The price may not relate to any accepted measure of value, including the
prevailing market price. We may make sales of our securities at a lower price
than that of the units.
8
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The market prices for our securities, like those of other technology issues, may
be volatile making it difficult to assess the value of our shares.
The value of your investment in Streamedia could decline from the impact of any
of the following factors:
Changes in market valuations of internet companies,
Variations in our actual and anticipated operating results,
Changes in our earnings estimates by analysts,
Our failure to meet analysts' performance expectations, and Lack of
liquidity.
The stock markets have, in general, and with respect to internet companies in
particular, recently experienced stock price and volume volatility that has
affected several of those companies' stock prices. The stock markets may
continue to experience volatility that may adversely affect the market price of
our securities.
Stock prices for many companies in the technology and emerging growth sector
have experienced wide fluctuations that have often been unrelated to the
operating performance of those companies. Fluctuations such as these may affect
the market prices of our securities.
The warrants to be issued to the underwriters may adversely affect Streamedia in
the future.
The holders of the underwriters' warrants will have four years starting one year
from the effective date of this offering to profit from a rise in the market
price of the units, common stock and warrants. The exercise of the underwriters'
warrants will cause dilution in the interests of the other shareholders.
Further, the terms on which Streamedia might obtain additional financing during
that period may be adversely affected by the existence of the underwriters'
warrants. The holders of the underwriters' warrants may exercise their warrants
at a time when Streamedia might be able to obtain additional capital through a
new offering of shares on terms more favorable than those in this offering.
Streamedia has agreed that, under certain circumstances, we will register under
the securities laws the shares to be issued upon exercise of the underwriters'
warrants. Exercise of these registration rights could involve expense at a time
when we could not afford the expenditures and may adversely affect the terms
upon which we may obtain financing.
The underwriters will have a dominating influence on any market for the units
which may adversely affect the price of the units and/or your ability to sell
your shares .
A significant amount of the units offered may be sold to customers of the
underwriters. Subsequently, these customers may purchase or sell these units
through or with the underwriters. If they participate in the market, the
underwriters may exert a dominating influence on the market, if one develops,
for the units. The price and the liquidity of the units may be significantly
affected by the degree of the underwriters' participation in the market.
9
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Our management will have broad discretion in allocating a substantial portion of
the proceeds of this offering. You will not be able to vote on the allocation of
the proceeds. $1,000,000, or 13.84%, of the net proceeds of this offering has
been allocated for our working capital needs. Our management will have broad
discretion as to the application of these proceeds.
We plan to use a substantial portion of the proceeds of this offering to make
acquisitions of other businesses. You may not be able to vote on such
acquisitions.
$1,857,200, or 25.7%, of the net proceeds of this offering has been allocated
for unspecified acquisitions of other businesses. Our management will determine
the advisability of such acquisitions and application of such proceeds. You may
not be able to review the financial statements of such businesses prior to any
acquisition, and you may not have the right to vote on any acquisitions.
We may incur substantial costs protecting our trademarks and our right to
utilize certain technology which may increase our cost.
We have undertaken to protect our right to use the names "Streamedia,"
"Streamwire," and "Streamedia Webcasting" and other names and logos unique to
Streadmedia by filing for trademark protection with the United States Patent and
Trademark Office. However, there can be no guarantee that our trademarks will be
accepted. If we cannot protect our products and services from duplication, we
may be subject to other companies selling the same or similar products and
service under similar names and logos.
Additionally, numerous lawsuits have been filed by entities that claim to hold
patents for various technologies used by companies whose businesses involve the
internet. Although we do not believe that we are currently infringing on patents
held by any entity, there can be no guarantee that we will not be subject to
claims of infringement in the future. The costs of investigating and/or
defending such claims or the cost of licensing fees for covered technologies
could have a material impact on our business.
You should note that this prospectus contains certain "forward-looking
statements," including without limitation, statements containing the words
"believes," "anticipates," "expects," "intends," "plans," "should," "seeks to,"
and similar words. You are cautioned that such forward-looking statements are
not guarantees of future performance and involve risks and uncertainties. Actual
results may differ materially from those in the forward-looking statements as a
result of various factors, including but not limited to, the risk factors set
forth in this prospectus. The accompanying information contained in this
prospectus identifies important factors that could cause such differences.
10
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USE OF PROCEEDS
We expect to receive approximately $7,225,000 from the proceeds of this
offering, or $8,221,527 if the over-allotment option is exercised in full. This
assumes an initial public offering price of $8.50 per unit after deducting the
underwriters' discount and $425,000 of expenses relating to the offering. The
anticipated use of the net proceeds is as follows:
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Amount %
-------------------- ------------
Strategic Acquisitions (1) $ 1,857,200 25.7%
Repayment of Debt (2) 1,815,000 25.12
Content License & Acquisition (3) 1,151,400 15.94
Working Capital (4) 1,000,000 13.84
Sales, Marketing, and Promotion 700,700 9.7
Capital Equipment (5) 700,700 9.7
==================== ============
$ 7,225,000 100.0%
==================== ============
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(1) We have no present plans or commitments and are not currently engaged
in any negotiations with respect to strategic acquisitions. However, we
may, when and if the opportunity arises, use a portion of the net
proceeds to acquire an investment in complementary businesses, products
and technologies. Executive management and the Board of Directors will
review acquisition candidates, if any, based on a number of factors,
including asset values, targets, service or product lines, strategic
alliances, price and profitability.
(2) Will be used to pay back the holders of the promissory notes from the
Rule 506 Offering which closed on August 24, 1999.
(3) Fees to be paid to the owners of audio or video programming for the
rights to broadcast such programming over the internet.
(4) Working Capital will be used to pay for the ongoing costs of
operations, including items such as salaries, bonuses, supplies, rent,
utilities, insurance, advertising and promotion and professional
services.
(5) Capital Equipment is goods used in the business costing over $500 and
having a useful life of more than one year, such as computers, routers,
certain software, telephone systems and vehicles.
DIVIDEND POLICY
We have never paid cash or other dividends on the common stock and we do not
anticipate that we will pay cash dividends in the foreseeable future. The Board
of Directors plans to retain future earnings for the development and expansion
of business. Any future determination as to the payment of dividends will be at
the discretion of the Board of Directors and will depend on a number of factors,
including future earnings, capital requirements, financial condition, and any
other factors that the Board of Directors may deem relevant.
11
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DILUTION
As of June 30, 1999, Streamedia's net tangible book value was a negative
$(295,127) or $(0.09) per share based on 3,295,490 shares outstanding. The net
tangible book value is the aggregate amount of its tangible assets less its
total liabilities. The net tangible book value per share represents the total
tangible assets, less total liabilities, divided by the number of shares
outstanding. After giving effect to (i) the sale of 1,000,000 units at an
assumed offering price of $8.50 per unit, and (ii) the application of the
estimated net proceeds, the pro forma net tangible book value would increase to
$6,929,873 or $1.61 per share. This represents an immediate increase in net
tangible book value of $1.70 per share to current shareholders and an immediate
dilution of $6.89 per share to new investors or 81.06% as illustrated in the
following table:
<TABLE>
<S> <C> <C>
Public offering price per Share $8.50
Net tangible book value per Share before this offering $(0.09)
Increase per Share attributable to new investors
$1.70
-------------
Adjusted net tangible book value per Share after this $1.61
offering
---------------
Dilution per Share to new investors $6.89
---------------
Percentage dilution 81.06%
</TABLE>
The following table sets forth as of September 30, 1999, (i) the number of
shares of common stock purchased by the current shareholders, the total
consideration paid before deducting associated expenses, and the average price
per share paid by the current shareholders, and (ii) the number of shares of
common stock included in the units to be purchased in this offering and total
consideration to be paid by new investors, before deducting underwriting
discounts and other estimated expenses at an assumed offering price of $8.50 per
unit.
<TABLE>
<CAPTION>
Shares Purchased Total Consideration Average Price
-------------------------------- ---------------------------------- -----------------
--------------- ----- ---------- -- -------------------- ---------- -----------------
Number Percent Amount Percent Per Share
--------------- -- ----------
--------------- ---------- ---------------- ---------- ----------- ----
<S> <C> <C> <C> <C> <C>
Current Shareholders 3,295,490 76.7% $ 534,480 5.9% $0.16
New investors 1,000,000 (1) 23.3% 8,500,000 94.1% $8.50
- -----
--------------- ---------- ---------------- ----------
=============== ========== ================ ==========
Total 4,295,490 (2) 100.0% $9,034,480 (1) 100.0%
=============== ========== ================ ==========
</TABLE>
(1) Upon exercise of the over-allotment option, the number of shares held by
new investors would increase to 1,150,000 or 25.9% of the total number of
shares to be outstanding after the offering and the total
consideration paid by new investors will increase to $9,775,000.
(2) Does not include
(i) the 1,089,000 shares issuable upon the exercise of the warrants
included in the units which were sold on August 24, 1999 in a private
placement,
(ii) up to 1,000,000 shares issuable upon the exercise of the warrants
included in the units to be sold in this offering which will be outstanding
upon completion of the offering,
(iii) up to 300,000 shares to be issued upon exercise of the
underwriters' over-allotment option, and the warrants thereunder,
(iv) up to 200,000 shares to be issued upon exercise of the
underwriters' warrants, and the warrants thereunder, and
(v) the options issued under the 1999 stock option plan. To the extent that
the over allotment option and warrants are exercised, there will be
further share dilution to new investors.
12
<PAGE>
CAPITALIZATION
The following table sets forth Streamedia's capitalization (i) as of September
30, 1999, and (ii) on a pro forma as adjusted basis to give effect to the sale
of 1,000,000 units and the application of the estimated net proceeds.
<TABLE>
<CAPTION>
June 30, 1999
--------------------------------------------
------------------ ---- --------------------
(Actual) (As Adjusted)
------------------ --------------------
------------------ --------------------
<S> <C> <C>
Liabilities:
Current Liabilities $162,337 $162,337
Notes Payable $1,549,762 -
Total Liabilities $1,712,099 $162,337
Stockholders' Equity
Preferred stock, $.001 par value, 100,000 shares authorized; - -
no shares issued actual or adjusted
Common stock, $.001 par value 3,296 4,296
20,000,000 shares authorized, 3,295,490 shares
issued and outstanding, actual
4,295,490 as adjusted (1)
Additional paid in capital $ 1,317,834 8,541,834
Deficit accumulated during developmental stage $(1,362,252) $(1,852,560)
------------------ --------------------
------------------ --------------------
Total stockholders' equity $ (41,122) $6,693,570
------------------ --------------------
------------------ --------------------
Total capitalization $ (1,670,977) $6,855,907
------------------ --------------------
</TABLE>
The as adjusted column reflects the repayment of the notes payable with proceeds
from the offering and the resultant charge to operations of $490,308 for the
writeoff of associated deferred financing cost.
The common stock referenced on this chart does not include:
The 1,089,000 shares issuable upon the exercise of the warrants
included in the units which were sold during on August 24,
1999, in a private placement,
Up to 1,000,000 shares issuable upon the exercise of the warrants
included in the units to be sold in this offering which will be
outstanding upon completion of the offering,
Up to 300,000 shares to be issued upon exercise of the
underwriters' over-allotment option, and the warrants
thereunder,
Up to 200,000 shares to be issued upon exercise of the
underwriters' warrants, and the warrants thereunder, and
The options issued under the 1999 stock option plan.
.
13
<PAGE>
PLAN OF OPERATIONS
You should read Streamedia's Financial Statements, related notes and other
financial information included in this prospectus in conjunction with this
discussion of our operations. The following discussion contains forward-looking
statements. Streamedia's actual results may differ significantly from those
projected in the forward-looking statements. Factors that might cause future
results to differ materially from those projected in the forward looking
statements include, but are not limited to, those discussed in "Risk Factors"
and elsewhere in this prospectus.
OVERVIEW
Streamedia will aggregate and broadcast audio and video programming via the
World Wide Web. We expect to deliver high volumes of simultaneous live and
on-demand audio and video programs. Our websites, in particular the Streamedia
Networks(TM) and Channels we may develop, have been conceived to offer a broad
range of multimedia programming, including, but not limited to, such categories
as news, music, history, talk, sports, women's issues, business activities,
movies, education, television, and children's interests. At first, most of our
content will be available at no charge to all audiences. We are, however,
considering pay-per-view and subscription based services for some of our
programming at a future date.
We believe our approach to streaming media delivery is differentiated by our
focus on "bundled" delivery of multimedia and text (both audio/video and print
information sources will be available at the same site), and a plan for a suite
of focused, searchable, aggregated broadcast content sites. Each Network will
have its own categorical focus, such as sports or music; each site will offer
users the power to search by keywords to rapidly find the programming which
interests them the most; and each site will not only contain programming we
either create ourselves or obtain rights to distribute, but also serve as a
directory or guide to other sites on the Web that contain programs that may also
be of interest to our site visitors. Our idea is to provide our audience with a
convenient way to select a diverse range of broadcasts and supplementary
information from our own network of broadcast portals as well as use our sites
to help users locate programming of interest elsewhere on the Web.
Our revenues will primarily stem from:
business to business webcast services and sales;
the sale of banners, site and channel sponsorships;
and streaming media advertisements; and
fees for carrying content for third parties on our Networks.
We anticipate that additional revenue will be derived from:
pay-per-view charges for premium content;
supplying corporate intranets with broadcast content, news feeds,
and directories tailored to their needs; and
multiple e-Commerce initiatives, such as commissions generated by
sales of merchandise from retailers with whom we will establish
'affiliate' relationships, and, when launched, from our own online
store.
14
<PAGE>
We make no assurance that we will in fact generate revenues from all or
any of these potential sources at any time in the future. Suppliers of
business to business webcasting services are increasing in number, which
may hamper our ability to capture market share in this field. The general
trend, measured against common metrics, of market rates one can charge for
internet advertising is falling, which may handicap our gross sales in
this area. Pay-per-view models may not prove as popular on the Web as they
are in other broadcast mediums.
Our revenues will be directly related to a number of factors, including:
the volume of advertisers;
the rates we can charge for the various types of advertising;
our ability to sell our advertising inventory;
the quantity of traffic to our websites;
the costs of bandwidth and other services required to deliver content;
and
number of clients we can attract for business services offered by our
WebCast Technologies division.
We believe that, ultimately, by increasing the number and frequency of visitors
to our sites, and to those sites to which we distribute content, we will
experience greater revenue growth across all our product and service offerings.
For this reason, we may need to devote a significant portion of the net proceeds
of this offering to marketing and promotional efforts as well as to acquire and
license internet broadcast rights to a wide range of appealing, unique,
high-quality broadcast content.
Plan of Operations.
We have developed numerous business strategies which, pursuant to the proceeds
of this offering, we believe we will be able to implement during the coming 12
months. Some of the most important uses of the net proceeds of this offering
will be to:
Add substantially to our library of broadcast content and data feeds,
Develop our ability to deliver audio and video to large numbers of
concurrent listeners and viewers, who may be attuned to dozens or
even hundreds of different programming clips,
Add staffing to our engineering, production, editorial, sales and
marketing departments,
Develop and incrementally launch our series of multimedia portals
(the Streamedia Networks and StreamWire), and
Implement a 'syndication,' or content distribution, program.
To accomplish these objectives, we need to:
Make substantial investments in capital equipment, such as web
servers, storage devices, and other specialized computer and
communications equipment,
Contract for sufficient bandwidth,
Devise a powerful internet infrastructure, and
Hire or otherwise contract with highly specialized personnel to
develop, configure, administer, and operate our sites, broadcast
equipment and infrastructure.
We plan to launch, over time, websites at as many as possible of the over 300
registered internet addresses we currently own, and additional domains we may
purchase. We expect to launch StreamWire as a component of the Streamedia
Networks, and subsequently develop these print resources more fully, until they
can become standalone sites. We expect to launch the initial Streamedia Networks
as early as the 4th Quarter of 1999. Should we fail to launch additional sites,
or to develop or acquire sufficient content for those we do launch, we might not
be successful in attracting viewers and listeners, without which our business
would be impaired. Should we encounter difficulty in hiring appropriately
skilled personnel, our site launches may be delayed, further impairing our
business.
While we are building and subsequently launching Network and Channel sites, we
will be purchasing, or otherwise producing or acquiring, audio and video
content. Such content needs to be prepared for delivery via a process known as
encoding. The encoding process is required to prepare the content for streaming,
or broadcasting, over the internet.
We have engaged Kaleidoscope Media Group to research and evaluate appropriate
content on our behalf and anticipate closing rights acquisitions with some media
owners during the 4th Quarters of 1999, and to continue such
acquisitions thereafter. Current industry conditions render it difficult to
secure 'exclusive' rights to numerous classes of content suitable for
broadcasting over the internt. To the extent to which we cannot capture
exclusive broadcast rights, we will be in competition with other websites
attempting to attract audiences by offering some of the same programming.
We also expect to initiate a broadcast enabling, or "StreamStation(TM)"
affiliate program. Like network television broadcasters, we plan to distribute
both proprietary and licensed programming from numerous sources. We plan to
supply other websites with programming we have the rights to distribute. We
expect to begin such syndication during the first half of 2000. We believe such
syndication could provide us with a substantial number of extra distribution
outlets, which may generate increased advertising revenues, and raise our
stature in the industry. Should we encounter difficulties in attracting further
distribution outlets for our programming, our business may be impaired.
We expect that any rise in our industry stature, such as by launching a series
of successful sites, selling business to business services, and supplying third
party sites with programming, will assist us to further market business to
business webcast services, and thereby proportionately increase our revenue. We
expect expenditures to rise in proportion to each phase of our build out. While
we anticipate increased revenues concurrent with the build out, delays in
product development or the institution of marketing programs could result in the
risk of prolonged absence of revenues or profits.
15
<PAGE>
Recent Developments.
We are in the early stages of our transition to an operating Company. During
1999, we have been developing the plans for our Network and Channel design and
structure; identifying staffing requirements and interviewing prospective
employees in sales, marketing, traditional broadcasting, editorial, design, and
technology; devising a media strategy and evaluating media relations firms;
reviewing potential acquisitions in such areas as multimedia production, web
hosting services, and original content generation; and establishing
relationships for studios, bandwidth and broadcast content, as well as
information, news and
data feeds.
We have leased office space in midtown Manhattan. During the 2nd quarter of
1999, we installed fiber optic cable linking us to the largest broadcast signal
switching hub in Manhattan. This hub serves all of the major cable and
television networks in the New York area as well as special venues such as local
sports arenas, convention centers, and the Stock Exchanges. Our facilities have
low-mileage, diverse digital fiber connectivity to multiple broadcast switching
hubs and major metropolitan New York broadcast teleports, connections we believe
will present us with unique broadcast marketing opportunities. This is due, in
part, to our proximity to these key infrastructure elements, as it simplifies
our ability to utilize them, and reduces the costs of doing so.
To assist us as we position to become a leader in the streaming content delivery
industry, and syndication via the internet as well as traditional broadcast
outlets, we recruited two key players in the advancement of the cable industry
to our Board of Directors. Both were elected during 1999. We believe these
Directors, their expertise, and industry contacts will give us an advantage over
our competitors in the acquisition of quality content, as well as in our ability
to distribute live broadcast signals from a variety of sources worldwide.
16
<PAGE>
RESULTS OF OPERATIONS
Our inception date was April 29, 1998, and as such there are no prior
operations. During the period from April 29, 1998 to September 30, 1999, we were
engaged in organizational activities, developing the conceptual framework of the
enterprise, and establishing networking and partnering relationships that needed
to be developed prior to the commencement of operations.
<TABLE>
<CAPTION>
Period from April 29, 1998 April 29, 1998
(date of inception) Nine Months Ended ( date of Inception)
to December 31, 1998(1) June 30, 1999 to September 30 1999
----------------------- ------------- ---------------
<S> <C> <C> <C>
(unaudited) (unaudited)
Operating Data:
Revenues $ - $ - -
-
Cost of Revenues - - -
Gross Profit - - -
Operating Expenses 296,760 1,065,492 1,362,252
---------- -------
Net Loss (296,760) (1,065,492) (1,362,252)
Basic and Diluted Loss
Per Common share (0.10) (0.33) (0.43)
Weighted Average Common
Shares Outstanding 2,922,409 3,256,856 3,097,597
(1) From April 29, 1998 to September 30, 1998 we did not incur any revenues or generated cost.
</TABLE>
We are a development stage enterprise engaged in providing internet-based media
programming and content on the Web. During the period of April 29, 1998 (date of
inception) to September 30, 1999, we were engaged in organizational and
pre-operating activities. These activities included:
Market research efforts,
Initial planning and development of our websites and operations,
Refinement of our broadcast strategy,
Building market awareness,
Planning our network infrastructure,
Developing a network of partners to help carry out our
income-producing activities, and
Securing funding to finance these activities.
Streamedia was originally organized as a limited liability company. In December
1998, the limited liability company was merged into the Streamedia corporate
entity, with the corporate entity continuing as the surviving entity.
Liquidity and Capital Resources.
We have financed capital requirements through the issuance of common stock in
two private placements. As of May 16, 1999, we sold 264,490 shares of common
stock, pursuant to Rule 506 of Regulation D under the Securities Act of 1933, as
amended, and raised aggregate net proceeds of $523,980 from this private
placement. The proceeds of the private placement were used for costs of this
offering, purchase of capital assets such as equipment and domain names.
Additionally, on August 24, 1999, we raised $1,815,000, by issuing, in a Rule
506 private placement, units consisting of Promissory Notes which bear interest
at a rate of 10% per annum and warrants. We do not currently believe that,
during this period, we will be required to raise additional funds to execute our
basic plans for operations. There can be no assurance, however, that we will not
determine that additional financing would be required to further develop and
execute our plans for operation or acquisitions, or that such future additional
financing will be available on terms attractive to us. The proceeds of this
offering, together with the remaining proceeds of our private placements, are
the only sources of capital currently available to us. We expect to make
significant expenditures in sales, marketing, and content acquisition in order
to attract customers to our numerous planned websites. There is no assurance
that our analysis of our capital requirements will be accurate, as we are
positioning in a new business in the midst of a rapidly evolving, yet
burgeoning, market, the potential attractiveness of which will, in our opinion,
draw intense competition. Our future expenditures and capital requirements
will depend on a number of factors including the development and implementation
of next-generation technologies, technological developments on the internet,
potential acquisitions, and the regulatory and competitive environment for
internet based products and services.
Year 2000 Compliance.
As the Year 2000 approaches, industry experts expect issues to arise related to
the programming code in legacy computer systems. The "Year 2000 problem" is
regarded by many as an omnipresent problem, as most if not all computer
operations will be impacted to some extent by the rollover of the two digit year
value to 00. Systems that do not properly recognize such information could
generate erroneous data or cause a system to fail. We have evaluated our current
systems, and we believe that our current hardware and software is Year 2000
compliant. Since we have only purchased hardware and software dating from 1998
forward, and the overwhelming majority of our software and capital expenditures
will occur from 1999 forward, and involve newly-manufactured equipment, which is
routinely designated as Year 2000 compliant, and since we intend to outsource
projects only to high-quality, third party media delivery systems which attest
that they are Year 2000 compliant, we do not anticipate that the Year 2000
problem will have a material impact on our business or operations. However, any
Year 2000 compliance problem of either Streamedia or our users, suppliers,
customers or advertisers could have a material adverse effect on our business,
results of operations, and financial condition.
17
<PAGE>
BUSINESS
In April, 1998, James D. Rupp and Gayle Essary entered into a partnership,
Streamedia Communications, to develop broadcast oriented websites. The
partnership evolved into Streamedia Communications, L.L.C., a New Jersey limited
liability company, in September, 1998, to continue the business plan initiated
by the partnership. Streamedia Communications, L.L.C., was subsequently
reorganized into a Delaware Corporation in December 1998.
We are positioning ourselves as a multimedia content generator, enabler, and
aggregator: we will produce our own content, help others to broadcast theirs,
and provide access to as many sources of internet broadcast programming as we
can. We will divide our business activity among four vertically-integrated
divisions: Streamedia Broadcast, Streamedia Networks, Streamedia Webcast
Technologies, and Streamedia Publishing. We intend to develop each center of
activity around multiple sources of potential revenue.
Each of our sites will feature text, as well as audio and video broadcasts. We
will produce some elements of the programming featured at our sites, and
acquire, license, and/or distribute other elements. Most of our content will be
globally accessible via the internet, and most will be offered at no charge to
end users: our goal is to capture the maximum possible internet audience. To see
and hear our programming, the public will require neither special hardware nor
software beyond that of standard media players, such as those produced by
Microsoft, Inc. and RealNetworks, Inc., and browsers routinely supplied by
computer manufacturers and internet Service Providers.
We will devote considerable efforts and resources to establishing ourselves as a
broadcaster. We will distribute our programming at numerous websites; in
particular, across a suite of proprietary multimedia networks (the "Streamedia
Networks"). The Streamedia Networks(TM) will be a series of websites, each
devoted to a specific category of programming, such as music or news. Visitors
to the Streamedia Networks will experience live and on-demand video and audio
programming in an environment similar to that of cable broadcasts, but offering
greater scope of programming choices, enhanced interactive elements, convenient
access to retail opportunities, and numerous sources of pertinent, supplementary
news and information. Much like cable and network television, we will aggregate
and distribute content in various categories, including finance, lifestyles,
entertainment, comedy, movies, history, music, education, shopping, sports,
news, and children's programming. We believe that by co-venturing with a wide
variety of content partners, including recognized industry leaders, the overall
quality and quantity of streaming content may eventually surpass what any single
internet broadcaster, and even traditional broadcasters, could offer. Our
networks will generate revenues through content syndication, or by sales to
other websites or traditional media such as radio and cable; e-Commerce
relationships; advertising; and Channel licensing fees.
Streamedia Webcast Technologies will provide or arrange for media delivery and
broadcast-enabling solutions to the Streamedia Networks, their Channels, and
other potential clients. This division will be our service bureau. It will
market internet broadcast services, such as hosting and encoding; sell and lease
broadcast equipment; and design studios and broadcast facilities. This division
is responsible for the transmission of broadcast signals from live
events, such as concerts, and for the preparation required to make the broadcast
signals available to an audience on the Web. It will provide interactive
elements and e-commerce solutions to our Networks, and to third parties who hire
us to conceive, develop, and produce their broadcast channels.
Streamedia Publishing will focus on the development of StreamWire(TM), which
will aggregate and deliver leading sources of news and information appropriate
to each Streamedia Network. A music site would, for example, feature music
industry news alongside music broadcasts. StreamWire will also publish news
written by our own editorial staff, as well as distribute press releases and
product announcements, on a fee basis, for other companies. StreamWire will also
develop searchable databases of news and information, covering materials
previously published as well as current materials. StreamWire, when fully
developed, will supplement our broadcast content, and provide complimentary
promotional support for our multimedia networks. We expect the Publishing
Division to provide us with numerous revenue sources, such as advertising,
sponsorships, design services, and fees for information distribution.
We expect to launch StreamWire as a component of the Streamedia Networks, and
subsequently develop these print resources more fully, until they can become
standalone sites. We expect to launch the initial Streamedia Networks in
the 4th Quarter of 1999.
18
<PAGE>
Industry Background
The rise in the raw number of households and users online has been dramatic, and
the trend is expected to continue. The Computer Industry Almanac reports that by
the year 2000, 327 million people will have internet access. Surveys conducted
by Arbitron and Edison Media Research show that audiences listening to radio
broadcasts via the internet doubled during a recent 6-month period. Rapid and
dramatic improvements continue to be made on the hardware, software, and
infrastructure required to support and transmit streaming media. Industry
experts believe that technological advances projected for the future of the
internet, such as widespread multicast capacity and markedly faster connect
rates, will improve the quality of streaming broadcasts.
The media players for the internet that have been developed by Microsoft and
RealNetworks allow for enjoyable experience of streaming video at connect speeds
as low as 28.8 kilobits per second; users, however, are connecting at
significantly faster speeds on an increasingly frequent basis, and enjoying
correspondingly higher quality broadcast reception. The latest versions of the
software can take advantage of higher speed access that is expected to be
provided by xDSL, cable modems and other emerging broadband and multicast
technologies. These players have combined installed bases estimated to be
approaching 100 million users. We have chosen to support both technologies in
order to capture the widest possible audience, since the greater our audience,
the more attractive the Streamedia Networks will be to potential content
partners, advertisers, distribution clients, business services clients, and
station licensees, all of which will promote revenue generating business for all
four primary Corporate divisions.
Traditional broadcasters have limited capacity to measure or identify in real
time their listeners or viewers. Internet broadcasters, however, can provide
highly specific information about a program's audience to content providers and
advertisers. Internet broadcasters have an ability to precisely target
advertising that television and cable broadcasters do not. The internet has
become increasingly accepted as a business tool. This has created economic
opportunities in Web-based advertising and business service offerings, including
audio conferencing, e-Commerce, and video transmission.
We recognize that streaming media on the World Wide Web provides business
opportunities that traditional broadcast media does not. Television, radio, and
cable broadcasters have relative, if not severe, geographic restrictions of
their reach. The internet, by contrast, is a both a local and global medium. It
can penetrate the workplace on a more consistent basis than television or
radios, as the use of radios and televisions is often discouraged or disallowed
at work. Targeted streaming media content can be economically broadcast to a
geographically dispersed audience. Internet users can interact with the
broadcast content by responding to online surveys and voting in polls. They can
easily obtain additional information on subjects related to the programming, and
even click through directly to retailers to purchase merchandise. Among the more
striking advantages of internet versus traditional broadcasting is the power to
shift the schedule of the programming, to experience favorite choices "on
demand," and replay segments or whole programs at will.
The Market
While current industry leaders such as Broadcast.com have been very successful
in attracting large audiences, we believe that current leaders in the industry
have barely scratched the surface of content capable of appealing to niche and
mass audiences alike. Broadcast.com already attracts over 1 million unique users
per day, proving that despite lower levels of quality than traditional broadcast
mediums, internet broadcasters can attract large audiences. Although the number
of radio webcasters on the Internet continues to rise, recent figures published
by the National Association of Broadcasters show that only 2200 of the 12,512
stations broadcast via the internet. Broadcast.com hosts less than one-sixth of
these stations. The Radio Advertising Bureau (RAB) reports that in 1997, radio's
revenue grew to a record $13.6 billion. There were 1587 television stations
licensed as of March 31, 1999. The Television Advertising Bureau (TVB) reported
TV revenue at $44.5 billion in 1997. Only a handful of television stations have
committed to internet broadcasts of their content. Current trends and statistics
indicate audience interest in Web-based programming is growing in such areas as
movies, club shows, tradeshows, concerts, documentaries, education, cartoons,
independent films, reruns, true crime, interactive instructional programming,
literature, auctions, awards shows, fashion shows, political events, health
concerns, scientific advancements, local programming, travel programming, and
hobby videos. However, current industry leaders have made only small inroads to
the development of a catalog of readily available program material. The market,
therefore, remains almost completely open at this time, even as the overall
medium of the internet persists in a rapid escalation in terms of users.
19
<PAGE>
Streamedia's Strategy
We believe that our strategy can vault our networks into a leadership position
in the rapidly developing internet broadcast industry. We will address what we
see as deficiencies in current internet offerings and have devised our products
accordingly. We believe that we can aggregate content; generate comprehensive,
yet focused networks; integrate each network so that all other topical networks
are accessible from any given network; and syndicate the content of the
networks, via licensing agreements, to other sites interested in offering their
users multimedia programming. As a result, we will be able to increase the
number of 'entry' paths to any given network or Channel. We project that traffic
will increase accordingly, and not be tied to visits to any single proprietary
site. We have secured over 300 subject-oriented internet domains for use by our
network and Channel partners, and intend to build out well over 100
Company-owned sites.
Our strategy is to become as pervasive as possible by offering our content at
multiple locations, both company-owned and, like Network Television
broadcasters, to affiliated 'stations.' We expect the tactic to multiply our
points of distribution. At the same time, this will generate opportunities for
greater advertising revenues. We will pursue the sale of programs we produce for
broadcast over the web to traditional media outlets; we will also market
services to help traditional media, such as cable and network television
broadcasters, to distribute their content on the Web.
We hope to benefit from our direct connections to broadcast-quality facilities
in midtown Manhattan. Our facilities are connected to professional television
'live shot' broadcast studios and a video-switching hub, as well as leading
metropolitan area teleports. Unlike other internet broadcasters, we are
connected to the same 'loop' that connects the major network television
broadcasters, cable channels, and prominent metropolitan venues such as the
stock exchanges and sports arenas. By using this loop, these broadcasters are
able to exchange content instantly. We have positioned as a pathway for those
broadcasters and venues to transport their programming for delivery over the
Web. Content generators who partner with us will obtain a new distribution
outlet within a unique, leading-edge multimedia venue. Studies by The Yankee
Group suggest that internet broadcasts are already drawing viewers away from
cable and broadcast networks.
Between the Streamedia Networks, Streamedia Broadcast, Streamedia Webcast
Technologies, and Streamedia Publishing, featuring StreamWire, we believe that
we can earn a reputation as a 'one-stop' enabling shop for media and information
distribution. We intend to develop our own quality programming in numerous
subject areas, as well as partner with recognized industry leaders to
co-develop, feature, or carry their content across and throughout the Streamedia
Networks and authorized remote StreamStations(TM) --third-party websites we
license to distribute our programming. In addition, we intend to aggressively
pursue strategic acquisitions to drive revenue growth and product development,
as well as leverage cross-marketing opportunities.
Streamedia Broadcast and the Streamedia Networks
Through the Streamedia Broadcast and Networks divisions, we intend to create a
unique suite of topical broadcast networks to deliver live and on-demand audio
and video programming over the internet. Additionally, we intend to acquire and
produce content of sufficient interest and quality to market to traditional
broadcasters in the radio, network television and cable industries. Our Network
sites will offer programming in categories such as business, sports, women's
issues, parenting, travel, education, religion, politics, health, teen and
children's interests, shopping, real estate, music, technology, personal
fitness, movies, entertainment, and lifestyles. We have chosen to launch a
financial network as one of our initial offerings, to capitalize on the,
significant revenue-generating opportunities of financial- and
investment-related programming. According to an industry source, the market for
all online business information services was $24.8 billion in 1997 and is
projected to grow to $39.8 billion in 2002. NFO Interactive has found that 5
million Americans invest their money online. Further network launches are
planned for the remainder of 1999 and 2000. We may aggregate content from that
which is developed in house; licensed from other Internet as well as traditional
radio, television, and multimedia content developers; and generated by Channel
and "StreamStation" licensees. The Broadcast and Networks divisions are,
together, expected to generate revenue through sales and syndication of
programming to other websites, as well as to traditional broadcast media, such
as radio and cable, and also develop significant lines of advertising,
e-Commerce, premium distribution, and program sponsorship revenues.
20
<PAGE>
Streamedia Networks
We intend to create our own network sites, as well as numerous Channels, but
license other Channels for development by third parties. We expect the
relationships to be reciprocal on numerous levels. The Networks division could
thereby multiply opportunities for Streamedia Webcast Technologies(TM) to
generate revenue by marketing broadcast services to parties lacking the ability
to create their own broadcasts. We expect to soon uniquely produce continuous,
'live' Channels, which will, in some situations, include actual anchored program
segments, much like television news shows. We intend to offer the following
types of programming. The list is representative, not exhaustive:
New Product Launches Children's shows
Concerts Workout & Training films
Comedy Routines US & International News
Video and Audio Press Releases Talk and call-in shows
"How-to" shows College and Pro Sports
Investor Conferences Interviews
Medical Symposia Quarterly Conference Calls
Auctions Corporate Video Profiles
Analyst and Broker Presentations Infomercials
Documentaries Trade Shows
Women's Interests Celebrity interviews
Sales Training Seminars Awards Ceremonies
Distance Learning Sessions Educational Videos
Full length movies Political Programming
FM radio stations Religious programming
21
<PAGE>
Streamedia Webcast Technologies(TM)
Through Streamedia Webcast Technologies(TM) we will market internet and intranet
broadcasting and interactive technology services and solutions to a wide
spectrum of enterprises, such as, businesses, associations, electronic
publishers, web sites lacking in streaming content, and publishers such as
newspapers, who wish to obtain an internet broadcast presence. Through this
division we will attempt to deliver multimedia and text through a variety of
push, poll, and proprietary subscription mechanisms. We intend to establish
alert and notification systems for end users regarding news and information
items published on our sites as well as on behalf of other distribution clients,
and about upcoming events to be broadcast on our Networks. This division will
provide detailed statistics regarding site audiences to content contributors and
advertisers; integrate 'e-Commerce' or merchandizing programs into Streamedia
Networks and Channels; and construct chatrooms, bulletin boards, and other
interactive elements.
Streamedia Webcast Technologies can provide or arrange for the following
representative types of business services and equipment:
Live Event Webcasting Home Page Integration
On Demand Broadcasts New York or Remote Studios
File Hosting and Serving Event Production and Consultation
Push Technologies Event Transcripts
Synchronized Multimedia Programming Reminders
Event 'Ticketing' & Reservations Media Conversions and Encoding
Film and Sound Crews Mailing List Distributions
Satellite Up and Downlinks Live Chats
Restricted Intranet Broadcasts Broadcast Archival
Feeds To Broadcast Video Hubs Searchable Databases
A/V Equipment On Air Talent
Bulletin Boards and Forums
Web Page Creation
Streamedia Publishing
The focus of the Streamedia Publishing division will be upon our StreamWire(TM)
content. StreamWire shall consist of a series of edited news and information
products, such as wires devoted to Nasdaq or Amex-listed companies, or space
exploration, or medical issues. We intend that each newswire developed by the
Streamedia Publishing division will have its broadcast network correlative.
Print information sources will be featured at the same sites as broadcast media.
In addition, we will produce a series of "webcast guides" and schedules for each
of the Streamedia Networks. These will be similar to the popular "tv guides" in
newspapers and elsewhere. In addition, through StreamWire, we will endeavor to
ramp up our fee-based press release distribution and product announcement wire
services to serve the interests of public companies, government agencies, trade
associations, the entertainment industry, and numerous other areas. StreamWire
may thus aggregate and integrate news and information resources at each network
site to support our network broadcast content and, in so doing, synergize each
network's content offerings. Each site will become more "sticky," and retain
greater numbers of users for longer periods of time-- traits valued by
advertisers.
22
<PAGE>
Emerging and Developing Revenue Opportunities
We believe that the proliferation of broadband, or high speed, and multicast
connectivity technologies and infrastructure will greatly increase end user
demand for streaming multimedia content. It will also improve the quality of
delivery, so that it begins to resemble the familiar television picture. We
expect that, as demand increases, the same revenue sources available to
traditional broadcast media will become increasingly realistic profit centers
for internet broadcasters, aggregators, and syndicators. We are positioning
Streamedia to benefit from any possible growth in traditional sources of
broadcast revenues, such as various forms of advertising, but also from the
unique opportunities presented to it as a member of the internet community, such
as e-commerce relationships with internet retailers of items such as books,
videos, movies, tickets, CD's, gifts, memorabilia, and apparel. We intend to
resell or provide production, encoding, and other broadcast-enabling services to
content generators seeking representation at one or more of the Streamedia
Networks or Channels, as well as to intranets requiring multimedia service
bureaus.
Advertising
In addition to licensing and syndication fees, technology and production
services, premium distribution services, and e-Commerce opportunities, we expect
to derive a significant portion of our revenues from the emerging business of
multimedia advertising. The Web has proven an attractive medium for advertising
because it is interactive, flexible, and precisely quantifiable. Advertisers can
mine user profile data to help them either reach broad audiences with a
'branding' approach or choose to 'target' data to people displaying similar
demographic characteristics or interests. The interactive nature of the Web
enables advertisers to determine customer preferences and profiles, and use this
data to develop commercial relationships with potential customers. Advertisers
can easily change their advertising messages frequently and at relatively low
cost. We intend to engage in the emerging business of creating and marketing
'rich' or multimedia advertising; banner and interstitial advertising; and
network and Channel sponsorships across our suite of networks. We will insert
advertisements at the beginning of audio or video segments, as well as during
shows, much like commercials in traditional broadcast media. Jupiter
Communications projects that online ad spending will rise from $3 billion
in 1999 to almost $8 billion in 2002.
We intend to make increasing use of the Synchronized Multimedia Integration
Language, or SMIL. SMIL offers developers the ability to synchronize text,
images, audio and video over the Web. Each element of a multimedia presentation
can be sewn together using simple HTML-like coding. The results have many
possible applications, such as the creation of streaming graphic 'commercials'
played during streaming audio broadcasts, streaming text advertisements running
in subtitles below a video presentation, or slim banners that can stream below a
video presentation. StreamWire may add the extra dimension of email sponsorships
and text-banners to the Streamedia arsenal of placement offerings.
As traffic to network sites increases, we believe that we may be able to charge
a premium for multimedia ads versus basic banner ads, due to their richer
content, flexible placements, and our ability to charge for focused advertising
related to a specific content Channel. We expect to derive a significant
percentage of our revenue from advertising on our network sites, and by revenue
splits with operators of sites to which we syndicate our content. We will target
traditional advertisers, such as consumer product and service companies,
manufacturers and automobile companies, as well as other internet sites and
products as advertisers on our websites. We expect to derive advertising
revenue principally from short-term advertising contracts on a per impression
basis or for a fixed fee based on a minimum number of impressions. Rich media
ads price higher than graphic and text banners per impression. We will supply
our advertiser clients with statistics detailing impressions, click-through
rates, and other factors, which should allow them to monitor the totals of their
ad playbacks or visual impressions, and thus track their effectiveness.
ADDITIONAL INFORMATION
Streamedia has not previously been subject to the reporting requirements of the
Securities Exchange Act of 1934, as amended. Streamedia has filed with the
Securities and Exchange Commission (the "Commission") a Registration Statement
on Form SB-2 under the Securities Act with respect to the units offered. This
prospectus does not contain all of the information, exhibits, and schedules
contained in the Registration Statement. For further information about
Streamedia and the units, you should read the Registration Statement. Statements
made in this prospectus regarding the contents of any contract or document filed
as an exhibit to the Registration Statement are not necessarily complete.
Therefore, you should read the Registration Statement. Each such statement is
qualified in its entirety by such reference. The Registration Statement, the
exhibits, and the schedules filed with the Commission may be inspected, without
charge, at the Commission's public reference facilities. These facilities are
located at:
Room 1024, Judiciary Plaza, 450 Fifth Street, NW, Washington, D.C.
20549: Northwestern Atrium Center, 500 West Madison Street, Room 1400,
Chicago, Illinois 60661;
and Suite 1300, Seven World Trade Center, New York, New York 10048.
Copies of the materials may also be obtained at prescribed rates by writing to
the Commission, Public Reference Section, 450 Fifth Street, NW, Washington, D.C.
20549. The Commission maintains a Web site that contains reports, proxy and
information statements and other information regarding issuers that file
electronically with the Commission at http://www.sec.gov.
As a result of this offering, Streamedia will become subject to the reporting
requirements of the Exchange Act. Therefore, we will file periodic reports,
proxy statements, and other information with the Commission. Following the end
of each calendar year, we will furnish our shareholders with annual reports
containing audited financial statements certified by independent public
accountants and proxy statements. For the first three-quarters of each calendar
year, we will provide quarterly reports containing unaudited consolidated
financial information.
Streamedia has applied for listing of the units on The Nasdaq SmallCap Market
and the Boston Stock Exchange. We cannot assure that our shares will be accepted
for listing on The Nasdaq SmallCap Market.
23
<PAGE>
MANAGEMENT
Directors and Executive Officers.
Our directors and executive officers as of September 22, 1999 are identified
below:
Name Age Position
<TABLE>
<S> <C> <C>
James D. Rupp 38 President, Chief Executive Officer & Director
Gayle Essary 59 Vice President & Director
Nicholas Malino 49 Executive Vice President, Chief Operating
Officer, Chief Financial Officer & Director
Walter Hollenberg 54 Vice President of Technology
Henry Siegel 56 Director
Robert Wussler 60 Director
David Simonetti 30 Director
</TABLE>
Our directors are elected at each annual meeting of shareholders. The officers
are elected annually by the Board of Directors. Officers and directors hold
office until their respective successors are elected and qualified or until
their earlier resignation or removal.
James D. Rupp is one of the founders of Streamedia and has served as Chief
Executive Officer, President and Director since Streamedia's inception. From
July 1997 to September 1998, Mr. Rupp served as President, Chairman and Chief
Executive Officer of Capital Markets Communications Corporation, an editor and
publisher of a series of electronic newsletters, including StreetSignals(TM),
TradeSignals(TM), PowerSignals(TM), AmexWire(TM), and the Waaco Kid's Forum(TM).
Mr. Rupp continues as Capital Markets' Chairman. Mr. Rupp organized
Web2Ventures, L.L.C., a company formed in February, 1998 to incubate,
capitalize, and invest in emerging internet firms. Since its inception, Mr. Rupp
has served as the Manager of Web2Ventures. From 1990 to 1996, Mr. Rupp served as
General Manager of a restaurant management concern in New York City. Mr. Rupp
holds a Bachelor of Arts degree from the State University of New York at
Binghamton and has pursued graduate studies in information sciences and
literature at the Universities of Delaware and Maryland.
Gayle Essary is one of the founders of Streamedia and has served as Chairman of
the Board of Directors and Vice President-Strategic Development since its
inception. From September 1996 to the present, Mr. Essary has served as Chairman
of the Board of Directors of IRI, Inc. a publicly-held company in the investment
data and information industry. He has also served as IRI's Chief Executive
Officer from July 1997 to the present. From 1995 to 1997, Mr. Essary was founder
and publisher of StreetLevel, the Waaco Kid's Forum newsletters, and other
electronic products which have since merged into Capital Markets Communications
Corporation. From 1988 to 1997, Mr. Essary was a Principal of New York
Management Group, which provided consulting and support services to various
firms and organizations, including The Thomson Corporation. From 1981 to 1988,
Mr. Essary was Managing Director of the Media Financial Group and The Media
Center, both companies engaged in consulting for media properties. From 1973 to
1980, Mr. Essary was President of ESCO Publishing Co., Inc., and Huthig-ESCO
Publishing, Inc., which published two international dental business magazines,
one of which led its field in distribution and advertising revenues. Mr. Essary
studied journalism at The University of Texas.
Nicholas Malino has served as Streamedia's Chief Financial Officer since
November of 1998 and as Executive Vice President and Chief Operating Officer
since August of 1999. Previously, he served as President and Chief Executive
Officer of ATC Group Services, Inc., a $160 million national business services
firm, providing specialized technical and project management services to Fortune
500 companies and federal, state, and local government agencies. During his
tenure, he completed 16 acquisitions, ranging in size from $1 million to $85
million in gross revenues, during which time the company achieved the second
highest price/earnings ratio in its sector. ATC Group Services also led its
sector in profitability for 12 consecutive quarters. Mr. Malino has both a
Masters of Business Administration degree in Finance, and Master and Bachelor of
Science degree in Biology from the University of Bridgeport.
Walter C. Hollenberg has served as Streamedia's Vice President of Technology
since July 1999. From 1987-97, Dr. Hollenberg, as Senior Manager for New
Business Development at AT&T, built one of the very first experimental
interactive TV networks. From 1997-98, Dr. Hollenberg was Director of New
Business Development at Sarnoff Corporation where he focused on high definition
television, multimedia, and compression technologies. Prior to 1987, Dr.
Hollenberg was an independent consultant in the relational database area, a
technology and product planning manager for On-Line Systems, Inc., and a Series
7 NASD registered investment banking associate with Parker/Hunter, Inc.Dr.
Hollenberg holds a Ph.D. in Physics from Cornell University, an M.B.A. from
Carnegie Mellon University, a B.S. in Physics from the University of Minnesota,
and also spent two years as a Post Doctoral Associate at the Lehrstuhl fur
Experiental Physik, Universitat Dormund, Germany.
Henry Siegel has served as a Director of Streamedia since February of 1999. From
1995 to the present, Mr. Siegel has been the Chairman and Chief Executive
Officer of Kaleidoscope Media Group, a publicly-held company. Kaleidescope is a
worldwide distributor of television and home video programming including the
ESPY Awards Show. Mr. Siegel began his career at Grey Advertising and in 1974 he
was placed in charge of its media operation, managing all areas of media
planning, research and execution. In 1976, Mr. Siegel founded Lexington
Broadcasting Services (LBS), where he pioneered the concept of barter
syndication (advertiser-supported television). As Chairman and Chief Executive
Officer of LBS, Mr. Siegel developed numerous successful television series,
including Fame and Baywatch. Mr. Siegel has been named by Advertising Age
Magazine as one of the pioneers of the first 50 years of television.
Robert J. Wussler has served as a Director of Streamedia since February of 1999.
Mr. Wussler is the Chairman of the Board of Directors of US Digital
Communications, Inc., a publicly-held company. From 1992, to the present he has
served as the President and Chief Executive Officer of the Wussler Group, a
media consulting firm. From 1994 to the present, Mr. Wussler has served as the
President and Chief Executive Officer of Affiliate Enterprises, Inc., a company
formed by ABC Television affiliates to pursue new business opportunities,
including emerging technology applications. From 1989 to 1992, Mr. Wussler was
the President and CEO of COMSAT Video Enterprises, a major supplier of satellite
entertainment to the nation's lodging industry. Between 1980 and 1989, Mr.
Wussler served as Senior Vice President, Corporate Executive Vice President, and
President of Turner Broadcasting's Superstation, WTBS. During his 10 years at
Turner, Mr. Wussler co-founded and organized CNN, Headline News, and became a
key player in the development of WTBS and the formation of TNT. Prior to joining
Turner, Mr. Wussler served as President of CBS Sports and the CBS Television
Network. Mr. Wussler is a past Chairman of the National Academy of Television
Arts and Sciences, and recipient of five Emmy Awards. Mr. Wussler also serves on
the Board of Directors of Ednet, Inc., a publicly held company which develops
and markets integrated digital communications systems for the entertainment
industry, and the Board of Directors of The Cousteau Society.
24
<PAGE>
David J. Simonetti has served as a Director of Streamedia since September of
1998. Since October of 1998, Mr. Simonett has served as Co-Chairman and Chief
Executive Officer of VentureNow, Inc., a private venture capital concern. From
August 1997 to December 1998, Mr. Simonetti was Chief Executive Officer of
Invoke Distribution, L.L.C., a marketing and advertising company. From February
1997 to October 1998, Mr. Simonetti was Chief Executive Officer of Projix
Corporation, an Internet software company. From October 1994 through February
1997, Mr. Simonetti served as Vice President and Chief Operating Officer of
Edmar, Inc., a construction management company. Mr. Simonetti also serves on the
Board of Directors of NuOncology Labs, Inc., a publicly-held company. Mr.
Simonetti holds a Bachelor of Arts degree from Marlboro College, in Marlboro
Vermont.
Board Committees.
We currently have two committees appointed by the Board of Directors: a
compensation committee and an audit committee. The audit committee is currently
comprised of Mr. Siegel, Mr. Simonetti and Mr. Malino. The Compensation
committee is currently comprised of Mr. Wussler, Mr. Simonetti and Mr. Essary.
Outside Directors.
We will nominate for election one director who is not an officer, employee, or
5% shareholder upon conclusion of the offering as designated by the
representative of the underwriters. We may also appoint advisors to the Board of
Directors from time to time.
Compensation of Directors.
Directors who are also employees will not receive any remuneration in their
capacity as directors. Outside directors will be paid $1,000 monthly plus travel
expense reimbursements and $500 per meeting attended.
Executive Compensation.
The following table sets forth the current compensation paid to each of our
executive officers for the period April 29, 1998 (date of inception), to
December 31, 1998.
Summary Compensation Table
<TABLE>
<S> <C> <C> <C> <C>
Name and Annual Compensation All Other
-----------------------------------
Principal Fiscal Salary Bonus Compensation
Position Year
- ----------------------- ----------- --------------------
------ ----------- - --------------
James D. Rupp - 1998 -- -- --
President & CEO
- ----------------------- ------ ----------- -------------- --------------------
Gayle Essary - Vice 1998 -- -- --
President
- ----------------------- ------ ----------- -------------- --------------------
Nicholas Malino - 1998 -- -- --
Executive V.P., CFO,
COO
- ----------------------- ------ ----------- -------------- --------------------
Walter Hollenberg- 1998 -- -- --
Vice President
- ----------------------- ------ ----------- -------------- --------------------
</TABLE>
Employment Agreements.
On September 9, 1999, we entered into employment agreements with James Rupp,
Nicholas Malino, and Gayle Essary. Mr. Rupp, Mr. Malino, and Mr. Essary were
first compensated for their work at Streamedia in January of 1999. Mr. Rupp's
current salary under his employment agreement is $180,000 per annum. Mr. Malino
currently receives $180,000 per annum plus a $40,000 per annum housing allowance
to cover the costs associated with his having to maintain a residence in New
York City. On June 23, 1999, we entered into an employment agreement with Walter
Hollenberg. Dr. Hollenberg was first compensated for his work with us on July 6,
1999, and his current salary is $90,000. In addition, each executive officer
receives a non accountable expense account of $250 per month, and receives
reimbursement from the Company for the costs associated with retention of
outside financial consultants. Each executive is eligible to participate in
executive bonus programs and incentive stock option plans when they are
developed. Each executive is also eligible for health care and other benefits in
the same manner in which they are available to all employees.
Stock Compensation Plan.
In June of 1999, the Board of Directors adopted the "Streamedia Communications,
Inc., 1999 Qualified and Nonstatutory Stock Option Plan." The Board of Directors
reserved 500,000 shares of the Company's common stock to be issued in the form
of incentive and/or non-qualified stock options for employees, directors and
consultants to the Company. As of September 30, 1999, Streamedia has issued
328,000 of the options in the plan. This includes 25,000 non-qualified options
issued to an advisor of the Board of Directors. The remaining options have been
issued to officers and directors of Streamedia.
25
<PAGE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
During 1998 and 1999, and since the inception of Streamedia, certain e-mail
distribution systems owned and/or administered by one or both of two of our
major shareholders, IRI, Inc., and Capital Markets Communications
Corporation, were provided to us for our StreamWire division and its
predecessor. We currently does not anticipate using these e-mail
distribution systems.
During 1998, we issued 25,000 shares of common stock to our legal counsel, Kogan
& Taubman, L.L.C., as partial consideration for services to be rendered in
connection with this offering. We have no current commitments to issue
additional securities to Kogan & Taubman, L.L.C. at this time.
We have engaged Kaleidoscope Media Group to help us acquire programming content
for our sites and to develop a syndication strategy. Kaleidoscope Media Group's,
CEO, Henry Siegel, is currently a member of our Board of Directors. In
consideration of Kaleidoscope Media Group's providing of these services, on
August 2, 1999, we paid Kaleidoscope Media Group $10,000. Starting in October of
1999 and through July of 2000 we will pay them $2,000 per month for their
services.
As an inducement to join us after our initial development phase, and in
consideration of his considerable expertise in financing and public offerings,
we agreed to pay Nicholas Malino a $100,000 bonus upon the completion of our
initial public offering.
Each of the above transactions were on terms as favorable to Streamedia as those
generally available from unaffiliated third parties. Each of the above
transactions was ratified by a majority of our independent directors who did not
have an interest in the transaction and who had access, at our expense, to our
legal counsel or independent legal counsel. The issuance of the 25,000 shares to
Kogan & Taubman, LLC and the transactions between Capital Markets Communications
Corporation, IRI, Inc. and Streamedia were entered into when there were less
than two disinterested independent directors; therefore, we lacked sufficient
disinterested independent directors to ratify these transaction at the time the
transactions were initiated.
All future transactions between us and our officers, directors or 5%
shareholders, and their respective affiliates, will be on terms no less
favorable than could be obtained from unaffiliated third parties and will be
approved by a majority of our independent, disinterested directors.
26
<PAGE>
PRIOR OFFERINGS
On May 16, 1999, we sold 264,490 shares of common stock at $2.00 per share
pursuant to Rule 506 of Regulation D promulgated under the Securities Act of
1933, as amended. The common stock was offered to a discreet group of accredited
investors without the benefit of general solicitation or advertising. We raised
$523,980 from this private placement in order to provide bridge financing for
this offering.
On August 24, 1999, we issued $1,815,000 of debt securities in the form of
promissory notes which bear interest at a rate of 10% per annum. The notes were
offered pursuant to Rule 506 of Regulation D only to accredited investors, with
no general solicitation or advertising. The notes were offered as a unit, each
unit consisting of a promissory note in the principal amount of $15,000 and a
warrant entitling the holder to purchase 9,000 shares of our common stock at a
price per share equal to the price per share of common stock offered to the
public pursuant to our initial public offering. The warrants will be exercisable
during the period beginning on the first anniversary of the closing of the IPO
and ending on the date five years following the date that the warrants were
issued. The holders of the warrants will have certain "piggyback" registration
rights with respect to the shares underlying the warrants. Specifically, the
holders will be entitled to include their shares if the Company files a
registration statement with Commission during the period beginning one year from
the closing of the IPO and ending two years after the closing of the IPO.
In addition, we have issued securities to officers, directors, and consultants
as compensation for services rendered to us.
27
<PAGE>
PRINCIPAL SHAREHOLDERS
The following table identifies the beneficial ownership of the common stock as
of September 30, 1999 by:
Each of our directors,
Each of our executive officers,
and all directors and executive officers as a group.
Unless discussed below, each beneficial owner has sole investment and voting
power for the shares beneficially owned.
<TABLE>
<CAPTION>
Shares Owned
------------------------------------------------------------------------
Prior to Offering After Offering
--------------------------------- --- ----------------------------------
Name and Address of Owner Number Percent Number Percent
- ------------------------------------ --------------- -------------- ---------------- -------------
<S> <C> <C> <C> <C>
James D. Rupp 1,155,000 35.05% 1,155,000 26.89%
200 Walter Avenue
Hasbrouck Heights, NJ 07604
Gayle Essary 1,427,500 43.32% 1,427,500 33.23%
5605 Woodview
Austin, Texas 78756
Capital Markets Communications, 300,000 9.10 % 300,000 6.98%
Corporation
287-101 Kinderkamack Road #190
Oradell, NJ 07649
Nicholas Malino 150,000 4.55% 150,000 3.49%
250 W. 90th Street, # PH2A
New York, NY 10024
Walter C. Hollenberg 0 - 0 -
32 Parkview Drive
Milburn, NJ 07041
David Simonetti 75,000 2.28% 75,000 1.75%
1845 Mintwood Place, # 104
Washington, DC 20009
Henry Siegel 0 - 0 0
205 West 57th Street
New York, NY 10019
Robert Wussler 0 - 0 -
7904 Sandalfoot Drive
Potomac, MD 20854
--------------- -------------- ---------------- -------------
--------------- -------------- ---------------- -------------
All Executive Officers and 3,107,500 94.3% 3,107,500 72.34%
Directors as a group (6 persons)
--------------- -------------- ---------------- -------------
</TABLE>
The shares set forth on this chart do not include (i) the 1,089,000 shares
issuable upon the exercise of the warrants included in the units which were sold
on August 24, 1999, private placement; (ii) the 1,000,000 shares issuable upon
the exercise of the warrants included in the units to be sold in this offering
which will be outstanding upon completion of the offering, (iii) the 300,000
shares to be issued upon exercise of the underwriters' over-allotment option,
and the warrants thereunder, (iv) the 200,000 shares to be issued upon exercise
of the underwriters' warrants, and the warrants thereunder, and (v) the options
issued under the 1999 stock option plan.
Certain of the shares listed above are owned indirectly by entities
substantially controlled by principal shareholders of Streamedia. Of the total
shares owned by Mr. Rupp, 1,050,000 shares are owned through his 100% ownership
in Web2Ventures, L.L.C., and 105,000 shares are owned through his 35% ownership
interest of Web2Ventures, L.L.C., in Capital Markets Communications Corporation.
Of the total shares owned by Mr. Essary, he owns 590,000 shares directly, and
has been given voting power over 360,000 shares owned by IRI, Inc., by the Board
of Directors of IRI, Inc. The remaining shares are held in family trusts or by
members of Mr. Essary's immediate family. Mr. Essary does not exercise direct
control over such shares. Capital Markets Communications Corporation is
controlled by Mr. Rupp and Mr. Essary. Mr. Simonetti's shares are owned through
Projix Corporation, a company of which Mr. Simonetti is the 90% owner.
In addition, certain officers and directors have been granted the right to
acquire additional shares and have been issued options pursuant to the 1999
stock option plan. Mr. Malino has the right to earn an additional 45,000 shares
upon the achievement of certain business objectives to be determined by the
compensation committee of the Board of Directors. In August 1999 Mr. Malino was
issued 63,000 stock options. Dr. Hollenberg was issued 150,000 stock options of
which 37,500 shares have vested. Mr. Simonetti was issued 10,000 options, all of
which have vested. Mr. Siegel has the right to acquire 40,000 stock options and
Mr. Wussler has the right to acquire 40,000 stock options. None of these options
are represented on the previous principal shareholder chart.
28
<PAGE>
DESCRIPTION OF SECURITIES
Units.
Each unit consisting of one share of common stock and one warrant, each warrant
entitles the holder to purchase one share of common stock at a price of $12.75
until _____ 2004. The shares and the warrants included in the units will
automatically separate 30 days from the date of this prospectus, after which the
common stock and warrants in the units will trade separately.
Common Stock.
We are authorized to issue 20,000,000 shares of common stock, $0.001 par value.
As of September 30, 1999, there were 3,295,490 shares of common stock issued and
held by forty-nine holders of record. Shareholders are entitled to share ratably
in any dividends paid on the common stock when, as and if declared by the Board
of Directors. Each share of common stock is entitled to one vote. Cumulative
voting is denied. There are no preemptive or redemption rights available to
holders of common stock. Upon liquidation, dissolution or winding up of
Streamedia, the holders of common stock are entitled to share ratably in the net
assets legally available for distribution. All outstanding shares of common
stock and the units (and shares underlying these units) to be issued in this
offering will be fully paid and non-assessable.
Warrants to be issued pursuant to this offering.
The warrants to be issued in this offering will be issued under, governed by,
and subject to the terms of a Warrant Agreement between Streamedia and the
American Securities Transfer & Trust, Inc., as warrant agent. The following
statements are brief summaries of certain provisions of the Warrant Agreement.
Copies of the Warrant Agreement may be obtained from Streamedia or the warrant
agent and have been filed with the Commission as an exhibit to the Registration
Statement of which this prospectus is a part.
The warrants included in the units will be exercisable commencing 12 months
after the offering. The warrants contain provisions that protect the warrant
holders against dilution by adjustment of the exercise price in certain events,
including but not limited to stock dividends, stock splits, reclassification or
mergers. A warrant holder will not possess any rights as a shareholder of
Streamedia. Shares of common stock, when issued upon the exercise of the
warrants, will be fully paid and non-assessable.
Commencing 12 months after the date of this prospectus, we may redeem some or
all of the warrants at a call price of $0.05 per warrant, upon thirty (30) days
prior written notice if the closing sale price of the common stock on The Nasdaq
SmallCap Market has equaled or exceeded (150% of the offering price)
per share for ten (10)consecutive days.
The warrants may be exercised only if a current prospectus relating to the
underlying common stock is then in effect and only if the shares are qualified
for sale or exempt from registration under the securities laws of the state or
states in which the purchaser resides. So long as the warrants are outstanding,
we have undertaken to file all post-effective amendments to the Registration
Statement required to be filed under the Securities Act, and to take appropriate
action under federal law and the securities laws of those states were the
warrants were initially offered to permit us to issue, and you to resell the
common stock issuable upon exercise of the warrants. However, there can be no
assurance that we will be in a position to effect such action, and our failure
to do so may cause the exercise of the warrants and the resale or other
disposition of the common stock issued upon such exercise to become unlawful. We
may amend the terms of the warrants, but only by extending the termination date
or lowering the exercise price of the warrants. We have no present intention of
amending such terms. However, there can be no assurance we will not have an
intention in the future to amend the warrant terms.
Preferred Stock.
The Board of Directors, without further action by the shareholders, is
authorized to issue up to 100,000 shares of preferred stock, $0.001 par value.
The preferred shares may be issued in one or more series. The terms as to any
series, as relates to any and all of the relative rights and preferences of
shares, including without limitation, preferences, limitations or relative
rights with respect to redemption rights, conversion rights, voting rights,
dividend rights and preferences on liquidation will be determined by the Board
of Directors. The issuance of preferred stock with voting and conversion rights
could have an adverse affect on the voting power of the holders of the common
stock. The issuance of preferred stock could also decrease the amount of
earnings and assets available for distribution to holders of the common stock.
In addition, the issuance of preferred stock may have the effect of delaying,
deferring or preventing a change in control. We have no plans or commitments to
issue any shares of preferred stock. We will issue preferred stock only upon
approval by a majority of our independent directors who do not have an interest
in the transaction and who have access, at our expense, to our legal counsel or
independent legal counsel.
Transfer Agent and Registrar.
The Transfer Agent and Registrar for the common stock will be American
Securities Transfer & Trust, Inc., 1825 Lawrence Street, Suite 444, Denver,
Colorado 80202.
29
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this offering, we will have 4,295,490 shares of common stock
outstanding. If the underwriters' over allotment option is exercised in full,
5,445,490 shares of common stock will be outstanding. Of these shares, the
1,000,000 shares sold in this offering or 1,150,000 shares if the over-allotment
option is exercised in full, will be freely tradeable in the market without
restriction under the Securities Act, by persons other than "affiliates" of
Streamedia (as that term is defined in the Securities Act of 1933). The
remaining 3,295,490 shares will be "restricted securities" within the meaning of
the Securities Act. Restricted securities cannot be publicly sold unless
registered under the Securities Act or sold in accordance with an exemption from
registration, such as that provided by Rule 144 under the Securities Act. In
general, under Rule 144, as currently in effect, a person (or persons whose
shares are aggregated) is entitled to sell restricted securities if at least one
year has passed since the later of the date such shares were acquired from
Streamedia or any affiliate of Streamedia. Rule 144 provides, however, that
within any three-month period such person may only sell up to the greater of 1%
of the then outstanding shares of common stock or the average weekly trading
volume during the four calendar weeks immediately preceding the date on which
the notice of the sale is filed with the Commission. Sales pursuant to Rule 144
also are subject to certain other requirements relating to manner of sale,
notice of sale and availability of current public information. Anyone who has
not been an affiliate for a period of at least 90 days is entitled to sell
restricted securities under Rule 144 without regard to the limitations if at
least two years have passed since the date such shares were acquired from us or
any of our affiliates. Any affiliate is subject to such volume limitations
regardless of how long the shares have been owned or how they were acquired.
After this offering, the executive officers and directors will own 3,107,500
shares of the common stock, which will represent 72.34% of the total shares
outstanding. Our officers, directors and certain shareholders directors will
enter into an agreement with the underwriters agreeing not to sell or otherwise
dispose of any shares for one year after the date of this prospectus without the
prior written consent of the underwriters.
We cannot predict the effect, if any, that offer or
sale of these shares would have on the market price. Nevertheless, sales of
significant amounts of restricted securities in the public markets could
adversely affect the fair market price of the shares, as well as impair our
ability to raise capital through the issuance of additional equity shares.
30
<PAGE>
PLAN OF DISTRIBUTION
Underwriters.
Under the terms and conditions of the Underwriting Agreement, we have agreed to
sell to the underwriters named below, and each of the underwriters, for whom
Institutional Equity Corporation and Capital West Securities, Inc. is acting as
the "representatives", have agreed to purchase the number of units set forth
opposite its name in the following table.
Underwriters Number of Units
Institutional Equity Corporation 500,000
Capital West Securities, Inc. 500,000
================================
Total 1,000,000
================================
The underwriters have advised us that they propose to offer the units to the
public at the initial public offering price per unit set forth on the cover page
of this prospectus and to certain dealers at such price less a concession of not
more than $___ per unit. These dealers may re-allow $____ to other dealers. The
representatives will not reduce the public offering price, concession and
re-allowance to dealers until after the offering is completed. Regardless of any
reduction, Streamedia will receive the amount of proceeds set forth on the cover
page of this prospectus.
Streamedia and certain selling shareholders have granted to underwriters an
option, exercisable during the 45-day period after the date of this prospectus,
to purchase up to 150,000 additional units to cover over-allotments, if any. The
option purchase price is the same price per unit we will receive for the
1,000,000 units that the underwriters have agreed to purchase. If the
underwriters exercise the over-allotment option in full, the selling
shareholders will sell 19,735 shares of common stock to the underwriters. None
of the selling shareholders are officers, directors or affiliates of Streamedia.
If the underwriters exercise such option, each of the underwriters will purchase
its pro-rata portion of such additional units. The underwriters will sell the
additional units on the same terms as those on which the 1,000,000 units are
being sold.
<TABLE>
<CAPTION>
Selling Shareholders
Shares Owned
Prior to Offering After Offering
Name of Selling Shareholder Number Class of Amount Offered Percent
Stock Owned After
<S> <C> <C> <C> <C>
Offering
Mark Edward Futrovsky 3,750 Common 441 0.07%
Kevin T. Clare 12,500 Common 1,465 0.25%
Glenn B. Axelrod 2,500 Common 295 0.05%
Kundrat Corp. 5,000 Common 587 0.1%
Thomas Kundrat 5,000 Common 587 0.1%
James David Wideman 2,500 Common 295 0.05%
Michael Fleischman 2,500 Common 295 0.05%
Jay Cho 5,000 Common 588 0.1%
Harold Kim 10,000 Common 1,173 0.2%
Michael Marks 12,500 Common 1,465 0.25%
Charles Marmelstein 3,500 Common 412 0.07%
Malcolm Labell 5,000 Common 588 0.1%
Sovereign Services, Ltd 53,740 Common 6,145 1.07%
Richard Honig 2,500 Common 295 0.05%
Gary Schmitt 6,000 Common 705 0.12%
Scott Hunter 5,000 Common 588 0.1%
Global Mann Marketing 7,500 Common 878 0.15%
Ranjit Kripalani 12,500 Common 1,465 0.25%
Stock Exposure, Inc. 10,000 Common 1,173 0.2%
Linda Essary 2,500 Common 295 0.05%
</TABLE>
With the Exception of Linda Essary, the former spouse of Gayle Essary, our
Chairman of the Board, none of the selling shareholders on the above chart have
held any position, office, or has had a material relationship with the Company,
its affiliates, or its predecessors within the past three years.
The underwriters can only offer the units through licensed securities dealers in
the United States who are members of the National Association of Securities
Dealers, Inc., and may allow the dealers any portion of its ten (10%) percent
commission.
The underwriters will not confirm sales to any discretionary accounts without
the prior written consent of their customers.
Under the terms of the Underwriting Agreement, the holders of the 3,107,500
shares of common stock, (the officers and directors of Streamedia), have
agreed that, for one year after the date of this prospectus and subject to
certain limited exceptions, without the prior written consent of the
representative, they will not sell, contract to sell, or otherwise dispose of
any shares, any options to purchase shares, or any securities convertible into,
exercisable for, or exchangeable for shares.
Substantially all of such shares would be eligible for immediate public sale
following expiration of the lock-up periods, and subject to the provisions of
Rule 144.
We have agreed to pay the representatives a non-accountable expense allowance of
2% of the gross amount of the units sold at the closing of the offering. This
expense allowance will total $170,000 based on the sale of the units offered.
The representatives will pay the underwriters' expenses in excess of the 2%
allowance. If the expenses of underwriting are less than the 2% allowance, the
excess shall be additional compensation to the underwriters. If this offering is
terminated before its successful completion, we will be obligated to pay the
resentatives for the accountable out-of-pocket expenses incurred by the
underwriters in connection with this offering. In addition to the
non-accountable expense allowance, management estimates that we will incur other
costs of approximately $200,000 for legal, accounting, listing, printing and
filing fees.
We have agreed that, for a period of five years from the closing of the sale of
the units, we will nominate for election as a director a person designated by
the representative. If the representatives have not exercised that right, the
representative shall have the right to designate an observer, who shall be
entitled to attend all meetings of the Board and receive all correspondence and
communications sent by us to the members of the Board. The representative has
not yet identified the person who is to be nominated for election as a director
or designated as an observer.
31
<PAGE>
The Underwriting Agreement provides for indemnification among
Streamedia and the underwriters against certain civil liabilities, including
liabilities under the Securities Act. In addition, the underwriters' warrants
provide for indemnification among Streamedia and the holders of the
underwriters' warrants and underlying shares against certain civil liabilities,
including liabilities under the Securities Act and the Exchange Act.
We have been advised that it is the position of the Securities and Exchange
Commission that insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and controlling
persons of Streamedia pursuant to the foregoing provisions, or otherwise, such
indemnification is against public policy as expressed in the Securities Act and
is therefore unenforceable.
Underwriters' Warrants.
Upon the closing of this offering, we have agreed to sell to the underwriters
for nominal consideration, underwriters' warrants to purchase up to 100,000
units. The underwriters' warrants are exercisable at 135%of the public offering
price for a four-year period starting one year from the effective date of this
offering. The underwriters' warrants may not be sold, transferred, assigned or
hypothecated for a period of one year from the date of this offering except to
the officers of the underwriters and their successors and dealers participating
in the offering and/or their partners or officers. The underwriters' warrants
will contain anti-dilution provisions providing for appropriate adjustment of
the number of shares subject to the warrants under certain circumstances. The
holders of the underwriters' warrants have no voting, dividend or other rights
as shareholders of Streamedia with respect to shares underlying the
underwriters' warrants until the underwriters' warrants have been exercised.
For four years from the one year anniversary of this offering, we have agreed to
give advance notice to the holders of the underwriters' warrants or underlying
shares of our intention to file a registration statement, other than in
connection with employee stock options, mergers, or acquisitions. The holders of
the underwriters' warrants and underlying shares shall have the right to require
us, subject to certain conditions to include their shares in such registration
statement at our expense.
For the term of the underwriters' warrants, the holders of the warrants will be
given the opportunity to profit from a rise in the market value of the shares,
with a resulting dilution in the interest of other shareholders. The holders of
the underwriters' warrants can be expected to exercise the underwriters'
warrants at a time when we would, in all likelihood, be able to obtain needed
capital by an offering of its unissued shares on terms more favorable than those
provided by the underwriters' warrants. This could adversely affect the terms on
which we could obtain additional financing. Any profit realized by the
underwriters on the sale of the underwriters' warrants or shares issuable upon
exercise of the underwriters' warrants will be additional underwriting
compensation.
Determination of Offering Price.
The initial public offering price was determined by negotiations between the
representative and Streamedia. The factors considered in determining the public
offering price include:
The industry in which we operate,
Our business potential and earning prospects,
and The general condition of the securities markets at the time of
the offering.
The offering price does not bear any relationship to our assets, book value, net
worth or other recognized objective criteria of value.
Prior to this offering, there was no public market for the units, and we cannot
assure that an active market will develop.
CERTAIN PERSONS PARTICIPATING IN THE OFFERING MAY ENGAGE IN TRANSACTIONS THAT
STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE UNITS, INCLUDING
OVER-ALLOTMENT, ENTERING STABILIZATION BIDS, EFFECTING SYNDICATE COVERING
TRANSACTIONS, AND IMPOSING PENALTY BIDS.
IN CONNECTION WITH THIS OFFERING, CERTAIN UNDERWRITERS MAY ENGAGE IN PASSIVE
MARKET MAKING TRANSACTIONS IN THE UNITS ON THE NASDAQ SMALLCAP MARKET IN
ACCORDANCE WITH RULE 103 OF REGULATION M.
Nasdaq SmallCap Market.
We have been approved for listing of the units, common stock, and warrants on
The Nasdaq SmallCap Market under the trading symbol "SMILU," "SMIL" and "SMILW,"
respectively.
LEGAL MATTERS
Kogan & Taubman, L.L.C., New York, New York, will pass on the validity of the
issuance of the shares. Winstead Sechrest & Minick P.C., Dallas, Texas, will
pass on certain legal matters for the underwriters in connection with the sale
of the shares.
EXPERTS
Our financial statements as of December 31,1998 and for the period from April
29, 1998 (date of inception) to December 31, 1998, included in this prospectus
have been included in reliance on the report of Grant Thornton LLP, independent
certified public accountants, given on the authority of Grant Thornton LLP as
experts in auditing and accounting.
32
<PAGE>
GLOSSARY
<TABLE>
<S> <C>
Bandwidth The measure of transmission capacity through wires and
cables, over fiber optic lines, or via satellite. The
general rule of thumb is that as bandwidth is increased,
data can be transferred quicker. Streaming media is
bandwidth-intensive; its quality improves when users
connect at higher speeds - that is, via higher bandwidth
connections.
Broadband A type of data transmission in which a single medium
(such as a wire) can carry several Channels at once.
Cable TV is a broadband transmission.
Broadcast A method of transmission of audio, video, or other
formats of information. Specifically, "broadcast" refers
to a mode within which one source sends the same data or
programming to all users at the same time. Contrast:
"narrowcast."
Browser The software application that enables a user to see pages
on the World Wide Web.
Channel On television and cable systems, the term usually refers to,
the numerical location, as on a dial or LED
readout, of a broadcast station's varied content.
Example: in New York City, NBC can be seen on Channel 4.
On the internet, the term 'Channel' also refers to a
location for a given set of programming, but often refers
to a generic category of content, such as a "Basketball
Channel" or to a highly specific source of programming,
such as the "New York Knicks" Channel, or even the
"Patrick Ewing" Channel.
Convergence A blur of the distinctions between entertainment,
information, telecommunications, computers, television,
print, and cable.
Downlink The transmission of radio frequency signals from a
satellite to an earth station.
Download Transferring a file from a server to a client, such as
your computer. Downloading files enables you to see and
hear content on the web. See: "streaming."
Enabling Providing the tools, talent, and equipment, and resources
to assist an individual or organization to become a
broadcaster. Prior to the advent of streaming media
technologies and applications, becoming a global
broadcaster was difficult and costly.
Intranet A set of computers linked to one another outside the
public internet. Often, large corporations build
intranets to facilitate internal communications.
Multimedia content can be streamed across an intranet to,
for example, enable geographically dispersed divisions of
a company to attend an address by its CEO, or demonstrate
the proper use of on a new product prior to its
commercial launch.
Mini-portal A focused, subject-oriented portal. See "portal."
Multicast A means by which several users can connect to one data
stream simultaneously. Thus, multicasting can accommodate
larger audiences with greater efficiency than unicasting
(see: "unicast"). Multiple users could, for example,
watch the same streaming video file at once, rather than
requiring the server to send one stream per user.
Multimedia The use of computers to present integrated text,
graphics, video, animation, and audio.
Narrowcast To send data to a specific list of recipients. Cable
television is the ultimate example of narrowcasting.
Cable signals are sent only to homes that have subscribed
to the cable service. Network TV, by contrast, is a true
broadcast model. It sends out data. Everyone close enough
with an antenna can receive the signals. On the internet,
narrowcasting has also come to refer to programming
developed for "niche" interest groups.
On demand The power to "time-shift," or access programming
when you want it, as distinct from the time a broadcaster
wants to send it.
Player A software application, such as those developed by
RealNetworks and Microsoft, among others, that "plays"
the video and audio clips on your computer.
Portal Originally, a site or online service, such as AOL, that
offered a range of information, entertainment, and
services such as email, forums, chatrooms, and search
engines. Increasingly, however, sites are launched to
become "portals" to a specific category of content, as in
a "financial portal."
33
<PAGE>
Push The mechanisms which deliver data to one's desktop,
usually on a subscription basis. Email is a simple push
service; PointCast is an elaborate push service. The data
is delivered to you automatically.
Rich Commonly used in reference to "rich media" and,
specifically, to "rich media advertising." Rich media
advertising is distinguished from commonplace banner ads
with static graphics; rich media ads are animated, and
often streamed, so that they appear more like television
commercials. Indeed, some are repurposed television
commercials. They can be embedded in web pages as well as
inserted into or between video clips, or, using SMIL,
they can be streamed concurrent to audio programming.
Seamless Streaming a pre-programmed series of multimedia content
segments in succession, without requiring the audience to
select a new program to see or hear. The effect is
similar to watching one television Channel for an
extended period of time. One content segment flows into
the next.
SMIL See Synchronized Multimedia Integration Language.
Streaming A stream is a continuous digital signal, which delivers
audio and/or video to an end user. Streaming refers to
the manner by which a stream is sent. Streaming does not
require that a user download an entire large file to his
computer before he can watch or listen to it. Rather, the
streaming process sends out the digital signal in
continuous, tiny packets of data, and buffering enough of
the data so that user can experience the programming
seamlessly, while downloading the next segment in the
background.
StreamStation(TM) Streamedia's trademarked term for the non-proprietary
sites it will license to carry its programming and
information feeds. In concept, it is similar to the
relationship between network television broadcasters and
their local affiliate stations. StreamStations will be a
means by which Streamedia syndicates its content across
websites it does not own, thereby enhancing its market
penetration.
Switching hub A broadcast signal pool feed that enables port to
port redirection of data. Any system connected to a port
on the network can be "switched" to receive or transmit
to another port on that network. Rather than rebroadcast
all data to every port, switching hubs forward data only
to the required recipient.
Synchronized A markup language that enables a programmer to combine
Multimedia formats in one production, such as an audio
Integration stream with images and text. In this way, an internet
Language broadcaster can stream a radio station
signal, while showing advertising imagery, and scrolling
information in print, all in the same media
player.
Teleport A teleport or "telecommunications port" is a hub that
provides its users with fast, convenient, cost-effective
access to advanced and high-bandwidth services. Teleports
are high-bandwidth communication gateways for satellite,
optical fiber and microwave transmission. Teleports feed
video, data and voice to the world's constellation of
satellites and network of optical fiber. They deliver
television and radio programming to audiences around the
globe.
Traffic A total of users to a site or file. Traffic is measured
in various ways, such as hits, impressions, page views,
and unique users.
Unicast Each user connects to a separate stream of an audio or
video file. Contrast: "multicast."
Uplink The transmission of radio frequency signals to a
satellite from an earth station.
URL Uniform Resource Locator. An internet URL is like an
electronic street address. Example:
http://www.streamedia.net
Video-conferencing Conducting a conference between two or more participants
in different locations by using computer networks to
transmit audio and video data. Multipoint
video-conferencing allows three or more participants to
sit in a "virtual" conference room and communicate as if
they were sitting right next to each other.
Webcast A broadcast or narrowcast of audio or video over on the
World Wide Web. Using a streaming protocol, servers
deliver audio and/or video, in real time (live), or on a
delayed basis (on demand.)
</TABLE>
34
<PAGE>
INDEX TO FINANCIAL STATEMENTS
STREAMEDIA COMMUNICATIONS, INC.
<TABLE>
<S> <C>
Page
Report of Independent Certified Public Accountants F-1
Financial Statements
Balance Sheets F-2
Statements of Operations F-3
Statement of Stockholders' Equity (Deficit) F-4
Statements of Cash Flows F-5
Notes to Financial Statements F-6 - F-14
</TABLE>
<PAGE>
INDEX TO FINANCIAL STATEMENTS
STREAMEDIA COMMUNICATIONS, INC.
<TABLE>
<CAPTION>
Page
<S> <C>
Report of Independent Certified Public Accountants F-1
Financial Statements
Balance Sheets F-2
Statements of Operations F-3
Statement of Stockholders' Equity (Deficit) F-4
Statements of Cash Flows F-5
Notes to Financial Statements F-6 - F-15
</TABLE>
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors and Stockholders
Streamedia Communications, Inc.
(A Development Stage Company)
We have audited the accompanying balance sheet of Streamedia Communications,
Inc. (the "Company") (a development stage company) as of December 31, 1998, and
the related statements of operations, stockholders' equity (deficit) and cash
flows for the period from April 29, 1998 (date of inception) to December 31,
1998. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our 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 Streamedia Communications, Inc.
(a development stage company) as of December 31, 1998, and the results of its
operations and its cash flows for the period from April 29, 1998 (date of
inception) to December 31, 1998 in conformity with generally accepted accounting
principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. The Company is a development stage
enterprise engaged in providing internet-based media programming and content on
the Web. To date, the Company has engaged in organizational and pre-operating
activities and needs to secure additional capital and customers to continue
operations. As discussed in Note A to the financial statements, the Company's
existence is dependent upon its ability to obtain additional capital, among
other things, which raises substantial doubt about its ability to continue as a
going concern. Management's plans concerning these matters are also described in
Note A. The financial statements do not include any adjustments that might
result from the outcome of these uncertainties.
GRANT THORNTON LLP
Melville, New York
March 9, 1999
<PAGE>
<TABLE>
<CAPTION>
Streamedia Communications, Inc.
(A Development Stage Company)
BALANCE SHEETS
December 31, September 30,
ASSETS 1998 1999
-------------- --------
<S> <C> <C>
(unaudited)
CURRENT ASSETS
Cash $ 1,225 $ 1,092,540
---------- ----------
Total current assets 1,225 1,092,540
COMPUTER EQUIPMENT 1,802 103,331
Less accumulated depreciation 602 10,969
----------- ------------
1,200 92,362
DEFERRED OFFERING COSTS 75,000 254,005
DEFERRED FINANCING COSTS 225,070
OTHER ASSETS 7,000
Total assets $ 77,425 $ 1,670,977
========= ==========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES
Accrued payroll $ 59,000 $ 100,778
Accrued offering costs 25,000
Accrued professional fees 12,000 15,851
Accrued consulting fees 38,500
Accounts payable and other accrued liabilities 4,185 30,583
Accrued interest expense 15,125
-------------- ------------
Total current liabilities 138,685 162,337
NOTES PAYABLE 1,549,762
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY (DEFICIT)
Preferred stock, $.001 par value; authorized - 100,000
shares; none issued and outstanding -
Common stock, $.001 par value; authorized - 20,000,000 shares;
issued and outstanding - 3,025,000 and 3,295,490 shares at
December 31, 1998 and September 30, 1999, respectively 3,025 3,296
Additional paid-in capital 232,475 1,317,834
Deficit accumulated during development stage (296,760) (1,362,252)
-------- ----------
Total stockholders' equity (deficit) (61,260) (41,122)
--------- ------------
Total liabilities and stockholders' equity (deficit) $ 77,425 $ 1,670,977
========= ==========
The accompanying notes are an integral part of this statement.
</TABLE>
<PAGE>
Streamedia Communications, Inc.
(A Development Stage Company)
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Period from Period Cumulative
April 29, 1998 Nine months from April 29, from April 29,
(date of inception) ended 1998 (date of 1998 (date of
to December 31, September 30, inception) to inception) to
1998 1999 September 30, 1998 September 30, 1999
------------------ ---------------- ------------------ -----------------
(unaudited) (unaudited) (unaudited)
<S> <C> <C> <C> <C>
Revenue $ - $ - $ - $ -
-------------- ---------------- ------------- ----------
Operating expenses
Payroll and related expenses 239,000 350,194 589,194
General and administrative expenses 57,760 686,731 - 744,491
Interest expense - 28,567 - 28,567
-------------- ------------ ------------- ------------
NET LOSS $(296,760) $(1,065,492) $ - $(1,362,252)
======== ========== ============= ==========
Basic and diluted loss per common share $(.10) $(.33) $. - $(.43)
==== ==== ====== ====
Shares used in computing basic and diluted loss
per share 2,922,409 3,256,856 - 3,097,597
========= ========= ================ ==========
</TABLE>
The accompanying notes are an integral part of this statement.
<PAGE>
Streamedia Communications, Inc.
(A Development Stage Company)
STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
Deficit
accumulated
Additional during
Preferred stock Common stock paid-in development
Shares Amount Shares Amount capital stage Total
---------- ---------- -------- ------- ---------- ------------ ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Issuance of common stock $ - 2,910,000 $2,910 $ 2,590 $ 5,500
Issuance of common stock for
services 115,000 115 229,885 230,000
Net loss for the period $ (296,760) (296,760)
----------- ------- -------------- --------- ------------------ -----
Balance at December 31, 1998 - - 3,025,000 3,025 232,475 (296,760) (61,260)
Issuance of common stock
net of associated costs 264,490 265 523,715 523,980
Issuance of common stock
for services 6,000 6 11,994 12,000
Grant of common stock
options for services 71,150 71,150
Compensatory stock option
expense 206,250 206,250
Issuance of common stock
warrants 272,250 272,250
Net loss for the period (1,065,492) (1,065,492)
----------- ----------------------- -------- -------------- -------------- ----
Balance at September 30, 1999
(unaudited) - $ - 3,295,490 $3,296 $1,317,834 $(1,362,252) $ (41,122)
======== =========== ========= ===== ========= ===== ===========
</TABLE>
The accompanying notes are an integral part of this statement.
<PAGE>
Streamedia Communications, Inc.
(A Development Stage Company)
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Period from Period Cumulative
April 29, 1998 Nine months from April 29, from April 29,
(date of inception) ended 1998 (date of 1998 (date of
to December 31, September 30, inception) to inception) to
1998 1999 Sept 30, 1998 Sept 30, 1999
------------------ ----------------- ------------------
<S> <C> <C> <C> <C>
Cash flows from operating activities
Net loss $(296,760) $(1,065,492) $ - $(1,362,252)
Adjustments to reconcile net loss to net cash used in
operating activities
Common stock issued for services 180,000 12,000 192,000
Stock option granted for services 71,150 71,150
Compensatory stock option expense 206,250 206,250
Amortization of debt discount 7,012 7,012
Depreciation and amortization 602 16,797 17,399
Changes in operating assets and liabilities
Other assets (7,000) (7,000)
Accrued payroll 59,000 41,778 100,778
Accrued professional fees 12,000 3,851 15,851
Accrued consulting fee 38,500 (38,500) -
Accounts payable and other accrued liabilities 4,185 26,398 30,583
Accrued interest expense 15,125 15,125
------- ------------ ------- --------
Net cash used in operating activities (2,473) (710,631) - (713,104)
-------- ----------- --------- ----------
Cash flows from investing activities
Purchase of fixed assets (1,802) (101,529) (103,331)
-------- ----------- --------
Cash flows from financing activities
Issuance of common stock, net of associated costs 5,500 523,980 5,500 529,480
Proceeds of notes payable and common stock warrants,
net of associated costs 1,583,500 1,583,500
Deferred offering costs (204,005) (204,005)
--------- ---------- --------- --------
Net cash provided by financing activities 5,500 1,903,475 5,500 1,908,975
-------- ---------- ----- ----------
Net increase in cash 1,225 1,091,315 5,500 1,092,540
Cash at beginning of period - 1,225 - -
-------- ------------- --------- ------
Cash at end of period $ 1,225 $ 1,092,540 $5,500 $ 1,092,540
======== ========== ==== =========
The accompanying notes are an integral part of this statement.
</TABLE>
F-7
<PAGE>
Streamedia Communications, Inc.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
December 31, 1998
NOTE A - NATURE OF OPERATIONS AND BASIS OF PRESENTATION
Nature of Operations
Streamedia Communications, Inc. (the "Company") was incorporated in the
State of Delaware and is positioning itself as a vertically-integrated New
Media content generator, enabler and aggregator. The Company's three
divisions are Streamedia Broadcast(TM), Streamedia Webcast
Technologies(TM), and Streamedia Publishing.
Streamedia Broadcast(TM) intends to create a suite of topical broadcast
networks to deliver or "stream" live and on-demand audio and video
programming. Network sites intend to offer programming in areas such as,
but not limited to, business, sports, women's issues, parenting, travel,
education, religion, politics, health, teen and children's interests,
shopping, real estate, music, technology, personal fitness, movies,
entertainment and lifestyles. The Company has chosen
EducationBroadcast.com, TalkBroadcast.com, WomenBroadcast.com and
FinanceBroadcast.com as its initial network launches.
Streamedia Webcast Technologies(TM) will market internet and intranet
broadcasting services to a wide spectrum of enterprises, such as, but not
limited to, businesses, associations, electronic publishers and "off-line"
media generators, who are attempting to obtain an internet broadcast
presence. The division will attempt to deliver multimedia and text through
a variety of push, poll and proprietary electronic mail mechanisms.
The Streamedia Publishing division will focus upon its StreamWire(TM)
content. StreamWire(TM) will consist of a series of focused,
subject-oriented, edited news and information products, such as wires
devoted to NASDAQ or Amex-listed companies. It is intended that each
newswire developed by the Streamedia Publishing division will have its
broadcast network correlative. The Broadcast and Publishing divisions have
been devised to integrate vertically to create bundled, multimedia Internet
networks.
The Company's operations are subject to certain risks and uncertainties,
including actual and potential competition by entities with greater
financial resources, experience and market presence, risks associated with
the development of the Internet market, risks associated with consolidation
in the industry, the need to manage growth and expansion, certain
technology and regulatory risks and dependence upon sole and limited
suppliers.
<PAGE>
Streamedia Communications, Inc.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS (continued)
December 31, 1998
NOTE A (continued)
Basis of Presentation
The accompanying financial statements have been prepared on the basis that
the Company will continue as a going concern which assumes the realization
of assets and settlement of liabilities in the normal course of business.
Since its inception, the Company has been engaged in organizational and
pre-operating activities. Further, the Company has generated no revenues
and incurred losses. Continuation of the Company's existence is dependent
upon its ability to obtain additional capital, secure and execute strategic
alliances to develop news and information content and sustain profitable
operations. The uncertainty related to these conditions raises substantial
doubt about the Company's ability to continue as a going concern. The
accompanying financial statements do not include any adjustments that might
result from the outcome of this uncertainty.
Management's plans include the completion of a private placement offering
(the "Private Placement") and an initial public offering ("IPO") of shares
of common stock should market conditions permit (see Note F).
The Private Placement includes the sale of up to 500,000 shares of the
Company's common stock at a price of $2.00 per share for gross proceeds of
$1,000,000. The proceeds will be used to provide working capital to the
Company. Subsequent to December 31, 1998, the Company sold 264,490 shares
of its common stock through the Private Placement for net aggregate
proceeds of $523,980 through September 30, 1999 (see Note F).
NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of the Company's significant accounting
policies:
Unaudited Interim Financial Statements
The unaudited interim financial statements as of September 30, 1999 and for
the nine months ended September 30, 1999 and the period from April 29, 1998
(date of inception) to September 30, 1998 have been prepared on the same
basis as the audited financial statements and, in the opinion of
management, include all adjustments (consisting only of normal recurring
adjustments) necessary to present fairly the financial information set
forth therein, in accordance with generally accepted accounting principles.
The results of operations for the nine months ended September 30, 1999 are
not necessarily indicative of the results to be expected for any period.
<PAGE>
Streamedia Communications, Inc.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS (continued)
December 31, 1998
NOTE B (continued)
Depreciation
Computer equipment is depreciated on a straight-line basis over its
estimated useful life of three years.
Fair Value of Financial Instruments
The fair values of the Company's accounts payable and accrued liabilities
approximate the related carrying values due to the short maturities of
these instruments.
Income Taxes
The Company records income taxes using the asset and liability method,
which requires the recognition of deferred tax assets and liabilities for
the expected future tax consequences of temporary differences between the
financial reporting basis and tax basis of assets and liabilities. A
valuation allowance is recognized to the extent a portion or all of a
deferred tax asset may not be realizable.
Deferred Offering Costs
Costs incurred in connection with an equity offering are deferred until the
transaction is consummated or, in the event the offering is unsuccessful,
against operations in the period in which the offering is aborted.
Loss Per Share
Basic loss per share is computed using the weighted average number of
shares of common stock outstanding during the period. Diluted loss per
share is computed using the weighted average number of shares of common
stock, adjusted for the dilutive effect of potential common shares issued
or issuable pursuant to stock options and stock appreciation rights. The
Company has no potential common shares outstanding at December 31, 1998.
Investment in Joint Venture
The Company accounts for its 50% investment in its joint venture,
Businessbroadcast.com, under the equity method, that is, at cost increased
or decreased by the Company's share of earnings or losses, less dividends
and distributions.
<PAGE>
Streamedia Communications, Inc.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS (continued)
December 31, 1998
NOTE B (continued)
In accordance with the joint venture agreement, each party shares equally
in the distribution of profits and operational costs. Each party may
increase their ownership percentage through capital contributions. The
formation of the joint venture did not require any initial capital
contribution by the Company. The joint venture did not generate any
revenues or incur any operational costs through December 31, 1998.
Use of Estimates
In preparing financial statements in conformity with generally accepted
accounting principles, management is required to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the revenues and expenses during the reporting
period. Actual results may differ from those estimates.
NOTE C - STOCKHOLDERS' EQUITY (DEFICIT)
The Company was originally organized as a New Jersey limited liability
company ("LLC"). On December 21, 1998, pursuant to a Plan and Agreement of
Merger, the LLC was merged into the Company, with the Company continuing as
the surviving entity. Each membership unit of the LLC was converted into
30,000 shares of common stock of the Company.
In connection with an employment agreement, the Company granted 135,000
shares of the Company's common stock to an officer, of which 90,000 shares
had been issued in December 1998 and the remaining 45,000 shares will be
earned upon the achievement of certain business objectives to be
determined. The Company recorded compensation expense of $180,000
representing the fair value of the 90,000 shares issued at such date.
Compensation expense will be recorded for the fair value of the 45,000
shares on the date the specified objectives are met.
In December 1998, the Company issued 25,000 shares of common stock for
legal services to be provided in connection with the Company's IPO (Note
A). The Company recorded $50,000 of deferred offering costs representing
the fair value of the common stock at the date of issuance.
<PAGE>
Streamedia Communications, Inc.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS (continued)
December 31, 1998
NOTE D - INCOME TAXES
The Company generated a taxable loss of approximately $58,000 for the
period April 29, 1998 (date of inception) to December 31, 1998, which
carryforward expires in 2018.
A deferred tax asset of approximately $20,000 arises from the Company's net
operating loss carryforward at December 31, 1998. The Company has provided
a deferred tax asset valuation allowance since realization of these
benefits cannot be reasonably assured.
NOTE E - COMMITMENTS AND CONTINGENCIES
Office Lease
In January and February 1999, the Company entered into one year
noncancelable operating lease agreements (one of which is with its joint
venture partner) for office space. An aggregate security deposit of $4,200
was required as a condition of such leases. The minimum lease payments
under the noncancelable leases are summarized as follows:
1999 $29,025
2000 2,175
-------
$31,200
Employment Agreements
The Company maintains employment agreements with certain executive
officers. These agreements provide for monthly base salaries and benefits
(when annualized, aggregating $272,000 in executive compensation) and are
cancelable by either party upon written notice. In addition, the Company's
employment contracts contemplate the issuance of common stock and common
stock options to the executives based upon achievements to be established.
In connection with the successful completion of an IPO, the Company is
required to compensate its chief financial officer with a $100,000 bonus.
<PAGE>
Streamedia Communications, Inc.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS (continued)
December 31, 1998
NOTE F - UNAUDITED INTERIM FINANCIAL INFORMATION
Private Placement
In connection with the Company's Private Placement described in Note A, the
Company sold during the nine months ended September 30, 1999, 264,490
shares of its common stock for net proceeds of $523,980.
Pending Initial Public Offering
On May 17, 1999, the Company filed an initial public offering registration
statement with the Securities and Exchange Commission to register 1,000,000
units with an estimated offering price of $8.50, consisting of one share of
the Company's common stock and one warrant. Each warrant entitles the
holder to purchase one share of common stock at $12.75.
Stock Option Plan
In June 1999, the Board of Directors approved the 1999 Incentive and
Nonstatutory Option Plan (the "1999 Plan") for officers, directors,
employees and consultants of the Company, for which the Company has
reserved an aggregate of 500,000 shares of common stock. Options granted
under the 1999 Plan (which includes option grants prior to the Plan's
adoption) may be either incentive stock options or non-qualified stock
options. The term of any option may be fixed by the Board of Directors but
in no event shall exceed ten years from the date of grant. Options granted
to an employee of the Company shall become exercisable over a period of no
longer than five years. The term for which options may be granted under the
1999 Plan expires June 29, 2009.
In February 1999, the Company issued options to directors to purchase
60,000 shares of common stock, which vest immediately, at an exercise price
of $2.00 (the estimated fair market value of the Company's common stock on
the date of grant determined by reference to cash sales of common stock to
third parties through the Private Placement).
In March 1999, the Company issued an option to a consultant to purchase
15,000 shares of common stock, which vests immediately, at an exercise
price of $2.00 (the estimated fair market value of the Company's common
stock on the date of grant determined by reference to cash sales of common
stock to third parties through the Private Placement). For the nine months
ended September 30, 1999, the Company recorded a charge to operations of
$20,250 representing the estimated fair market value of the option granted
to the consultant using the Black-Scholes option pricing model.
<PAGE>
Streamedia Communications, Inc.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS (continued)
December 31, 1998
NOTE F (continued)
In June 1999, the Company entered into an employment agreement with an
executive officer which provides for an annual base salary of approximately
$90,000 and is cancelable by either party upon written notice. In
connection with this agreement, the Company granted such officer an option
to purchase 150,000 shares of common stock at an exercise price of $2.00
per share. The option was granted at an exercise price below the fair
market value of the Company's common stock determined by reference to the
estimated offering price applicable to the common stock through the pending
IPO, resulting in aggregate total compensation of $825,000, of which
non-cash compensation of $206,250 was recorded for the nine months ended
September 30, 1999, with the remaining charge of $618,750 to be recognized
over the remaining vesting period of approximately two years.
In August 1999, the Company's Board of Directors granted stock options to
an executive officer, directors and a consultant to purchase an aggregate
of 63,000 shares, 30,000 shares and 10,000 shares of common stock,
respectively, at an exercise price of $7.50 per share (the estimated fair
market value of the Company's common stock on the date of grant determined
by reference to the estimated offering price applicable to the common stock
through the pending IPO). For the nine months ended September 30, 1999, the
Company recorded a charge to operations of $50,900, representing the
estimated fair market value of the option granted to the consultant using
the Black-Scholes option pricing model.
Activity under the 1999 plan is summarized as follows:
<TABLE>
<CAPTION>
Outstanding options
Weighted
Shares Exercise Weighted average
available Number price average remaining
for of per exercise contractual
grant shares share price life (years)
<S> <C> <C> <C> <C> <C>
Balance at January 1, 1999 - - - - -
Shares authorized 500,000 - - - -
Options granted (328,000) 328,000 $2.00 - 7.50 $3.73 7.44
-------- ------- ----------- ---- ----
Balance at September 30, 1999 172,000 328,000 $2.00 - 7.50 $3.73 7.44
======== ======= =========== ==== ====
</TABLE>
Of the 328,000 outstanding options, 215,500 options were exercisable with a
weighted average exercise price of $4.63 per share and a weighted average
remaining contractual life of 8.85 years at September 30, 1999.
<PAGE>
Streamedia Communications, Inc.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS (continued)
December 31, 1998
NOTE F (continued)
The Company accounts for its stock-based awards in accordance with
Accounting Principles Board Opinion No. 25 ("APB No. 25"), "Accounting for
Stock Issued to Employees," and its related Interpretations. Accordingly,
no compensation expense has been recognized in the financial statements for
employee stock arrangements granted at fair value. Had the Company
determined compensation cost based on the fair value at the grant date for
its stock options under Statement of Financial Accounting Standards No. 123
("SFAS No. 123"), "Accounting for Stock-Based Compensation," the Company's
net loss and net loss per share for the nine months ended September 30,
1999 would have been increased to the pro forma amounts indicated below:
Net loss
As reported $(1,065,492)
Pro forma (1,862,262)
Basic and diluted loss per share
As reported $(.33)
Pro forma (.57)
The fair value of the Company's stock-based awards was estimated using the
Black-Scholes option pricing model assuming no expected dividends and the
following weighted average assumptions for the nine months ended September
30, 1999: expected life of five years, expected volatility of 80% and a
risk-free interest rate of 5.67%. The weighted average fair value of
options granted for the nine months ending September 30, 1999 was $5.04.
Notes Payable
In August 1999, the Company issued a series of promissory notes to
investors bearing interest at the stated rate of 10% per annum for an
aggregate principal amount of $1,815,000. Each note is part of a unit which
consists of (i) a $15,000 promissory note and (ii) a warrant to purchase up
to 9,000 shares of the Company's common stock. Each promissory note is
payable in full the earlier of: (i) July 31, 2002 or (ii) on the effective
date of the initial public offering. The Company issued an aggregate of 121
warrants to these investors to purchase 1,089,000 shares in total of the
Company's common stock at an exercise price equal to the IPO price. Each
warrant may be exercised any time after twelve months from the closing of
the IPO or before July 31, 2004. Financing costs incurred amounted to
$231,500 and are being amortized on a straight-line basis over the
three-year term of the notes. However, in the event the notes become
payable sooner upon the effective date of the initial public offering, the
Company will incur a charge for the unamortized deferred costs remaining in
such period.
<PAGE>
Streamedia Communications, Inc.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS (continued)
December 31, 1998
NOTE F (continued)
In determining the fair value of the notes and warrants, the Company used
an effective interest rate of 15% based on the Company's estimated
borrowing rate. The resulting fair values of the notes and warrants at
issuance were $1,542,750 and $272,250, respectively. The carrying value of
the notes is being accreted to the face value of $1,815,000 using the
interest method over the three-year term of the notes. However, in the
event the notes become payable sooner upon the effective date of the
initial public offering, the Company will recognize a charge for the
unamortized discount remaining in such period. The accretion for the nine
months ended September 30, 1999 amounted to $7,012.
Employment Agreements
In June 1999, the Company's Board of Directors approved the amendment of
certain executive officer employment agreements. The amendments principally
increased aggregate annual compensation to $500,000.
Office Lease
In August 1999, the Company entered into a three-year, noncancelable office
lease agreement with monthly minimum payments of $7,000 and terminated its
then existing office lease agreement without any financial consequences to
the Company. A security deposit of $7,000 was required as a condition of
such lease.
Related Party Transaction
In August 1999, the Company entered into a $40,000 one-year consulting
agreement with an entity in which the entity's chief executive office is a
director of the Company.
Consulting Agreement
In October 1999, the Company granted a consultant options to acquire
150,000 shares of common stock at an exercise price equal to the IPO price
or $2.00 per share in the event the Company's common shares are not
underwritten through an IPO. Pursuant to the consulting agreement, 132,500
options vest immediately and the remaining 18,500 options vest ratably over
one year commencing November 14, 1999. On November 23, 1999, the Company
modified the consulting agreement to provide for (i) the cancellation of
the options to acquire 150,000 shares of the Company's common stock and
(ii) the
<PAGE>
Streamedia Communications, Inc.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS (continued)
December 31, 1998
NOTE F (continued)
reissuance of an equal number of options to be granted on the effective
date of the IPO, which vest immediately, at an exercise price equal to the
IPO price or $2.00 per share in the event the Company's common shares are
not underwritten through an IPO. Compensation expense relating to these
options, assuming an IPO offering price of $8.50, amounting to $763,500
will be recognized in the period in which the Company consummates its IPO.
<PAGE>
No dealer, sales person, or other person has been authorized to give any
information or to make any representation not contained in this prospectus in
connection with the offer contained herein, and if given or made, such
information or representations must not be relied upon as having been authorized
by the Company or any Underwriters. The Prospectus does not constitute an offer
to sell or a solicitation of an offer to buy the shares of common stock offered
hereby by anyone in any jurisdiction in which such offer or solicitation is not
qualified to do so, or to any person to whom it is unlawful to make such
solicitation or offer. Neither the delivery of this prospectus nor any sale made
hereunder shall, under any circumstances, create any implication that there has
been no change in the affairs of the Company since the date hereof or that the
information contained herein is correct as of any time subsequent to its date.
1,000,000 Units
Consisting of 1,000,000 Shares of Common Stock and
1,000,000 Redeemable Common Stock Purchase Warrants.
Offering Price
$
Per Unit
Streamedia Communications, Inc.
Prospectus
, 1999
Institutional Equity Corporation Captial West Securities, Inc.
(800) 426-7346 (214) 692-3544 (405) 235-5700
Until ______, 2000 (25 days from the date of this Prospectus), all dealers
effecting transactions in the registered securities, whether or not
participating in this distribution, may be required to deliver a Prospectus.
This is in addition to the obligations of the dealers to deliver a Prospectus
when acting as Underwriters and with respect to their unsold allotment or
subscriptions.
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 24. Indemnification of Directors and Officers.
Delaware General Corporation Law
Section 145(a) of the Delaware General Corporation Law (the "DGCL")
provides that a corporation may indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative
(other than an action by or in the right of the corporation) by reason of the
fact that he is or was a director, officer, employee or agent of the
corporation, or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise against expenses (including attorneys' fees),
judgments, fines and amounts paid in settlement actually and reasonably incurred
by him in connection with such action, suit or proceeding if he acted in good
faith and in a manner he reasonably believed to be in or not opposed to the best
interests of the corporation, and, with respect to any criminal action or
proceeding, had no reasonable cause to believe his conduct was unlawful.
Section 145(b) of the DGCL provides that a corporation may indemnify
any person who was or is a party or is threatened to be made a party to any
threatened, pending or completed action or suit by or in the right of the
corporation to procure a judgment in its favor by reason of the fact that he is
or was a director, officer, employee or agent of the corporation, or is or was
serving at the request of the corporation as a director, officer, employee or
agent of another corporation, partnership, joint venture, trust or other
enterprise against expenses (including attorneys' fees) actually and reasonably
incurred by him in connection with the defense or settlement of such action or
suit if he acted in good faith and in a manner he reasonably believed to be in
or not opposed to the best interests of the corporation and except that no
indemnification shall be made in respect of any claim, issue or matter as to
which such person shall have been adjudged to be liable to the corporation
unless and only to the extent that the Court of Chancery or the court in which
such action or suit was brought shall determine upon application that, despite
the adjudication of liability but in view of all the circumstances of the case,
such person is fairly and reasonably entitled to indemnity for such expenses
which the Court of Chancery or such other court shall deem proper.
Section 145(c) of the DGCL provides that to the extent that a present
or former director, officer, employee or agent of a corporation has been
successful on the merits or otherwise in defense of any action, suit or
proceeding referred to in subsections (a) and (b) of Section 145, or in defense
of any claim, issue or matter therein, such person shall be indemnified against
expenses (including attorneys' fees) actually and reasonably incurred by such
person in connection therewith.
Section 145(d) of the DGCL provides that any indemnification under
subsections (a) and (b) of Section 145 (unless ordered by a court) shall be made
by the corporation only as authorized in the specific case upon a determination
that indemnification of the present or former director, officer, employee or
agent is proper in the circumstances because he has met the applicable standard
of conduct set forth in subsections (a) and (b) of Section 145. Such
determination shall be made, with respect to a person who is a director or
officer at the time of such determination, (1) by a majority vote of the
directors who are not parties to such action, suit or proceeding, even though
less than a quorum, or (2) by a committee of such directors designated by
majority vote of such directors, even though less than a quorum, or (3) if there
are no such directors, or if such directors so direct, by independent legal
counsel in a written opinion, or (4) by the stockholders.
Section 145(e) of the DGCL provides that expenses (including attorneys'
fees) incurred by an officer or director in defending any civil, criminal,
administrative or investigative action, suit or proceeding may be paid by the
corporation in advance of the final disposition of such action, suit or
proceeding upon receipt of an undertaking by or on behalf of such director or
officer to repay such amount if it shall ultimately be determined that such
person is not entitled to be indemnified by the corporation as authorized in
Section 145. Such expenses (including attorneys' fees) incurred by former
directors and officers or other employees and agents may be so paid upon such
terms and conditions, if any, as the corporation deems appropriate.
Item 25. Other Expenses of Issuance and Distribution
Estimated expenses in connection with the public offering by the Company of the
securities offered hereunder are as follows:
Securities and Exchange Commission Filing Fee $7,432
NASD Filing Fee* 7,000
NASDAQ Small Cap Market Application and Listing Fee* 20,000
Accounting Fees and Expenses* 40,000
Legal Fees and Expenses* 120,000
Printing* 40,000
Fees of Transfer Agent and Registrar* 5,000
Underwriters' Non-Accountable Expense Allowance 170,000
Miscellaneous* 15,568
------
Total* $425,000
========
- ----------------
* Estimated.
Item 26. Recent Sales of Unregistered Securities
On May 16, 1999, we sold 264,490 shares of common stock at $2.00 per
share pursuant to Rule 506 of Regulation D promulgated under the Securities Act
of 1933, as amended. The common stock was offered to a discreet group of
accredited investors without the benefit of general solicitation or advertising.
We raised $523,980 from this private placement in order to provide bridge
financing for this offering.
On August 24, 1999, we issued $1,815,000 of debt securities in the form
of promissory notes which bear interest at a rate of 10% per annum. The notes
were offered pursuant to Rule 506 of Regulation D only to accredited investors,
with no general solicitation or advertising. The notes were offered as a unit,
each unit consisting of a promissory note in the principal amount of $15,000 and
a warrant entitling the holder to purchase 9,000 shares of our common stock at a
price per share equal to the price per share of common stock offered to the
public pursuant to our initial public offering. The warrants will be exercisable
during the period beginning on the first anniversary of the closing of the IPO
and ending on the date five years following the date that the warrants were
issued. The holders of the warrants will have certain "piggyback" registration
rights with respect to the shares underlying the warrants. Specifically, the
holders will be entitled to include their shares if the Company files a
registration statement with Commission during the period beginning one year from
the closing of the IPO and ending two years after the closing of the IPO.
In October 1999, we granted 150,000 options to a consultant to provide
investor relations services to Streamedia. The options allowed the consultant to
acquire shares of our common stock at an exercise price equal to the IPO price
or $2.00 per share in the event that our common shares are not underwritten
through an IPO. In November 1999 we rescinded these options but have
contractually agreed with the consultant to reissue the options following the
completion of the offering. The consultant is not a 5% or greater shareholder,
officer or director of the Company.
<PAGE>
<TABLE>
<CAPTION>
Item 27. Exhibits
<S> <C>
Exhibit No Item
Exhibit 1.1 Form of Amended Underwriting Agreement.(1)
Exhibit 1.2 Form of Underwriters' Warrant Agreement.(2)
Exhibit 3.1 Certificate of Incorporation of the Registrant. (2)
Exhibit 3.2 Bylaws of the Registrant (2)
Exhibit 3.3 Amended to Bylaws of the Registrant (2)
Exhibit 4.1 Public Warrant Agreement (1)
Exhibit 5.1 Opinion of Kogan & Taubman, L.L.C..(1)(2)
Exhibit 10.1 Employment Agreement between Streamedia and James D. Rupp (2)
Exhibit 10.2 Employment Agreement between Streamedia and Gayle Essary (2)
Exhibit 10.3 Employment Agreement between Streamedia and Nicholas J. Malino (2)
Exhibit 10.4 Indemnification Agreement between Streamedia and Directors (2)
Exhibit 10.5 Consulting Agreement between Streamedia and IC Enterprises (2).
Exhibit 10.6 Minutes amending Employment Agreements between Streamedia and Messrs. Rupp, Essary and
Malino.(2)
Exhibit 10.7 Employment Agreement between Streamedia and Walter C. Hollenberg(2)
Exhibit 10.8 Kaleidoscope Media Group, Inc.Agreement
Exhibit 23.1 Consent of Grant Thornton LLP, Independent Certified Public Accountants.(1)(2)
Exhibit 23.2 Consent of Kogan & Taubman, L.L.P. is contained in the opinion filed as Exhibit 5.1 to
this registration statement.(1)(2)
Exhibit 27 Financial Data Schedule (1)(2)
--------------
(1) Filed herewith
(2) Previously filed
</TABLE>
<PAGE>
Item 28. Undertakings
The undersigned registrant hereby undertakes as follows:
(1) To provide to the Underwriters at the closing specified in the
Underwriting Agreement certificates in such denominations and
registered in such names as required by the Underwriters to
permit prompt delivery to each purchaser.
(2) For the purpose of determining any liability under the
Securities Act, treat each post-effective amendment that
contains a form of prospectus as 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 of those securities.
(3) Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers or
persons controlling the registrant pursuant to the foregoing
provisions, or otherwise, the registrant has been advised
that, in the opinion of the Securities and Exchange
Commission, such indemnification is against public policy, as
expressed in the Act and is, therefore, unenforceable.
(4) In the event that a claim for indemnification against such
liabilities (other than the payment by the registrant of
expenses incurred or paid by a director, officer or
controlling person of the registrant in the successful defense
of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the
shares of 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.
(5) For the purposes of determining any liability under the
Securities Act, the information omitted from the form of
prospectus filed as part of a registration statement in
reliance upon Rule 430A and contained in the form of
prospectus filed by the registrant pursuant to Rule 424(b)(1)
or (4) or 497(h) under the Securities Act shall be deemed to
be part of this Registration Statement as of the time it was
declared effective.
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form SB-2 and authorizes this registration
statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of New York, State of New York on December 20, 1999.
Streamedia Communications, Inc.
By: /s/ Gayle Essary
Gayle Essary, Chairman of the Board
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the person whose
signature appears below constitutes and appoints Gayle Essary and James Douglas
Rupp, and each for them, his true and lawful attorney-in-fact and agent, with
full power of substitution and re-substitution, for him and in his name, place
and stead, in any and all capacities (until revoked in writing), to sign any and
all further amendments to this Registration Statement (including post-effective
amendments), and to file same, with all exhibits thereto, and other documents in
connection therewith, with the Securities and Exchange Commission, granting unto
such attorneys-in-fact and agents, and each of them, 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 thereby ratifying and confirming all that said
attorneys-in-fact and agents, and each of them, or their substitutes 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 and on the dates indicated.
<TABLE>
<S> <C> <C>
Signature Title Date
/s/ Gayle Essary Chairman of the Board December 20, 1999
- --------------------
Gayle Essary (Principal Executive Officer)
/s/ James Douglas Rupp President and CEO, Director December 20, 1999
- -----------------------
James Douglas Rupp (Principal Operating Officer)
/s/ Nicholas J. Malino Chief Financial Officer and Director December 20, 1999
- ----------------------
Nicholas J. Malino (Principal Financial Officer)
/s/ David J. Simonetti Director December 20, 1999
- ----------------------
David J. Simonetti
</TABLE>
1,000,000 UNITS
STREAMEDIA COMMUNICATIONS, INC.
(a Delaware corporation)
Each Unit Consisting of
One Share of Common Stock and
One Redeemable Common Stock Purchase Warrant
December 20, 1999
UNDERWRITING AGREEMENT
INSTITUTIONAL EQUITY CORPORATION
8214 Westchester
Suite 500
Dallas, Texas 75225
CAPITAL WEST SECURITIES, INC.
One Leadership Square
Suite 200
211 North Robinson
Oklahoma City, Oklahoma 73102
As Co-Representatives of the Several Underwriters
Gentlemen:
1. INTRODUCTION. Streamedia Communications, Inc., a Delaware
corporation (the "Company"), proposes to issue and sell to the several
underwriters named in Schedule A attached hereto (the "Underwriters") for whom
you are acting as representatives (the "Representatives") pursuant to this
Underwriting Agreement (this "Agreement") an aggregate of One Million
(1,000,000) Units (the "Units") of Streamedia Communications, each Unit
consisting of (i) one share (a "Share") of common stock, $0.001 par value per
share (the "Common Stock"), and (ii) one redeemable Common Stock purchase
warrant to purchase one share of Common Stock (a "Redeemable Warrant"), at a
price of Eight and 50/100 Dollars ($8.50) per Unit. The Units and the Shares and
Redeemable Warrants included in the Units, each as described in the immediately
preceding sentence, are herein collectively called the "Firm Securities." In
addition, the Selling Shareholders (as hereinafter defined) and the Company
propose to grant to the Underwriters an option to purchase all or any part of an
aggregate of One Hundred Fifty Thousand (150,000) additional Units (the "Option
Securities") consisting of 150,000 shares (the "Option Shares") of Common Stock
(19,735 of which are owned by the shareholders of the Company named in Schedule
B attached hereto (the "Selling Shareholders") and 130,265 of which will be
issued by the Company) and 150,000 Redeemable Warrants (the "Option Warrants"),
at a price of Eight and 50/100 Dollars ($8.50) per Unit, solely for covering
over-allotments, if any. The 1,150,000 shares of Common Stock issuable upon
exercise of the Redeemable Warrants included as part of the Firm Securities and
Option Securities are hereinafter referred to as "Public Warrant Shares." The
Firm Securities, Option Securities and Public Warrant Shares are hereinafter
sometimes referred to as the "Offered Securities."
The Shares and Redeemable Warrants will automatically separate on
January 19, 2000 and may be separately traded thereafter. Each Redeemable
Warrant shall become exercisable on December 20, 2000 and remain exercisable
thereafter until five (5) years from the date of the Prospectus (as hereinafter
defined), and shall entitle the holder to purchase one share of Common Stock at
a price equal to $12.75 per share, which price is subject to adjustment in
certain circumstances to prevent dilution. Commencing December 21, 2001, the
Company shall have the right, at any time, to call each of the Redeemable
Warrants for redemption upon not less than thirty (30) days' prior written
notice at any time at a redemption price of $.05 per Redeemable Warrant, subject
to adjustment, provided that the closing sale price of the Common Stock on any
national securities exchange, or Closing Bid Price (as hereinafter defined), has
equaled or exceeded $12.75 per share (subject to adjustment in certain
circumstances to prevent dilution) for ten (10) consecutive trading days within
the 30 day period immediately preceding the date notice of redemption is given
(the "Redemption Price"). "Closing Bid Price" shall mean the closing bid
quotation on The Nasdaq SmallCap Market (the "NSCM") as reported by Bloomberg
Financial Markets ("Bloomberg"), or, if the NSCM is not the principal trading
market for such security, the last closing bid price of such security on the
principal securities exchange or trading market where such security is listed or
traded as reported by Bloomberg, or if the foregoing do not apply, the last
closing bid price of such security in the over-the-counter market on the pink
sheets or bulletin board for such security as reported by Bloomberg, or, if no
closing bid price is reported for such security by Bloomberg, the last closing
trade price of such security as reported by Bloomberg. If the Closing Bid Price
cannot be calculated for such security on such date on any of the foregoing
bases, the Closing Bid Price of such security on such date shall be the fair
market value as reasonably determined in good faith by the Board of Directors of
the Company. The Redeemable Warrants will be issued pursuant to a warrant
agreement dated the date hereof between the Company and American Securities
Transfer, Incorporated (the "Public Warrant Agreement") a form of which has been
filed as Exhibit 4.1 to the Registration Statement.
The Company also proposes to issue and sell to the Representatives,
pursuant to the terms of a warrant agreement, dated as of the First Closing Date
(as defined in Section 4(c) below), between the Representatives and the Company
(the "Underwriters' Warrant Agreement"), warrants (the "Underwriters' Warrants")
to purchase up to 100,000 Units for One Hundred Dollars ($100). The
Underwriters' Warrants shall be exercisable during the four-year period
commencing twelve (12) months from the Effective Date (as defined in Section
2(a) below), at a price per unit of 135% of the initial public offering price,
subject to adjustment in certain events to protect against dilution. The 100,000
Units issuable upon exercise of the Underwriters' Warrants are hereinafter
referred to as the "Underwriters' Units"; the 100,000 shares of Common Stock
underlying the Underwriters' Units are hereinafter referred to as the
"Underwriters' Shares"; the 100,000 Redeemable Warrants underlying the
Underwriters' Units are hereinafter referred to as the "Underwriters' Redeemable
Warrants"; the 100,000 shares of Common Stock issuable upon exercise of the
Underwriters' Redeemable Warrants are hereinafter referred to as the
"Underwriters' Warrant Shares"; and the Underwriters' Warrants, the
Underwriters' Units, the Underwriters' Shares, the Underwriters' Redeemable
Warrants and the Underwriters' Warrant Shares are sometimes hereinafter referred
to collectively as the "Underwriters' Securities." The Offered Securities and
the Underwriters' Securities are sometimes hereinafter referred to collectively
as the "Registered Securities."
The Registered Securities are more fully described in the Registration
Statement and the Prospectus referred to below.
The several Underwriters have advised the Company that they desire to
purchase the Units. The Company confirms the agreements made by it with respect
to the purchase of the Units by the Underwriters as follows:
2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company
represents and warrants to each Underwriter as of the date hereof, as of the
First Closing Date (as defined in Section 4(c) below), and as of the Option
Closing Date (as defined in Section 4(c) below), if any, and agrees with each
Underwriter, as follows:
(a) The Company has filed with the Securities and Exchange Commission
(the "Commission") a registration statement on Form SB-2 (No. 333-78591)
covering the registration of the Registered Securities under the Securities Act
of 1933, as amended (the "Act"), including the related preliminary prospectus or
prospectuses. Promptly after execution and delivery of this Agreement, the
Company will either (i) prepare and file a prospectus in accordance with the
provisions of Rule 430A ("Rule 430A") of the rules and regulations of the
Commission under the Act (the "Rules and Regulations") and paragraph (b) of Rule
424 ("Rule 424(b)") of the Rules and Regulations or (ii) if the Company has
elected to rely upon Rule 434 ("Rule 434") of the Rules and Regulations, prepare
and file a term sheet (a "Term Sheet") in accordance with the provisions of Rule
434 and Rule 424(b). The information included in such prospectus or in such Term
Sheet, as the case may be, that was omitted from such registration statement at
the time it became effective but that is deemed to be part of such registration
statement at the time it became effective (i) pursuant to paragraph (b) of Rule
430A is referred to as "Rule 430A Information" or (ii) pursuant to paragraph (d)
of Rule 434 is referred to as "Rule 434 Information." Each prospectus used
before such registration statement became effective, and any prospectus that
omitted, as applicable, the Rule 430A Information or the Rule 434 Information
that was used after such effectiveness and prior to the execution and delivery
of this Agreement, is herein called a "Preliminary Prospectus." Such
registration statement, including the exhibits thereto and schedules thereto, at
the time it became effective (the "Effective Date") and including the Rule 430A
Information and the Rule 434 Information, as applicable, is herein called the
"Registration Statement." Any registration statement filed pursuant to Rule
462(b) of the Rules and Regulations is herein referred to as the "Rule 462(b)
Registration Statement," and after such filing the term "Registration Statement"
shall include the Rule 462(b) Registration Statement. The final prospectus in
the form first furnished to the Underwriters for use in connection with the
offering of the Registered Securities is herein called the "Prospectus." If Rule
434 is relied on, the term "Prospectus" shall refer to the preliminary
prospectus dated November 29, 1999, together with the Term Sheet, and all
references in this Agreement to the date of the Prospectus shall mean the date
of the Term Sheet. For purposes of this Agreement, all references to the
Registration Statement, any Preliminary Prospectus, the Prospectus or any Term
Sheet or any amendment or supplement to any of the foregoing shall be deemed to
include the copy filed with the Commission pursuant to its Electronic Data
Gathering, Analysis and Retrieval System ("EDGAR"). The Company will not, so
long as any Redeemable Warrants, Underwriters' Warrants or Underwriters'
Redeemable Warrants remain outstanding and exercisable, file any amendment to
the Registration Statement or any amendment or supplement to any Preliminary
Prospectus or the Prospectus unless the Company has given reasonable and prior
notice thereof to the Representatives and counsel for the Underwriters and none
of which shall have reasonably objected within a reasonable period of time prior
to the filing thereof.
(b) Neither the Commission nor any state regulatory authority has
issued any order preventing or suspending the use of any Preliminary Prospectus,
nor has the Commission or any such authority instituted or threatened to
institute any proceedings with respect to such an order. At the times the
Registration Statement, any 462(b) Registration Statement and any post-effective
amendments thereto becomes effective and at all times subsequent thereto up to
and on the First Closing Date (as defined in Section 4(c) below) or the Option
Closing Date (as defined in Section 4(c) below), as the case may be, (i) the
Registration Statement, the 462(b) Registration Statement, the Prospectus, and
any amendments or supplements to any thereof, complied and will comply in all
material respects to the requirements of the Act and the Rules and Regulations,
(ii) the Registration Statement, the 462(b) Registration Statement, the
Prospectus, and any amendments or supplements to any thereof, did not and will
not contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary to make statements
therein not misleading; provided, however, that the Company makes no
representations, warranties or agreements as to information contained in or
omitted from the Registration Statement or Prospectus 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 thereof; and (iii) if
Rule 434 is used, the Company will comply with the requirements of Rule 434 and
the Prospectus shall not be "materially different," as such term is used in Rule
434, from the prospectus included in the Registration Statement.
Each Preliminary Prospectus and each Prospectus filed as a part of the
Registration Statement as originally filed or as part of any amendment thereto,
or filed pursuant to Rule 424 under the Rules and Regulations, complied when so
filed in all material respects with the Rules and Regulations, and each
Preliminary Prospectus and each Prospectus delivered to the Underwriters for use
in connection with the offering of the Registered Securities were identical to
the electronically transmitted copies thereof filed with the Commission pursuant
to EDGAR, except to the extent permitted by Regulation S-T.
(c) The Company has been duly incorporated and is validly existing as a
corporation in good standing under the laws of the jurisdiction of its
incorporation, with full power and authority (corporate and other) to own its
properties and conduct its business as described in the Registration Statement
and Prospectus and is duly qualified to do business as a foreign corporation and
is in good standing in all other jurisdictions in which the nature of its
business or the character or location of its properties requires such
qualification, except where failure to so qualify will not have a material
adverse effect on the Company's business, properties, assets, condition
(financial or other) or results of operations (a "Material Adverse Effect"). The
Company holds all authorizations, approvals, licenses, certificates, franchises
and permits from state, federal or other regulatory authorities necessary for
the conduct of its business as presently conducted and as described in or
contemplated by the Registration Statement and is in compliance with all laws
and regulations and all orders and decrees applicable to it or to such business
or assets and there are no proceedings pending or, to the best knowledge of the
Company, threatened, seeking to cancel, terminate or limit such authorizations,
approvals, licenses, certificates, franchises or permits.
(d) The authorized, issued and outstanding capital stock of the Company
as of September 30, 1999 is as set forth in the Prospectus under
"Capitalization"; all shares of issued and outstanding capital stock of the
Company set forth thereunder have been duly authorized, validly issued and are
fully paid and non-assessable; except as set forth in the Prospectus, no
options, warrants, or other rights to purchase, agreements or other obligations
to issue, or agreements or other rights to convert any obligation into, any
shares of capital stock of the Company have been granted or entered into by the
Company; and the capital stock conforms to all statements relating thereto
contained in the Registration Statement and Prospectus. The issuances and sales
of all such capital stock complied in all respects with applicable federal and
state securities laws; the holders thereof have no rights of rescission with
respect thereto, and are not subject to personal liability by reason of being
such holders; and none of such securities were issued in violation of the
preemptive rights of any holders of any security of the Company or similar
contractual rights granted by the Company.
(e) This Agreement, the Public Warrant Agreement and the Underwriters'
Warrant Agreement have been duly and validly authorized by the Company, and this
Agreement constitutes, and the Public Warrant Agreement and the Underwriters'
Warrant Agreement, when executed and delivered pursuant to this Agreement
(assuming due execution by the Underwriters and/or the appropriate parties to
such agreements), will each constitute, a valid and binding agreement of the
Company, enforceable against the Company in accordance with their respective
terms, except (i) as such enforceability may be limited by bankruptcy,
insolvency, reorganization, moratorium, fraudulent conveyance or similar laws
affecting creditors' rights generally, (ii) as enforceability of any
indemnification, contribution or exculpation provision may be limited under
applicable federal and state securities laws, and (iii) that the remedy of
specific performance and injunctive and other forms of equitable relief may be
subject to equitable defenses and to the discretion of the court before which
any proceeding therefor may be brought ((i), (ii) and (iii) are hereinafter
referred to as the "Enforceability Exceptions").
(f) The Company has full power and lawful authority to authorize, issue
and sell the Registered Securities to be sold by it hereunder on the terms and
conditions set forth herein, and no consent, approval, authorization or other
order of, or registration or filing with, any court or other governmental
authority or agency is required in connection with such authorization, execution
and delivery or with the authorization, issue and sale of the Registered
Securities, except such as may be required and have been obtained under the Act,
state securities or blue sky laws and from the National Association of
Securities Dealers, Inc. ("NASD").
(g) The Units and the Shares have been duly authorized and, when issued
and delivered pursuant to this Agreement, will be duly authorized, validly
issued, fully paid and non-assessable. The Redeemable Warrants have been duly
authorized and, when issued and delivered pursuant to this Agreement, will
constitute valid and legally binding obligations of the Company enforceable in
accordance with their terms, subject to the Enforceability Exceptions, and will
be entitled to the benefits provided by the Public Warrant Agreement. The Public
Warrant Shares have been reserved for issuance upon exercise of the Redeemable
Warrants and, when issued in accordance with the terms of the Redeemable
Warrants and Public Warrant Agreement, will be duly authorized, validly issued,
fully paid and non-assessable. The Underwriters' Warrants have been duly
authorized and, when issued and delivered pursuant to this Agreement and the
Underwriters' Warrant Agreement, will constitute valid and legally binding
obligations of the Company enforceable in accordance with their terms, subject
to the Enforceability Exceptions, and will be entitled to the benefits provided
by the Underwriters' Warrant Agreement. The Underwriters' Shares have been
reserved for issuance upon exercise of the Underwriters' Warrants and, when
issued in accordance with the terms of the Underwriters' Warrants and
Underwriters' Warrant Agreement, will be duly authorized, validly issued, fully
paid and non-assessable. The Underwriters' Redeemable Warrants, when issued in
accordance with the terms of the Underwriters' Warrants and Underwriters'
Warrant Agreement, will be duly authorized and will constitute valid and legally
binding obligations of the Company enforceable in accordance with their terms,
subject to the Enforceability Exceptions, and will be entitled to the benefits
provided by the Public Warrant Agreement. The Underwriters' Warrant Shares have
been reserved for issuance upon exercise of the Underwriters' Redeemable
Warrants and, when issued in accordance with the terms of the Underwriters'
Redeemable Warrants and the Public Warrant Agreement, will be duly authorized,
validly issued, fully paid and non-assessable. The issuance of any of the
Registered Securities will not violate or otherwise be subject to the preemptive
rights of any holders of any security of the Company or similar contractual
rights granted by the Company, and none of the holders of any of the Registered
Securities will be subject to personal liability by reason of being such
holders.
(h) The Company is not in violation of any term or provision of its
Certificate of Incorporation or Bylaws or of any contract or agreement or of any
statute or any order, rule or regulation or of any other regulatory authority or
other governmental body having jurisdiction over the Company. Neither the
execution and delivery of this Agreement, nor the issuance and/or sale of any of
the Registered Securities, nor the consummation of any of the transactions
contemplated herein, nor the compliance by the Company with the terms and
provisions hereof, has conflicted with or will conflict with, or has resulted in
or will result in a breach of, any of the terms and provisions, or has
constituted or will constitute a default under, or has resulted in or will
result in the creation or imposition of any lien, charge or encumbrance upon the
property or assets of the Company pursuant to the terms of, any indenture,
mortgage, deed of trust, note, loan or credit agreement or any other agreement
or instrument evidencing an obligation for borrowed money, or any other
agreement or instrument to which the Company is a party, or by which the Company
may be bound, or to which any of the property or assets of the Company is
subject; nor will such actions result in any violation of the provisions of the
Certificate of Incorporation or the Bylaws of the Company or of any contract or
agreement, or of any statute or any order, rule or regulation applicable to the
Company or of any other regulatory authority or other governmental body having
jurisdiction over the Company.
(i) Except as described in the Prospectus, no default exists in the due
performance and observance of any term, covenant or condition of any license,
contract, indenture, mortgage, deed of trust, note, loan or credit agreement, or
any other agreement or instrument to which the Company is a party or by which
the Company may be bound or to which any of the property or assets of the
Company are subject.
(j) Except as described in the Prospectus, the Company has good and
marketable title to all properties and assets described in the Prospectus as
owned by it, free and clear of all liens, charges, encumbrances or restrictions,
except such as are not materially significant or important in relation to its
business; all of the leases and subleases under which the Company is the lessor
or sublessor of properties or assets or under which the Company holds properties
or assets as lessee or sublessee as described in the Prospectus are in full
force and effect, and, except as described in the Prospectus, the Company is not
in default with respect to any of the terms or provisions of any of such leases
or subleases, and no claim has been asserted by anyone adverse to rights of the
Company as lessor, sublessor, lessee or sublessee under any of the leases or
subleases mentioned above, or affecting or questioning the right of the Company
to continued possession of the leased or subleased premises or assets under any
such lease or sublease except as described or referred to in the Prospectus; and
the Company owns or leases all properties and assets described in the Prospectus
as are necessary to its operations as now conducted and, except as otherwise
stated in the Prospectus, as proposed to be conducted as set forth in the
Prospectus.
(k) Grant Thornton LLP, who have audited and given their reports on
certain financial statements filed and to be filed with the Commission as a part
of the Registration Statement, which are incorporated in the Prospectus, are,
with respect to the Company, independent public accountants as required by the
Act and the Rules and Regulations.
(l) The financial statements, together with related notes, set forth in
the Prospectus or the Registration Statement present fairly the financial
position and results of operations and changes in cash flow position of the
Company on the basis stated in the Registration Statement, at the respective
dates and for the respective periods to which they apply. Said statements and
related notes have been prepared in accordance with generally accepted
accounting principles applied on a basis which is consistent during the periods
involved, except as otherwise stated therein, and all adjustments necessary for
a fair presentation of results for such periods have been made. The information
set forth under the captions "Dilution," "Capitalization," and "Selected
Financial Information" in the Prospectus fairly present, on the basis stated in
the Prospectus, the information included therein.
(m) Subsequent to the respective dates as of which information is given
in the Registration Statement and Prospectus, (i) the Company has not incurred
any material liabilities or obligations, direct or contingent, or entered into
any material transactions other than in the ordinary course of business; (ii)
there has not been any change in the capital stock, funded debt (other than
regular repayments of principal and interest on existing indebtedness) or other
securities of the Company; (iii) there has not been any adverse change in the
condition (financial or otherwise), business, operations, income, net worth or
properties, including any loss or damage to the properties, of the Company
(whether or not such loss is insured against); (iv) the Company has not paid or
declared any dividend or other distribution on its Common Stock or its other
securities or redeemed or repurchased any of its Common Stock or other
securities; and (v) the Company has not become a party to, and neither the
business nor the property of the Company has become the subject of, any
litigation whether or not in the ordinary course of business.
(n) Except as set forth in the Prospectus, (i) there is not now pending
or, to the best knowledge of the Company, threatened, any action, suit or
proceeding to which the Company or any of the officers, directors or
securityholders thereof is a party before or by any court or governmental agency
or body; (ii) there are no actions, suits or proceedings to which the Company is
a party related to environmental matters or related to discrimination on the
basis of age, sex, religion or race; and (iii) there are no labor disputes
involving the employees of the Company that exist or are imminent.
(o) There is no contract or other document which is required by the Act
or by the Rules and Regulations to be filed as an exhibit to the Registration
Statement which has not been so filed. Each contract which is filed as an
exhibit to the Registration Statement is and shall be in full force and effect
at each Closing Date (as defined in Section 4(c) below) or shall have been
terminated in accordance with its terms or as set forth in the Registration
Statement and Prospectus. No party to any such contract has given notice to the
Company of the cancellation of or shall have threatened to cancel any such
contract, and, except as set forth in the Prospectus, the Company is not or
shall not be in default thereunder.
(p) Except as set forth in the Prospectus, the Company has filed all
necessary federal, state, local and foreign income and franchise tax returns and
has paid all taxes shown as due thereon; there is no tax deficiency which has
been, or to the best knowledge of the Company, might be asserted against the
Company; and the Company has established adequate reserves for such taxes which
are not yet due and payable.
(q) None of the activities or business of the Company are in violation
of, or cause the Company to violate, any law, rule, regulation or order of the
United States, any state, county or locality, or of any agency or body of the
United States or of any state, county or locality.
(r) The Company maintains insurance, which is in full force and effect,
of the types and in the amounts currently adequate for its business, including
but not limited to personal injury and product liability insurance, insurance
covering all personal property owned or leased by the Company against theft,
damage, destruction, acts of vandalism and all other risks customarily insured
against. The Company has not (i) failed to give notice or present any insurance
claim with respect to any matter, including but not limited to the Company's
business, property or employees, under any insurance policy or surety bond in a
due and timely manner, (ii) had any disputes or claims against any underwriter
of such insurance policies or surety bonds or has failed to pay any premiums due
and payable thereunder, or (iii) failed to comply with all conditions contained
in such insurance policies and surety bonds. To the best knowledge of the
Company, there are no facts or circumstances under any such insurance policy or
surety bond which would relieve any insurer of its obligation to satisfy in full
any valid claim of the Company.
(s) The Company has currently pending trademark applications with
regard to trademarks, service marks and trade names necessary for the conduct of
its business as described in the Prospectus and owns or possesses adequate
rights to domain names, copyrights, know-how (including all other unpatented
and/or unpatentable proprietary or confidential information, systems or
procedures), technology, trade secrets, designs, processes, works of authorship,
computer programs and technical data and information (collectively,
"Intellectual Property") necessary for the conduct of its business as described
in the Prospectus or that are material to the development, manufacture,
operation and sale of all products and services sold or proposed to be sold by
the Company, and, except as set forth in Schedule 2(r), the Company has not
received any notice of infringement of or conflict with, and the Company, to the
best of its knowledge, is not infringing or in conflict with asserted rights of
others with respect to, any Intellectual Property.
(t) Except as set forth in the Prospectus, the Company is not obligated
or under any liability whatsoever to make any payment by way of royalties, fees
or otherwise to any owner or licensee of, or other claimant to, any Intellectual
Property, with respect to the use thereof or in connection with the conduct of
its business or otherwise. In addition, the Company owns and has the
unrestricted right to use all Intellectual Property free and clear of and
without violating any right, lien, or claim of others, including without
limitation, former employers of its employees. The Company has no knowledge of
any development by any other person or entity of trade secrets or items of
technical information similar to those of the Company. The Company has taken
reasonable security measures to protect the secrecy, confidentiality and value
of all of its Intellectual Property in all material aspects.
(u) Except as set forth in Schedule 2(u), the Company is not obligated
to pay and has not paid within the past twelve (12) months, and has not
obligated, and will not obligate, the Underwriters to pay, any finder's fee in
connection with the underwriting contemplated hereby or any other fee (cash,
securities or otherwise) in consideration of financial, consulting or investment
banking services.
(v) No officer or director of the Company or any "affiliate" or
"associate" (as such terms are defined in Rule 405 of the Rules and Regulations)
of the Company. No such officer or director has taken, and each officer or
director has agreed that he will not take, directly or indirectly, any action
designed to or which might reasonably be expected to cause or result in the
stabilization or manipulation of the price of any security issued by the
Company.
(w) Except as set forth in the Prospectus under "Certain Relationships
and Related Transactions," there are no existing agreements, arrangements, or
transactions, between or among the Company and any officer, director or 5%
stockholder of the Company, or any partner, affiliate or associate of any of the
foregoing persons or entities; no officer, director or greater than 5%
stockholder of the Company, and no affiliate or associate of any of the
foregoing persons or entities, has or has had, either directly or indirectly,
(i) an interest (other than ownership of an immaterial number of shares of
capital stock of an entity whose securities are publicly traded) in any person
or entity which (A) furnishes or sells products or services which are furnished
or sold or are proposed to be furnished or sold by the Company, or (B) purchases
from or sells or furnishes to the Company any goods or services, or (ii) a
beneficial interest in any contract or agreement to which the Company is a party
or by which it may be bound or affected.
(x) The minute books of the Company have been made available to the
Representatives and contain a complete summary of all meetings and actions of
the directors and stockholders of the Company since the time of its date of
organization, and reflect all transactions referred to in such minutes
accurately in all respects.
(y) The Company is not aware of any bankruptcy, labor disturbance or
other event affecting any of its principal suppliers or customers which is
reasonably likely to result in a Material Adverse Effect.
(z) The Registered Securities and all the other securities of the
Company conform to all statements in relation thereto in the Registration
Statement.
(aa) Except for the registration rights granted under the Underwriters'
Warrant Agreement, no holder of any securities of the Company has the right to
require that the Company include such securities in the Registration Statement
or any registration statement to be filed by the Company.
(bb) The Company has filed an application for the quotation of the
Units, Shares and Redeemable Warrants on The Nasdaq SmallCap Market and has used
its best efforts to cause such application to be accepted. The Company has filed
a registration statement with the Commission pursuant to Section 12(g) of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and has used
its best efforts to have same declared effective by the Commission on an
accelerated basis on the Effective Date.
(cc) Neither the Company nor any officer, director or other agent
thereof has, acting on behalf of the Company, at any time (i) made any
contributions to any candidate for political office in violation of law, or
failed to disclose fully any such contributions in violation of law, (ii) made
any payment to any state, federal or foreign governmental officer or official,
or any other person charged with similar public or quasi-public duties, other
than payments required or not prohibited by law or (iii) made any payment of
funds of the Company or received or retained any funds in violation of any law,
rule or regulation and under circumstances requiring the disclosure of such
payment, receipt or retention of funds in the Prospectus. The Company's internal
accounting controls and procedures are sufficient to cause the Company to comply
with the Foreign Corrupt Practices Act of 1977, as amended.
(dd) On each Closing Date (as defined in Section 4(c) below) all
transfer or other taxes, (including franchise, capital stock or other tax, other
than income taxes, imposed by any jurisdiction) if any, which are required to be
paid in connection with the sale and transfer of the Units to the Underwriters
hereunder will have been fully paid or provided for by the Company and all laws
imposing such taxes will have been fully complied with.
(ee) The Company has no subsidiaries.
(ff) Except as previously disclosed in writing by the Company to the
Representatives, no officer, director or stockholder of the Company has any
affiliation or association with any member of the NASD.
(gg) The Company is not, and upon receipt of the proceeds from the sale
of the Units will not be, an "investment company" or a company "controlled" by
an "investment company" within the meaning of the Investment Company Act of
1940, as amended, and the rules and regulations thereunder.
(hh) Except for materials distributed by the Representatives in
connection with the Company's bridge financing, the Company has not distributed
and will not distribute prior to the First Closing Date (as defined in Section
4(c) below) any offering material in connection with the offering and sale of
the Units other than the Preliminary Prospectus, Prospectus, the Registration
Statement or the other materials permitted by the Act, if any.
(ii) The employment agreements between the Company and its respective
officers, as disclosed in the Registration Statement, are or will be on or
before the First Closing Date (as defined in Section 4(c) below) binding and
enforceable obligations upon the respective parties thereto in accordance with
their respective terms, subject to the Enforceability Exceptions.
(jj) Except as set forth in the Prospectus, the Company has no employee
benefit plans (including, without limitation, profit sharing and welfare benefit
plans) or deferred compensation arrangements that are subject to the provisions
of the Employee Retirement Income Security Act of 1974.
(kk) There are no voting or other shareholder agreements between the
Company and any stockholders of the Company or between or among any stockholders
of the Company.
(ll) The Company has generally enjoyed a satisfactory employer-employee
relationship with its employees and is in compliance with all federal, state,
local, and foreign laws and regulations respecting employment and employment
practices, terms and conditions of employment and wages and hours. There are no
pending investigations involving the Company by the U.S. Department of Labor or
any other governmental agency responsible for the enforcement of such federal,
state, local, or foreign laws and regulations. There is no unfair labor practice
charge or complaint against the Company pending before the National Labor
Relations Board or any strike, picketing, boycott, dispute, slowdown or stoppage
pending or, to the best knowledge of the Company, threatened against or
involving the Company, and none has ever occurred. No representation question
exists respecting the employees of the Company, and no collective bargaining
agreement or modification thereof is currently being negotiated by the Company.
No grievance or arbitration proceeding is pending under any expired or existing
collective bargaining agreements to which the Company is or was a party. No
labor dispute with the employees of the Company exists, or is imminent.
(mm) The statements in the Prospectus under "Risk Factors," "Business,"
"Certain Relationships and Related Transactions," "Management" and "Description
of Capital Stock," insofar as they refer to statements of law, descriptions of
statutes, licenses, regulations or legal conclusions are correct in all material
respects.
(nn) The conditions for use of Form SB-2, as set forth in the General
Instructions thereto, have
been satisfied.
(oo) There are no business relationships or related-party transactions
of the nature described in Item 404 of Regulation S-B involving the Company and
any person described in such Item that are required to be disclosed in the
Prospectus and that have not been so disclosed.
(pp) 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, Florida Statutes.
(qq) Any certificate signed by an officer of the Company in his
capacity as such and delivered to the Underwriters or counsel for the
Underwriters shall be deemed a representation and warranty by the Company to
each Underwriter as to the matters covered thereby.
3. REPRESENTATIONS AND WARRANTIES OF THE SELLING SHAREHOLDERS. Each
Selling Shareholder represents, warrants and covenants to each Underwriter as
follows:
(a) This Agreement has been duly and validly authorized by or on behalf
of such Selling Shareholder and when executed and delivered will constitute a
valid and binding agreement of such Selling Shareholder, enforceable against
such Selling Shareholder in accordance with its terms, except as such
enforceability may be limited by the Enforceability Exceptions.
(b) Each of the (i) Custody Agreement signed by such Selling
Shareholder and Winstead Sechrest & Minick P.C., as custodian (the "Custodian"),
relating to the deposit of the Option Shares to be sold by such Selling
Shareholder (the "Custody Agreement") and (ii) Power of Attorney appointing
certain individuals named therein as such Selling Shareholder's
attorneys-in-fact (each, an "Attorney-in-Fact") to the extent set forth therein
relating to the transactions contemplated hereby and by the Prospectus (the
"Power of Attorney"), of such Selling Shareholder has been duly and validly
authorized, executed and delivered by such Selling Shareholder and is a valid
and binding agreement of such Selling Shareholder, enforceable against such
Selling Shareholder in accordance with its terms, except as such enforceability
may be limited by the Enforceability Exceptions.
(c) Such Selling Shareholder has, and on the Option Closing Date (as
defined in Section 4(c) below) will have, good and valid title to all of the
Option Shares that may be sold by such Selling Shareholder pursuant to this
Agreement on such date and the legal right and power, and all authorizations and
approvals required by law to enter into this Agreement and such Selling
Shareholder's Custody Agreement and Power of Attorney, to sell, transfer and
deliver all of the Option Shares that may be sold by such Selling Shareholder
pursuant to this Agreement and to comply with its other obligations hereunder
and thereunder.
(d) Delivery of the Option Shares that are sold by such Selling
Shareholder pursuant to this Agreement will pass good and valid title to such
Option Shares, free and clear of any security interest, mortgage, pledge, lien,
encumbrance or other claim.
(e) The execution and delivery by such Selling Shareholder of, and the
performance by such Selling Shareholder of its obligations under, this
Agreement, the Custody Agreement and the Power of Attorney will not contravene
or conflict with, result in a breach of, or constitute a default under, or
require the consent of any other party to any agreement or instrument to which
such Selling Shareholder is a party or by which it is bound or under which it is
entitled to any right or benefit, any provision of applicable law or any
judgment, order, decree or regulation applicable to such Selling Shareholder of
any court, regulatory body, administrative agency, governmental body or
arbitrator having jurisdiction over such Selling Shareholder. No consent,
approval, authorization or other order of, or registration or filing with, any
court or other governmental authority or agency, is required for the
consummation by such Selling Shareholder of the transactions contemplated in
this Agreement, except as may be required and as have been obtained under the
Act, applicable state securities or blue sky laws and from the NASD.
(f) Such Selling Shareholder does not have any registration or other
similar rights to have any equity or debt securities registered for sale by the
Company under the Registration Statement or included in the offering
contemplated by this Agreement, except for such rights as are being exercised in
the offering contemplated by this Agreement or such rights as have been duly
waived.
(g) No consent, approval or waiver is required under any instrument or
agreement to which such Selling Shareholder is a party or by which it is bound
or under which it is entitled to any right or benefit, in connection with the
offering, sale or purchase by the Underwriters of any of the Option Shares which
may be sold by such Selling Shareholder under this Agreement or the consummation
by such Selling Shareholder of any of the other transactions contemplated
hereby.
(h) All information furnished by or on behalf of such Selling
Shareholder in writing expressly for use in the Registration Statement and
Prospectus is, and on each Closing Date (as defined in Section 4(c) below) will
be, true, correct, and complete in all material respects, and does not, and on
each Closing Date (as defined in Section 4(c) below) will not, contain any
untrue statement of a material fact or omit to state any material fact necessary
to make such information not misleading. Such Selling Shareholder confirms as
accurate the number of shares of Common Stock set forth opposite such Selling
Shareholder's name in the Prospectus under the caption "Selling Stockholders"
(both prior to and after giving effect to the sale of the Option Shares).
(i) Such Selling Shareholder has not taken and will not take, directly
or indirectly, any action designed to or that might be reasonably expected to
cause or result in stabilization or manipulation of the price of the Common
Stock to facilitate the sale or resale of the Shares.
(j) Such Selling Shareholder has no reason to believe that the
representations and warranties of the Company contained in Section 2 hereof are
not true and correct, is familiar with the Registration Statement and the
Prospectus and has no knowledge of any material fact, condition or information
not disclosed in the Registration Statement or the Prospectus, and is not
prompted to sell shares of Common Stock by any information concerning the
Company that is not set forth in the Registration Statement and the Prospectus.
(k) Such Selling Shareholder has not at any time (i) made any
contributions to any candidate for political office in violation of law, or
failed to disclose fully any such contributions in violation of law, (ii) made
any payment to any state, federal or foreign governmental officer or official,
or any other person charged with similar public or quasi-public duties, other
than payments required or not prohibited by law or (iii) made any payment of
funds or received or retained any funds in violation of any law, rule or
regulation and under circumstances requiring the disclosure of such payment,
receipt or retention of funds in the Prospectus.
Any certificate signed by or on behalf of any Selling Shareholder and
delivered to the Underwriters or to counsel for the Underwriters shall be deemed
to be a representation and warranty by such Selling Shareholder to each
Underwriter as to the matters covered thereby.
4. PURCHASE, DELIVERY AND SALE OF THE UNITS.
(a) Subject to the terms and conditions of this Agreement, and upon the
basis of the representations, warranties, and agreements herein contained, the
Company agrees to issue and sell to the Underwriters, and each Underwriter
agrees, severally and not jointly, to buy from the Company at $7.65 per Unit
after deduction of the Underwriters' 10% selling commissions, at the place and
time hereinafter specified, the number of Firm Securities set forth opposite the
name of such Underwriter in Schedule A attached hereto plus any additional Firm
Securities which such Underwriter may become obligated to purchase pursuant to
the provisions of Section 13 hereof. No value shall be attributable to the
Redeemable Warrants constituting a part of the Firm Securities.
(b) In addition, subject to the terms and conditions of this Agreement,
and upon the basis of the representations, warranties and agreements herein
contained, the Company, with respect to the Option Warrants and 120,000 Option
Shares, and the Selling Shareholders, with respect to 30,000 Option Shares,
hereby grant an option (the "Over-Allotment Option") to the Underwriters to
purchase all or any part of the Option Securities at $7.65 per Unit after
deduction of the Underwriters' 10% selling commissions. No value shall be
attributable to the Option Warrants constituting a part of the Option
Securities. The Over-Allotment Option may be exercised within forty-five (45)
days after the Effective Date upon notice by the Representatives to the Company
advising as to the amount of Option Securities as to which the option is being
exercised, the names and denominations in which the certificates for such Option
Securities are to be registered and the time and date when such certificates are
to be delivered. Such time and date shall be determined by the Representatives,
but shall not be earlier than two (2) nor later than ten (10) full business days
after the exercise of said option, nor in any event prior to the First Closing
Date (as defined in Section 4(c) below). The number of Option Securities to be
purchased by each Underwriter, if any, shall bear the same percentage to the
total number of Option Securities being purchased by the several Underwriters
pursuant to this Section 4(b) as the number of Firm Securities such Underwriter
is purchasing bears to the total number of the Firm Securities being purchased
pursuant to Section 4(a), as adjusted, in each case by the Representatives in
such manner as the Representatives may deem appropriate. The Over-Allotment
Option granted hereunder may be exercised only to cover over-allotments in the
sale by the Underwriters of Firm Securities referred to in Section 4(a), and the
Underwriters shall have no obligation to make any over-allotments. No Option
Securities shall be delivered and paid for unless the Firm Securities shall be
simultaneously delivered or shall theretofore have been delivered and paid for
as herein provided. In the event the Company declares or pays a dividend or
distribution on its Common Stock, whether in the form of cash, shares of Common
Stock or any other consideration, prior to the Option Closing Date (as defined
in Section 4(c) below), such dividend or distribution shall also be paid on the
Option Shares on such Option Closing Date (as defined in Section 4(c) below).
(c) The Offered Securities to be purchased by each Underwriter
hereunder, in definitive form, and in such authorized denominations and
registered in such names as the Representatives may request upon forty-eight
(48) hours prior notice to the Company, shall be delivered by or on behalf of
the Company or, in the case of the Option Shares, the Selling Shareholders and
the Company, to the Representatives through the facilities of the Depository
Trust Company ("DTC"), for the account of such Underwriter, against payment by
or on behalf of such Underwriter of the purchase price therefor by certified or
official bank check or checks drawn on or by a Dallas Clearinghouse Bank and
payable in next day funds to the order of the Company, or, with respect to the
Option Shares, to the order of the Company and the respective Selling
Shareholders, or, at the sole option of the Representatives, by wire transfer of
immediately available funds to an account or accounts designated by the Company,
or, with respect to the Option Shares, the Company and the respective Selling
Shareholders. The Company, and with respect to the Option Securities, the
Selling Shareholders and the Company, will cause the certificates for the
Offered Securities to be purchased by the Underwriters hereunder to be made
available for checking and packaging at least twenty-four (24) hours prior to
each Closing Date (as defined in Section 4(c) 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
Securities, 8:30 a.m., City of Dallas time, on December ___, 1999, or such other
time and date as the Representatives and the Company may agree upon in writing,
and, with respect to the Option Securities, 8:30 a.m., City of Dallas time, on
the date specified by the Representatives in the Underwriters' election to
purchase such Option Securities, or such other time and date as the
Representatives, the Company and the Selling Shareholders may agree upon in
writing. Such time and date for delivery of the Firm Securities is herein called
the "First Closing Date," such time and date for delivery for the Option
Securities, if not the First Closing Date, is herein called the "Option Closing
Date," and each such time and date for delivery is herein called a "Closing
Date." The documents to be delivered on each Closing Date by or on behalf of the
parties hereto pursuant to the terms and provisions of this Agreement, including
the cross receipt for the Offered Securities and any additional documents
requested by the Representatives pursuant to the terms and provisions hereof,
will be delivered at the offices of Winstead Sechrest & Minick P.C., 5400
Renaissance Tower, 1201 Elm Street, Dallas, Texas 75270 (the "Closing
Location"), and the Offered Securities will be delivered at the Designated
Office, all on each such Closing Date. A meeting will be held at the Closing
Location at 9:00 a.m., City of Dallas time, on the New York Business Day next
preceding such Closing Date, 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 4(c), "New York 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. Time shall be of the essence and
delivery at the time and place specified in this Agreement is a further
condition to the obligations of the Underwriters. It is understood that the
Representative, each individually and not as representatives of the several
Underwriters, may (but shall not be obligated to) make any and all payments
required pursuant to this Section 4 on behalf of any Underwriters whose check or
checks shall not have been received by the Representatives at the time of
delivery of the Offered Securities to be purchased by such Underwriter or
Underwriters. Any such payment by the Representatives shall not relieve any such
Underwriter or Underwriters of any of its or their obligations hereunder. It is
understood that the Underwriters propose to offer the Offered Securities to be
purchased hereunder to the public upon the terms and conditions set forth in the
Registration Statement, after the Registration Statement becomes effective.
(d) On the First Closing Date, the Company shall issue and sell to the
Underwriters the Underwriters' Warrants. The total purchase price for the
Underwriters' Warrants shall be $100.00. The Underwriters' Warrants shall be
exercisable for a period of four (4) years commencing twelve (12) months from
the Effective Date, to purchase 100,000 Units at $11.475 per Unit. The
Underwriters' Warrant Agreement, including the forms of Underwriters' Warrant
Certificates, shall be substantially in the form filed as Exhibit 1.2 to the
Registration Statement. Payment for the Underwriters' Warrants shall be made to
the Company on the First Closing Date.
5. PUBLIC OFFERING BY THE UNDERWRITER. The Representatives agree to
cause the Firm Securities to be offered to the public initially at the prices
and under the terms set forth in the Prospectus as soon, on or after the
effective date of this Agreement, as the Representatives deem advisable. The
Representatives may allow such concessions and discounts upon sales to other
dealers as set forth in the Prospectus. Each of the Underwriters represents,
severally and not jointly, to the Company that it is currently a member in good
standing of the National Association of Securities Dealers, Inc. and duly
authorized to perform its obligations under this Agreement in all jurisdictions,
states and countries where such Underwriter is required to perform such
obligations under the terms and conditions of this Agreement, and that, during
the period in which such Underwriter is participating in the Offering, the
Underwriter shall use its reasonable best efforts to remain so authorized.
6. COVENANTS OF THE COMPANY. The Company covenants and agrees with the
several Underwriters that:
(a) The Company will use its best efforts to cause the Registration
Statement to become effective as promptly as possible. If required, the Company
will file the Prospectus and any amendment or supplement thereto with the
Commission in the manner and within the time period required by Rules 434 and
424(b) under the Act. Upon notification from the Commission that the
Registration Statement has become effective, the Company will so advise the
Representatives. The Company will not at any time, whether before or after the
Effective Date, file the Prospectus or any amendment to the Registration
Statement or supplement to the Prospectus of which the Representatives shall not
previously have been advised and furnished with a copy or to which the
Representatives or counsel to the Underwriters shall have objected in writing or
which is not in compliance with the Act and the Rules and Regulations.
At any time prior to the later of (i) the completion by all of the
Underwriters of the distribution of the Units contemplated hereby (but in no
event more than nine (9) months after the Effective Date) and (ii) twenty-five
(25) days after the Effective Date, the Company will prepare and file with the
Commission, promptly upon the request of the Representatives, any amendments or
supplements to the Registration Statement or Prospectus which, in the opinion of
the Representatives, may be necessary or advisable in connection with the
distribution of the Units. As soon as the Company is advised thereof, the
Company will advise the Representatives, and confirm the advice in writing, of
(i) the receipt of any comments of the Commission, (ii) the effectiveness of any
post-effective amendment to the Registration Statement, (iii) the filing of any
supplement to the Prospectus or any amended Prospectus, (iv) any request made by
the Commission for amendment of the Registration Statement or for supplementing
of the Prospectus or for additional information with respect thereto, or (v) the
issuance by the Commission or any state or regulatory body of any stop order or
other order or threat thereof suspending the effectiveness of the Registration
Statement or any order preventing or suspending the use of any Preliminary
Prospectus, or of the suspension of the qualification of any of the Offered
Securities for offering in any jurisdiction, or of the institution of any
proceedings for any of such purposes, and will use its best efforts to prevent
the issuance of any such order, and, if issued, to obtain as soon as possible
the lifting thereof.
The Company has caused to be delivered to the Representatives copies of
each Preliminary Prospectus, and the Company has consented and hereby consents
to the use of such copies for the purposes permitted by the Act. The Company
authorizes the Underwriters and dealers to use the Prospectus in connection with
the sale of the Units for such period as in the opinion of counsel to the
Underwriters the use thereof is required to comply with the applicable
provisions of the Act and the Rules and Regulations. In case of the happening,
at any time within such period as a Prospectus is required under the Act to be
delivered in connection with sales by an underwriter or dealer, of any event of
which the Company has knowledge and which materially affects the Company or the
securities of the Company, or which in the opinion of counsel for the Company or
counsel for the Underwriters should be set forth in an amendment of the
Registration Statement or a supplement to the Prospectus in order to make the
statements therein not then misleading, in light of the circumstances existing
at the time the Prospectus is required to be delivered to a purchaser of the
Units, or in case it shall be necessary to amend or supplement the Prospectus to
comply with law or with the Rules and Regulations, the Company will notify the
Representatives promptly and forthwith prepare and furnish to the
Representatives copies of such amended Prospectus or of such supplement to be
attached to the Prospectus, in such quantities as the Representatives may
reasonably request, in order that the Prospectus, as so amended or supplemented,
will not contain any untrue statement of a material fact or omit to state any
material facts necessary in order to make the statements in the Prospectus, in
the light of the circumstances under which they are made, not misleading. The
preparation and furnishing of any such amendment or supplement to the
Registration Statement or amended Prospectus or supplement to be attached to the
Prospectus shall be without expense to the Underwriters, except that in case any
Underwriter is required, in connection with the sale of the Units to deliver a
Prospectus nine (9) months or more after the Effective Date, the Company will
upon request of and at the expense of the applicable Underwriter, amend or
supplement the Registration Statement and Prospectus and furnish the applicable
Underwriter with reasonable quantities of prospectuses complying with Section
10(a)(3) of the Act.
The Company will comply with the Act, the Rules and Regulations and the
Exchange Act and the rules and regulations thereunder in connection with the
offering and issuance of the Offered Securities.
Within the time during which the Prospectus is required to be delivered
under the Act, or pursuant to the undertakings of the Company in the
Registration Statement, the Company will comply, at its own expense, with all
requirements imposed upon it by the Act, the Rules and Regulations, the Exchange
Act and the rules and regulations of the Commission promulgated under the
Exchange Act, each as now or hereafter amended or supplemented, and by any order
of the Commission so far as necessary to permit the continuance of sales of, or
dealings in, the Registered Securities.
(b) The Company will use its best efforts to qualify to register the
Offered Securities for sale under the securities or "blue sky" laws of such
jurisdictions as the Representative may designate and will make such
applications and furnish such information as may be required for that purpose
and to comply with such laws, provided the Company shall not be required to
qualify as a foreign corporation or a dealer in securities or to execute a
general consent of service of process in any jurisdiction in any action other
than one arising out of the offering or sale of the Offered Securities. The
Company will, from time to time, prepare and file such statements and reports as
are or may be required to continue such qualification in effect for so long a
period as the Representatives may reasonably request.
(c) Prior to the completion of the offering contemplated hereby, the
Company will make all filings required to (i) cause a registration statement
under the Exchange Act to be declared effective concurrently with the completion
of the offering contemplated hereby and will notify the Representatives in
writing immediately upon the effectiveness of such registration statement, (ii)
obtain a listing of the Units, Common Stock and Redeemable Warrants on The
Nasdaq SmallCap Market and will use its best efforts to maintain such listing
for at least five (5) years from the date of this Agreement, and (iii) if
requested by the Representatives, to obtain and keep current a listing in a
securities manual published by Standard & Poors or Moody's, which manual shall
be reasonably satisfactory to the Representatives.
(d) For so long as the Company is a reporting company under either
Section 12(g) or 15(d) of the Exchange Act, the Company, at its expense, will
furnish to its stockholders an annual report (including financial statements
audited by independent public accountants), in reasonable detail and at its
expense, and will furnish to the Representatives during the period ending five
(5) years from the date hereof, (i) copies of each annual report of the Company;
(ii) a copy of any Schedule 13D, 13G, 14D-1, 13E-3 or 13E-4 received or filed by
the Company from time to time; (iii) a copy of any annual, quarterly or current
report filed by the Company pursuant to the Exchange Act; (iv) copies of all
statements, documents or other information which the Company shall mail or
otherwise make available to any class of its security holders, or shall file
with the Commission or with any exchange upon which the securities issued by the
Company shall then be listed or registered; and (v) such other publicly
available information as the Representatives may from time to time request.
(e) The Company will deliver to the Representatives at or before the
First Closing Date two (2) manually signed copies of the Registration Statement
including all financial statements and exhibits filed therewith, and of all
amendments thereto, and will deliver to the Underwriters such number of
conformed copies of the Registration Statement, including such financial
statements but without exhibits, and of all amendments thereto, as the
Underwriters may reasonably request. The copies of the Registration Statement
and each amendment thereto furnished to the Underwriters will be identical to
the electronically transmitted copies thereof filed with the Commission pursuant
to EDGAR, except to the extent permitted by Regulation S-T. The signed copies of
the Registration Statement so furnished to the Representatives will include
signed copies of any and all consents and reports of the independent public
auditors as to the financial statements included in the Registration Statement
and Prospectus, and signed copies of any and all consents and certificates of
any other person whose profession gives authority to statements made by them and
who are named in the Registration Statement or Prospectus as having prepared,
certified or reviewed any parts thereof.
The Company will deliver to or upon the order of the Underwriters, from
time to time until the Effective Date, as many copies of any Preliminary
Prospectus filed with the Commission prior to the Effective Date as the
Underwriters may reasonably request. The Company will deliver to the
Underwriters on the Effective Date and thereafter for so long as a Prospectus is
required to be delivered under the Act, from time to time, as many copies of the
Prospectus, in final form, or as thereafter amended or supplemented, as the
Underwriters may from time to time reasonably request. The Company, not later
than (i) 5:00 p.m., New York City time, on the date of determination of the
public offering price, if such determination occurred at or prior to 12:00 noon,
New York City time, on such date or (ii) 6:00 p.m., New York City time, on the
business day following the date of determination of the public offering price,
if such determination occurred after 12:00 noon, New York City time, on such
date, will deliver to the Underwriters, without charge, as many copies of the
Prospectus and any amendment or supplement thereto as the Underwriters may
reasonably request for purposes of confirming orders that are expected to settle
on the First Closing Date. The Prospectus and each Preliminary Prospectus and
any amendments or supplements thereto furnished to the Underwriters will be
identical to the electronically transmitted copies thereof filed with the
Commission pursuant to EDGAR, except to the extent permitted by Regulation S-T.
(f) The Company will make generally available to its security holders
and to the registered holders of its Redeemable Warrants and deliver to the
Representatives as soon as it is practicable to do so but in no event later than
ninety (90) days after the end of twelve (12) months after its current fiscal
quarter, an earnings statement (which need not be audited) covering a period of
at least twelve (12) consecutive months beginning after the Effective Date,
which shall satisfy the requirements of Section 11(a) of the Act.
(g) The Company will apply the net proceeds from the sale of the Units
for the purposes set forth under "Use of Proceeds" in the Prospectus, and will
file such reports with the Commission with respect to the sale of the Units and
the application of the proceeds therefrom as may be required pursuant to Rule
463 under the Act.
(h) The Company on the First Closing Date will sell to the Underwriter
the Underwriters' Warrants according to the terms specified in Section 4(d)
hereof. The Company has reserved and shall continue to reserve a sufficient
number of shares of Common Stock for issuance upon exercise of the Underwriters'
Warrants, the Redeemable Warrants and the Underwriters' Redeemable Warrants.
(i) During the period from the First Closing Date until such time as
all of the Redeemable Warrants have been redeemed by the Company or earlier
exercised by the holders thereof, each in accordance with the terms of the
Public Warrant Agreement, the Company agrees that the Representatives shall have
the right to designate for nomination, and the Company shall use its best
efforts to cause the election of, one member of the Company's Board of Directors
(the "Board"), who shall be reasonably acceptable to the Company; alternatively,
the Representatives may designate an observer, who shall be entitled to attend
all meetings of the Board and to receive all copies of all notices and other
documents distributed to the members of the Board (including, but not limited
to, any unanimous consents prepared and advance notices of all proposed Board
actions or consents), as if such observer were a member of the Board. Such
designee shall be entitled to receive from the Company the same cash
compensation, grants of stock options and reimbursement of expenses as the
Company affords to the directors who are not also officers or employees of the
Company, and the Company shall, in any event, reimburse such designee for all
reasonable costs incurred by such person in attending Board meetings, including
but not limited to food, lodging and transportation. To the extent permitted by
law, the Company agrees to indemnify and hold the designee and the
Representatives harmless against any and all claims, actions, awards and
judgments arising out of such designee's service. The Company shall immediately
after the First Closing Date use its best efforts to obtain directors' and
officers' liability insurance in amounts reasonable and customary for similarly
situated companies, at a premium that the Company can reasonably afford. In the
event the Company maintains a liability insurance policy affording coverage for
the acts of its officers and directors, it will, if possible, include the
designee (as a director) as an insured under such policy. The rights and
benefits of such indemnification and the benefits of such insurance shall, to
the extent possible, extend to the Representatives insofar as it may be, or be
alleged to be, responsible for such designee. The Company will deliver, on or
before the date hereof, the agreements of each of its officers, directors and
holders of 5% or more of its Common Stock to vote, during the period set forth
in the first sentence of this Section 6(i), for the election of the
Representatives' designee for director, if any.
(j) The Company will maintain insurance in full force and effect of the
types and in the amounts adequate for its business and in line with insurance
maintained by similar companies and businesses, including but not limited to,
personal injury and product liability insurance and insurance covering all
personal property owned or leased by the Company against theft, damage,
destruction, acts of vandalism and all other risks customarily insured against.
(k) During the course of the distribution of the Offered Securities,
the Company will not take, directly or indirectly, any action designed to or
which might, in the future, reasonably be expected to cause or result in
stabilization or manipulation of the prices of the Units, Common Stock and/or
Redeemable Warrants. During the so-called "quiet period" in which delivery of a
prospectus is required, if applicable, the Company will not issue press releases
or engage in any other publicity regarding the Company, its business or any
terms of the offering contemplated hereby, without the prior written consent of
the Representatives. During such period, copies of all documents which the
Company or its agents intent to distribute will be provided to the
Representatives for review prior to such distribution.
(l) The Company will promptly upon the Representatives' request,
prepare and file with the Commission any amendments or supplements to the
Registration Statement, Preliminary Prospectus or Prospectus and take any other
action, which in the reasonable opinion of counsel to the Underwriters, may be
reasonably necessary or advisable in connection with the distribution of the
Offered Securities, and will use its best efforts to cause the same to become
effective as promptly as possible.
(m) On each Closing Date, all transfer or other taxes (other than
income taxes) which are required to be paid in connection with the sale and
transfer of the Registered Securities will have been fully paid by the Company
and all laws imposing such taxes will have been fully complied with by the
Company.
(n) Without the prior written consent of the Representatives, the
Company will not, (i) during the two (2) year period commencing on the date of
this Agreement, grant any options (other than employee stock options) to
purchase shares of Common Stock at an exercise price less than the greater of
(A) the initial public offering price of the Units (without allocating any value
to the Redeemable Warrants), or (B) the fair market value of the Common Stock on
the date of grant, or (ii) issue any additional securities which have per share
voting rights greater than the voting rights of the Shares (or take any
corporate action which would have this effect).
(o) Subsequent to the dates as of which information is given in the
Registration Statement and Prospectus and prior to each Closing Date, except as
disclosed in or contemplated by the Registration Statement and Prospectus, (i)
the Company will not have incurred any liabilities or obligations, direct or
contingent, or entered into any material transactions other than in the ordinary
course of business; (ii) there shall not have been any change in the capital
stock, funded debt (other than regular repayments of principal and interest on
existing indebtedness) or other securities of the Company, any adverse change in
the condition (financial or otherwise), business, operations, income, net worth
or properties, including any loss or damage to the properties of the Company
(whether or not such loss is insured against), which would or could be
reasonably expected to result in a Material Adverse Effect; and (iii) the
Company shall not have paid or declared any dividend or other distribution on
its Common Stock or its other securities or redeemed or repurchased any of its
Common Stock or other securities. The Company shall furnish to the Underwriter
as early as practicable prior to each of the date hereof, the First Closing Date
and each Option Closing Date, if any, but no later than two (2) full business
days prior thereto, a copy of the latest available unaudited interim financial
statements of the Company (which in no event shall be as of a date more than
sixty (60) days prior to the date of the Registration Statement) which have been
reviewed by the Company's independent public accountants, as stated in their
letters to be furnished pursuant to Section 8(g) hereof
(p) On each Closing Date, James D. Rupp shall be President and Chief
Executive Officer of the Company, Gayle Essary shall be Vice President of the
Company and Nicholas Malino shall be Chief Financial Officer of the Company. The
Company will obtain key person life insurance on the lives of Messrs. Rupp,
Essary and Malino in an amount of not less than One Million Dollars ($1,000,000)
for each of them and will use its best efforts to maintain such insurance during
the five (5) year period commencing with the First Closing Date unless his
employment with the Company is earlier terminated. In such event, the Company
will obtain a comparable policy on the life of his successor for the balance of
the five (5) year period. For a period of twelve (12) months from the First
Closing Date, the compensation of the executive officers of the Company shall
not be increased from the compensation levels disclosed in the Prospectus.
(q) So long as any Redeemable Warrants are outstanding, the Company
shall use its best efforts to cause post-effective amendments to the
Registration Statement to become effective in compliance with the Act and
without any lapse of time between the effectiveness of any such post-effective
amendments and cause a copy of each Prospectus, as then amended, to be delivered
to each holder of record of a Redeemable Warrant and to furnish to each
Underwriter and dealer as many copies of each such Prospectus as such
Underwriter or dealer may reasonably request. The Company shall not call for
redemption any of the Redeemable Warrants unless a registration statement
covering the securities underlying the Redeemable Warrants has been declared
effective by the Commission and remains current at least until the date fixed
for redemption. In addition, for so long as any Redeemable Warrant is
outstanding, the Company will promptly notify the Representative of any material
change in the business, financial condition or prospects of the Company.
(r) Upon the exercise of any Redeemable Warrants after twelve months
from the Effective Date, the Company will pay the Representative, individually
and not as representative of the Underwriters, a fee of 5% of the aggregate
exercise price of the Redeemable Warrants, of which a portion may be reallowed
to the dealer who solicited the exercise (which may also be the Representative)
if (i) the market price of the Common Stock is greater than or equal to the
exercise price of the Redeemable Warrants on the date of exercise; (ii) the
exercise of the Redeemable Warrants was solicited by a member of the NASD, (iii)
the holder of the Redeemable Warrants so exercised designates in writing that
the exercise of the Redeemable Warrant was solicited by a member of the NASD and
designates in writing the Representatives or other broker-dealer to receive
compensation for such exercise; (iv) the Redeemable Warrants are not held in a
discretionary account (except where prior specific approval for exercise is
received from the customer exercising the Redeemable Warrants); (v) the
disclosure of compensation arrangements has been made in documents provided to
customers, both as part of the original offering and at the time of exercise,
and (vi) the solicitation of exercise of the Redeemable Warrants was not in
violation of Regulation M promulgated under the Exchange Act. The Company agrees
not to solicit the exercise of any Redeemable Warrants other than through the
Representative and will not authorize any other dealer to engage in such
solicitation without the prior written consent of the Representatives.
(s) For a period of five (5) years from the Effective Date, the
Company, at its expense, shall cause its regularly engaged independent certified
public accountants to review (but not audit) the Company's financial statements
for each of the first three (3) fiscal quarters prior to the announcement of
quarterly financial information, the filing of the Company's 10-Q quarterly
report and the mailing of quarterly financial information to stockholders.
(t) The Company maintains and will continue to maintain a system of
internal accounting controls sufficient to provide reasonable assurances that:
(i) transactions are executed in accordance with management's general or
specific authorization; (ii) transactions are recorded as necessary in order to
permit preparation of financial statements in accordance with generally accepted
accounting principles and to maintain accountability for assets; (iii) access to
assets is permitted only in accordance with management's general or specific
authorization; and (iv) the recorded accountability for assets is compared with
existing assets at reasonable intervals and appropriate action is taken with
respect to any differences.
(u) The Company agrees that for so long as the Common Stock is
registered under the Exchange Act, the Company will hold an annual meeting of
shareholders for the election of directors within 180 days after the end of each
of the Company's fiscal years and, within 150 days after the end of each of the
Company's fiscal years, will provide the Company's shareholders with the audited
financial statements of the Company as of the end of the fiscal year just
completed prior thereto. Such financial statements shall be those required by
applicable rules under the Exchange Act and shall be included in an annual
report pursuant to the requirements thereof.
(v) The Company shall cause each director and officer of the Company
and certain other stockholders listed on Schedule C attached hereto, to enter
into an agreement with the Underwriters pursuant to which he, she or it will
agree not to sell or otherwise transfer any securities of the Company for a
period of one (1) year following the Effective Date without the prior consent of
the Representatives.
(w) As promptly as practicable after the First Closing Date, the
Company will prepare, at its own expense, hard cover "bound volumes" relating to
the offering, and will distribute at least five (5) of such volumes to the
individuals designated by the Representative or counsel to the Underwriters.
(x) The Company shall, for a period of six (6) years after date of this
Agreement, submit such reports to the Secretary of the Treasury and to its
stockholders, as the Secretary of the Treasury may require, pursuant to Section
1202 of the Internal Revenue Code, as amended, or regulations promulgated
thereunder, in order for the Company to qualify as a "small business" so that
stockholders may realize special tax treatment with respect to their investment
in the Company.
7. COVENANTS OF THE SELLING SHAREHOLDERS. Each Selling Shareholder
further covenants and agrees with each Underwriter:
(a) Such Selling Shareholder will not, without the prior written
consent of the Representatives (which consent may be withheld in their sole
discretion), directly or indirectly, sell, offer, contract or grant any option
to sell (including without limitation any short sale), pledge, transfer,
establish an open "put equivalent position" within the meaning of Rule 16a-1(h)
under the Exchange Act, or otherwise dispose of any shares of Common Stock,
options or warrants to acquire shares of Common Stock, or securities
exchangeable or exercisable for or convertible into shares of Common Stock
currently or hereafter owned either of record or beneficially (as defined in
Rule 13d-3 under the Exchange Act) by such Selling Shareholder, or publicly
announce such Selling Shareholder's intention to do any of the foregoing, for a
period commencing on the date hereof and continuing through the close of trading
on the date ninety (90) days after the date of the Prospectus.
(b) Such Selling Shareholder will deliver to the Representatives prior
to the First Closing Date a properly completed and executed United States
Treasury Department Form W-8 (if the Selling Shareholder is a non-United States
person) or Form W-9 (if the Selling Shareholder is a United States Person).
8. CONDITIONS TO THE OBLIGATIONS OF THE UNDERWRITERS. The obligations
of the Underwriters to purchase and pay for the Units which it has agreed to
purchase hereunder are subject to the accuracy (as of the date hereof, and as of
each Closing Date) of and compliance with the representations and warranties of
the Company and the Selling Shareholders herein, to the performance by the
Company and the Selling Shareholders of their obligations hereunder, and to the
following conditions:
(a) (i) The Registration Statement, including any 462(b) Registration
Statement, shall have become effective and the Representatives shall
have received notice thereof not later than 10:00 A.M., Dallas time, on
the date on which the amendment to the registration statement
originally filed with respect to the Offered Securities or to the
Registration Statement, as the case may be, containing information
regarding the initial public offering price of the Units has been filed
with the Commission, or such later time and date as shall have been
agreed to by the Representatives;
(ii) If required, the Prospectus and any amendment or
supplement thereto shall have been filed with the Commission in the
manner and within the time period required by Rule 434 and 424(b) under
the Act;
(iii) On or prior to each Closing Date no stop order
suspending the effectiveness of the Registration Statement shall have
been issued and no proceedings for that or a similar purpose shall have
been instituted or shall be pending or, to the best knowledge of the
Representatives and the Company, shall be contemplated by the
Commission;
(iv) Qualification under the securities laws of such states as
the Representatives may designate of the issue and sale of the Offered
Securities upon the terms and conditions herein set forth or
contemplated and containing no provision unacceptable to the
Representatives shall have been secured;
(v) No stop order shall be in effect denying or suspending
effectiveness of such qualifications, nor shall any stop order
proceedings with respect thereto be instituted or pending or, to the
best knowledge of the Company and the Representatives, threatened under
such laws;
(vi) If the Company has elected to rely upon Rule 430A of the
Rules and Regulations, the price of the Units and any price-related
information previously omitted from the effective Registration
Statement pursuant to such Rule 430A shall have been transmitted to the
Commission for filing pursuant to Rule 424(b) of the Rules and
Regulations within the prescribed time period, and prior to the First
Closing Date the Company shall have provided evidence satisfactory to
the Representatives of such timely filing, or a post-effective
amendment providing such information shall have been promptly filed and
declared effective in accordance with the requirements of Rule 430A of
the Rules and Regulations; and
(vii) Any request on the part of the Commission for additional
information shall have been complied with to the reasonable
satisfaction of counsel to the Underwriters.
(b) No amendments to the Registration Statement, any Preliminary
Prospectus or the Prospectus to which the Representatives or counsel for the
Underwriters shall have objected, after having received reasonable notice of a
proposal to file the same, shall have been filed.
(c) The Representatives shall not have discovered and disclosed to the
Company prior to the respective Closing Dates that the Registration Statement or
the Prospectus, or any amendment or supplement thereto, contains an untrue
statement of fact which, in the reasonable opinion of counsel for 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 not misleading.
(d) At the First Closing Date, the Representatives shall have received
the opinion, together with copies of such opinion for each of the other
Underwriters, dated as of the First Closing Date, of Kogan & Taubman L.L.C.,
counsel for the Company, in form and substance satisfactory to counsel for the
Underwriters, to the effect that:
(i) 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 its properties and
conduct its business as described in the Registration Statement and Prospectus
and is duly qualified to do business as a foreign corporation and is in good
standing in all other jurisdictions in which the nature of its business or the
character or location of its properties requires such qualification, except
where the failure to so qualify will not have a Material Adverse Effect;
(ii) the authorized, issued and outstanding capital stock of
the Company as of March 31, 1999 is as set forth in the Prospectus under
"Capitalization"; all shares of issued and outstanding capital stock of the
Company set forth thereunder have been duly authorized, validly issued, and are
fully paid and non-assessable and conform to the description thereof contained
in the Prospectus; to the best of such counsel's knowledge, the outstanding
shares of capital stock of the Company have not been issued in violation of the
preemptive rights of any securityholder of the Company, and the securityholders
of the Company do not have any statutory preemptive rights to subscribe for or
to purchase, nor are there any restrictions upon the voting or transfer of, any
of the capital stock of the Company; the Registered Securities, the Public
Warrant Agreement and the Underwriters' Warrant Agreement conform as to legal
matters in all material respects to the respective descriptions thereof
contained in the Prospectus; the Shares have been, and the Public Warrant Shares
and Underwriters' Warrant Shares upon issuance in accordance with the terms of
the Redeemable Warrants and the Public Warrant Agreement and the Underwriters'
Warrants and the Underwriters' Warrant Agreement, respectively, have been duly
authorized and, when issued and delivered, will be duly and validly issued,
fully paid, non-assessable, free of preemptive rights and no personal liability
will attach to the ownership thereof; a sufficient number of shares of Common
Stock has been reserved for issuance upon exercise of the Redeemable Warrants,
Underwriters' Warrants and Underwriters' Redeemable Warrants, and to the best of
such counsel's knowledge, neither the filing of the Registration Statement nor
the offering or sale of the Registered Securities as contemplated by this
Agreement gives rise to, any registration rights or other rights, other than
those which have been waived or satisfied, for or relating to the registration
of any shares of Common Stock;
(iii) this Agreement, the Public Warrant Agreement and the
Underwriters' Warrant Agreement have been duly and validly authorized, executed
and delivered by the Company and, assuming due execution by each other party
hereto or thereto, each constitutes a legal, valid and binding obligation of the
Company enforceable against the Company in accordance with its respective terms,
except as such enforceability may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium or other laws of general application
relating to or affecting enforcement of creditors' rights and the application of
equitable principles in any action, legal or equitable, and except as rights to
indemnity or contribution may be limited by applicable law;
(iv) the certificates evidencing the shares of Common Stock
are in valid and proper legal form; the Redeemable Warrants, the Underwriters'
Warrants and the Underwriters' Redeemable Warrants will be exercisable for
shares of Common Stock in accordance with their terms and at the prices therein
provided for;
(v) delivery of certificates for the Shares and Redeemable
Warrants underlying the Units, upon payment therefor by the Underwriters as
provided in this Agreement, will transfer valid title to such securities to the
Underwriters; and, upon payment for such securities, the Underwriters will
acquire such securities free and clear of any liens;
(vi) such counsel knows of no pending or threatened legal or
governmental proceedings to which the Company is a party which could have a
material adverse effect on the business, property, financial condition or
operations of the Company; or which question the validity of the Registered
Securities, this Agreement, the Public Warrant Agreement or the Underwriters'
Warrant Agreement, or of any action taken or to be taken by the Company pursuant
to such agreements; and no such proceedings are known to such counsel to be
contemplated against the Company;
(vii) to the best of such counsel's knowledge there are no
governmental proceedings or regulations required to be described or referred to
in the Registration Statement which are not so described or referred to;
(viii) the execution and delivery of this Agreement, the
Public Warrant Agreement and the Underwriters' Warrant Agreement, and the
incurrence of the obligations herein and therein set forth and the consummation
of the transactions herein or therein contemplated, will not result in a breach
or violation of, or constitute a default under, the Certificate of Incorporation
or Bylaws, any bond, debenture, note or other evidence of indebtedness or in any
contract, indenture, mortgage, loan agreement, lease, joint venture or other
agreement or instrument which is filed as an exhibit to the Registration
Statement, or of any material order, writ, injunction, or decree of any
government, governmental instrumentality or court, domestic or foreign
applicable to the Company;
(ix) the Registration Statement has become effective under the
Act, and to the best of such counsel's knowledge, no stop order suspending the
effectiveness of the Registration Statement is in effect, and no proceedings for
that purpose have been instituted or are pending before, or threatened by, the
Commission; the Registration Statement and the Prospectus (except for the
financial statements and other financial data contained therein, or omitted
therefrom, as to which such counsel need express no opinion) comply as to form
in all material respects with the applicable requirements of the Act and the
Rules and Regulations;
(x) such counsel has participated in the preparation of the
Registration Statement and the Prospectus and, although such counsel did not
independently verify and is not passing upon and does not assume any
responsibility for, the accuracy, completeness or fairness of the statements
contained in the Registration Statement and the Prospectus, based upon such
participation, nothing has come to the attention of such counsel to cause such
counsel to have reason to believe that the Registration Statement or any
amendment thereto at the time it became effective contained any untrue statement
of a material fact required to be stated therein or omitted to state any
material fact required to be stated therein or necessary to make the statements
therein not misleading or that the Prospectus or any supplement thereto contains
any untrue statement of a material fact or omits to state a material fact
necessary in order to make statements therein, in light of the circumstances
under which they were made, not misleading (except, in the case of both the
Registration Statement and any amendment thereto and the Prospectus and any
supplement thereto, for the financial statements, notes thereto and other
financial information and schedules contained therein as to which such counsel
need express no opinion);
(xi) all descriptions in the Registration Statement and the
Prospectus, and any amendment or supplement thereto, of contracts and other
documents are accurate and fairly summarize in all material respects the
information required to be disclosed, and such counsel is familiar with all
contracts and other documents referred to in the Registration Statement and the
Prospectus and any such amendment or supplement or filed as exhibits to the
Registration Statement, and such counsel does not know of any contracts or
documents of a character required to be summarized or described therein or to be
filed as exhibits thereto which are not so summarized, described or filed;
(xii) no authorization, approval, consent, or license of any
governmental or regulatory authority or agency is necessary in connection with
the authorization, issuance, transfer, sale or delivery of the Registered
Securities by the Company, in connection with the execution, delivery and
performance of this Agreement by the Company or in connection with the taking of
any action contemplated herein, other than registrations or qualifications of
the Registered Securities under applicable state or foreign securities or blue
sky laws and registration under the Act, all of which have been obtained;
(xiii) the statements in the Registration Statement under the
captions "Business,' "Management," "Shares Eligible for Future Sale," "Certain
Relationships and Related Transactions," "Description of Capital Stock" and in
Part II, Item 26, have been reviewed by such counsel and, insofar as they refer
to descriptions of agreements, statements of law, descriptions of statutes,
licenses, rules or regulations or legal conclusions, are correct in all material
respects;
(xiv) the offers and sales of the Common Stock and other
securities referred to under the caption "Prior Offerings" and in Part II, Item
26, of the Registration Statement were exempt from the registration requirements
of the Securities Act and were exempt from the registration or qualification
requirements of the securities laws of each state in which such offers and sales
were made, and such offers and sales do not have to be integrated with the offer
and sale of the Registered Securities pursuant to the Registration Statement;
and
(xv) based solely upon advice of representatives of Nasdaq,
the Units, the Common Stock and the Redeemable Warrants have been duly
authorized for quotation on The Nasdaq SmallCap Market.
Such counsel need express no opinion with respect to the financial
statements and other financial data included in or omitted from the Registration
Statement or Prospectus. Such opinion shall also cover such matters incident to
the transactions contemplated hereby as the Representatives or counsel for the
Underwriters shall reasonably request. In rendering such opinion, such counsel
may rely upon certificates of any officer of the Company or public officials as
to matters of fact, original copies of which shall be delivered to the
Representative on the First Closing Date and the Option Closing Date as the case
may be; and may rely as to all matters of law other than the law of the United
States or of the State of Delaware upon opinions of counsel satisfactory to you,
in which case the opinion shall state that they have no reason to believe that
you and they are not entitled to so rely.
(e) All corporate proceedings and other legal matters relating to this
Agreement, the Registration Statement, the Prospectus and other related matters
shall be satisfactory to or approved by counsel to the Underwriters.
(f) The Representatives shall have received a letter from Grant
Thornton LLP, independent public accounts for the Company, prior to the
execution and delivery of this Agreement, and dated the date of this Agreement,
in a form satisfactory to the Representatives, together with signed or
reproduced copies of such letter for each of the other Underwriters, containing
statements and information of the type ordinarily included in accountants'
"comfort letters" to underwriters with respect to the financial statements and
certain financial information contained in the Registration Statement and the
Prospectus.
(g) At the First Closing Date, the Representatives shall have received
from Grant Thornton LLP a letter, dated as of the First Closing Date, to the
effect that they reaffirm the statements made in the letter furnished pursuant
to paragraph (f) of this Section, except that the specified date referred to
shall be a date not more than five (5) days prior to the First Closing Date.
(h) The Representatives shall have received a certificate, dated and
delivered as of the date of the First Closing Date, of the Chief Executive
Officer and Secretary of the Company stating that:
(i) The Company has complied with all the agreements and
satisfied all the conditions on their respective part to be performed or
satisfied hereunder at or prior to such date, including but not limited to the
agreements and covenants of the Company set forth in Section 6 hereof.
(ii) 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, contemplated or threatened under the Act.
(iii) Such officers have carefully examined the Registration
Statement and the Prospectus and any supplement or amendment thereto, each
contains all statements required to be stated therein or necessary to make the
statements therein not misleading and does not contain any untrue statement of a
material fact, and since the Effective Date there has occurred no event required
to be set forth in the amended or supplemented prospectus which has not been set
forth.
(iv) As of the date of such certificate, the representations
and warranties contained in Section 2 hereof are true and correct as if such
representations and warranties were made in their entirety on the date of such
certificate, and the Company has complied with all its agreements herein
contained as of the date hereof.
(v) Subsequent to the respective dates as of which information
is given in the Registration Statement and Prospectus, and except as
contemplated in the Prospectus, the Company has not incurred any liabilities or
obligations, direct or contingent, or entered into any material transactions and
there has not been any change in the Common Stock or funded debt of the Company
or any adverse change in the condition (financial or otherwise), business,
operations, income, net worth, properties or prospects of the Company.
(vi) Subsequent to the respective dates as of which
information is given in the Registration Statement and the Prospectus, the
Company has not sustained any material loss of or damage to its properties,
whether or not insured, and since such respective dates, no dividends or
distributions whatever shall have been declared or paid, or both, on or with
respect to any security (except interest in respect of loans) of the Company.
(vii) Neither the Company nor any of its officers or
affiliates has taken any action designed to, or which might reasonably be
expected to, cause or result in the stabilization or manipulation of the price
of the Company's securities to facilitate the sale or resale of the Offered
Securities.
(viii) No action, suit or proceeding, at law or in equity, is
pending or, to the knowledge of such officers, threatened against the Company
which would materially affect the business of the Company, or materially affect
any of its properties, before or by any commission, board or other
administrative agency, except as otherwise set forth in the Registration
Statement.
(i) All of the Units shall have been tendered for delivery in
accordance with the terms and provisions of this Agreement.
(j) On the date hereof, but prior to the execution and delivery hereof,
the Company and the Selling Shareholders shall have furnished for review by the
Representatives copies of the Powers of Attorney and Custody Agreements executed
by each of the Selling Shareholders and such further information, certificates
and documents as the Representatives may reasonably request.
(k) The Underwriter shall have received each of the lock-up agreements
referred to in Section 6(v) hereof.
(l) At each Closing Date, (i) the representations and warranties of the
Company (and the Selling Shareholders at the Option Closing Date) contained in
this Agreement shall be true and correct with the same effect as if made on and
as each Closing Date and the Company shall have performed all its obligations
due to be performed prior thereto; (ii) the Registration Statement and the
Prospectus and any amendment or supplement thereto shall contain all statements
which are required to be stated therein in accordance with the Act and the Rules
and Regulations and conform in all material respects to the requirements
thereof, and neither the Registration Statement nor the Prospectus nor any
amendment or supplement thereto shall contain any untrue statement of a material
fact or omit to state any material fact required to be stated therein or
necessary to make the statements therein not misleading; (iii) there shall have
been, since the date as of which information is given, no material adverse
change in the condition, business, operations, properties, business prospects,
securities, long-term or short-term debt or general affairs of the Company from
that set forth in the Registration Statement or the Prospectus, except changes
which the Registration Statement and the Prospectus indicate will occur after
the Effective Date and prior to such Closing Date, and the Company shall not
have incurred any material liabilities or obligations, direct or contingent, or
entered into any material transaction, contract or agreement not in the ordinary
course of business other than as referred to in the Registration Statement and
the Prospectus; and (iv) except as set forth in the Prospectus, no action, suit
or proceeding, at law or in equity, shall be pending or threatened against the
Company which might be required to be set forth in the Registration Statement,
and no proceedings shall be pending or threatened against the Company before or
by any commission, board or administrative agency in the United States or
elsewhere, wherein an unfavorable decision, ruling or finding might adversely
affect the condition, business, operations, properties, prospects or general
affairs of the Company.
(m) Upon exercise of the Over-Allotment Option provided for in Section
4(b) hereof, the obligations of the Underwriter to purchase and pay for the
Option Securities will be subject to the following additional conditions:
(i) The Registration Statement shall remain effective at the
Option Closing Date, and no stop order suspending the effectiveness thereof
shall have been issued and no proceedings for that purpose shall have been
instituted or shall be pending, or, to the best knowledge of the Underwriter or
the Company, shall be contemplated by the Commission, and any request on the
part of the Commission for additional information shall have been complied with
to the satisfaction of counsel for the Underwriters.
(ii) At the Option Closing Date there shall have been
delivered to the Representatives the signed opinion of Kogan & Taubman, L.L.C.,
counsel for the Company, in form and substance reasonably satisfactory to
counsel for the Underwriters, which opinion shall be substantially the same in
scope and substance as the opinions furnished to the Representatives by such
counsel at the First Closing Date pursuant to Section 8(d).
(iii) At the Option Closing Date the Representatives shall
have received the opinion, together with copies of such opinion for each of the
other Underwriters, dated as of the Option Closing Date, of Kogan & Taubman,
L.L.C., counsel for the Selling Shareholders, in form and substance satisfactory
to the counsel for the Underwriters.
(iv) At the Option Closing Date there shall have been
delivered to the Representatives a certificate of the Chief Executive Officer
and the Secretary of the Company dated the Option Closing Date, in form and
substance satisfactory to counsel for the Underwriters, substantially the same
in scope and substance as the certificates furnished to the Representatives at
the First Closing Date pursuant to Section 8(h).
(v) At the Option Closing Date there shall have been delivered
to the Representative a letter, in form and substance satisfactory to the
Representatives, from Grant Thornton LLP, dated the Option Closing Date and
addressed to the Representatives, substantially in the same form and substance
as the letter furnished to the Representative pursuant to Section 8(h) hereof,
except that the "specified date" in the letter furnished pursuant to this
paragraph shall be a date not more than five (5) days prior to the Option
Closing Date.
(vi) At the Option Closing Date there shall have been
delivered to the Representatives a certificate executed by the Attorney-in-Fact
of each Selling Shareholder, dated as of the Option Closing Date, to the effect
that:
(A) the representations, warranties and covenants of
such Selling Shareholder set forth in Section 3 of this Agreement are
true and correct with the same force and effect as though expressly
made by such Selling Shareholder on and as of the Option Closing Date;
and
(B) such Selling Shareholder has complied with all
the agreements and satisfied all the conditions on its part to be
performed or satisfied under this Agreement at or prior to the Option
Closing Date.
(vii) All proceedings taken at or prior to the Option Closing
Date in connection with the sale and transfer of the Option Securities shall be
satisfactory in form and substance to the Representatives, and the
Representatives and counsel for the Underwriters shall have been furnished with
all such documents, certificates, affidavits and opinions as the Representative
and counsel for the Underwriters may reasonably request in connection with this
transaction in order to evidence the accuracy and completeness of any of the
representations, warranties or statements of the Company or the Selling
Shareholders or compliance by the Company or the Selling Shareholders with any
of the covenants or conditions contained herein.
(n) The Company shall have executed and delivered the Public Warrant
Agreement and the Underwriters' Warrant Agreement, and shall have issued the
Underwriters' Warrants.
(o) The Company and the Selling Shareholders shall have furnished to
the Representative such other certificates, documents, and opinions as the
Representatives may have reasonably requested (including certificates from
officers of the Company and from the Selling Shareholders) as to the accuracy,
at each Closing Date, of the representations and warranties of the Company and
the Selling Shareholders herein, as to the performance by the Company and the
Selling Shareholders of their respective obligations hereunder and as to other
conditions concurrent and precedent to the obligations of the Underwriters
hereunder.
The opinions and certificates mentioned above or elsewhere in this
Agreement will be deemed to be in compliance with the provisions hereof only if
they are reasonably satisfactory to the Representatives and to counsel for the
Underwriters.
Any certificate signed by an officer of the Company delivered to the
Representatives or to counsel for the Underwriters, will be deemed a
representation and warranty by the Company to the Representatives as to the
statements made therein.
(p) No action shall have been taken by the Commission or the NASD the
effect of which would make it improper, at any time prior to each Closing Date,
for members of the NASD to execute transactions (as principal or agent) in the
Registered Securities and no proceedings for the taking of such action shall
have been instituted or shall be pending, or, to the knowledge of the
Underwriters or the Company, shall be contemplated by the Commission or the
NASD. The Company represents that at the date hereof it has no knowledge that
any such action is in fact contemplated by the Commission or the NASD. The
Company shall have advised the Representatives of any NASD affiliation of any of
its officers, directors, stockholders or their affiliates.
(q) If any of the conditions herein provided for in this Section 8
shall not have been fulfilled as of the date indicated, this Agreement and all
obligations of the Underwriters under this Agreement may be canceled at, or at
any time prior to, each Closing Date by the Representatives. Any such
cancellation shall be without liability of the Underwriters to the Company.
9. CONDITIONS OF THE OBLIGATIONS OF THE COMPANY. The obligation of the
Company to sell and deliver the Firm Securities, Option Securities and
Underwriters' Warrants, is subject to the condition that at each Closing Date,
no stop orders suspending the effectiveness of the Registration Statement shall
have been issued under the Act or any proceedings therefor initiated or
threatened by the Commission. If the condition to the obligations of the Company
provided for in this Section 9 have been fulfilled on the First Closing Date but
are not fulfilled after the First Closing Date and prior to the Option Closing
Date, then only the obligation of the Company to sell and deliver the Option
Securities on exercise of the Over-Allotment Option shall be affected.
10. INDEMNIFICATION.
(a) The Company agrees to indemnify and hold harmless each Underwriter
and each person, if any, who controls any Underwriter within the meaning of the
Act against any losses, claims, damages or liabilities, joint or several (which
shall, for all purposes of this Agreement, include, but not be limited to, all
reasonable costs of defense and investigation and all attorneys' fees), to which
such Underwriter or such controlling person may become subject, under the Act or
otherwise, and will reimburse, as incurred, such Underwriter and such
controlling persons for any legal or other expenses reasonably incurred in
connection with investigating, defending against or appearing as a third party
witness in connection with any losses, claims, damages or liabilities, 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 (A) the Registration Statement, any
Preliminary Prospectus, the Prospectus, or any amendment or supplement thereto,
(B) any blue sky application or other document executed by the Company
specifically for that purpose or based upon written information furnished by the
Company filed in any state or other jurisdiction in order to qualify any or all
of the Units under the securities laws thereof (any such application, document
or information being hereinafter called a "Blue Sky Application"), or arise out
of or are based upon the omission or alleged omission to state in the
Registration Statement, any Preliminary Prospectus, Prospectus, or any amendment
or supplement thereto, or in any Blue Sky Application, a material fact required
to be stated therein or necessary to make the statements therein not misleading;
provided, however, that the Company will not be liable in any 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 made 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 the Registration Statement, any
Preliminary Prospectus, the Prospectus, or any amendment or supplement thereto,
or any such Blue Sky Application. This indemnity will be in addition to any
liability which the Company may otherwise have.
(b) Each Underwriter, severally, but not jointly, will indemnify and
hold harmless the Company, each of its directors, each nominee (if any) for
director named in the Prospectus, 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
(which shall, for all purposes of this Agreement, include, but not be limited
to, all costs of defense and investigation and all attorneys' fees) to which the
Company or any such director, nominee, 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, or any
amendment or supplement thereto, or arise out of or are based upon the omission
or the alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading, in each case
to the extent, but only to the extent, that such untrue statement or alleged
untrue statement or omission or alleged omission was made in the Registration
Statement, any Preliminary Prospectus, the Prospectus, or any amendment or
supplement thereto (i) in reliance upon and in conformity with written
information furnished to the Company by any Underwriter specifically for use in
the preparation thereof and (ii) relates to the transactions effected by the
Underwriters in connection with the offer and sale of the Offered Securities
contemplated hereby. This indemnity agreement will be in addition to any
liability which the Underwriters may otherwise have.
(c) Promptly after receipt by an indemnified party under this Section
10 of notice of the commencement of any action, such indemnified party will, if
a claim in respect thereof is to be made against the indemnifying party under
this Section 10, notify in writing the indemnifying party of the commencement
thereof; but the omission so to notify the indemnifying party will not relieve
it from any liability which it may have to any indemnified party otherwise than
under this Section 10. In case any such action is brought against any
indemnified party, and it notifies the indemnifying party of the commencement
thereof, the indemnifying party will be entitled to participate in, and, to the
extent that it may wish, jointly with any other indemnifying party similarly
notified, to assume the defense thereof, subject to the provisions herein
stated, 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 will not be
liable to such indemnified party under this Section 10 for any legal or other
expenses subsequently incurred by such indemnified party in connection with the
defense thereof other than reasonable costs of investigation. The indemnified
party shall have the right to employ separate counsel in any such action and to
participate in the defense thereof, but the fees and expenses of such counsel
shall not be at the expense of the indemnifying party if the indemnifying party
has assumed the defense of the action with counsel reasonably satisfactory to
the indemnified party; provided that if the indemnified party is an Underwriter
or a person who controls an Underwriter within the meaning of the Act, the fees
and expenses of such counsel shall be at the expense of the indemnifying party
if (i) the employment of such counsel has been specifically authorized in
writing by the indemnifying party or (ii) the named parties to any such action
(including any impleaded parties) include both the Underwriter or such
controlling person and the indemnifying party and in the judgment of the
applicable Underwriter, it is advisable for the applicable Underwriter or
controlling persons to be represented by separate counsel (in which case the
indemnifying party shall not have the right to assume the defense of such action
on behalf of the applicable Underwriter or such controlling person, it being
understood, however, that the indemnifying party shall not, in connection with
any one such action or separate but substantially similar or related actions in
the same jurisdiction arising out of the same general allegations or
circumstances, be liable for the reasonable fees and expenses of more than one
separate firm of attorneys for the applicable Underwriter and controlling
persons, which firm shall be designated in writing by the applicable
Underwriter). No settlement of any action against an indemnified party shall be
made without the consent of the indemnifying party, which shall not be
unreasonably withheld in light of all factors of importance to such indemnifying
party.
11. CONTRIBUTION. In order to provide for just and equitable
contribution under the Act in any case in which (i) an Underwriter makes claim
for indemnification pursuant to Section 10 hereof but it is judicially
determined (by the entry of a final judgment or decree by a court of competent
jurisdiction and the expiration of time to appeal or the denial of the last
right of appeal) that such indemnification may not be enforced in such case,
notwithstanding the fact that the express provisions of Section 10 provide for
indemnification in such case, or (ii) contribution under the Act may be required
on the part of any Underwriter, then the Company and each person who controls
the Company, in the aggregate, and any such Underwriter shall contribute to the
aggregate losses, claims, damages or liabilities to which they may be subject
(which shall, for all purposes of this Agreement, include, but not be limited
to, all reasonable costs of defense and investigation and all reasonable
attorneys' fees) in either such case (after contribution from others) in such
proportions that all such Underwriters are only responsible for that portion of
such losses, claims, damages or liabilities represented by the percentage that
the underwriting discount per Unit appearing on the cover page of the Prospectus
bears to the public offering price appearing thereon, and the Company shall be
responsible for the remaining portion, provided, however, that (a) if such
allocation is not permitted by applicable law then the relative fault of the
Company and the applicable Underwriter and controlling persons, in the
aggregate, in connection with the statements or omissions which resulted in such
damages and other relevant equitable considerations shall also be considered.
The relative fault shall be determined by reference to, among other things,
whether in the case of an untrue statement of a material fact or the omission to
state a material fact, such statement or omission 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
untrue statement or omission. The Company and the Underwriters agree (a) that it
would not be just and equitable if the respective obligations of the Company and
the Underwriters to contribute pursuant to this Section 11 were to be determined
by pro rata or per capita allocation of the aggregate damages or by any other
method of allocation that does not take account of the equitable considerations
referred to in the first sentence of this Section 11 and (b) that the
contribution of each contributing Underwriter shall not be in excess of its
proportionate share (based on the ratio of the number of Units purchased by such
Underwriter to the number of Units purchased by all contributing Underwriters)
of the portion of such losses, claims, damages or liabilities for which the
Underwriters are responsible. No person guilty of a fraudulent misrepresentation
(within the meaning of Section 11(f) of the Act) shall be entitled to
contribution from any person who is not guilty of such fraudulent
misrepresentation. As used in this Section 11, the word "Company" includes any
officer, director, or person who controls the Company within the meaning of
Section 15 of the Act. If the full amount of the contribution specified in this
Section 11 is not permitted by law, then the applicable Underwriter and each
person who controls the applicable Underwriter shall be entitled to contribution
from the Company, its officers, directors and controlling persons to the full
extent permitted by law. The foregoing contribution agreement shall in no way
affect the contribution liabilities of any persons having liability under
Section 11 of the Act other than the Company and the Underwriters. No
contribution shall be requested with regard to the settlement of any matter from
any party who did not consent to the settlement; provided, however, that such
consent shall not be unreasonably withheld in light of all factors of importance
to such party.
12. COSTS AND EXPENSES.
(a) Whether or not this Agreement becomes effective or the sale of the
Units to the Underwriters is consummated, the Company will pay all costs and
expenses incident to the performance of this Agreement by the Company,
including, but not limited to, the fees and expenses of counsel to the Company
and of the Company's accountants; the costs and expenses incident to the
preparation, printing, filing and distribution under the Act of the Registration
Statement (including the financial statements therein and all amendments and
exhibits thereto), Preliminary Prospectus and the Prospectus, as amended or
supplemented; the fee of the NASD in connection with the filing required by the
NASD relating to the offering of the Offered Securities; all expenses, including
the reasonable fees and disbursements of counsel to the Underwriters, in
connection with the qualification of the Units under the state securities or
blue sky laws which the Representatives shall designate; the out-of-pocket
travel expenses of the Underwriters and counsel to the Underwriters or other
professionals designated by the Underwriters to visit the Company's facilities
for purposes of discharging due diligence responsibilities; the cost of printing
and furnishing to the Underwriters copies of the Registration Statement, each
Preliminary Prospectus, the Prospectus, this Agreement, the Public Warrant
Agreement, the Underwriters' Warrant Agreement, the Agreement Among
Underwriters, Selling Agreement, Underwriters' Questionnaire, and the Blue Sky
Memorandum and any supplements thereto; any fees relating to the listing of the
Units, Common Stock and Redeemable Warrants on The Nasdaq SmallCap Market or any
other securities exchange; the cost of printing the certificates representing
the securities comprising the Units; the fees of the transfer agent and warrant
agent the cost of publication of at least three (3) "tombstones" of the offering
(at least one of which shall be in national business newspaper and one of which
shall be in a major New York newspaper); and the cost of preparing at least four
(4) hard cover "bound volumes" relating to the offering, in accordance with the
Representatives' request. The Company shall pay any and all taxes (including any
transfer, franchise, capital stock or other tax imposed by any jurisdiction) on
sales to the Underwriters hereunder. The Company will also pay all costs and
expenses incident to the furnishing of any amended Prospectus or of any
supplement to be attached to the Prospectus as called for in Section 6(a) of
this Agreement except as otherwise set forth in said Section 6(a).
(b) In addition to the foregoing expenses, the Company shall at the
First Closing Date pay to the Representatives, individually and not as a
representative of the Underwriters, a non-accountable expense allowance equal to
two percent (2%) of the gross proceeds derived from the sale of Units offered
hereby, of which $150,000 has been paid. In the event the Over-Allotment Option
is exercised, the Company shall pay to each Representative, individually and not
as representatives of the Underwriters, at the Option Closing Date an additional
amount non-accountable expense allowance equal to two percent (2%) of the gross
proceeds received upon exercise of the Over-Allotment Option. The Company shall
not be obligated to pay any further non-accountable expense allowance to any of
the Underwriters set forth on Schedule A, other than the Representative, on the
First Closing Date, the Option Closing Date or otherwise.
(c) In the event the transactions contemplated hereby are not
consummated for any reason, the Company shall be liable for the out-of-pocket
accountable expenses actually incurred by the Underwriters. In the event the
out-of-pocket accountable expenses actually incurred by the Underwriters are
less than the amounts paid pursuant to Section 12(b) hereof, each
Representative, individually and not as representatives of the Underwriters,
shall refund the difference to the Company.
(d) If the Over-Allotment Option is exercised, the Selling Shareholders
shall pay a pro rata portion of all expenses incurred by the Company pursuant to
this Section 12.
13. SUBSTITUTION OF UNDERWRITERS. If any Underwriters shall for any
reason not permitted hereunder cancel their obligations to purchase the Firm
Securities hereunder, or shall fail to take up and pay for the number of Firm
Securities set forth opposite their respective names in Schedule A hereto upon
tender of such Firm Securities in accordance with the terms hereof, then:
(a) If the aggregate number of Firm Securities which such Underwriter
or Underwriters agreed but failed to purchase does not exceed ten percent (10%)
of the total number of Firm Securities, the other Underwriters shall be
obligated severally, in proportion to their respective commitments hereunder, to
purchase the Firm Securities which such defaulting Underwriter or Underwriters
agreed but failed to purchase.
(b) If any Underwriter or Underwriters so default and the agreed number
of Firm Securities with respect to which such default or defaults occurs is more
than ten percent (10%) of the total number of Firm Securities, the remaining
Underwriters shall have the right to take up and pay for (in such proportion as
may be agreed upon among them) the Firm Securities which the defaulting
Underwriter or Underwriters agreed but failed to purchase. If such remaining
Underwriters do not, at the First Closing Date, take up and pay for the Firm
Securities which the defaulting Underwriter or Underwriters agreed but failed to
purchase, the time for delivery of the Firm Securities shall be extended to the
next business day to allow the several Underwriters the privilege of
substituting within twenty-four (24) hours (including non-business hours)
another underwriter or underwriters satisfactory to the Company. If no such
underwriter or underwriters shall have been substituted as aforesaid, within
such twenty-four (24) hour period, the time of delivery of the Firm Securities
may, at the option of the Company, be again extended to the next following
business day, if necessary, to allow the Company the privilege of finding within
twenty-four (24) hours (including non-business hours) another underwriter or
underwriters to purchase the Firm Securities which the defaulting Underwriter or
Underwriters agreed but failed to purchase. If it shall be arranged for the
remaining Underwriters or substituted Underwriters to take up the Firm
Securities of the defaulting Underwriter or Underwriters as provided in this
Section 13, (i) the Company or the Representatives shall have the right to
postpone the time of delivery for the period of not more than seven (7) business
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 promptly to file any amendments to the
Registration Statement or supplements to the Prospectus which may thereby be
made necessary, and (ii) the respective numbers of Firm Securities to be
purchased by the remaining Underwriters or substituted Underwriters shall be
taken at the basis of the underwriting obligation for all purposes of this
Agreement.
If in the event of a default by one or more Underwriters and the
remaining Underwriters shall not take up and pay for all the Firm Securities
agreed to be purchased by the defaulting Underwriters or substitute another
underwriter or underwriters as aforesaid, and the Company shall not find or
shall not elect to seek another underwriter or underwriters for such Firm
Securities as aforesaid, then this Agreement shall terminate.
If, following exercise of the Over-Allotment Option, any Underwriter or
Underwriters shall for any reason not permitted hereunder cancel their
obligations to purchase Option Securities at the Option Closing Date, or shall
fail to take up and pay for the number of Option Securities, which they become
obligated to purchase at the Option Closing Date upon tender of such Option
Securities in accordance with the terms hereof, then the remaining Underwriters
or substituted Underwriters may take up and pay for the Option Securities of the
defaulting Underwriters in the manner provided in Section 13(b) hereof. If the
remaining Underwriters or substituted Underwriters shall not take up and pay for
all such Option Securities, the Underwriters shall be entitled to purchase the
number of Option Securities for which there is no default or, at their election,
the option shall terminate and the exercise thereof shall be of no effect.
As used in this Agreement, the term "Underwriter" includes any person
substituted for an Underwriter under this Section 13. In the event of
termination, there shall be no liability on the part of any nondefaulting
Underwriter to the Company, provided that the provisions of this Section 13
shall to in any event affect the liability of any defaulting Underwriter to the
Company arising out of such default.
14. TERMINATION.
(a) This Agreement, except for Sections 10, 11, 12, 15, 16, 17 and 18,
may be terminated at any time prior to the First Closing Date, and the
Over-Allotment Option, if exercised, may be canceled at any time prior to the
Option Closing Date, by the Representative if in its sole judgment it is
impracticable to offer for sale or to enforce contracts made by the Underwriters
for the resale of the Offered Securities agreed to be purchased hereunder by
reason of (i) the Company having sustained a material loss, whether or not
insured, by reason of fire, earthquake, flood, accident or other calamity, or
from any labor dispute or court or government action, order or decree; (ii)
trading in securities on the New York Stock Exchange, the American Stock
Exchange, The Nasdaq SmallCap Market or The Nasdaq National Market having been
suspended or limited; (iii) material governmental restrictions having been
imposed on trading in securities generally (not in force and effect on the date
hereof); (iv) a banking moratorium having been declared by federal or New York
state authorities; (v) an outbreak of international hostilities or other
national or international calamity or crisis or change in economic or political
conditions having occurred; (vi) a pending or threatened legal or governmental
proceeding or action relating generally to the Company's business, or a
notification having been received by the Company of the threat of any such
proceeding or action, which could materially adversely affect the Company; (vii)
except as contemplated by the Prospectus, the Company is merged or consolidated
into or acquired by another company or group or there exists a binding legal
commitment for the foregoing or any other material change of ownership or
control occurs; (viii) the passage by the Congress of the United States or by
any state legislative body or federal or state agency or other authority of any
act, rule or regulation, measure, or the adoption of any orders, rules or
regulations by any governmental body or any authoritative accounting institute
or board, or any governmental executive, which is reasonably believed likely by
the Representatives to have a material impact on the business, financial
condition or financial statements of the Company or the market for the
securities offered pursuant to the Prospectus; (ix) any adverse change in the
financial or securities markets beyond normal market fluctuations having
occurred since the date of this Agreement, or (x) any material adverse change
having occurred, since the respective dates of which information is given in the
Registration Statement and Prospectus, in the earnings, business prospects or
general condition of the Company, financial or otherwise, whether or not arising
in the ordinary course of business.
(b) If the Representatives elect to prevent this Agreement from
becoming effective or to terminate this Agreement as provided in this Section 14
or in Section 13 hereof, the Company shall be promptly notified by the
Representatives, by telephone or telegram, confirmed by letter, in accordance
with Section 16 hereof.
15. REPRESENTATIONS, WARRANTIES AND AGREEMENTS TO SURVIVE DELIVERY. The
respective indemnities, agreements, representations, warranties and other
statements of the Company or its officers, directors, stockholders and the
Selling Shareholders and the undertakings set forth in or made pursuant to this
Agreement will remain in full force and effect, regardless of any investigation
made by or on behalf of the Underwriters, the Company or any of its officers or
directors or any controlling person or any of the Selling Shareholders and will
survive delivery of and payment of the Offered Securities and the termination of
this Agreement.
16. NOTICE. Any communications specifically required hereunder to be in
writing, if sent to the Underwriters, will be mailed, delivered and confirmed to
Institutional Equity Corporation at 8214 Westchester, Suite 500, Dallas, Texas
75225, with a copy sent to Winstead Sechrest & Minick P.C., 5400 Renaissance
Tower, 1201 Elm Street, Dallas, Texas 75270; or if sent to the Company, will be
mailed, delivered and confirmed to it at Streamedia Communications, Inc., 9 East
45th Street, New York, New York 10017, with a copy sent to Kogan & Taubman,
L.L.C., 30 Broadway, Suite 2250, New York, New York 10006; or if sent to a
Selling Shareholder, will be mailed, delivered and confirmed to such Selling
Shareholder, c/o Streamedia Communications, Inc., 9 East 45th Street, New York,
New York 10017, with a copy sent to Kogan & Taubman, L.L.C., 30 Broadway, Suite
2250, New York, New York 10006.
17. PARTIES IN INTEREST. This Agreement is made solely for the benefit
of the Underwriters, the Representative, on an individual basis, the Company,
the Selling Shareholders, any person controlling the Company or the
Underwriters, directors of the Company, nominees for directors of the Company
(if any) named in the Prospectus, officers of the Company who have signed the
Registration Statement and each of their respective executors, administrators,
successors and assigns and no other person shall acquire or have any right under
or by virtue of this Agreement. The term "successors and assigns" shall not
include any purchaser, as such purchaser, from the Underwriters of the Units.
All of the obligations of the Underwriters hereunder are several and not joint.
18. APPLICABLE LAW. This Agreement will be governed by, and construed
in accordance with, the laws of the State of Texas applicable to agreements made
and to be entirely performed within Texas.
If the foregoing is in accordance with your understanding of our
agreement, kindly sign and return this Agreement, whereupon it will become a
binding agreement among the Company, the Selling Shareholders and the
Underwriters in accordance with its terms.
Very truly yours,
STREAMEDIA COMMUNICATIONS, INC.
By:
James D. Rupp
President and Chief Executive Officer
SELLING SHAREHOLDERS,
solely as to Sections 3, 7, 16 and 17 Hereof
<PAGE>
-1-
*
Scott Hunter
*
Linda Essary
*
Sovereign Services Limited
*
Mark E. Futrovsky
*
Ranjit Kripalani
*
Kevin T. Clare
*
Gary J. Schmitt
*
James David Wideman
*
Michael Marks
*
Global Man Marketing
*
Stock Exposure, Inc.
*
Charles Marmelstein
*
Kundrat Corp.
*
Thomas Kundrat
*
Michael Fleishman
*
Malcolm Labell
*
Jay Cho
*
Richard Honig
*
Harold Kim
*
Glenn B. Axelrod
<PAGE>
-1-
* By:
Robert A. Shuey, III
Attorney-in-Fact
The foregoing Underwriting Agreement is hereby confirmed and accepted
as of the date first above written.
INSTITUTIONAL EQUITY CORPORATION
By:
Name:
Title:
CAPITAL WEST SECURITIES, INC.
By:
Name:
Title:
<PAGE>
SCHEDULE A
UNDERWRITERS
Number of
Underwriters Firm Securities
to be Purchased
Institutional Equity Corporation ______
Capital West Securities, Inc. ______
------
1,000,000
<PAGE>
SCHEDULE B
SELLING SHAREHOLDERS
Selling Shareholder
Number
of
Option
Shares
Scott Hunter 588
Linda Essary 295
Sovereign Services Limited 6,145
Mark E. Futrovsky 441
Ranjit Kripalani 1,465
Kevin T. Clare 1,465
Gary J. Schmitt 705
James David Wideman 295
Michael Marks 1,465
Global Man Marketing 878
Stock Exposure, Inc. 1,173
Charles Marmelstein 412
Kundrat Corp. 587
Thomas Kundrat 587
Michael Fleishman 295
Malcolm Labell 588
Jay Cho 588
Richard Honig 295
Harold Kim 1,173
Glenn B. Axelrod 295
19,735
SCHEDULE C
STOCKHOLDERS ENTERING INTO LOCK-UP AGREEMENTS
UNDERWRITERS' WARRANT AGREEMENT
December __, 1999
INSTITUTIONAL EQUITY CORPORATION
8214 Westchester
Suite 500
Dallas, Texas 75225
CAPITAL WEST SECURITIES, INC.
One Leadership Square
Suite 200
211 North Robinson
Oklahoma City, Oklahoma 73102
Gentlemen:
Streamedia Communications, Inc., a Delaware corporation (the
"Company"), hereby agrees to sell to you, the co-lead underwriters, and you
hereby agree to purchase from the Company at a purchase price of $100.00, unit
purchase warrants (the "Underwriters' Warrants") covering 100,000 of the
Company's units (the "Units"), each Unit consisting of one share of the
Company's Common Stock and one Redeemable Common Stock Purchase Warrant (the
"Redeemable Warrants") issued in accordance with the terms of a warrant
agreement (the "Public Warrant Agreement") dated as of December __, 1999,
between the Company and American Stock Transfer & Trust Company, as warrant
agent (the "Warrant Agent"). The Underwriters' Warrants will be exercisable by
you as to all or any lesser number of Units covered thereby, at the Purchase
Price per Unit as defined below, at any time and from time to time on and after
the first anniversary of the date hereof and ending at 5:00 p.m. on the fifth
anniversary of the date hereof.
1. Definitions.
As used herein the following terms, unless the context otherwise
requires, shall have for all purposes hereof the following meanings:
The term "Common Stock" refers to all stock of any class or classes
(however designated) of the Company, now or hereafter authorized, the holders of
which shall have the right without limitation as to amount, either to all or to
a part of the balance of current dividends and liquidating dividends after the
payment of dividends and distributions on any shares entitled to preference, and
the holders of which shall ordinarily, in the absence of contingency, be
entitled to vote for the election of a majority of the directors of the Company
(even though the right so to vote has been suspended by the occurrence of such a
contingency).
The term "Underlying Common Stock" refers to the shares of Common Stock
(or Other Securities) issuable under this Agreement pursuant to the exercise, in
whole or in part, of the Redeemable Warrants or the Underwriters' Warrants.
The term "Other Securities" refers to any securities of the Company or
any other person (corporate or otherwise) which the holders of the Underwriters'
Warrants at any time shall be entitled to receive, or shall have received, upon
the exercise of the Underwriters' Warrants, in lieu of or in addition to Common
Stock and Redeemable Warrants, or which at any time shall be issuable or shall
have been issued in exchange for or in replacement of Common Stock, Redeemable
Warrants or Other Securities pursuant to Section 7 below or otherwise.
The term "Registration Statement" refers, collectively, to the
Registration Statements relating to the registration of the Units, Common Stock
and Redeemable Warrants with the Securities and Exchange Commission (the
"Commission") pursuant to the Rules and Regulations of the Commission under the
Securities Act of 1933, as amended (the "Act").
The term "Purchase Price" refers to the purchase price of the Units
subject to this Agreement. The initial Purchase Price shall equal 135% of the
offering price per Unit as set forth in the Registration Statement.
The purchase and sale of the Underwriters' Warrants shall take place,
and the purchase price therefore shall be paid by delivery of your check,
simultaneously with the purchase of and payment for any Units of the Company as
provided in that certain Underwriting Agreement relating to the public offering
covered by the Registration Statement.
2. Representations and Warranties.
The Company represents and warrants to you as follows:
(a) Corporate Action. The Company has all requisite corporate power and
authority, and has taken all necessary corporate action, to execute and deliver
this Agreement, to issue and deliver the Underwriters' Warrants and certificates
evidencing same ("Underwriters' Warrant Certificates"), and to authorize and
reserve for issuance, and upon payment from time to time of the Purchase Price
to issue and deliver, the Units, including the Common Stock and the Redeemable
Warrants and shares of Common Stock underlying the Redeemable Warrants.
(b) No Violation. Neither the execution nor delivery of this Agreement,
the consummation of the actions herein contemplated nor compliance with the
terms and provisions hereof will conflict with, or result in a breach of, or
constitute a default or an event permitting acceleration under, any of the
terms, provisions or conditions of the Articles of Incorporation or Bylaws of
the Company or any indenture, mortgage, deed of trust, note, bank loan, credit
agreement, franchise, license, lease, permit, judgment, decree, order, statute,
rule or regulation or any other agreement, understanding or instrument to which
the Company is a party or by which it is bound.
3. Compliance with the Act.
(a) Transferability of Underwriters' Warrants. You agree that the
Underwriters' Warrants may not be transferred, sold, assigned or hypothecated
prior to the first anniversary date of the effective date of the Registration
Statement, except to (i) persons who are officers of you; (ii) a successor to
you in a merger or consolidation; (iii) a purchaser of all or substantially all
of your assets; (iv) your shareholders in the event you are liquidated or
dissolved; (v) participating broker-dealers; and (vi) persons who are partners
or officers of participating broker-dealers.
(b) Registration of Underlying Common Stock. The Underlying Common
Stock has not been registered for resale under the Act and no registration
rights have been granted to the Underwriters. You agree not to make any sale or
other disposition of the Underlying Common Stock except pursuant to a
registration statement which has become effective under the Act, setting forth
the terms of such offering, the underwriting discount and the commissions and
any other pertinent data with respect thereto, unless you have provided the
Company with an opinion of counsel reasonably acceptable to the Company that
such registration is not required.
4. Exercise of Underwriters' Warrants; Partial Exercise.
(a) Exercise in Full. Each Underwriters' Warrant may be exercised in
full by the holder thereof by surrender of the Underwriters' Warrant
Certificate, with the form of subscription at the end thereof duly executed by
such holder, to the Company at its principal office, accompanied by payment, in
cash or by certified or bank cashiers check payable to the order of the Company,
in the respective amount obtained by multiplying the number of Units represented
by the Underwriters' Warrant Certificate (after giving effect to any adjustment
therein as provided in Section 7 below) by the Purchase Price.
(b) Partial Exercise. Each Underwriters' Warrant may be exercised in
part by surrender of the Underwriters' Warrant Certificate in the manner and at
the place provided in Subsection 4(a) above, accompanied by payment, in cash or
by certified or bank cashiers check payable to the order of the Company, in the
respective amount obtained by multiplying the number of Units designated by the
holder in the form of subscription attached to the Underwriters' Warrant
Certificate by the Purchase Price (after giving effect to any adjustment therein
as provided in Section 7 below). Upon any such partial exercise, the Company at
its expense will forthwith issue and deliver to or upon the order of the
purchasing holder, a new Underwriters' Warrant Certificate or Certificates of
like tenor, in the name of the holder thereof or as such holder (upon payment by
such holder of any applicable transfer taxes) may request calling in the
aggregate for the purchase of the number of Units equal to the number of Units
called for on the face of the Underwriters' Warrant Certificate (after giving
effect to any adjustment therein as provided in Section 7 below) minus the
number of Units (after giving effect to such adjustment) designated by the
holder in the aforementioned form of subscription.
(c) Company to Reaffirm Obligations. The Company will, at the time of
any exercise of any Underwriters' Warrant, upon the request of the holder
thereof, acknowledge in writing its continuing obligation to afford to such
holder any rights to which such holder shall continue to be entitled after such
exercise in accordance with the provisions of this Agreement; provided, however,
that if the holder of an Underwriters' Warrant shall fail to make any such
request, such failure shall not affect the continuing obligation of the Company
to afford to such holder any such rights.
5. Redemption of Warrants.
All terms applicable to the redemption of the Redeemable Warrants
underlying the Underwriters' Warrants shall be identical to the redemption
provisions of the Redeemable Warrants set forth in the Public Warrant Agreement.
6. Delivery of Certificates, etc, on Exercise.
As soon as practicable after the exercise of any Underwriters' Warrant
in full or in part, and in any event within twenty days thereafter, the Company
at its expense (including the payment by it of any applicable issue taxes) will
cause to be issued in the name of and delivered to the purchasing holder
thereof, a certificate or certificates for the number of Units, Redeemable
Warrants and fully paid and nonassessable shares of the Underlying Common Stock
to which such holder shall be entitled upon such exercise, plus, in lieu of any
fractional share to which such holder would otherwise be entitled, cash in an
amount determined pursuant to Section 8(g), together with any Other Securities
and property (including cash, where applicable) to which such holder is entitled
upon such exercise pursuant to Section 7 below or otherwise.
7. Anti-dilution Provisions.
The Underwriters' Warrants are subject to the following terms and
conditions during the term thereof:
(a) Stock Distributions and Splits. In case (i) the outstanding shares
of the Common Stock (or Other Securities) shall be subdivided into a greater
number of shares or (ii) a dividend or other distribution in Common Stock (or
Other Securities) shall be paid in respect of Common Stock (or Other
Securities), the Purchase Price in effect immediately prior to such subdivision
or at the record date of such dividend or distribution shall simultaneously with
the effectiveness of such subdivision or immediately after the record date of
such dividend or distribution be proportionately reduced; and if outstanding
shares of Common Stock (or Other Securities) shall be combined into a smaller
number of shares thereof, the Purchase Price in effect immediately prior to such
combination shall simultaneously with the effectiveness of such combination be
proportionately increased. Any dividend or other distribution paid on the Common
Stock (or Other Securities) in stock or any other securities convertible into
shares of Common Stock (or Other Securities) shall be treated as a dividend paid
in Common Stock (or Other Securities) to the extent that shares of Common Stock
(or Other Securities) are issuable upon the conversion thereof.
(b) Adjustments. Whenever the Purchase Price is adjusted as provided in
Subsection 7(a) above, the number of shares of the Underlying Common Stock
purchasable upon exercise of the Underwriters' Warrants immediately prior to
such Purchase Price adjustment shall be adjusted, effective simultaneously with
such Purchase Price adjustment, to equal the product obtained (calculated to the
nearest full share) by multiplying such number of shares of the Underlying
Common Stock by a fraction, the numerator of which is the Purchase Price in
effect immediately prior to such Purchase Price adjustment and the denominator
of which is the Purchase Price in effect upon such Purchase Price adjustment,
which adjusted number of shares of the Underlying Common Stock shall thereupon
be the number of shares of the Underlying Common Stock purchasable upon exercise
of the Underwriters' Warrants until further adjusted as provided herein.
(c) Reorganizations, Mergers and Consolidations. In case the capital
stock of the Company shall be recapitalized including, without limitation, by
reclassifying its outstanding Common Stock (or Other Securities) into a stock
with a different par value or by changing its outstanding Common Stock (or Other
Securities) with par value to stock without par value, then, as a condition of
such recapitalization, lawful and adequate provision shall be made whereby each
holder of an Underwriters' Warrant shall thereafter have the right to purchase,
upon the terms and conditions specified herein, in lieu of the Units theretofore
purchasable upon the exercise of the Underwriters' Warrants, the kind and amount
of shares of stock or Other Securities receivable upon such recapitalization by
a holder of the number of shares of Common Stock (or Other Securities) which the
holder of an Underwriters' Warrant would have had the right to have purchased
immediately prior to such recapitalization. If any consolidation or merger of
the Company with another corporation, or the sale of all or substantially all of
its assets to another corporation, shall be effected in such a way that holders
of Common Stock shall be entitled to receive stock, securities or assets with
respect to or in exchange for Common Stock, then, as a condition of such
consolidation, merger or sale, lawful and adequate provision shall be made
whereby the holder hereof shall thereafter have the right to purchase and
receive upon the basis and upon the terms and conditions specified in this
Agreement and in lieu of the Units immediately theretofore purchasable and
receivable upon the exercise of the rights represented hereby, such shares of
stock, securities or assets as may be issued or payable with respect to or in
exchange for a number of outstanding shares of such Common Stock equal to the
number of shares of such stock immediately theretofore purchasable and
receivable upon the exercise of the rights represented hereby had such
consolidation, merger or sale not taken place, and in any such case, appropriate
provision shall be made with respect to the rights and interests of the holders
of Underwriters' Warrants to the end that the provisions hereof (including
without limitation provisions for adjustments of the Purchase Price and of the
number of shares purchasable and receivable upon the exercise of the
Underwriters' Warrants) shall thereafter be applicable, as nearly as may be, in
relation to any shares of stock, securities or assets thereafter deliverable
upon the exercise hereof (including an immediate adjustment, by reason of such
consolidation or merger, of the Purchase Price to the value for the Common Stock
reflected by the terms of such consolidation or merger if the value so reflected
is less than the Purchase Price in effect immediately prior to such
consolidation or merger). In the event of a merger or consolidation of the
Company with or into another corporation as a result of which a number of shares
of common stock of the surviving corporation greater or lesser than the number
of shares of Common Stock of the Company outstanding immediately prior to such
merger or consolidation are issuable to holders of Common Stock of the Company,
then the Purchase Price in effect immediately prior to such merger or
consolidation shall be adjusted in the same manner as though there were a
subdivision or combination of the outstanding shares of Common Stock of the
Company. The Company will not effect any such consolidation, merger or sale,
unless prior to the consummation thereof the successor corporation (if other
than the Company) resulting from such consolidation or merger or the corporation
purchasing such assets shall assume by written instrument executed and mailed or
delivered to the registered holder hereof at the last address of such holder
appearing on the books of the Company, the obligation to deliver to such holder
such shares of stock, securities or assets as, in accordance with the foregoing
provisions, such holder may be entitled to purchase.
(d) Effect of Dissolution or Liquidation. In case the Company shall
dissolve or liquidate all or substantially all of its assets, all rights under
this Agreement shall terminate as of the date upon which a certificate of
dissolution or liquidation shall be filed with the Secretary of the State of
Delaware (or, if the Company theretofore shall have been merged or consolidated
with a corporation incorporated under the laws of another state, the date upon
which action of equivalent effect shall have been taken); provided, however,
that (i) no dissolution or liquidation shall affect the rights under Subsection
7(c) of any holder of an Underwriters' Warrant and (ii) if the Company's Board
of Directors shall propose to dissolve or liquidate the Company, each holder of
an Underwriters' Warrant shall be given written notice of such proposal at the
earlier of (A) the time when the Company's shareholders are first given notice
of the proposal or (B) the time when notice to the Company's shareholders is
first required.
(e) Notice of Change of Purchase Price. Whenever the Purchase Price or
the kind or amount of securities purchasable under the Underwriters' Warrants
shall be adjusted pursuant to any of the provisions of this Agreement, the
Company shall forthwith thereafter cause to be sent to each holder of an
Underwriters' Warrant, a certificate setting forth the adjustments in the
Purchase Price and/or in such number of shares, and also setting forth in detail
the facts requiring such adjustments, including without limitation a statement
of the consideration received or deemed to have been received by the Company for
any additional shares of stock issued by it requiring such adjustment. In
addition, the Company at its expense shall within 90 days following the end of
each of its fiscal years during the term of this Agreement, and promptly upon
the reasonable request of any holder of an Underwriters' Warrant in connection
with the exercise from time to time of all or any portion of any Underwriters'
Warrant, cause independent certified public accountants of recognized standing
selected by the Company to compute any such adjustment in accordance with the
terms of the Underwriters' Warrants and prepare a certificate setting forth such
adjustment and showing in detail the facts upon which such adjustment is based.
(f) Notice of a Record Date. In the event of (i) any taking by the
Company of a record of the holders of any class of securities for the purpose of
determining the holders thereof who are entitled to receive any dividend (other
than a cash dividend payable out of earned surplus of the Company) or other
distribution, or any right to subscribe for, purchase or otherwise acquire any
shares of stock of any class or any other securities or property, or to receive
any other right, (ii) any capital reorganization of the Company, or any
reclassification or recapitalization of the capital stock of the Company, or any
transfer of all or substantially all of the assets of the Company to, or
consolidation or merger of the Company with or into, any other person or (iii)
any voluntary or involuntary dissolution or liquidation of the Company, then and
in each such event the Company will mail or cause to be mailed to each holder of
an Underwriters' Warrant a notice specifying not only the date on which any such
record is to be taken for the purpose of such dividend, distribution or right
and stating the amount and character of such dividend, distribution or right,
but also the date on which any such reorganization, reclassification,
recapitalization, transfer, consolidation, merger, dissolution, liquidation or
winding-up is to take place, and the time, if any, as of which the holders of
record of Common Stock (or Other Securities) shall be entitled to exchange their
shares of Common Stock (or Other Securities) for securities or other property
deliverable upon such reorganization, reclassification, recapitalization,
transfer, consolidation, merger, dissolution, liquidation or winding-up. Such
notice shall be mailed at least 20 days prior to the proposed record date
therein specified.
8. Further Covenants of the Company.
(a) Reservation of Stock. The Company shall at all times reserve and
keep available, solely for issuance and delivery upon the exercise of the
Underwriters' Warrants, all shares of the Underlying Common Stock from time to
time issuable upon the exercise of the Redeemable Warrants and the Underwriters'
Warrants and shall take all necessary actions to ensure that the par value per
share, if any, of the Underlying Common Stock is, at all times equal to or less
than the then effective Purchase Price.
(b) Title to Units. All Units and shares of the Underlying Common Stock
and Redeemable Warrants delivered upon the exercise of the Underwriters'
Warrants shall be validly issued, fully paid and nonassessable; each holder of
an Underwriters' Warrant shall receive good and marketable title to the Units
and Underlying Common Stock and Redeemable Warrants, free and clear of all
voting and other trust arrangements, liens, encumbrances, equities and claims
whatsoever; and the Company shall have paid all taxes, if any, in respect of the
issuance thereof.
(c) Listing on Securities Exchanges; Registration. If the Company at
any time shall list any Units, Underlying Common Stock or Redeemable Warrants on
any national securities exchange, the Company will, at its expense, use its best
reasonable efforts to simultaneously list on such exchange, upon official notice
of issuance upon the exercise of the Underwriters' Warrants, and maintain such
listing of, all Units, Redeemable Warrants and shares of the Underlying Common
Stock from time to time issuable upon the exercise of the Underwriters'
Warrants; and the Company will so list on any national securities exchange, will
so register and will maintain such listing of, any Other Securities if and at
the time that any securities of like class or similar type shall be listed on
such national securities exchange by the Company.
(d) Exchange of Underwriters' Warrants. Subject to Subsection 3(a)
hereof, upon surrender for exchange of any Underwriters' Warrant Certificate to
the Company, the Company at its expense will promptly issue and deliver to or
upon the order of the holder thereof a new Underwriters' Warrant Certificate or
Certificates of like tenor, in the name of such holder or as such holder (upon
payment by such holder of any applicable transfer taxes) may direct, calling in
the aggregate for the purchase of the number of shares of the Underlying Common
Stock called for on the face or faces of the Underwriters' Warrant Certificate
or Certificates so surrendered.
(e) Replacement of Underwriters' Warrants. Upon receipt of evidence
reasonably satisfactory to the Company of the loss, theft, destruction or
mutilation of any Underwriters' Warrant Certificate and, in the case of any such
loss, theft or destruction, upon delivery of an indemnity agreement reasonably
satisfactory in form and amount to the Company or, in the case of any such
mutilation, upon surrender and cancellation of such Underwriters' Warrant
Certificate, the Company, at the expense of the Underwriters' Warrant holder
will execute and deliver, in lieu thereof, a new Underwriters' Warrant
Certificate of like tenor.
(f) Reporting by the Company. The Company agrees that, if it files a
Registration Statement during the term of the Underwriters' Warrants, it will
use its best reasonable efforts to keep current in the filing of all forms and
other materials which it may be required to file with the appropriate regulatory
authority pursuant to the Securities Exchange Act of 1934, as amended, and all
other forms and reports required to be filed with any regulatory authority
having jurisdiction over the Company.
(g) Fractional Shares. No fractional shares of Underlying Common Stock
are to be issued upon the exercise of any Underwriters' Warrant, but the Company
shall pay a cash adjustment in respect of any fraction of a share which would
otherwise be issuable in an amount equal to the same fraction of the highest
market price per share of Underlying Common Stock on the day of exercise, as
determined by the Company.
9. Other Holders.
The Underwriters' Warrants are issued upon the following terms, to all
of which each holder or owner thereof by the taking thereof consents and agrees
as follows: (a) any person who shall become a transferee, within the limitations
on transfer imposed by Subsection 3(a) hereof, of an Underwriters' Warrant
properly endorsed shall take such Underwriters' Warrant subject to the
provisions of Subsection 3(a) hereof and thereupon shall be authorized to
represent himself as absolute owner thereof and, subject to the restrictions
contained in this Agreement, shall be empowered to transfer absolute title by
endorsement and delivery thereof to a permitted bona fide purchaser for value;
(b) each prior taker or owner waives and renounces all of his equities or rights
in such Underwriters' Warrant in favor of each such permitted bona fide
purchaser, and each such permitted bona fide purchaser shall acquire absolute
title thereto and to all rights presented thereby; (c) until such time as the
respective Underwriters' Warrant is transferred on the books of the Company, the
Company may treat the registered holder thereof as the absolute owner thereof
for all purposes, notwithstanding any notice to the contrary and (d) all
references to the word "you" in this Agreement shall be deemed to apply with
equal effect to any person to whom an Underwriters' Warrant Certificate or
Certificates have been transferred in accordance with the terms hereof, and
where appropriate, to any person holding Units, Redeemable Warrants or shares of
the Underlying Common Stock.
10. Miscellaneous.
All notices, certificates and other communications from or at the
request of the Company to the holder of any Underwriters' Warrant shall be
mailed by first class, registered or certified mail, postage prepaid, to such
address as may have been furnished to the Company in writing by such holder, or,
until an address is so furnished, to the address of the last holder of such
Underwriters' Warrant who has so furnished an address to the Company, except as
otherwise provided herein. This Agreement and any of the terms hereof may be
changed, waived, discharged or terminated only by an instrument in writing
signed by the party against which enforcement of such change, waiver, discharge
or termination is sought. This Agreement shall be construed and enforced in
accordance with and governed by the laws of the State of Delaware. The headings
in this Agreement are for reference only and shall not limit or otherwise affect
any of the terms hereof. This Agreement, together with the forms of instruments
annexed hereto as Schedule A, constitutes the full and complete agreement of the
parties hereto with respect to the subject matter hereof.
IN WITNESS WHEREOF, the Company has caused this Agreement to be
executed on this ____ day of December, 1999, by its proper corporate officers
thereunto duly authorized.
<PAGE>
UNDERWRITERS' WARRANT AGREEMENT - Page 1
STREAMEDIA COMMUNICATIONS, INC.
By:
Name:
Title:
<PAGE>
UNDERWRITERS' WARRANT AGREEMENT - Page 1
The above Underwriters'
Warrant Agreement is confirmed this ____ day of December,
1999
INSTITUTIONAL EQUITY CORPORATION
By:
Name:
Title:
CAPITAL WEST SECURITIES, INC.
By:
Name:
Title:
<PAGE>
SCHEDULE A
STREAMEDIA COMMUNICATIONS, INC.
Unit Purchase Warrant
Certificate Evidencing Right to Purchase
__________ Units
This Warrant (the "Warrant") is to certify that ______________________
or assigns, is entitled to purchase at any time or from time to time after 9
A.M., Central Standard time, on _______________, 2000 and until 9 A.M., Central
Standard time, on _____________ __, 2004 up to the above referenced number of
Units consisting of one share of the Company's Common Stock (the "Shares") and
one Redeemable Common Stock Purchase Warrant (the "Redeemable Warrants"), of
Streamedia Communications, Inc., a Delaware corporation (the "Company"), for the
consideration specified in Section 1 of the Warrant Agreement (the
"Underwriters' Warrant Agreement") dated _______________, 1999 between the
Company and Redstone Securities, Inc. (the "Representative"), as representative
of the several underwriters listed in Schedule A, to that certain Underwriting
Agreement dated ________________, 1999 by and among the Company, the
Representative and certain Selling Shareholders of the Company, pursuant to
which this Warrant is issued. All rights of the holder of this Warrant
Certificate are subject to the terms and provisions of the Underwriters' Warrant
Agreement, copies of which are available for inspection at the office of the
Company.
The Units issuable upon the exercise of this Warrant have not been
registered under the Securities Act of 1933, as amended (the "Act"), and no
distribution of the Shares or Redeemable Warrants issuable upon exercise of this
Warrant may be made until the effectiveness of a registration statement under
the Act covering such Units. Transfer of this Warrant Certificate is restricted
as provided in Subsection 3(a) of the Underwriters' Warrant Agreement.
This Warrant has been issued to the registered owner in reliance upon
written representations necessary to ensure that this Warrant was issued in
accordance with an appropriate exemption from registration under any applicable
state and federal securities laws, rules and regulations. This Warrant may not
be sold, transferred, or assigned unless, in the opinion of the Company and its
legal counsel, such sale, transfer or assignment will not be in violation of the
Act, applicable rules and regulations of the Securities and Exchange Commission,
and any applicable state securities laws.
Subject to the provisions of the Act and of the Underwriters' Warrant
Agreement, this Warrant Certificate and all rights hereunder are transferable,
in whole or in part, at the offices of the Company, by the holder hereof in
person or by duly authorized attorney, upon surrender of this Warrant
Certificate, together with the Assignment hereof duly endorsed. Until transfer
of this Warrant Certificate on the books of the Company, the Company may treat
the registered holder hereof as the owner hereof for all purposes.
Any Units, Redeemable Warrants or Shares which are acquired pursuant to
the exercise of this Warrant shall be acquired in accordance with the
Underwriters' Warrant Agreement and certificates representing all securities so
acquired shall bear a restrictive legend reading substantially as follows:
THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933 OR UNDER ANY APPLICABLE STATE LAW. THEY MAY NOT BE OFFERED FOR
SALE, SOLD, TRANSFERRED OR PLEDGED WITHOUT (1) REGISTRATION UNDER THE
SECURITIES ACT OF 1933 AND ANY APPLICABLE STATE LAW, OR (2) AN OPINION
OF COUNSEL (SATISFACTORY TO THE COMPANY) THAT REGISTRATION IS NOT
REQUIRED.
IN WITNESS WHEREOF, the Company has caused this Warrant Certificate to
be executed on this ____ day of _____________, 1999, by its proper corporate
officer's thereunto duly authorized.
<PAGE>
STREAMEDIA COMMUNICATIONS, INC.
By:
Name:
Title:
Attest:
Name:
SUBSCRIPTION
(To be signed only upon exercise of Warrant)
To: Streamedia Communications, Inc.
The undersigned, the holder of the enclosed Warrant Certificate, hereby
irrevocably elects to exercise the purchase right represented by such Warrant
Certificate for, and to purchase thereunder, _________________*Units (as defined
in the Underwriters' Warrant Agreement to which the form of this Subscription
was attached) and herewith makes payment of $______________ therefor by cash,
certified check or official bank check, and requests that the certificate or
certificates for such shares be issued in the name of and delivered to the
undersigned.
Date:
Taxpayer ID No.:
(Signature must conform in all respects to name of holder as
specified on the face of the Warrant Certificate)
(Address)
*Insert the number of shares called for on the face of the Warrant
Certificate (or, in the case of a partial exercise, the portion thereof as to
which the Warrant is being exercised), in either case without making any
adjustment for additional Units or other securities or property or cash which,
pursuant to the adjustment provisions of the Warrant, may be deliverable upon
exercise.
<PAGE>
ASSIGNMENT
(To be signed only upon transfer of Warrant)
For value received, the undersigned hereby sells, assigns and transfers
unto _______________________________ the right represented by the enclosed
Warrant Certificate to purchase ________ Units with full power of substitution
in the premises.
The undersigned represents and warrants that the transfer, in whole in
or in part, of such right to purchase represented by the enclosed Warrant
Certificate is permitted by the terms of the Underwriters' Warrant Agreement
pursuant to which the enclosed Warrant has been issued, and the transferee
hereof, by his acceptance of this Assignment, represents and warrants that he is
familiar with the terms of such Underwriters' Warrant Agreement and agrees to be
bound by the terms thereof with the same force and effect as if a signatory
thereto.
Date:
Taxpayer ID No.:
Warrant Certificate No.:
(Signature must conform in all respects to name of holder as
specified on the face of the Warrant Certificate)
(Address)
Signed in the presence of:
KOGAN & TAUBMAN, LLC
39 Broadway, Suite 2250
New York, New York 10006
Telephone (212) 425-8200
Facsimile (212) 482-8104
December 20, 1999
Streamedia Communications, Inc.
244 West 54th Street
New York, New York 10019
Re: Registration Statement on Form SB-2
Offering of 1,000,000 Units
Gentlemen:
I have acted as counsel to Streamedia Communications, Inc., a Delaware
corporation (the "Company"), in connection with the registration under the
Securities Act of 1933, as amended, (the "Securities Act"), of 1,000,000 units
(the "Units"), each consisting of one share of common stock $.001 par value (the
"Common Stock") and one warrant entitling the holder to purchase one share of
common stock at $12.75 per share (the "Warrants"), to be offered to the public
by the Company in a firm commitment underwriting by Redstone Securities, Inc.
The Registration Statement (defined below) also includes 150,000 additional
Units to cover over-allotments, if any.
Amendment Number Four to a registration statement on Form SB-2 that was
previously filed on May 17, 1999, is being filed herewith (the "Registration
Statement"). In connection with rendering this opinion, I have examined executed
copies of the Registration Statement and all exhibits thereto. I have also
examined and relied upon the original, or copies certified to my satisfaction,
of (i) the Articles of Incorporation and By-laws of the Company, (ii) minutes
and records of the corporate proceedings of the Company with respect to the
issuance of the Units to be offered and related matters, and (iii) such other
agreements and instruments relating to the Company as I deemed necessary or
appropriate for purposes of the opinion expressed herein. In rendering such
opinion, I have made such further investigation and inquiries relevant to the
transaction contemplated by the Registration Statement as I have deemed
necessary for the opinion expressed herein, and I have relied, to the extent I
deemed reasonable, on certificates and certain other information provided to me
by officers of the Company and public officials as to matters of fact of which
the maker of such certificate or the person providing such other information had
knowledge.
Furthermore, in rendering my opinion, I have assumed that the
signatures on all documents examined by me are genuine, that all documents and
corporate record books submitted to me as originals are accurate and complete,
and that all documents submitted to me are true, correct and complete copies of
the originals thereof.
Based upon the foregoing, I am of the opinion that the Units, and the
Common Stock and Warrants of which they are comprised, to be issued and sold by
the Company as described in the Registration Statement have been duly authorized
for issuance and sale and when issued by the Company against payment of the
consideration therefor pursuant to the terms of the Underwriting Agreement, will
be legally issued, fully paid and nonassessable.
I hereby consent to the filing of this opinion as an exhibit to the
Registration Statement.
Very truly yours,
Kogan & Taubman, L.L.C.
By_________/s/__________
Louis E. Taubman
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUTANTS
We have issued our report dated March 9, 1999, accompanying the financial
statements of Streamedia Communications, Inc. contained in Amendment No. 4 to
the Registration Statement and Prospectus. We consent to the use of the
aforementioned report in the Registration Statement and Prospectus, and to the
use of our name as it appears under the caption "Experts."
GRANT THORNTON LLP
Melville, New York
December 16, 1999
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(Replace this text with the legend)
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<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> Sep-30-1999
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0
0
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