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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 12, 1999
REGISTRATION NO. 333-86449
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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AMENDMENT NO. 1
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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COLLECTORS UNIVERSE, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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DELAWARE 7389 33-0846191
(STATE OF OTHER JURISDICTION PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
OF INCORPORATION OR CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
ORGANIZATION)
</TABLE>
1936 DEERE STREET, SANTA ANA, CALIFORNIA 92705
(949) 567-1234
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
LOUIS M. CRAIN, CHIEF EXECUTIVE OFFICER
COLLECTORS UNIVERSE, INC.
1936 DEERE STREET
SANTA ANA, CALIFORNIA 92705
(949) 567-1234
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
COPIES TO:
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BEN A. FRYDMAN, ESQ VICTOR A. HEBERT, ESQ.
CHRISTOPHER D. IVEY, ESQ PAUL H. GREINER, ESQ.
MICHAEL D. COBB, ESQ RANDALL B. SCHAI, ESQ.
STRADLING YOCCA CARLSON & RAUTH, HELLER EHRMAN WHITE & MCAULIFFE
A PROFESSIONAL CORPORATION 601 SOUTH FIGUEROA STREET
660 NEWPORT CENTER DRIVE, SUITE 1600 LOS ANGELES, CALIFORNIA 90017-5758
NEWPORT BEACH, CALIFORNIA 92660-6441 (213) 689-0200
(949) 725-4000
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after this Registration Statement becomes effective.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
------------------------
The registrant hereby amends this registration statement on such date or
dates as may be necessary to delay its effective date until the registrant shall
file a further amendment which specifically states that this registration
statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the registration statement shall become
effective on such date as the SEC, acting pursuant to said Section 8(a), may
determine.
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The information in this preliminary prospectus is not complete and may be
changed. These securities may not be sold until the
registration statement filed with the Securities and Exchange Commission becomes
effective. This preliminary prospectus is not an offer to sell these securities
nor does it seek offers to buy these securities in any jurisdiction where the
offer or sale is not permitted.
SUBJECT TO COMPLETION, DATED OCTOBER 12, 1999
PROSPECTUS
4,000,000 SHARES
[LOGO]
COLLECTORS UNIVERSE, INC.
COMMON STOCK
-------------------------
We are offering 4,000,000 shares of common stock with this prospectus.
Prior to this offering, there has been no public market for the common stock. We
expect the initial public offering price to be between $7.00 and $9.00 per
share. We have applied for quotation of our common stock on the Nasdaq National
Market under the symbol "CLCT."
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INVESTING IN THE COMMON STOCK INVOLVES RISKS. SEE "RISK FACTORS" BEGINNING
ON PAGE 7.
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PER SHARE TOTAL
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Initial Public Offering Price............................... $ $
Underwriting Discount....................................... $ $
Proceeds, before expenses, to Collectors Universe........... $ $
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The underwriters may also purchase up to an additional 600,000 shares from
us at the public offering price, less the underwriting discount, within 30 days
from the date of this prospectus, to cover over-allotments.
The Securities and Exchange Commission and state securities regulators have
not approved or disapproved of these securities or determined if this prospectus
is truthful or complete. It is illegal for any person to tell you otherwise.
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NEEDHAM & COMPANY, INC. FIRST SECURITY VAN KASPER
The date of this Prospectus is , 1999
<PAGE> 3
Inside Cover
Contains pictures of the following collectibles with the captions
indicated:
Picture Caption
- ------- -------
Baseball Card 1941 Play Ball Joe DiMaggio Sportscard. Graded
and sold at auction by Collectors Universe
1804 Silver Dollar The Eliasberg 1804 Silver Dollar. Graded by
Collectors Universe
Baseball Mark McGwire's 70th Home Run Ball. Authenticated
by Collectors Universe
Album Cover The Beatles "Butcher" Album Cover. Sold by
Collectors Universe
$1,000 Bill 1890 $1,000 "Grand Watermelon" Note. Sold by
Collectors Universe
<PAGE> 4
Inside Fold
Contains a banner at the top of the page that states, "Providing a Suite
of Products and Services to the High-End Collectibles Markets" and pictures
of various collectibles that are authenticated, graded or auctioned by
Collectors Universe. Also includes displays of our logos which include, as part
of the logos, the captions indicated:
Logo Caption included within logo
- ---- ----------------------------
Professional Sports Authenticator Sports Authentication
and Grading
PSA/DNA "Get Real" Memorabilia Authentication
and Certification
PCGS Coin Authentication and Grading
Collectors Universe Auctions N/A
Superior Sports Auctions Sports Collectibles
Good Rockin' Tonight Rare Records
Lyn Knight Currency Auctions Rare Currency
Collectors Universe One-of-a-Kind Unique and Rare Collectibles
Auctions
Kingswood Coin Auctions Rare Coins
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TABLE OF CONTENTS
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PAGE
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Prospectus Summary.......................................... 3
Summary Consolidated Financial Data......................... 6
Risk Factors................................................ 7
Forward-Looking Statements.................................. 16
The Reorganization.......................................... 16
Use of Proceeds............................................. 17
Dividend Policy............................................. 17
Capitalization.............................................. 18
Dilution.................................................... 19
Selected Consolidated Financial Data........................ 20
Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. 22
Business.................................................... 29
Management.................................................. 46
Certain Relationships and Related Transactions.............. 53
Principal Stockholders...................................... 55
Description of Capital Stock................................ 56
Shares Eligible for Future Sale............................. 58
Underwriting................................................ 59
Legal Matters............................................... 61
Experts..................................................... 61
Available Information....................................... 61
Index to Consolidated Financial Statements.................. F-1
</TABLE>
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You should rely only on the information contained in this prospectus. We
have not, and the underwriters have not, authorized any other person to provide
you with different information. If anyone provides you with different or
inconsistent information, you should not rely on it. We are not, and the
underwriters are not, making an offer to sell these securities in any
jurisdiction where the offer or sale is not permitted.
Collectors Universe, PCGS, PSA, PSA/DNA and Good Rockin' Tonight are
registered trademarks of Collectors Universe. See "Business" for a list of other
trademarks of Collectors Universe, including Collectors.com, Coin Universe, Lyn
Knight Currency Auctions, Superior Sports Auctions, Kingswood Coin Auctions,
Record Universe, Sports Collectors Universe, Currency Universe and One-of-a-Kind
Auctions. Each of the logos associated with such names are trademarks of
Collectors Universe. All other brand names or trademarks appearing in this
prospectus are the property of their respective owners.
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PROSPECTUS SUMMARY
You should read the following summary together with the more detailed
information and financial statements and notes thereto appearing elsewhere in
this prospectus. Except as otherwise indicated, the information in this
prospectus assumes the underwriters do not exercise their over-allotment option
and assumes any outstanding options to purchase shares of common stock have not
been exercised.
COLLECTORS UNIVERSE
Collectors Universe is a full-service provider of value-added services to
dealers and collectors of coins, sportscards, sports memorabilia, rare currency
and rare records. We authenticate and grade the quality of coins and
sportscards, authenticate autographs and memorabilia, compile and publish
authoritative information about collectibles and conduct collectibles auctions
on the Internet, by telephone or in person. At our website, www.collectors.com,
collectors and dealers access authoritative information on collectibles and buy
and sell collectibles at our auctions.
We have established widely recognized brand names in coin grading
(Professional Coin Grading Service or PCGS), sportscard grading (Professional
Sports Authenticator or PSA), rare currency auctions (Lyn Knight Currency
Auctions), sportscard auctions (Superior Sports Auctions), autograph
authentication and collectible certification (PSA/DNA Authentication Services),
rare coin auctions (Kingswood Coin Auctions), Internet coin auctions (Coin
Universe) and rare record auctions (Good Rockin' Tonight).
We believe we have developed an unequaled reputation for the accuracy of
our authentication and grading services within the collectibles markets we
serve. Since 1986, we have authenticated and graded more than 7.1 million
collectible coins and sportscards with a declared insured value of approximately
$8.7 billion. In the quarter ended September 30, 1999, we received submissions
of more than 200,000 individual items for authentication and grading each month.
Our reputation and the breadth of our value-added services provide
collectors and dealers with the confidence to buy and sell high-end collectibles
without physical inspection, commonly referred to as "sight-unseen," through
Internet and telephone auctions by providing answers to the following questions:
- "Is it real?" We authenticate collectible coins, sportscards and
autographs to confirm that they are genuine.
- "What's the quality?" We grade the quality of collectible coins and
sportscards in accordance with consistently applied uniform standards.
- "What's the value?" We compile and publish price guides, rarity reports,
market indices and other authoritative content regarding collectibles
that enable buyers and sellers to make more informed decisions.
- "How do I buy or sell it?" As an increasing part of our business, we
conduct integrated multi-venue auctions that enable buyers and sellers of
high-end collectibles to participate in simultaneous Internet, telephonic
and in-person auctions.
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We believe that we have earned the trust and confidence of dealers and
collectors of high-end collectibles as demonstrated by the following:
- we authenticated, graded and auctioned for $109,000 a 1941 Joe DiMaggio
sportscard and we certified the authenticity of Mark McGwire's 70th home
run baseball and Hank Aaron's 715th home run baseball and bat;
- we authenticated and graded an 1804 silver dollar that was recently
auctioned for approximately $4.1 million;
- we obtained by consignment and sold at one of our recent auctions a
limited edition Beatles album for $38,500; and
- we will be auctioning at our inaugural "One-of-a-Kind" auction in October
1999, the basketball court where Michael Jordan took the last shot of his
NBA career to win the 1998 NBA Championship.
We generate revenues from fees paid for authentication and grading services
provided to our customers, typically ranging from $8 to $40 per item. We also
generate revenues from commissions paid by both buyers and sellers when we sell
collectibles that have been consigned to us, the total of which generally ranges
from 10% to 20% of the sale prices of the collectibles, and from the resale of
purchased collectibles equal to the prices at which they are sold.
Internet auction providers also recognize that our authentication, grading
and information services facilitate the purchase and sale of collectibles by
their customers. For example, we have entered into a contract with eBay that
provides its users with access to our authentication and grading services. We
pay eBay commissions on revenues derived from our co-branded website.
Our objective is to become the full-service marketplace of choice for
high-end collectibles. To achieve this objective, we intend to: leverage our
authentication and grading leadership to increase our auction business from
customers of our authentication and grading services; cross-sell our services
and products to our established customer base; penetrate other collectibles
markets; expand recognition of the Collectors Universe(R) brand; and use
proprietary technology to expand and enhance the services we provide.
We commenced our business in 1986 as Professional Coin Grading Service. We
incorporated Collectors Universe as a Delaware corporation in February 1999 to
become the parent holding company of Professional Coin Grading Service, to
acquire the currency auction business of Lyn F. Knight Rare Coins, Inc., the
rare coin auction business of Kingswood Coin Auctions, LLC and minority
interests in two other companies we control. In these transactions, we issued an
aggregate of 19,000,000 shares and paid a total of $2.1 million in cash.
Our principal executive offices are located at 1936 East Deere Street,
Santa Ana, California 92705, and our telephone number is (949) 567-1234. Our
website can be found at www.collectors.com. The information on our website is
not incorporated by reference into this prospectus.
4
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THE OFFERING
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Common stock offered by Collectors
Universe................................ 4,000,000 shares
Common stock to be outstanding after the
offering................................ 24,425,076 shares
Use of proceeds........................... To expand into authentication and grading of
additional collectibles, to create additional service
offerings to collectibles markets and for other
general corporate purposes. See "Use of Proceeds."
Proposed Nasdaq National Market symbol.... CLCT
</TABLE>
The number of shares outstanding immediately after this offering is based
on shares outstanding on October 2, 1999 and excludes 3,288,417 shares of our
common stock issuable pursuant to the exercise of stock options and warrants
outstanding as of October 2, 1999. If the underwriters exercise the
over-allotment option in full, there will be 25,025,076 shares outstanding after
the offering.
5
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SUMMARY CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE AND OTHER DATA)
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FISCAL YEAR ENDED JUNE 30,
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1995 1996 1997 1998 1999
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CONSOLIDATED STATEMENTS OF INCOME DATA:
Net revenues........................................ $ 9,265 $ 8,432 $ 9,393 $ 10,989 $ 22,563
Cost of revenues.................................... 2,451 2,623 2,651 2,915 8,654
-------- -------- -------- -------- --------
Gross profit........................................ 6,814 5,809 6,742 8,074 13,909
Operating income.................................... 2,961 532 514 906 37
Interest income (expense), net...................... (62) 72 34 26 30
Minority interest................................... -- (11) (7) (46) (28)
-------- -------- -------- -------- --------
Income before provision (benefit) for income
taxes............................................. 2,899 593 541 886 39
Provision (benefit) for income taxes................ 43 9 36 13 (348)
-------- -------- -------- -------- --------
Historical net income............................... $ 2,856 $ 584 $ 505 $ 873 $ 387
======== ======== ======== ======== ========
Historical net income per share, basic and
diluted........................................... $ 0.18 $ 0.04 $ 0.03 $ 0.05 $ 0.02
======== ======== ======== ======== ========
Weighted average shares outstanding:
Basic............................................. 16,565 16,154 16,217 16,064 17,644
Diluted........................................... 16,565 16,154 16,217 16,064 18,765
PRO FORMA DATA(1):
Historical income before provision for income
taxes............................................. $ 2,899 $ 593 $ 541 $ 886 $ 39
Pro forma provision for income taxes................ 1,160 237 216 354 16
-------- -------- -------- -------- --------
Pro forma net income................................ $ 1,739 $ 356 $ 325 $ 532 $ 23
======== ======== ======== ======== ========
Pro forma net income per share, basic and diluted... $ --
========
Pro forma weighted average shares outstanding(2):
Basic............................................. 17,922
Diluted........................................... 19,043
OTHER DATA:
Number of coins graded.............................. 425,900 419,900 400,200 428,500 521,500
Number of cards graded.............................. 12,500 32,100 93,500 167,600 898,800
Average selling price for all collectibles
auctions(3)....................................... $ 249
</TABLE>
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AT JUNE 30, 1999
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ACTUAL AS ADJUSTED(4)
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CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents................................... $ 1,852 $31,012
Working capital............................................. 2,330 31,498
Total assets................................................ 14,749 44,242
Total stockholders' equity.................................. 9,300 38,460
</TABLE>
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(1) Pro forma data reflects adjustments for federal and state income taxes as if
we had been treated as a C corporation rather than an S corporation during
all of the fiscal years presented above. See Note 2 to Consolidated
Financial Statements.
(2) Pro forma weighted average shares outstanding for basic and diluted includes
278 shares which represents the number of shares which, when multiplied by
the assumed initial public offering price of $8.00, is required to replace
the excess of capital withdrawn during fiscal 1999 in excess of earnings for
this fiscal year.
(3) Average selling price for all collectibles auctions is determined by
dividing the number of collectibles sold by their aggregated selling prices
irrespective of whether the collectibles sold were owned or consigned to us.
(4) Adjusted to give effect to the sale by us of 4,000,000 shares of common
stock offered hereby and the application of the estimated net proceeds
therefrom. See "Use of Proceeds" and "Capitalization."
The historical operating results presented above are not comparable for all
periods shown. The operating results for fiscal 1999 include revenues from
auctions conducted by Lyn Knight Currency Auctions and Kingswood Coin Auctions,
the operating results of which were included in our consolidated financial
statements for the first time beginning on February 5, 1999, the date on which
we acquired those businesses. On February 5, 1999, we became a C corporation
obligated to pay federal and state corporate income taxes. For periods prior to
February 5, 1999 there is no provision for federal income taxes and a provision
of 1.5% of earnings for California S corporation income tax.
On January 24, 1999 we declared an S corporation dividend in the aggregate
amount of $2.2 million, which represented a substantial portion of accumulated
earnings that had been or would be taxed to the stockholders individually. The S
corporation dividend was paid in cash from the proceeds of our March 1999
private placement of shares of our common stock. This dividend is reflected in
the balance sheet data at June 30, 1999.
6
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RISK FACTORS
Before you invest in our common stock, you should be aware that there are
various risks, including those described below. Additional risks and
uncertainties not presently known to us or that we currently deem immaterial may
also impair our business operations. If any of the following risks actually
occur, our business could be harmed. In such case, the trading price of our
common stock could decline and you may lose all or part of your investment. You
should consider carefully these risk factors together with all of the other
information included in this prospectus before you decide to purchase shares of
our common stock.
A DECLINE IN THE POPULARITY OF HIGH-END COLLECTIBLES COULD IMPACT OUR BUSINESS
The popularity of collectibles may vary over time due to perceived
scarcity, subjective value, general consumer trends, changes in the prices of
precious metals, interest rates and other general economic conditions. We derive
a significant portion of our revenues from fees paid by collectors for our
authentication and grading services, commissions paid to us upon the sale of
collectibles in our auctions and sales of collectibles from our own inventory. A
decline in popularity of high-end collectibles would likely cause a decrease in
the number of items submitted to us for authentication and grading.
Since our authentication and grading revenues are based on the volume of
collectibles submitted and not the value of the collectibles submitted, a
reduction in demand for authentication and grading services would have a
negative effect on our revenues. Additionally, a decline in the popularity of
collectibles, and coins and sportscards in particular, would result in fewer
transactions in our auctions and fewer sales from our inventory, reducing our
revenue from auction sales.
TEMPORARY POPULARITY OF SOME COLLECTIBLES COULD CAUSE OUR REVENUES TO FLUCTUATE
Temporary consumer popularity or "fads" among collectors may temporarily
inflate the volume of collectibles that we authenticate, grade, auction and
sell. These trends may result in significant fluctuations in our operating
results from one quarter to the next. Any decline in the popularity of the
collectibles we authenticate, grade, auction and sell as a result of changes in
consumer trends could harm our business. In particular, the market for
authentication and grading is relatively new and the volume of sportscards we
receive has increased significantly in the past five fiscal quarters. However,
there is no guarantee that the level of trading in sportscards will continue to
grow or maintain its current level.
OUR FUTURE OPERATING RESULTS ARE SUBJECT TO FLUCTUATIONS
Our operating results are unpredictable and we expect them to fluctuate in
the future due to a number of factors which are outside our control. These
factors include:
- consumer trends affecting the popularity of collectibles;
- our ability to significantly increase our customer base;
- our ability to obtain consignments of and to purchase collectibles to
offer at our auctions;
- our ability to re-sell our inventory of collectibles in a timely manner;
- our ability to maintain gross margins;
- our ability to maintain customer satisfaction;
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- the general availability and pricing of high-end collectibles;
- costs relating to the expansion of our operations and the introduction of
new types of services;
- services offered by our competitors and the success of our competitors;
- technical difficulties with consumers' use of our website or service
interruptions; and
- general economic conditions and economic conditions specific to the
prices of high-end collectibles.
THERE IS A RISK THAT OUR AUCTION OPERATIONS WILL NOT BECOME PROFITABLE
Our future operating results are also dependent on the success of our
auction operations and the amount of resources that we will need to devote to
the development of our Internet website. Our auction operations currently are
not profitable. We will need to achieve significant growth in our Internet
business in order for the auction operations to become profitable. We are in the
early stages of development of several new portions of our website which will
offer content and auctions for collectibles that may have a lower average
selling price than many of the collectibles in the markets we currently serve.
Continued development of our website will require significant resources. There
is a risk that the planned expansion of our website will not result in increased
revenues which would have a negative impact on our business.
WE MAY INCUR LOSSES AS A RESULT OF ACCUMULATING INVENTORY
In addition to auctioning collectibles on consignment, currently
approximately 15% of the aggregate sales prices of collectibles sold at our
auctions are from our own inventory. We purchase these collectibles from dealers
and collectors and assume the inventory and price risks of these items until
they are sold. If we were unable to resell our purchased collectibles when we
want or need to, or at prices sufficient to generate a profit on their resale,
or if the market value of our inventory of purchased collectibles were to
decline, our revenues could decline.
THERE ARE LIMITED SUPPLIES OF COLLECTIBLES
Our business is substantially dependent upon obtaining collectible coins,
sportscards, records and other high-end collectibles for authentication, grading
and auction. We depend upon dealers and collectors submitting collectibles for
authentication and grading and there is no guarantee that the current rate of
submission will continue. In particular, we have recently experienced a
significant increase in the rate of sportscard submissions which may indicate
that the sportscard market for authentication and grading may be approaching
maturity. Although there are numerous dealers and collectors from whom we are
able to obtain collectibles for our auctions, there are only a limited number of
dealers with the capacity to submit high-end collectibles for auction on a
regular basis. As a result, we sometimes extend discounts on seller commissions
and guarantee the receipt of a minimum auction price and sometimes also make
advances based on such minimum prices as incentives to such dealers to consign
collectibles to us. If consigned collectibles do not generate sales prices in
excess of the amounts advanced by us, we may realize a loss on those advances.
During calendar 1999, we granted stock options to selected high volume dealers
as a further incentive for their consignments. However, we do not expect in the
future to use option grants to any significant extent as incentives to
suppliers.
A change in our relationships with suppliers or dealers could negatively
impact our ability to obtain or auction high-end collectibles in the quantities
and at the times we desire. This could impair our ability to attract a
sufficient number of people interested in high-end collectibles to our auctions,
which would harm our business.
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WE FACE COMPETITION IN ATTRACTING COLLECTORS TO OUR INTERNET WEBSITE
The market for Internet auctions is highly competitive and most major
Internet websites of such companies as Yahoo!, Inc., eBay Inc., Onsale, Inc. and
Excite, Inc., a subsidiary of At Home Corporation, host Internet auctions where
collectibles are frequently traded. Barriers to entry to the Internet auction
market are relatively low, and current and new competitors can launch new
websites at a relatively low cost using commercially available software. We
potentially face competition from a number of large Internet communities and
services that have expertise in developing Internet commerce, such as
Amazon.com, Inc., America Online, Inc. and Microsoft Corporation. Other large
companies with strong brand name recognition, substantial resources and
experience in Internet commerce, such as Cendant Corporation, QVC, Inc. and
other large media companies may also seek to compete in the Internet auction
market. In addition to currently or potentially competing for auction services
with major Internet commerce companies, we also compete with a number of other
small service providers including those that specifically serve the collectibles
markets. Competitive pressures created by any one of these companies, or by our
competitors collectively, could harm our business by decreasing our revenues.
Some of our current competitors and many of our potential competitors have
longer operating histories in Internet commerce, larger customer bases, greater
brand name recognition and significantly greater financial, marketing, technical
and other resources. In addition, other Internet trading services may be
acquired by or enter into commercial relationships with larger, well-
established and well-financed companies as use of the Internet increases.
Further, there is a risk that someone could create a website that draws auction
information from numerous auction websites to create a consolidated auction.
Such an "auction supermarket" could reduce the amount of traffic we receive on
our website and have a negative effect on our Internet business by decreasing
our revenues.
OUR TRADITIONAL AUCTION BUSINESS IS HIGHLY COMPETITIVE
Our traditional auction business is also highly competitive. We compete
directly with other companies that specialize in collectibles and have an
industry reputation for hosting premium collectibles auctions, including
Heritage Numismatic Auctions, Inc., Auctions by Bowers & Merena and Mastro Fine
Sports Auctions as well as other companies such as Sotheby's, Inc., Christie's,
Inc. and Greg Manning Auctions, Inc., which do not specialize in but do conduct,
coin and sportscard auctions. These competitors each have the ability to attract
buyers to their auctions as a result of their reputation and the quality
collectibles they obtain through their industry connections. In addition, other
reputable auction companies that do not presently engage in auctions for coins
or sportscards or other collectibles that are the focus of our business may
decide to enter our markets to compete with us. These companies have greater
name recognition and have greater financial and marketing resources than we do.
If these auction companies are successful in entering the specialized high-end
collectibles markets in which we participate or dealers participate less in our
auctions, we may attract fewer buyers and our business could be harmed due to
decreased revenues.
OUR AUTHENTICATION AND GRADING BUSINESS IS SUBJECT TO INTENSE COMPETITION
There are few major competitors in the collectibles authentication and
grading markets. However, competition is intense in these markets. Our
competitors in the coin grading and authentication market include Numismatic
Guaranty Corporation of America, Inc. and ANACS, a subsidiary of Amos Press,
Inc. In the sportscard grading and authentication business, our competitors
include Beckett, Certified Sports Authentication, Inc. and Sportscard Guarantee,
L.L.C. Existing authentication and grading companies could attempt to capture
greater market share by lowering prices for services or increasing advertising,
marketing or other costs of sales. Additionally, established auction companies
could expand their services to include authentication and grading of
collectibles, or
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unanticipated competitors could enter the grading and authentication markets.
Such increased competition could result in a decrease in our revenues.
SOME OF OUR DIRECTORS OWN AN INTEREST IN A COMPETING COMPANY
David Hall, Chairman of the Board, and Van Simmons, a director, together
own a majority interest in David Hall's North American Trading, which is
primarily engaged in the retail sale of coins through a direct sales force.
Although David Hall's North American Trading does not conduct auctions or submit
coins to us for authentication and grading, it may sell coins to collectors who
also buy or sell coins at auctions conducted by Collectors Universe. It also
purchases rare coins for resale through a sole source supplier who is also a
supplier to Collectors Universe. Therefore, David Hall's North American Trading
indirectly competes with Collectors Universe which creates a conflict of
interest in connection with the purchase and sale of rare coins.
GROWTH AND ACQUISITIONS MAY STRAIN OUR MANAGEMENT, OPERATIONAL AND FINANCIAL
RESOURCES
We are currently experiencing a period of significant expansion and we
anticipate that we must expand further and continue to develop our business plan
to address potential growth in our customer base and market opportunities. Our
expansion has placed, and we expect it to continue to place, a significant
strain on our management, operational and financial resources. Also, as our
business plan evolves, we risk distracting management away from expanding
currently profitable operations and decreasing interest of suppliers and
customers to our core authentication and grading business. We cannot assure you
that our current and planned facilities, computer systems, personnel and
inventory controls will be adequate to support our future operations. In
addition, there is a risk that we may not be able to expand our sportscard and
coin authentication and grading operations to allow for additional capacity at
the same rate as market demand may be created.
If appropriate opportunities present themselves, we also intend to acquire
businesses, technologies, services or products that we believe will help us
develop and expand our business. The process of integrating an acquired
business, technology, service or product may result in operating difficulties
and expenditures which we cannot anticipate and may absorb significant
management attention that would otherwise be available for further development
of our existing business. Moreover, the anticipated benefits of any acquisition
may not be realized. Any future acquisitions of other businesses, technologies,
services or products might require us to obtain additional equity or debt
financing, which might not be available to us on favorable terms or at all, and
might be dilutive. Additionally, we may not be able to successfully identify,
negotiate or finance future acquisitions or to integrate acquisitions with our
current business.
WE BECAME AN INTEGRATED COMPANY IN FEBRUARY 1999
We were founded in 1986 as Professional Coin Grading Service, Inc. or PCGS
and began operating primarily as a coin grading service to the collectible coin
market. In 1991, principals of our company founded Professional Sports
Authenticator or PSA, an authentication and grading service for the sportscards
trading market. In 1998, principals of our company founded PSA/DNA, an
authentication service for sports memorabilia and other high-end collectibles.
In February 1999, we combined PCGS, PSA and PSA/DNA and several other
established auction businesses in the collectible coin market, sportscard
market, sports memorabilia market, currency market and other high-end
collectibles markets into Collectors Universe. As a result, while parts of our
business have a longer operating history, in our present state, we have only a
limited operating history as an integrated company on which our business may be
evaluated. Because of our limited operating history as an
10
<PAGE> 14
integrated company, we believe that period-to-period comparisons of our
operating results are not necessarily meaningful and you should not rely upon
them as indications of our future performance.
WE COULD SUFFER SIGNIFICANT LOSSES ON AUTHENTICATION AND GRADING WARRANTIES
We offer a warranty covering the coins and sportscards authenticated and
graded by us. Under the terms of our warranty, any coin or sportscard that was
originally graded by us and which subsequently receives a lower grade upon
resubmittal to our company, obligates us either to purchase the coin or
sportscard or pay the difference in value of the item at its original grade as
compared with its lower grade. We have a reserve of $232,000 at June 30, 1999 to
satisfy claims made under our warranty. To the extent that our actual warranty
expense exceeds that amount, we would incur unanticipated expenses. In addition,
we have no insurance coverage to protect us from adverse warranty expenses.
WE RUN A RISK OF SYSTEM CAPACITY CONSTRAINTS
We seek to generate a high volume of traffic and transactions on our
website. If we generate too much traffic to our website, our website will exceed
its capacity, load slowly and be less responsive. This may potentially drive
away customers. We must continually enhance and improve these systems in order
to accommodate the level of use of our websites. Our inability to integrate
additional software and hardware or to develop and further upgrade our existing
technology to accommodate increased traffic on our websites or increased
transaction volume through our processing systems may cause unanticipated system
disruptions, slower response times, degradation in levels of customer service,
impaired quality of the user's experience on our websites, and delays in
reporting accurate financial information.
WE RUN A RISK OF SYSTEM INTERRUPTIONS
Any system interruptions that result in the unavailability of our service
or reduced customer activity would reduce the volume of collectibles listed and
auctions completed and could affect the selling price of collectibles listed for
sale. Thus, we depend upon our communications and computer hardware,
substantially all of which is currently located at our leased facility in Santa
Ana, California. We will be moving into new facilities in April 2000, which move
may have a disruptive effect on our computer systems. We have experienced
periodic system interruptions, which we believe will continue to occur from time
to time. We experienced two system interruptions in 1999 of approximately 7
hours each, in which we lost the ability to operate our Internet website. In
each instance the failure was caused by a telecommunications line failure of a
third party. A substantial interruption in our systems would harm our business
and result in decreased revenues.
WE ARE VULNERABLE TO SYSTEM FAILURE DUE TO A LACK OF REDUNDANT SYSTEMS AT
ANOTHER LOCATION
We do not have and we do not plan to implement redundant systems at a
location separate from where our computer system currently operates. If our
systems were to become inoperable due to damage from earthquake, fire, flood,
sustained power loss, telecommunication failure, break-in or similar
catastrophic events, we have no secondary system at a separate location to act
as a backup. A substantial interruption in our systems due to a lack of backup
would result in a decrease in our revenues.
11
<PAGE> 15
THE LOSS OF KEY PERSONNEL COULD ADVERSELY AFFECT OPERATIONS
Our performance is greatly dependent on the performance of our senior
management and key employees. The loss of the services of any of our executive
officers or other key employees could harm our business. Some of our executive
officers and key employees are experts in the collectibles markets and have
industry-wide reputations for authentication and of grading collectibles,
purchasing collectibles and preparing auctions that will be attractive to buyers
of high-end collectibles. The loss of these executive officers or key employees
could have a negative effect on our reputation for expertise in the collectibles
markets. Additionally, we must identify, attract, hire, train, retain and
motivate other highly skilled technical, managerial, marketing and customer
service personnel, including programmers and authenticators and graders of
collectibles. Competition for highly skilled technical, managerial, marketing
and customer service personnel is intense. We may not be able to successfully
attract, integrate or retain sufficiently qualified personnel, which failure
could harm our ability to stay competitive and thus result in decreased
revenues.
WE DEPEND ON ACCEPTANCE OF THE COLLECTORS UNIVERSE BRAND NAME AND THE
INTEGRATION OF EXISTING BRAND NAMES
We believe that brand name recognition is extremely important in the
collectibles services industry. Authentication and grading services are based to
a large degree on the reputation of the company providing the services, and
recognizable branding is crucial to maintain customer loyalty. In the auctions
industry, many collectors look for brands that are associated with auctions that
provide high-end collectibles for sale. However, the Collectors Universe brand
name has only been in existence for a short period of time, and brand
recognition associated with one of our existing brands may not carry over to the
Collectors Universe brand. We must work to tie customer awareness of each of our
existing brands to our new brand. We run the risk that we will not be able to
accomplish such an integration at all, or that we will dilute the awareness of
our existing brand names. If our established brand names dissipate, or if we are
unsuccessful in promoting, integrating and maintaining our brand names, our
revenues may decline.
WE ARE DEPENDENT ON THE CONTINUED GROWTH OF INTERNET COMMERCE
Our business could be harmed if any of the following situations occur:
- the use of the Internet does not continue to grow or grows more slowly
than expected;
- the Internet's infrastructure does not effectively support the growth
that may occur; and
- the Internet does not become a viable commercial marketplace.
The market for the sale of goods over the Internet is a new and emerging
market. Rapid growth in the use of, and interest in, the Internet is a recent
phenomenon and may not continue to develop.
INSECURE TRANSMISSION OF CONFIDENTIAL INFORMATION AND THIRD PARTY MISCONDUCT
COULD HURT CUSTOMER CONFIDENCE IN INTERNET COMMERCE
Many consumers are concerned about transmitting confidential information,
such as credit card numbers, over the Internet. Public confidence in secure
transmissions is a significant barrier to Internet commerce and communications.
We rely on encryption technology licensed from third parties to transmit
confidential information, including customer credit card numbers. In addition,
our servers are vulnerable to computer viruses, physical or electronic
break-ins, deliberate attempts by third parties to exceed the capacity of our
systems and similar disruptive problems. Computer viruses,
12
<PAGE> 16
break-ins or other problems caused by third parties could lead to interruptions,
delays, loss of data or cessation in service to users of our services and
products. The law relating to the liability of Internet service companies for
information carried on or disseminated through their services is currently
unsettled. It is possible that claims could be made against Internet service
companies under both U.S. and foreign law for defamation, libel, invasion of
privacy, negligence, copyright or trademark infringement, or other theories
based on the nature and content of the materials disseminated through their
services. Concerns regarding liability for information disseminated over the
Internet and the adoption of any additional laws or regulations may decrease the
growth of the Internet, which could decrease the demand for our Internet
auctions and other services, resulting in a decrease in revenues.
WE ARE SUBJECT TO AN FTC CONSENT DECREE
In a consent decree with the Federal Trade Commission (FTC) dated August
1990, PCGS consented to restrictions in the operation of the PCGS business.
Under the consent decree, PCGS agreed that it will make no representations that
are untrue with respect to the objectivity of its services or the marketability
of coins. In addition, PCGS agreed not to improperly adjust its grading
standards, nor to permit any coin graders to knowingly grade coins in which the
graders have a financial interest or to discuss grading procedures with persons
not authorized by PCGS. If the FTC determines that we have violated this
agreement, it may seek additional restrictions or penalties or otherwise limit
our operations.
ADDITIONAL REGULATIONS COULD BE IMPOSED ON OUR INDUSTRY
AUTHORITIES COULD IMPOSE ADDITIONAL REGULATIONS ON COLLECTIBLES AND AUCTION
MARKETS. The collectible coin and other high-end collectibles markets are not
currently subject to direct federal, state or local regulation, although
auctions in general and the sale of particular types of artwork and autographed
sports memorabilia are regulated in some states. However, from time to time
authorities discuss additional regulations which could impose restrictions on
the collectibles industry, such as regulating collectibles as securities or
requiring collectibles dealers to meet registration or reporting requirements,
and impose restrictions on the conduct of auction businesses. Adoption of laws
or regulations of this nature could increase the complexity and costs of
conducting auctions, which might decrease our ability to attract sellers and
buyers. In addition, due to the increasing popularity and use of the Internet,
laws and regulations may be adopted with respect to the Internet that could
significantly limit our Internet auction business or otherwise harm our
business.
STATES COULD IMPOSE OBLIGATIONS TO COLLECT SALES TAXES. Generally, we do
not collect sales or other similar taxes on goods sold by users through our
Internet auction service. However, one or more states may seek to impose sales
tax collection obligations on out-of-state companies such as ours, which engage
in or facilitate Internet commerce, and a number of proposals have been made at
the state and local level that would impose additional taxes on the sale of
goods and services through the Internet. If adopted, these proposals could
substantially impair the growth of Internet commerce, and could adversely affect
our ability to profit from Internet commerce. Moreover, a successful assertion
by one or more states or any foreign country that we should collect sales or
other taxes on the exchange of merchandise on our system could reduce our
revenues.
WE DEPEND ON OUR ABILITY TO PROTECT AND ENFORCE OUR INTELLECTUAL PROPERTY RIGHTS
We believe that our trademarks and other proprietary rights are important
to our success and competitive position. We rely on a combination of trademark,
copyright and trade secret laws to establish and protect our proprietary rights.
However, the actions we take to establish and protect our trademarks and other
proprietary rights may be inadequate to prevent imitation of our services or
13
<PAGE> 17
products or to prevent others from claiming violations of their trademarks and
proprietary rights by us. In addition, others may develop similar technology
independently or assert rights in our trademarks and other proprietary rights.
The laws of other countries may afford us little or no effective protection of
our intellectual property.
OUR UNREGISTERED TRADEMARKS COULD CONFLICT WITH TRADEMARKS OF OTHERS
We have not conducted an exhaustive search of possible prior users of our
unregistered trademarks, including Coin Universe, Collectors.com, Lyn Knight
Currency Auctions, Superior Sports Auctions, Kingswood Coin Auctions, Record
Universe, Sports Collectors Universe, Currency Universe and One-of-a-Kind
Auctions. Therefore, it is possible that our use of some of these trademarks may
conflict with others. As a result, we could face litigation or lose the use of
some of these trademarks, which could have an impact on our name recognition and
result in a decrease in revenues.
FAILURE TO SOLVE YEAR 2000 COMPLIANCE PROBLEMS MAY IMPACT OUR BUSINESS
The computer systems of many businesses face the risk of malfunction in the
year 2000. This malfunction is the result of computer programs that were
designed to use two digits rather than four digits to define an applicable year.
These computer programs may recognize the year 2000 as the year 1900, or be
completely unable to recognize the year 2000. A malfunction of this type could
result in a system failure or miscalculations in the processing of data. System
failure or miscalculations in the processing of data would cause disruptions in
business operations and could cause the temporary inability to process
transactions, bill activities, send invoices or engage in other normal business
transactions. We do not presently have a contingency plan in place if our
computer systems fail to comply with year 2000 issues.
FAILURE TO MAKE OUR PROPRIETARY SOFTWARE YEAR 2000 COMPLIANT COULD DISRUPT OUR
OPERATIONS
In our authentication and grading business we use proprietary software that
we developed which is not yet year 2000 compliant. We estimate that the cost to
make our proprietary software year 2000 compliant will be approximately $50,000.
In the event that we encounter any disruptions in the operation of our
proprietary software due to year 2000 issues, the time required to grade coins
and sportscards would increase and the number of coins and sportscards we could
grade would decrease, which could reduce our revenues. We do not presently have
a contingency plan in place if our software fails to comply with year 2000
issues.
WE FACE A RISK OF SYSTEM FAILURE DUE TO RELIANCE ON THE YEAR 2000 COMPLIANCE OF
THIRD PARTIES
In addition to our internally developed software, we utilize software and
hardware developed by third parties for both our network and internal
information systems. We also rely on the Internet for customers to access our
websites. There is no guarantee that our third party software and hardware
providers or the operation of the Internet itself will be unaffected by the year
2000. Failure of third-party equipment or software to properly process dates for
the year 2000 and thereafter, or any similar impact on the Internet, could
require us to incur unanticipated expenses to remedy any problems, which could
harm our business. We do not presently have a contingency plan in place if one
of our third party providers, such as our Internet service provider, should
experience system failure due to year 2000 issues, and we do not intend to
establish such a contingency plan.
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<PAGE> 18
WE ARE LARGELY CONTROLLED BY MANAGEMENT
Our officers and directors currently own or control a substantial majority
of our outstanding common stock. If they act in concert, they will continue to
be able to exercise voting control over Collectors Universe for the foreseeable
future and will be able to elect the entire Board of Directors, set dividend
policy and otherwise generally determine our management. This management control
could prevent, or make more difficult, a sale of our company that is not on
terms acceptable to our management.
WE RELY ON THIRD PARTIES FOR VARIOUS INTERNET AND PROCESSING SERVICES
In addition to our merchandise suppliers, our operations depend on a number
of third parties for Internet access, delivery services and credit card
processing. We have limited control over these third parties and no long-term
relationships with any of them. For example, we do not own a gateway onto the
Internet, but instead, rely on Internet service providers to connect our website
to the Internet. Should the third parties that we rely on for Internet access,
delivery services or credit card processing services be unable to serve our
needs for a sustained time period as a result of a strike, natural disaster or
other reason, our revenues and business could be harmed.
YOU WILL INCUR SUBSTANTIAL DILUTION
If you purchase shares of our common stock, you will incur immediate and
substantial dilution in pro forma net tangible book value. We estimate this
dilution to be approximately $6.62 per share, or approximately 83%, assuming an
initial public offering price of $8.00 per share. If other security holders
exercise options or warrants to purchase our capital stock, you will suffer
further dilution. See "Dilution" for a description of how dilution was
calculated.
A SIGNIFICANT NUMBER OF SHARES ARE ELIGIBLE FOR SALE AND THEIR SALE COULD
DEPRESS OUR STOCK PRICE
The sale of a large number of shares could harm our stock price. After this
offering, we will have outstanding 24,425,076 shares of common stock, a majority
of which will be held by existing stockholders and will become eligible for
resale shortly after this offering. 180 days following the date of this
prospectus, all 20,425,076 shares of our common stock held by existing
stockholders will become available for sale in the public market, subject to
volume restrictions imposed by federal securities laws.
PROVISIONS IN OUR CHARTER DOCUMENTS MAY MAKE AN ACQUISITION OF US MORE DIFFICULT
Provisions of our Amended and Restated Certificate of Incorporation, Bylaws
and Delaware law could make it more difficult for a third party to acquire us,
even if doing so would be beneficial to stockholders. See "Description of
Capital Stock" for a description of provisions that could impede or prevent an
acquisition.
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<PAGE> 19
FORWARD-LOOKING STATEMENTS
Some of the information in this prospectus contains forward-looking
statements. These statements can be identified by the use of forward-looking
terms such as "may," "will," "expect," "anticipate," "estimate," "continue" or
other similar words. These statements discuss future expectations, projections
of results of operations or of financial condition or state other "forward-
looking" information. When considering these forward-looking statements, you
should keep in mind the risk factors and other cautionary statements in this
prospectus. The risk factors noted under the heading "Risk Factors" and other
factors noted throughout this prospectus could cause our actual results to
differ materially from those contained in any forward-looking statement.
THE REORGANIZATION
We commenced our business in 1986 as Professional Coin Grading Service. We
incorporated Collectors Universe as a Delaware corporation in February 1999 to
become the parent holding company of Professional Coin Grading Service and to
acquire the currency auction business of Lyn F. Knight Rare Coins and the rare
coin auction business of Kingswood Coin Auctions. In those transactions:
- We issued a total of 17,310,585 of our shares to the stockholders of PCGS
in exchange for their contribution to Collectors Universe of all of the
shares of PCGS, thereby making PCGS a wholly owned subsidiary of
Collectors Universe.
- We issued a total of 760,000 of our shares and paid cash of $1.1 million
to Lyn F. Knight to acquire the currency auction business of Lyn Knight
Rare Coins, which we operate as a wholly owned subsidiary under the name
"Lyn Knight Currency Auctions."
- We issued a total of 190,000 of our shares and paid $1.0 million in cash
to the owners of Kingswood Coin Auctions to acquire its rare coin auction
business, which is now operated as a division of Professional Coin
Grading Service.
At the same time, we acquired the minority ownership interests in two other
businesses, Superior Sportscard Auctions and Internet Universe, that were
majority owned subsidiaries of Professional Coin Grading Services. As a result,
Superior Sportscard Auctions and Internet Universe are indirect, but wholly
owned, subsidiaries of Collectors Universe. We issued a total of 739,415 shares
of our common stock to acquire those minority interests.
Some officers and directors of Collectors Universe also were owners of
Kingswood Coin Auctions and as a result, received a proportionate share of the
consideration that was payable to the Kingswood Coin Auctions' owners in the
reorganization. See "Certain Relationships and Related Transactions."
Prior to the reorganization, PCGS was an S corporation for federal and
state income tax purposes. Individual owners of an S corporation are obligated
to pay taxes on their proportionate share of the earnings of the S corporation.
In anticipation of the reorganization, one of the effects of which was to cause
a termination of PCGS' status as an S corporation, PCGS declared an S
corporation dividend of $2.2 million to its stockholders on January 24, 1999.
This dividend represented a substantial portion, but not all, of the accumulated
earnings of PCGS that had been or were taxable to the PCGS stockholders
individually. The S corporation dividend was paid with proceeds from the sale of
shares in the March 1999 private placement.
Additional information regarding the reorganization is set forth in Note 3
to our Consolidated Financial Statements contained in this prospectus.
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<PAGE> 20
USE OF PROCEEDS
We estimate that the net proceeds to us from the sale of the 4,000,000
shares of common stock offered by this prospectus will be approximately $29.1
million, $33.5 million if the underwriters' over-allotment option is exercised
in full, at an assumed initial public offering price of $8.00 per share, and
after deducting the underwriting discounts and commissions and estimated
offering expenses payable by us. We currently expect to use the net proceeds
from this offering as follows:
- approximately $1.5 million to expand into authentication and grading of
additional collectibles and to create additional service offerings to
collectibles markets; and
- for other general corporate purposes. For example, we may use a portion
of the net proceeds to acquire or invest in complementary businesses,
technologies, services or products. However, we currently have no
commitments or agreements with respect to any such transactions.
As of the date of this prospectus, we cannot specify with certainty the
particular uses for the net proceeds to be received upon completion of the
offering. Accordingly, our management will have broad discretion in the
application of the net proceeds.
Until used, the net proceeds will be invested in short-term
investment-grade investments, certificates of deposit or direct or guaranteed
obligations of the U.S. government.
DIVIDEND POLICY
We do not intend to declare or pay cash dividends in the foreseeable
future. Our current policy is to retain all earnings to support future growth
and expansion.
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<PAGE> 21
CAPITALIZATION
The following table sets forth our capitalization at June 30, 1999 adjusted
to give pro forma effect to the sale of 4,000,000 shares of common stock being
offered by us at an assumed initial public offering price of $8.00 per share
after deducting underwriters' discount and estimated offering expenses to be
paid by us:
<TABLE>
<CAPTION>
AT JUNE 30, 1999
----------------------
ACTUAL AS ADJUSTED
------- -----------
(IN THOUSANDS)
<S> <C> <C>
Stockholders' equity:
Preferred stock, $.001 par value; 3,000,000 shares
authorized; no shares issued and outstanding........... $ -- $ --
Common stock, $0.001 par value, 30,000,000 shares
authorized; 20,282,076 shares issued and outstanding
(actual); 24,282,076 shares issued and outstanding (as
adjusted)(1)........................................... 20 24
Additional paid-in capital.................................. 10,781 39,827
Accumulated deficit......................................... (1,501) (1,501)
------- -------
Total stockholders' equity............................. 9,300 38,350
------- -------
Total capitalization................................... $ 9,300 $38,350
======= =======
</TABLE>
- -------------------------
(1) Excludes 3,309,700 shares of common stock issuable pursuant to the exercise
of stock options and warrants outstanding as of June 30, 1999, at a weighted
average exercise price of $3.31 per share, 1,907,908 of which were
exercisable as of June 30, 1999.
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<PAGE> 22
DILUTION
At June 30, 1999, our net tangible book value was approximately $4.2
million or $.21 per share. Net tangible book value per share represents the
amount of our total tangible assets less total liabilities divided by the number
of shares of common stock outstanding at June 30, 1999.
Net tangible book value dilution per share represents the difference
between the amount per share paid by purchasers of shares of common stock
offered by this prospectus and the net tangible book value per share of common
stock immediately after completion of the offering. After giving effect to the
sale of the 4,000,000 shares of common stock at an assumed initial public
offering price of $8 per share and deducting the underwriting discount and
commission and estimated offering expenses payable by us, our net tangible book
value at June 30, 1999 would have been $33.3 million or $1.37 per share. This
represents an immediate increase in net tangible book value of $1.16 per share
to existing stockholders and an immediate dilution in net tangible book value of
$6.63 per share to new investors purchasing common stock offered by this
prospectus. These changes are illustrated in the following table:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share............. $8.00
Net tangible book value per share at June 30, 1999........ $ .21
Increase per share attributable to new investors.......... 1.16
-----
Net tangible book value per share after this offering....... 1.37
-----
Pro forma dilution per share to new investors............... $6.63
=====
</TABLE>
The following table summarizes the difference between the existing
stockholders and the purchasers of shares of common stock offered by this
prospectus. This table uses an assumed price of $8.00 per share, with respect to
the number of shares purchased from us, the total consideration paid and the
average price per share paid.
<TABLE>
<CAPTION>
SHARES PURCHASED(1) TOTAL CONSIDERATION(2)
---------------------- ---------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
----------- ------- ----------- ------- -------------
<S> <C> <C> <C> <C> <C>
Existing Stockholders....... 20,282,076 84% $10,801,000 25% $ .53
New Investors............... 4,000,000 16 32,000,000 75 8.00
----------- --- ----------- ---
Total.................. 24,282,076 100% 42,801,000 100%
=========== === =========== ===
</TABLE>
- -------------------------
(1) The number of shares excludes 3,309,700 shares of common stock issuable
pursuant to the exercise of stock options and warrants outstanding as of
June 30, 1999, at a weighted average exercise price of $3.31 per share,
1,907,908 of which were exercisable as of June 30, 1999. To the extent
options are exercised, there will be further dilution to new investors. See
"Management -- Employee Benefit Plans" and Note 10 to the Consolidated
Financial Statements.
(2) Does not reflect any deductions for commissions or expenses paid or incurred
in connection with the issuance of such shares of common stock.
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<PAGE> 23
SELECTED CONSOLIDATED FINANCIAL DATA
The consolidated statements of income data and balance sheets data for each
of the fiscal years shown below include the operations of Collectors Universe
Inc. and its predecessor, Professional Coin Grading Service, Inc. The
consolidated statements of income data for the fiscal year ended, and balance
sheet data at June 30, 1999, also include the operations of Lyn F. Knight Rare
Coins, Inc. and Kingswood Coin Auctions, LLC from February 5, 1999, when those
operations were acquired by Collectors Universe. The consolidated statements of
income data for each of the fiscal years in the three years ended June 30, 1999,
and the balance sheets data at June 30, 1998 and 1999 are derived from
consolidated financial statements that have been audited by Deloitte & Touche
LLP, independent accountants, and are contained elsewhere in this prospectus.
The consolidated statements of income data for the fiscal years ended June 30,
1995 and 1996, and the balance sheets data at June 30, 1995, 1996 and 1997 are
derived from consolidated financial statements that also have been audited but
are not contained in this prospectus. The following data should be read in
conjunction with our consolidated financial statements and the related notes
thereto and "Management's Discussion and Analysis of Financial Condition and
Results of Operations" included elsewhere in this prospectus.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED JUNE 30,
--------------------------------------------
1995 1996 1997 1998 1999
------ ------ ------ ------- -------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENTS OF INCOME DATA(1)
Net revenues................................................ $9,265 $8,432 $9,393 $10,989 $22,563
Cost of revenues............................................ 2,451 2,623 2,651 2,915 8,654
------ ------ ------ ------- -------
Gross profit................................................ 6,814 5,809 6,742 8,074 13,909
Operating expenses:
Supplier compensation cost(2)............................. -- -- -- -- 585
Selling, general and administration....................... 3,853 5,277 6,228 7,168 13,287
------ ------ ------ ------- -------
Total operating expenses................................ 3,853 5,277 6,228 7,168 13,872
Operating income............................................ 2,961 532 514 906 37
Other income (expense):
Interest income (expense), net.............................. (62) 72 34 26 30
Minority interest........................................... -- (11) (7) (46) (28)
------ ------ ------ ------- -------
Total other income (expense)............................ (62) 61 27 (20) 2
------ ------ ------ ------- -------
Income before provision (benefit) for income taxes.......... 2,899 593 541 886 39
Provision (benefit) for income taxes(3)..................... 43 9 36 13 (348)
------ ------ ------ ------- -------
Historical net income(4).................................... $2,856 $ 584 $ 505 $ 873 $ 387
====== ====== ====== ======= =======
Historical net income per share, basic and diluted.......... $ 0.18 $ 0.04 $ 0.03 $ 0.05 $ 0.02
====== ====== ====== ======= =======
Weighted average shares outstanding:
Basic..................................................... 16,565 16,154 16,217 16,064 17,644
Diluted................................................... 16,565 16,154 16,217 16,064 18,765
PRO FORMA DATA(5):
Historical income before provision for income taxes......... $2,899 $ 593 $ 541 $ 886 $ 39
Pro forma provision for income taxes(6)..................... 1,160 237 216 354 16
------ ------ ------ ------- -------
Pro forma net income........................................ $1,739 $ 356 $ 325 $ 532 $ 23
====== ====== ====== ======= =======
Pro forma net income per share, basic and diluted........... $ --
=======
Pro forma weighted average shares outstanding(7):
Basic..................................................... 17,922
Diluted................................................... 19,043
=======
</TABLE>
<TABLE>
<CAPTION>
AT JUNE 30,
--------------------------------------------
1995 1996 1997 1998 1999
------ ------ ------ ------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEETS DATA:
Cash and cash equivalents................................... $2,312 $ 542 $ 372 $ 612 $ 1,852
Working capital............................................. (51) 50 346 975 2,330
Total assets................................................ 5,114 2,075 2,513 3,104 14,749
Short-term debt............................................. 1,550 -- -- -- --
Total stockholders' equity.................................. 2,487 861 1,070 1,562 9,300
</TABLE>
20
<PAGE> 24
- -------------------------
(1) Historical Consolidated Statements of Income Data are not comparable for all
periods shown. On January 25, 1999 we acquired an additional 40% membership
interest in Internet Universe LLC. Additionally, on February 5, 1999 we
acquired the auction businesses of Lyn F. Knight Rare Coins, Inc. and
Kingswood Coin Auctions LLC and acquired an additional 40% membership
interest in Superior Sports Auctions LLC. See Note 3 "Acquisitions" to
Consolidated Financial Statements.
(2) Represents a non-cash charge for stock options to purchase shares of our
common stock granted to some of our collectible suppliers and content
providers.
(3) In each of the fiscal years in the four year period ended June 30, 1998, the
provision for income taxes was made for California state franchise taxes
payable at a rate of 1.5% on income of California S corporations. The amount
of the provision for fiscal 1999 includes both a provision for such
California franchise tax for the period from July 1, 1998 through February
4, 1999 and a provision for federal and state corporate income taxes
effective February 5, 1999, the date on which we became a C corporation for
income tax purposes.
(4) Historical net income is not comparable for all periods shown due to the
change from a non-taxable entity to a taxable entity effective February 5,
1999.
(5) Pro forma data presents income taxes computed as if we were subject to
federal and state income taxes for fiscal years ended June 30, 1995 through
June 30, 1999. See Note 2 to Consolidated Financial Statements.
(6) Amounts reflect adjustments for federal and state income taxes as if we had
been taxed as a C corporation rather than an S corporation during all of the
fiscal years presented above.
(7) Pro forma weighted average shares outstanding for basic and diluted includes
278 shares which represents the number of shares which, when multiplied by
the assumed initial public offering price of $8.00, is required to replace
the excess of capital withdrawn during fiscal 1999 in excess of earnings for
this fiscal year.
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<PAGE> 25
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
You should read this section in combination with "Selected Financial Data"
and our consolidated financial statements and the notes thereto included
elsewhere in this prospectus.
OVERVIEW
Collectors Universe provides authentication and grading services for rare
coins and sportscards and authentication services for autographs. In most
instances, fees for authentication and grading services are prepaid. We also
conduct Internet, telephone and in-person auctions of rare coins, sportscards,
sports memorabilia, rare currency, rare records and other high-end collectibles.
Collectibles constituting approximately 85% of the aggregate sales prices of
collectibles sold at our auctions are consigned to us by third parties and we
receive commissions, usually from both sellers and buyers, when the consigned
collectibles are sold. The remaining 15% have been purchased by us and upon
resale we record the sales prices of those collectibles as revenues.
It is our practice to extend discounts to qualified coin dealers that
submit rare coins to us for authentication and grading. Those discounts are
deducted from our gross revenues to arrive at net revenues. In fiscal 1999,
these discounts declined as a percentage of gross revenues because of an
increase in sportscard authentication and grading submissions on which we do not
extend discounts and an increase in auction revenues that grew at a greater rate
than did authentication and grading revenues.
The gross margin on sales of consigned collectibles is significantly higher
than the gross margin on sales of purchased collectibles, because we realize
commissions on sales of consigned collectibles without having to incur any
significant associated costs. By contrast, upon the sale of purchased
collectibles, we record the costs of acquiring those collectibles which are
usually a significant percentage of the selling price. As a result, the sale of
purchased collectibles reduces our overall auction margins to a level that is
below that realized for authentication and grading services. Consequently, our
gross margin in future periods will depend not only upon the mix of auction
revenues and grading revenues, but also upon the mix of consigned and purchased
collectibles sold at auction.
Collectors Universe was organized to enable PCGS, its predecessor
corporation, to acquire additional businesses engaged in providing services to
the collectibles markets. On February 5, 1999, we acquired the currency auction
business of Lyn F. Knight Rare Coins, Inc. and the coin auction business of
Kingswood Coin Auctions, LLC. These acquisitions were accounted for under the
purchase method of accounting and accordingly, their operating results are
included in our financial statements only for periods from the date of
acquisition. On February 5, 1999, we also acquired the minority interests in two
majority owned subsidiaries of PCGS the results of which were consolidated in
our financial statements with appropriate minority interests accounting to the
date of acquisition. Additional information regarding these acquisition
transactions is set forth in Note 3 to the Consolidated Financial Statements.
Prior to these acquisitions, PCGS was an S corporation for federal and
state income tax purposes. It ceased to be an S corporation and became a C
corporation on February 5, 1999 with the completion of the reorganization. In
January 1999, while still an S corporation, PCGS declared a dividend payable to
its stockholders in an aggregate amount of $2.2 million, which represented a
substantial portion of S corporation accumulated earnings that were taxed or
taxable to PCGS' stockholders individually. The dividend was paid in cash in
April 1999.
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<PAGE> 26
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, financial data
expressed as a percentage of net revenues:
<TABLE>
<CAPTION>
FISCAL YEARS ENDED JUNE 30,
-----------------------------
1997 1998 1999
------- ------- -------
<S> <C> <C> <C>
Net revenues................................................ 100.0% 100.0% 100.0%
Cost of revenues............................................ 28.2 26.5 38.4
----- ----- -----
Gross profit................................................ 71.8 73.5 61.6
Operating expenses:
Supplier compensation cost................................ -- -- 2.6
Selling, general & administrative expenses................ 66.3 65.3 58.9
----- ----- -----
Total operating expenses............................... 66.3 65.3 61.5
----- ----- -----
Operating income............................................ 5.5 8.2 0.1
Interest income, net........................................ 0.4 0.2 0.1
Minority interest........................................... (0.1) (0.4) (0.1)
----- ----- -----
Income before provision (benefit) for income taxes.......... 5.8 8.0 0.1
Provision (benefit) for income taxes(1)..................... 0.4 0.1 (1.6)
----- ----- -----
Net income.................................................. 5.4% 7.9% 1.7%
===== ===== =====
</TABLE>
- -------------------------
(1) Until February 5, 1999, PCGS (the predecessor of Collectors Universe) was an
S corporation for income tax purposes and, therefore, taxes on its income
were payable by its stockholders. The provision made for income taxes in
fiscal 1997 and fiscal 1998 is the result of a 1.5% California franchise tax
assessed on S corporations. On February 5, 1999, PCGS became a C corporation
for income tax purposes and, as a result, we became responsible for paying
taxes at federal and state corporate tax rates on income generated after
that date.
COMPARISON OF YEARS ENDED JUNE 30, 1999, 1998 AND 1997
NET REVENUES. Net revenues increased 105% to $22.6 million in fiscal 1999
from $11.0 million in the prior year. Authentication and grading revenues for
coins and sportscards increased 84% to $17.7 million in fiscal 1999 from $9.6
million in fiscal 1998 primarily due to significantly higher sportscard
authentication and grading submittals. Authentication and grading revenues
represented 78% of total net revenues in fiscal 1999 and 87% in fiscal 1998.
Auction revenues increased 250% to $4.9 million in fiscal 1999 from $1.4 million
in fiscal 1998. Auction revenues represented 22% of total net revenues in fiscal
1999 and 13% in fiscal 1998. This increase was attributable to an increase in
the number of collectibles auctions we conducted and an increase in the number
of collectibles sold at each of our auctions. Also contributing to higher
auction revenues for fiscal 1999 were auctions conducted by Lyn Knight Currency
Auctions and Kingswood Coin Auctions subsequent to their acquisitions.
Net revenues increased 17% to $11.0 million in fiscal 1998 from $9.4
million in fiscal 1997. Authentication and grading revenues increased 11% to
$9.6 million in fiscal 1998 from $8.6 million in fiscal 1997. Authentication and
grading revenues represented 87% of total net revenues in fiscal 1998 and 92% in
fiscal 1997. Auction revenues increased 81% to $1.4 million in 1998 from
$766,000 in fiscal 1997. Auction revenues represented 13% of total net revenues
in fiscal 1998 and 8% in fiscal 1997.
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<PAGE> 27
GROSS PROFIT. Gross profit increased by 72% to $13.9 million in fiscal
1999 from $8.1 million in fiscal 1998. This increase was attributable to an
increase in authentication and grading and auction revenues. Our gross margin
declined to 61.6% in fiscal 1999 from 73.5% in fiscal 1998. Auction segment
gross margin declined to 33.6% in fiscal 1999 from 72.5% in fiscal 1998. This
decrease resulted from a much higher mix of purchased collectibles versus
consigned collectibles sold at our auctions. Our gross margin on consigned
collectibles is much higher as we realize a commission on each sale, which is
reported as revenue, while we do not incur any significant cost of revenues
associated with these sales. For purchased collectibles sold, we report the
sales prices of the collectibles sold as revenue and the cost of acquiring those
collectibles as a cost of revenues. Gross margin on authentication and grading
services declined in fiscal 1999 to 70.3% from 73.6% in fiscal 1998 because of
higher associated costs.
In fiscal 1998, our gross margin increased to 73.5% from 71.8% in fiscal
1997. The gross margin on authentication and grading services increased
marginally to 73.6% in fiscal 1998 from 72.5% in fiscal 1997. Auction segment
gross margin increased to 72.5% in fiscal 1998 from 63.7% in the prior fiscal
year.
SUPPLIER COMPENSATION EXPENSE. In fiscal 1999, we incurred a non-cash
expense of $585,000 that was attributable to grants of stock options to experts
for their agreements to supply collectibles or content over multi-year periods.
SELLING, GENERAL AND ADMINISTRATION. Selling, general and administration
("SG&A") expenses primarily include wages and payroll related expenses,
advertising and promotional expenses, travel and entertainment costs, facility
rental expenses and security related charges. SG&A increased 85% to $13.3
million in fiscal 1999, as compared with $7.2 million in fiscal 1998. We
increased expenditures to enhance the look and the functionality of our Internet
website. We also added to our management and upgraded information systems to
support the growth of our authentication and grading and auction businesses.
However, as a percentage of net revenues, SG&A expenses declined to 58.9% in
fiscal 1999 as compared with 65.3% in fiscal 1998. SG&A, as a percentage of net
revenues, for authentication and grading services declined to 43.3% in fiscal
1999 from 47.3% in fiscal 1998, as higher volume levels in fiscal 1999 provided
operating efficiencies. SG&A attributable to our auction business rose as a
percentage of net revenues to 107.0% in fiscal 1999 from 101.6% in fiscal 1998
primarily due to increased personnel and associated wages incurred to further
develop our Internet website. Also contributing to lower SG&A as a percentage of
net revenues in fiscal 1999 were lower unallocated operating expenses which were
5.1% in fiscal 1999 and 11.0% in fiscal 1998.
SG&A expenses increased to $7.2 million in fiscal 1998, from $6.2 million
in the prior fiscal year, primarily because of increased expenditures to enhance
our Internet website and increases in the number of auctions conducted in fiscal
1998. As a percentage of net revenues, SG&A expenses declined slightly in fiscal
1998 to 65.3% from 66.3% in fiscal 1997. As a percentage of net revenues, SG&A
attributable to authentication and grading services declined to 47.3% in 1998
from 64.0% in 1997. Partially offsetting this decline was higher SG&A
attributable to our auction business which increased as a percentage of net
revenues to 101.6% in fiscal 1998 from 68.1% in fiscal 1997 and unallocated
operating expenses which increased to 11.0% in fiscal 1998 from 2.0% in fiscal
1997.
Subsequent to June 30, 1999, we entered into a lease for a new 54,000 sq.
ft. facility that will consolidate all California-based operations in April
2000. We anticipate that SG&A expense, following the move, will be higher due to
increased rent we will be paying under the new lease as compared with the rent
that we are paying under our current leases. We also expect to incur relocation
costs. See "Business -- Facilities" and Note 12 to the Consolidated Financial
Statements contained elsewhere in this prospectus.
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<PAGE> 28
MINORITY INTEREST. During fiscal 1999, we acquired the minority ownership
interests in two businesses in which we were the majority owners, making those
businesses wholly owned subsidiaries. Under applicable accounting principles,
for periods prior to our acquisition of those minority interests, we included
the operating results of those businesses, in their entirety, in our
consolidated statements of income, and then reduced our consolidated income by
the minority owners' share of those earnings. See Note 3 to Consolidated
Financial Statements.
INCOME TAXES. The provision for income taxes in fiscal 1997 and 1998 are
attributable to a California franchise tax of 1.5% on the earnings of our
predecessor S corporation. For periods from February 5, 1999, our income tax
liability was determined on the basis of the applicable federal and state
corporate rates at which C corporations are taxed. As a result, the provision
for fiscal 1999 included both a provision for California franchise tax at 1.5%
and federal and state corporation income taxes at applicable C corporation tax
rates. The tax benefit of $348,000 recorded in fiscal 1999 was attributable to
deferred tax assets recorded on our conversion to a C corporation and losses
from operations incurred subsequent to that conversion.
QUARTERLY RESULTS OF OPERATIONS AND SEASONALITY
The following table presents unaudited quarterly financial information for
each of the eight quarters beginning September 30, 1997 and ending on June 30,
1999. The information has been prepared by us on a basis consistent with our
audited financial statements appearing elsewhere in this prospectus. The
information includes all necessary adjustments (consisting only of normal
recurring adjustments) that management considers necessary for a fair
presentation of the unaudited quarterly results when read in conjunction with
the consolidated financial statements and the notes thereto appearing elsewhere
in this prospectus. These operating results are not necessarily indicative of
results that may be expected for any subsequent periods. See "Risk
Factors -- Our future operating results are subject to fluctuations."
<TABLE>
<CAPTION>
QUARTER ENDED
---------------------------------------------------------------------------------------
SEPT. 30, DEC. 31, MAR. 31, JUNE 30, SEPT. 30, DEC. 31, MAR. 31, JUNE 30,
1997 1997 1998 1998 1998 1998 1999 1999
--------- -------- -------- -------- --------- -------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net revenues........................... $2,475 $ 2,575 $ 2,780 $ 3,159 $3,957 $4,194 $6,193 $ 8,219
Cost of revenues....................... 646 712 719 838 1,337 1,515 1,869 3,933
------ -------- -------- -------- ------ ------ ------ -------
Gross profit........................... 1,829 1,863 2,061 2,321 2,620 2,679 4,324 4,286
Operating expenses..................... 1,545 2,095 1,614 1,914 2,378 2,737 3,543 5,214
Operating income (loss)................ 284 (232) 447 407 242 (58) 781 (928)
Interest income (expense), net......... 5 8 4 9 6 7 (13) 30
Minority interest...................... (51) (35) (9) 49 (32) (12) 16 --
------ -------- -------- -------- ------ ------ ------ -------
Income (loss) before provision
(benefit) for income taxes........... 238 (259) 442 465 216 (63) 784 (898)
Provision (benefit) for income taxes... -- 16 -- (3) 3 (1) 108 (458)
------ -------- -------- -------- ------ ------ ------ -------
Net income (loss)...................... $ 238 $ (275) $ 442 $ 468 $ 213 $ (62) $ 676 $ (440)
====== ======== ======== ======== ====== ====== ====== =======
</TABLE>
The Company currently expects that net revenues for the first quarter of
fiscal 2000 were approximately $8.5 million compared to $4.0 million in the
first quarter of fiscal 1999, an increase of approximately 110%.
25
<PAGE> 29
We have experienced and expect to continue to experience quarterly
variations in our net revenues as a result of a number of factors, including the
number and size of the premium auctions that we conduct, the dates of major coin
and sports conventions at which we authenticate and grade coins and sportscards
submitted by persons attending those conventions, overall increases in
authentication and grading submittals and expansion of our e-commerce website,
www.collectors.com. In addition, it has been our experience that authentication
and grading submissions also tend to be somewhat lower in the holiday period
between Thanksgiving and New Year's Day, than during other periods of the year.
LIQUIDITY AND CAPITAL RESOURCES
Prior to fiscal 1999, we financed our operations and capital requirements
through cash flows generated from operations. In fiscal 1999, we sold
approximately 1.3 million common shares in a private placement and raised net
proceeds of $6.4 million. Proceeds from this private placement were used to fund
the PCGS cash dividend declared prior to the reorganization, to extinguish debt
incurred for the acquisitions completed in fiscal 1999 and to provide additional
working capital to fund the growth of our business. Working capital was $2.3
million at June 30, 1999 and $975,000 at June 30, 1998.
Cash provided by operating activities was $823,000 in fiscal 1998 compared
with $811,000 in fiscal 1999. In fiscal 1999, cash was used primarily to fund
increases in accounts receivable and purchases of collectibles for purposes of
resale at our auctions, whereas cash was provided by increases in accounts
payable and in deferred revenue. In fiscal 1999, we used $1.5 million of cash
for investing activities, including funds used for the fiscal 1999 acquisitions
and for computer related capital expenditures. We expect capital expenditures to
be approximately $1.0 million in fiscal 2000 and we are obligated to make
minimum royalty payments starting at $125,000 and escalating to $292,000 per
year over the next five years. We will be relocating to a new facility during
the fourth fiscal quarter of fiscal 2000 and it may become necessary to fund a
portion of the tenant improvements and other relocation costs in connection with
that move. See "Business -- Facilities."
Our March 1999 private placement of shares provided cash in the amount of
$6.4 million.
Early in fiscal 1999, PCGS paid an S corporation dividend of $400,000 to
its stockholders. We also used $2.2 million of the cash from the private
placement to pay an S corporation dividend declared by PCGS in January 1999. We
currently do not have a credit facility and, therefore, we do not have any
borrowing availability.
We estimate that we would have sufficient cash to fund operations for the
next twelve months and the foreseeable future without the proceeds from the
offering, based upon our historical operating margins and working capital
requirements for our authentication and grading segment. However, the amount of
our cash requirements beyond twelve months will be affected by several factors,
including our growth rate, our expansion into other collectible grading and
capital expenditures to enhance the capacity and functionality of our computer
systems. Depending on our growth and cash requirements, we may require
additional financing in the future through conventional bank financing or sales
of debt or equity securities. Such financing may or may not be available or may
be dilutive. Our ability to obtain additional financing will depend on our
operating results, financial condition, future business prospects and conditions
then prevailing in the relevant capital markets.
At June 30, 1999, we had an accumulated deficit of approximately $1.5
million primarily due to the payment of S corporation dividends, and a $550,000
adjustment recorded in connection with the acquisition of the rare coin auction
business of Kingswood Coin Auctions. The $550,000 adjustment
26
<PAGE> 30
was necessary to reduce, to the extent of the common controlling members'
interests in Kingswood Coin Auctions, the fair value of the acquired net assets
to their historical cost. Such adjustment has been treated as an equity
distribution to such controlling stockholders of Collectors Universe.
YEAR 2000 ISSUE
Many currently installed computer systems and software products are
dependent upon internal calendars. However, most of those systems and products
were coded to accept only two digit entries in the date code field. As a result,
unless those computer software systems and products are upgraded or modified to
accept four digit entries in their date code fields (that is, made Y2K
compliant), computer errors and failures could occur when processing date
sensitive information beginning with the year 2000 (Y2K).
We have developed and use proprietary software, in the grading of rare
coins and sportscards that is not yet Y2K compliant. We expect to complete the
required modifications to make those products Y2K compliant and to complete
verification testing by the end of October 1999. We estimate that the cost to
make our proprietary software Y2K compliant will be approximately $50,000.
Nevertheless, in the event that we encounter any disruptions in the operation of
that software due to Y2K issues, we believe our coin and sportscard graders have
sufficient knowledge, skills and experience to continue providing grading
services without the operation of our computerized grading system until those
issues are resolved. However, during such a period, the time required to grade
coins and sportscards would increase and, as a result, we would experience a
reduction of our revenues.
In addition to our internally developed software, we utilize software and
hardware developed by third parties for both our network and internal
information systems. To date, we have not performed any testing of these third
party software products to determine Y2K compliance. We have, however, obtained
a "statement of Year 2000 compliance" in writing from all of our critical third
party providers for computer hardware, computer software and communication
equipment.
We rely on third party network infrastructure providers to gain access to
the Internet. In a reasonable worst case scenario, if such providers experienced
business interruptions as a result of any Y2K issues, our ability to maintain
access to and the functionality of our website could be impaired, which could
require us to incur unanticipated expenses and disrupt our auction business and
our ability to process customer credit card transactions. Such expenses and
disruptions could have a material adverse effect on our business, results of
operations and financial condition. We do not presently have a contingency plan
in place if one of our third party providers, such as Internet backbone
providers, should experience system failure due to failure to comply with year
2000 issues, and we do not intend to establish such a contingency plan.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board (FASB) issued SFAS
No. 130, Reporting Comprehensive Income (SFAS 130). SFAS 130 requires that all
components of comprehensive income, including net income, be reported in the
financial statements in the period in which they are recognized. SFAS 130 is
effective for fiscal years beginning after December 15, 1997. There was no
difference between our net income and total comprehensive net income for the
years ended June 30, 1998 and 1999.
In June 1998, the FASB issued SFAS No. 131, "Disclosure About Segments of
an Enterprise and Related Information" ("SFAS No. 131"). SFAS No. 131
establishes standards for the way companies report information about operating
segments in annual financial statements. It also
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<PAGE> 31
establishes standards for related disclosure about products and services,
geographic areas and major customers. We adopted SFAS No. 131 on July 1, 1998.
We conduct our business activity principally in two service segments: the
authentication and grading of collectibles and auctions of collectibles.
In June 1998, the FASB issued SFAS No. 133, Accounting for Derivative
Instruments and Hedging Activities (SFAS No. 133), which the Company is required
to adopt effective for its fiscal year beginning July 1, 2000. SFAS No. 133 will
require the Company to record all derivatives on the balance sheet at fair
value. We do not have any derivative instruments nor do we engage in hedging
activities. Therefore, the adoption of SFAS No. 133 is not expected to have an
impact on our financial position, results of operations or cash flows.
In March 1998, the Accounting Standards Executive Committee issued
Statement of Position No. 98-1 or SOP 98-1, "Accounting for the Costs of
Computer Software Developed or Obtained for Internal Use," which provides
guidance on accounting for the cost of computer software developed or obtained
for internal use. SOP 98-1 is effective for financial statements for fiscal
years beginning after December 15, 1998. We are is currently evaluating the
impact of SOP 98-1 on our financial statements and related disclosures.
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<PAGE> 32
BUSINESS
COLLECTORS UNIVERSE
Collectors Universe is a full-service provider of value-added services to
dealers and collectors of coins, sportscards, sports memorabilia, rare currency
and rare records.
Our reputation and the breadth of our value-added services provide
collectors and dealers with the confidence to buy and sell high-end collectibles
sight-unseen over the Internet. Our suite of services, content and commerce also
makes the collecting experience more exciting and memorable.
- Service. We authenticate the genuineness of collectible coins,
sportscards and autographs and we grade the quality of collectible coins
and sportscards in accordance with consistently applied uniform
standards, so that buyers can have the assurance that the collectibles
they are purchasing are genuine and are of the quality represented by the
sellers.
- Content. We compile and publish authoritative information about the
rarity, quality and trading history of high end collectibles that make
collectors and dealers more informed purchasers and sellers and which
adds to the excitement of the collecting experience.
- Commerce. We operate an online marketplace, at www.collectors.com.,
where collectors and dealers buy and sell high end collectibles at our
auctions and where they can access the information we publish before
making their purchase and sale decisions. We currently have approximately
90,000 users who are approved to participate in our Internet auctions.
Visitors to our website spend an average of 14 minutes per visit. In
addition, we conduct weekly auctions, and periodic premium auctions at
which we sell especially rare or valuable high-end collectibles.
An increasing number of our auctions are conducted in a multi-venue format,
simultaneously on the Internet, by telephone and in-person. These auctions
enable buyers to choose the manner in which they prefer to participate in our
auctions.
We generate revenues from fees paid for authentication and grading services
provided to our customers, typically ranging from $8 to $40 per item. We also
generate revenues from commissions paid by both buyers and sellers when we sell
collectibles that have been consigned to us, the total of which generally ranges
from 10% to 20% of the sale prices of the collectibles, and from the resale of
purchased collectibles equal to the prices at which they are sold.
INDUSTRY BACKGROUND
DEVELOPMENT OF COLLECTIBLES MARKETS. The sight-unseen market for high-end
coins was practically non-existent prior to the development of consistently
applied uniform quality grading standards. Previously, buyers needed to actually
see a coin before purchase to determine whether its quality justified the asking
price. Even when buyers could view coins before purchase, they often lacked the
knowledge to determine, with confidence, the authenticity or quality of a coin.
As a result, a system for grading coins developed among dealers by which they
used either descriptive terms, such as "uncirculated," "brilliant uncirculated"
and "gem brilliant uncirculated," or a numerical scale ranging from 1 to 70,
with higher numbers denoting a higher quality. However, whether using a
descriptive or numeric system, grading varied significantly from dealer to
dealer, depending on a dealer's subjective criteria. Moreover, dealers were
hardly disinterested or independent since, as the buyers or sellers of the coins
they were grading, they stood to benefit financially from the assignment of a
particular grade. As a result, grading standards were often inconsistently
applied and many
29
<PAGE> 33
collectors were vulnerable to fraudulent practices. These conditions severely
limited the growth of the rare coin market and created a barrier to the
participation of new collectors who lacked the expertise necessary to buy and
sell with confidence.
In response to these conditions, in 1986 we instituted the practice of
employing expert graders who were independent of the buyers and sellers of
coins, thereby providing impartiality in the grading process. We established
consistent standards of quality measured against an actual "benchmark" set of
coins kept at our office, and we provided a warranty as to the accuracy of our
authentication and grading. We placed each graded coin in a tamper-evident
holder, so that any prospective buyer would know that it is a PCGS authenticated
and graded coin.
As a result, dealers were able to trade PCGS graded coins sight-unseen and
an electronic teletype network called the Certified Coin Exchange developed and
was used by dealers to buy and sell rare coins electronically before the
Internet became viable. In addition, we began to provide a range of
authoritative content on coin collecting to inform and communicate with the
collector community including guides that tracked the price and rarity of PCGS
graded coins.
In the sportscard market, misrepresentations of authenticity and quality
were also a barrier to market growth. Using the skills and credibility we
established with PCGS in the coin market, we instituted a similar authentication
and grading system for sportscards. Our authentication and grading services
improved the marketability of sportscards by removing the barrier created by
misrepresentations of authenticity or quality. The sportscard market
continuously creates new collectibles as card companies produce new cards and
variations. Moreover, athletes create interest or they achieve new records and
milestones. Each time an athlete establishes a new record or rises in
popularity, demand for authentication and grading for that athlete's cards
increases. Although the most valuable cards are the vintage cards from players
such as Mantle, DiMaggio and Ruth, modern cards have become very popular as
collectors try to obtain the cards of new generations of stars.
We believe that today the markets for autographs, records, stamps and other
collectibles are positioned much like coins and sportscards were positioned
prior to the establishment of accepted authentication and grading practices. As
buying and selling of collectibles over the Internet becomes more common, we
believe that there will be increased demand for authentication and grading
services and that collectors will be willing to pay a premium for collectibles
that have been authenticated and graded.
The number and dollar value of transactions in all the collectibles markets
we serve are not easily ascertainable. However, we estimate the annual dollar
value of transactions for the collectibles markets indicated below as follows:
<TABLE>
<CAPTION>
MARKET MARKET SIZE
------ -------------
<S> <C>
Modern commemorative and gold coins......................... $20.0 billion
Rare coins (U.S. only)...................................... $ 1.0 billion
Sportscards and other sports memorabilia.................... $ 0.5 billion
</TABLE>
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<PAGE> 34
GROWTH OF INTERNET COMMERCE AND THE ONLINE AUCTION MARKETPLACE. Dealers
and collectors have traditionally used classified advertisements, collectibles
shows, auction houses, local dealer shops, garage sales and flea markets to
purchase and sell collectibles. These markets are highly inefficient because:
- they are fragmented and local in nature, which limits the variety of
items available and makes it difficult and expensive for buyers and
sellers to meet;
- buyers often lack the information needed to determine the quality or
value of the goods being sold; and
- transaction costs for any single transaction are often relatively high
due to the number of intermediaries involved.
The Internet offers an opportunity to create a compelling global
marketplace that overcomes the inefficiencies associated with these traditional
trading forums while offering the benefits of Internet-based commerce. An
Internet-based trading market facilitates the listing of items for sale, the
exchange of information, the interaction of buyers and sellers and ultimately
the consummation of transactions. The Internet also offers significant
convenience, allowing trading at all hours and providing continually-updated
information. As evidenced by the increasing number of auction transactions
conducted over the Internet, we believe that the Internet has been accepted as a
valid forum for conducting auctions.
However, particularly with respect to high-end collectibles, Internet
commerce raises concerns about the authenticity of items, the credibility of
buyers and sellers, the legitimacy of bids and the delays and risks involved in
the shipment of collectibles to buyers and in the payment of sales proceeds to
sellers.
THE HIGH-END COLLECTIBLES MARKET OPPORTUNITY
We believe that the high-end collectibles market will continue to grow as a
result of increased nostalgia for memorabilia, an increase in leisure and
disposable income, the desirability of owning collectibles and investor
confidence that collectibles will appreciate in value. We also believe that the
convenience and efficiency of the Internet will stimulate further substantial
growth in the high-end collectibles market. It is also our view that this growth
is dependent upon the availability of reliable authentication and grading
services, authoritative information necessary to value collectibles and a
trading forum that enables buyers and sellers of collectibles to maximize the
value of their collectibles. As a provider of these services to the collectibles
markets, we have the opportunity to benefit directly from such growth in terms
of increased demand for our services.
THE AUTHENTICATION REQUIREMENT. Dealers and collectors demand to know that
the high-end collectibles they are buying are genuine. The expertise,
impartiality, credibility and reputation of an authenticator are critical to the
willingness of buyers to purchase high-end collectibles sight-unseen. This is
particularly important for collectibles which are more easily forged and
counterfeited, such as autographs.
THE GRADING REQUIREMENT. Quality is a key factor in determining value. In
order to determine a collectible's quality collectors need consistently applied
uniform grading standards as well as assurances that collectibles have not been
tampered with or artificially enhanced. For example, on our PSA scale from 1 to
10, a 1952 Mickey Mantle baseball card graded PSA 8 recently sold for $31,050,
while the same card graded PSA 10 recently sold for $160,000. The expertise,
impartiality, credibility and reputation of the organization grading the
collectible is therefore critical to the willingness of buyers to purchase
high-end collectibles sight-unseen.
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THE INFORMATION REQUIREMENT. Access to authoritative information, compiled
by a credible third party, is critical to enable buyers and sellers to make
informed decisions regarding the value of collectibles. Before completing a
transaction, collectors use this information to assess the characteristics that
affect the value of a collectible, including:
- rarity;
- historical and recent selling prices;
- quality or grades; and
- the identification of sets and series of collectibles, such as
sportscards of baseball Hall of Fame pitchers.
Therefore, we believe informed buyers and sellers are crucial to the development
and maintenance of a strong and efficient collectibles marketplace.
Additionally, information about the origins of a collectible, or about the
people and events with which a collectible is associated, enhances its
marketability and value and increases the enjoyment of the collecting experience
for both buyers and sellers.
THE COMMERCE REQUIREMENT. Dealers and collectors need a readily available
and dependable marketplace within which to purchase and sell their collectibles
sight-unseen. The Internet has enabled the creation of a much more efficient and
less costly marketplace for collectibles. Despite the accessibility and
convenience of the Internet, dealers and collectors who buy and sell over the
Internet still have concerns with respect to the authenticity of collectibles,
the credibility of participants, the legitimacy of bids, the delays and risks
involved in the shipment of collectibles to buyers and in the payment of sales
proceeds to sellers.
THE COLLECTORS UNIVERSE SOLUTION
We believe that we provide a full-service solution for buyers and sellers
of high-end collectibles. We also believe that the number of items, participants
and transactions in the collectibles markets will increase to the extent that
the authentication, grading, information and commerce requirements are
addressed. Our services provide collectors and dealers with authentication,
grading and authoritative information in addition to multi-venue auctions of an
extensive selection of high-end collectibles.
Our authentication and grading services provide a collector with confidence
that the collectible is genuine and that its quality is as represented. When
combined with the scarcity and pricing information that we compile and publish,
our services substantially eliminate the need to personally inspect collectibles
and facilitate their sale sight-unseen at prices approximating in-person auction
prices. For example, The Coin Dealer Newsletter, a leading independent newspaper
reporting on the collectibles coin market, has consistently reported over the
past two years that, on average, coin dealers would purchase sight-unseen a coin
graded by Collectors Universe for approximately 93% of the price that would be
paid following the physical inspection of a coin of comparable quality, as
compared with an average of approximately 80% for a coin authenticated and
graded by our closest grading competitor and an average of no more than 67% for
a coin authenticated and graded by any other of our major competitors.
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Our full-service solution provides answers to the following fundamental
questions commonly asked by collectors:
<TABLE>
<CAPTION>
MARKET REQUIREMENT SOLUTION
------------------ --------
<S> <C>
"Is it real?" We can determine whether your collectible is fake or
real.
"What's the quality?" We assign a grade to your collectible based upon
consistently applied uniform quality standards.
"What's the value?" We compile and publish price guides and rarity
reports which contain authoritative information
concerning rarity, historic and recent selling prices
and historical origins of collectibles.
"How do I buy or sell it?" We conduct auctions where you can buy or sell
collectibles in a multi-venue format with the benefit
of our information services.
</TABLE>
By providing these solutions to the collectible markets, we facilitate
sight-unseen commerce for high-end collectibles.
OUR BUSINESS STRATEGY
Our objective is to become the full-service marketplace of choice for
high-end collectibles. To achieve this objective we intend to:
LEVERAGE OUR AUTHENTICATION AND GRADING LEADERSHIP TO INCREASE OUR AUCTION
BUSINESS. Our leadership position in authentication and grading of high-end
collectibles as well as our focus on providing a full complement of services
allows us to attract serious collectors to our auctions. When we receive a
collectible, we leverage this expertise to maximize value for the seller. These
services include describing and photographing the item, marketing and creating
catalogues, selecting an optimal auction venue, advertising and fulfillment,
including our escrow services, to ensure completion of transactions.
CROSS-SELL OUR SERVICES AND PRODUCTS TO OUR ESTABLISHED CUSTOMER
BASE. Collectors who use our authentication or grading services often have a
need for authoritative information or auctions. Additionally, our experience has
shown that collectors of one kind of collectible frequently are interested in
other types of collectibles. We therefore intend to cross-sell our services and
products to our customer base of dealers and collectors.
PENETRATE OTHER COLLECTIBLES MARKETS. There are other high-end collectibles
markets in which growth has been hampered due to the absence of independent
authentication and grading services. We intend to use our reputation and
expertise in authentication and grading to penetrate such markets, such as the
rare stamp market. Recently, PSA/DNA inaugurated a program to certify the
authenticity of autographs to enable dealers and collectors to trade autographs
sight unseen. We also believe that authentication, grading and information
services can be extended to other collectibles to attract new groups of
collectors to use our services. In addition, we may choose to sublicense our DNA
technology to help manufacturers authenticate their collectibles products.
EXPAND RECOGNITION OF THE COLLECTORS UNIVERSE(R)BRAND. We have established
widely recognized brands within select collectibles markets, including PCGS,
PSA, Lyn Knight Currency Auctions and Good Rockin' Tonight. We intend to use the
reputations of these brands to promote Collectors Universe as the premier brand
in the high-end collectibles industry. In addition, we are launching
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new services under our Collectors Universe brand name such as One-of-a-Kind
auctions which are unique, create excitement and attract press coverage.
USE PROPRIETARY TECHNOLOGY TO EXPAND AND ENHANCE THE SERVICES WE
PROVIDE. We intend to use new technologies, such as our exclusively licensed DNA
authentication technology, to enhance our existing services and to facilitate
the marketability of additional kinds of collectibles. The use of our DNA
technology will also facilitate the identification of limited edition
collectibles of all kinds. In addition, we have developed proprietary software
which increases the efficiency and accuracy of our coin grading operations while
reducing costs in the handling of consigned items.
SERVICES
We provide authentication and grading services to the coin and sportscard
markets. In addition, we verify the authenticity of autographs and sports
memorabilia. As an independent authenticator and grader of collectibles, we
provide increased peace of mind for buyers and sellers, particularly those who
buy and sell collectibles sight-unseen. The written warranty that we extend with
each coin or sportscard that we authenticate or grade adds to the credibility of
our services. Our expertise in grading and authenticating coins, sportscards,
autographs and sports memorabilia provides us with both the capabilities and the
credibility to penetrate other high-end collectibles markets.
PROFESSIONAL COIN GRADING SERVICE. Since our inception in 1986, we have
graded more than 5.9 million coins with a declared insured value of more than
$8.5 billion. We authenticate and grade approximately 40,000 coins per month
and, depending on the customer's requested turnaround time, we typically charge
between $12 and $40 per coin for this service. We have graded, either before or
after sale, four of the five highest priced U.S. coins ever sold at public
auction, including an 1804 silver dollar that was purchased for approximately
$4.1 million. We also have been named as the official grading service of the
Professional Numismatists Guild, the most prominent national coin dealer trade
organization.
At PCGS, the grading of coins is a very exacting and standardized process.
We receive coins from dealers and collectors and enter them into our proprietary
computerized inventory system which tracks the coins at every stage of the
grading process. The coins are graded by experts with years of coin grading
experience who follow our benchmarked grading standards. Coins enter the grading
process without any markings that could identify the owner of the coin ensuring
that our graders are completely objective. Graders also examine the coins
independently from one another. Based upon the type of coin and the results of
the grading process, our proprietary software determines whether additional
graders will examine the coin to assign a final grade. The coin is then
sonically sealed in our specially designed holder which also encases the grade,
the description of the coin and the PCGS hologram and brand name. The coin,
grade and description are then verified by one or more experts who have the
authority to resubmit the coin for further review, if necessary. Only after the
grading phase is complete is the coin reunited with its invoice, thus keeping
the grading process independent of the identity of the owner and the history of
the coin.
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The number of coins submitted to us for authentication and grading over the
last two fiscal years is shown below.
[Number of Coins Graded by Fiscal Quarter graphic]
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31, SEPTEMBER 30, DECEMBER 31, MARCH 31,
SEPTEMBER 30, 1997 1997 1998 JUNE 30, 1998 1998 1998 1999
- ------------------ ------------ --------- ------------- ------------- ------------ ---------
<S> <C> <C> <C> <C> <C> <C>
93325 100602 109198 125327 112516 122337 129645
<CAPTION>
SEPTEMBER 30, 1997 JUNE 30, 1999
- ------------------ -------------
<S> <C>
93325 156957
</TABLE>
PROFESSIONAL SPORTS AUTHENTICATOR. We typically charge between $8 and $40
per card for our authentication and grading service, depending on the customer's
requested turnaround time. We employ similar authentication and grading
procedures and provide warranties of accuracy that are similar to the procedures
employed and warranties given in authentication and grading of coins. In
addition to baseball cards, we authenticate and grade football, hockey and
basketball sportscards and other collectible cards.
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The number of cards submitted to us for authentication and grading in the
past two fiscal years is shown below.
[Number of Cards Graded by Fiscal Quarter graphic]
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31, SEPTEMBER 30, DECEMBER 31, MARCH 31,
SEPTEMBER 30, 1997 1997 1998 JUNE 30, 1998 1998 1998 1999
- ------------------ ------------ --------- ------------- ------------- ------------ ---------
<S> <C> <C> <C> <C> <C> <C>
28846 31434 47903 59415 96256 171657 291907
<CAPTION>
SEPTEMBER 30, 1997 JUNE 30, 1999
- ------------------ -------------
<S> <C>
28846 339000
</TABLE>
PSA/DNA AUTHENTICATION SERVICES. The value of many sportscards,
autographed items and other memorabilia is significantly dependent on the
buyer's confidence as to the authenticity of the collectible. We offer buyers
and sellers of these collectibles a service by which collectibles determined by
us to be genuine can be permanently marked using a proprietary liquid containing
synthetic DNA. The marking is invisible but can be viewed using a laser
operating at a specified wavelength. We apply the DNA material to the
collectible, along with a non-transferable serial number sticker. In addition,
the owner is furnished with a certificate confirming the authentication by
PSA/DNA.
In addition, when a collectible is marked in this manner, a computerized
record is created identifying the collectible, the date of its authentication
and the mark that was applied to it. As a result, a prospective buyer may
contact us to verify the authenticity of the collectible before purchasing it.
Mark McGwire's 70th home run baseball and Hank Aaron's 715th home run baseball
and bat were authenticated by PSA/DNA using this DNA marker. We also plan to
apply this DNA marker to each of the collectibles to be auctioned in our
One-of-a-Kind auctions, including, for example, the basketball court where
Michael Jordan took the last shot of his NBA career to win the 1998 NBA
Championship.
The DNA marking process has been developed and patented by DNA
Technologies, Inc., an unaffiliated company. In 1998, we obtained from DNA
Technologies a six-year exclusive license, subject to limited exceptions and
extensions, to use the synthetic DNA marking process for the authentication of
items manufactured as collectibles and items which are more than one year old.
DNA Technologies retained the rights to all other applications, including
anti-counterfeiting measures such as the DNA marking of tickets and security
passes at the 2000 Olympic Games in Australia.
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Our license also allows us to sublicense this technology to others for
authentication of collectibles, subject to the obligation to share any
sublicensing revenue with DNA Technologies.
We also use our DNA technology to offer a "signed in the presence of"
service as well as vintage autograph certification and vintage memorabilia
authentication services, employing experts in handwriting recognition and
memorabilia identification to certify authenticity.
CONTENT
Through our Internet site, www.collectors.com, and our other publications,
we provide a broad range of authoritative information to the collector
community.
PRICE GUIDES. We provide a wide variety of authoritative price guides for
a number of collectible markets. For example, we track the value of the 3000
most actively traded U.S. coins with information dating back to 1970. We compile
and publish this information in a widely recognized collectible coin index, the
CU3000.
MARKET MOVEMENT REPORTS. Changes in prices are highlighted in market
movement reports. This makes it possible for a card collector, for example, to
quickly identify that some cards have increased in value while others have
dropped.
RARITY REPORTS. Three primary characteristics drive the market value of
many collectibles: relative rarity, grade and significance to collectors. We
compile and publish reports that list the total number of sportscards and coins
we have graded since our inception in 1986, categorized by item type and grade
determination. We can publish, for example, the exact number of MS67-grade
1881-S Morgan silver dollars we have graded. Collectors can utilize this
information to make informed decisions regarding the purchase of particular
coins.
ARTICLES. Collecting is a passion for many and has nuances and anecdotes
that are well suited to a library of articles for each category of collectible.
We write informative articles and publish them on our website. A sense of
community is also important to collectors. We therefore encourage our users to
communicate and to write articles that can be made available to all collectors.
HISTORICAL CONTENT. Collecting is often about history, and in many
instances, the collectible's history is what makes it valuable. For example, the
Beatles "Yesterday . . . And Today" album was originally to be released with an
album cover depicting the Fab Four in butchers' smocks with cuts of raw meat and
dismembered toy doll parts. After distributing a few copies to the media,
Capitol Records deemed the cover too controversial and recalled the album. As a
result there are only seven known sealed copies of the stereo version of the
album with the "butcher" cover, and we recently auctioned one of them for
$38,500. There are hundreds of such stories that help to make collecting
entertaining.
SETS AND SERIES. In many instances, collectors try to obtain a full set of
related items. For example, a set may be comprised of all of Mickey Mantle's
baseball cards, every issue of $20 gold pieces or all of the vinyl 45's that
Elvis recorded. We make such lists available to help collectors maximize their
enjoyment.
NEWS. We provide the information that collectors and dealers need to track
recent events, trends and developments in the collectibles markets we serve. For
example, new collectibles are constantly being created, some collectibles
increase in popularity and other collectibles sell at record prices.
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COMMERCE
We conduct auctions in a variety of formats that allow collectors to choose
the format with which they are most comfortable. At our multi-venue auctions
buyers can place bids over the Internet, by telephone, by computer-assisted
telephone and in-person.
We believe our method of operation is superior to other Internet auction
companies because we take physical possession of most collectibles and ensure
fulfillment of the transaction. Also, unlike most of our competitors, we ensure
that upon delivery the auctioned item will meet the description made in our
auction materials to the buyer's complete satisfaction. If the buyer is not
satisfied, we will refund to the buyer the amount paid for the item. In addition
to addressing concerns of buyers, we also arrange for prompt payment to sellers
of the proceeds of transactions completed in our auctions. Thus, our method of
operation eliminates the concerns of buyers and sellers in completing
sight-unseen transactions.
Our auctions are offered in two forms, premium auctions and weekly
auctions. The following table shows the average selling price of our auctioned
collectibles, including premium auctions for the three-month period ended August
31, 1999.
<TABLE>
<CAPTION>
AVERAGE
COLLECTIBLE SELLING PRICE
----------- -------------
<S> <C>
Coins............................................... $ 409
Sportscards......................................... 115
Currency............................................ 1,172
Records............................................. 215
Miscellaneous....................................... 58
All collectibles............................... 249
</TABLE>
We generate revenue from our auctions in the form of commissions from both
buyers and sellers of consigned inventory that sells at our auctions and from
sales of inventory that we purchase for sale at our auctions. Commissions from
the sale of consigned inventory generally approximate between 10% to 20% of the
sale price of the collectible.
PREMIUM AUCTIONS. Premium auctions feature special or unique collectibles
that are sold in a multi-venue auction format. In most of our premium auctions,
we utilize "callback bidding" where bidders can choose to be called back by a
phone operator immediately after the close of the first auction phase to be
given the opportunity to participate in the final bidding phase.
We require consignors in our premium auctions to ship their collectibles to
us prior to auction. We photograph and prepare descriptions for all items
consigned to us for auction and compile and publish a catalog of all items to be
auctioned in advance of each of our premium auctions. Collectors can thus view
all of the collectibles to be auctioned, along with complete descriptions,
either by visiting our website and viewing online, or by ordering a catalog to
receive the catalog in hardcopy format. At the conclusion of the auction, we
handle shipping and payment transactions.
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Our premium auctions include:
<TABLE>
<CAPTION>
AVERAGE SELLING PRICE
DURING THREE-MONTH
PERIOD ENDED
PREMIUM AUCTIONS AUGUST 31, 1999 ITEMS RECENTLY SOLD
---------------- --------------------- ---------------------------------------------------------
<S> <C> <C>
Kingswood Coins......... $1,629 High-end collectible coins, such as the 1886-O Morgan
Dollar sold in August 1994 for $126,500.
Superior Sports......... $1,511 Rare sportscards and sports memorabilia, such as the July
1999 auction of a 1941 Joe DiMaggio baseball card which
sold for $109,250.
Lyn Knight Currency..... $1,686 Rare high-end currency, such as an 1890 $1,000 bill sold
in December 1998 for $792,000.
Good Rockin' Tonight.... $ 270 Rare records, such as an original Beatles album in a
limited edition album cover that was withdrawn from
circulation by Capitol Records, which sold for $38,500.
</TABLE>
Beginning in October 1999, we will be auctioning unique, One-of-a-Kind
items such as the only Grammy(R) awarded to John Lennon, the 500th home run
balls of Mark McGwire and Mickey Mantle and the basketball court where Michael
Jordan took the last shot of his NBA career to win the 1998 NBA championship.
We began conducting auctions in a multi-venue format in July 1999. With
collectors simultaneously submitting bids over the Internet and telephone, the
July 1999 Superior Sports Auction generated $1.2 million. It was the first
sportscard auction in history to sell two sportscards for more than $100,000
each. The first was a 1941 Joe DiMaggio, which was graded PSA 9 and sold for
$109,250 to an Internet bidder. The second card was a 1933 Babe Ruth, which was
graded PSA 9 and sold for $100,050 to a telephone bidder. Each of these auctions
concluded with a spirited "callback bidding" session. Internet bidders accounted
for approximately 14% of the participants and 19% of the total amount bid in the
July 1999 auction.
WEEKLY AUCTIONS. Our weekly auctions feature collectibles consigned to us
by individuals and by dealers of quality collectibles, as well as collectibles
from our own inventory. All weekly auctions are conducted over the Internet and
enable collectors to sell their high-end collectibles in a more timely manner.
COLLECTIBLES GALLERY. In addition to our auctions, we offer consigned
collectibles and collectibles from our inventory for sale at a set price. By
offering items at a set price, we offer an alternative to customers who may not
feel comfortable buying or selling at an auction.
SUPPLIERS AND INVENTORY
Currently approximately 85% of aggregate sales prices of collectibles sold
at our auctions are derived from collectibles obtained on consignment from third
parties. A large portion of these collectibles are supplied to us by selected
dealers who possess the expertise, integrity and the capacity to provide to us
with high-end collectibles for auction on a regular basis. In some cases we have
contractual arrangements with these suppliers, some of whom are also
stockholders of Collectors Universe, which provide them with reduced fees as
incentives to supply collectibles to us. During calendar 1999, we granted stock
options to some of those suppliers as a further incentive for their consignments
of collectibles. However, we do not expect in the future to use option grants to
any significant extent as incentives to suppliers. Although we have established
relationships with these suppliers, we believe that there are other dealers
capable of supplying high-end collectibles for auction.
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Currently approximately 15% of aggregate sales prices of collectibles sold
at our auctions are derived from collectibles that have been acquired by us for
resale. Acquiring inventories of collectibles provides us with greater control
over the quality and value of the collectibles we can make available for sale at
our auctions and enables us to take advantage of opportunities to purchase
highly sought after collectibles at favorable pricing. To avoid conflicts of
interest, we only acquire collectibles that have been previously graded or
authenticated, and such collectibles are sold without being regraded by us.
Maintaining inventories of collectibles, however, presents valuation risks
because of potential fluctuations in their market prices. We strive to mitigate
the market risk of our inventory through frequent turnover. Our average
inventory turnover, excluding rare records, is fewer than 120 days. However,
from time to time, we may acquire a large quantity of collectibles when
available, often at significant discounts. We believe we have taken adequate
reserves against a loss due to our accumulation of inventory.
SALES AND MARKETING
MARKETING STRATEGY. To achieve our goal of becoming the full-service
marketplace of choice for high-end collectibles, we intend to aggressively
promote our brands to attract more dealers and collectors to utilize our
authentication and grading services and our auctions. Currently, our marketing
strategy consists of several components described below.
First, we publicize and attract people to our Collectors Universe Internet
website through Internet advertising, our color catalogs and print
advertisements placed in weekly and monthly trade publications targeted at
collectors whose areas of interest are addressed by our products. These
advertisements take advantage of the name recognition enjoyed by our preeminent
brands, such as PCGS, PSA, Lyn Knight Currency Auctions and Good Rockin' Tonight
and promote our Collectors Universe brand by designating each business as a
"Collectors Universe" company.
Second, the millions of collectibles we have authenticated and graded are
each prominently labeled with our brand names such as PCGS and PSA. This has
helped to establish us as a leader in authentication and grading. For example,
at both the National Sports Collectors Show in Atlanta in July 1999 and
Sportsfest '99 in Chicago, a vast majority of the premium priced sportscards
sold by various vendors bore our PSA brand name.
Third, by providing our authentication and grading services to collectors
through our relationship with eBay, we increase customer awareness of our
services and perpetuate our reputation as the industry leader in authentication
and grading.
Fourth, we expect that our One-of-a-Kind auctions will attract significant
media coverage and promote awareness of Collectors Universe as well as our
premium and weekly auctions.
Finally, we maintain an industry-leading presence at most major
collectibles trade shows, with the cornerstone of our presence being our exhibit
booth. Our eye-catching booth affords a substantial product display area that is
typically the largest at the trade shows in which we participate. Having seen
the items on display in our booth, visitors log on to our website at the booth
and participate in auctions by bidding on products online. The design of our
booth enables us to easily tailor our presence on a show-by-show basis so that
we can feature a specific collectible category (e.g., coins, sportscards and
sports memorabilia), while cross-marketing our collectibles universes in other
categories.
CUSTOMER SUPPORT. We devote significant resources to providing
personalized, customer service and support in a timely manner. The first level
of support is our electronic and automated communications with customers,
consignors and bidders. This keeps buyers and sellers updated on the status of
auctions and collectibles submitted for authentication and grading. The next
level of support
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is our proprietary computer-assisted telephone and Internet information system,
through which we track the status of approximately 200,000 collectibles we
receive each month. In addition, customers or prospective buyers can confirm the
authenticity of the over 7.1 million collectibles we have graded. Customers can
also choose to telephone or email our general support staff. We also make
available specialists and experts who are capable of handling virtually any
issue our customers may encounter when using our services.
KEY INDUSTRY RELATIONSHIPS
CO-BRANDING. eBay entered into an 18-month agreement with us in February
1999 that enables all of its sellers to access our authentication and grading
services by simply clicking on one of our logos that are prominently displayed
on eBay's home pages for coin, sportscards and sports collectibles. Once
selected, eBay's customers gain immediate access to our co-branded website and
our database. At this website, buyers can readily determine whether an item was
authenticated and graded by Collectors Universe by using our searchable
database, and, if graded, the quality of the item. The co-branded website does
not promote our own auctions or link to the Collectors Universe website, but it
makes our authentication and grading services available to a wider market. In
addition, eBay users may choose to join our Collectors Clubs, which entitle them
to receive collectibles authentication, grading and information services from us
for a package price. We pay eBay a commission on revenues we derive from the
co-branded website.
We also intend to team with other leading Internet collectibles auctioneers
to provide our authentication and grading services to their online buyers and
sellers.
EXPERT CONSULTANTS. We have established relationships with 59 of the
leading experts in high-end collectibles markets. Some of these experts provide
us with collectibles, while others create content such as price guides and
authoritative information in their areas of expertise for our publications and
our website. In return, we have granted these experts options to purchase an
aggregate of 622,102 shares of our common stock.
DNA TECHNOLOGIES LICENSE. In April 1999, we entered into a six-year
license agreement with DNA Technologies. Subject to limited exceptions, the
license will terminate in April 2005.
OPERATIONS AND TECHNOLOGY
We believe our proprietary grading software and systems are the most
sophisticated in the collectibles markets in which we compete. Our grading
software uses complex algorithms to determine the number of independent gradings
required to determine the grade of a coin. We also maintain computerized process
control over each step in the grading system which enables us to provide
accurate and timely customer support services.
We have built a responsive user interface and transaction processing system
which is expandable without degrading service that is based on internally
developed proprietary software combined with industry standard system
components. Our system currently maintains data records for approximately 90,000
registered users and has the capacity to meet anticipated growth in registered
users for the foreseeable future. During July 1999, our system supported 14
auctions per week and provided data with respect to the 50 auctions completed
during the previous month. For the six-month period ended August 31, 1999, our
website had over 70 million page views. Nearly all of the pages on our website
are continuously updated at the time of viewing through interaction with our
database servers.
Our system handles all aspects of the auction process and enables users to
follow and participate in the bidding during the course of the auction. Our
auction system is integrated with additional
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internal software systems to provide full support of our auction processes
including: an inventory management system that keeps track of consigned
collectibles as they progress through the system from receipt, to photography,
to auction creation and all the way to final shipment; a customer information
system; and a corporate accounting system. This integrated system creates and
sends bidder invoices and consignor sales information immediately after
completion of an auction. The system supports credit card transactions for the
winning bidders.
Our system has been designed with industry standard architectures and
components and has been engineered to reduce downtime in the event of outages or
catastrophic occurrences. Our service is designed to provide 24 hours per day,
seven days per week availability. Our primary systems utilize wide-band fiber
optic cable and have been designed to provide mission critical service with no
single point-of-failure locations. For example, we have recently added a back-up
fiber optic cable with automatic fall-over to ensure continuous access to the
Internet.
COMPETITION
There are few competitors in the coin and sportscard authentication and
grading markets and the costs of entering such markets are substantial. However,
other collectibles companies could expand their line of services into coins or
sportscards, new entrants into the market could deplete our market share and
auction companies could expand their service offerings to include the grading of
coins, sportscards and other collectibles. Our competitors in the coin grading
and authentication market include Numismatic Guaranty Corporation of America,
Inc. and ANACS, a subsidiary of Amos Press, Inc. In the sportscard grading and
authentication business, our competitors include Beckett, Certified Sports
Authentication, Inc. and Sportscard Guarantee L.L.C.
Our traditional auction business is also highly competitive. We compete
directly with other companies that specialize in collectibles and have an
industry reputation for hosting premium collectibles auctions. Our competitors
in traditional auction markets include Heritage Numismatic Auctions, Auctions by
Bowers & Merena, and Mastro Fine Sports Auctions as well as other reputable
companies such as Sotheby's, Christie's and Greg Manning Auctions, which do not
specialize in, but do conduct coin and sportscard auctions. In addition, other
significant auction companies that do not presently engage in auctions for coins
or sportscards or other collectibles that are the focus of our business may
decide to enter our markets to compete with us. These companies have greater
name recognition than us and have access to more financial and marketing
resources than we do. We believe that the principal competitive factors in the
traditional auction business are the reputation of the company hosting the
auction, the hosting party's ability to attract buyers to the auction and the
quality of collectibles available for sale at the auction.
The trading of collectibles over the Internet is new, rapidly evolving and
intensely competitive. In the Internet auctions business generally, our
competitors include eBay, Amazon.com, Yahoo!, Onsale, Auction Universe, a
division of Classified Ventures, Inc. and Excite. Our competitors in the
Internet collectibles auction business include Collectit.net, Collectors
Supermall, Numismatists Online, Philatelists Online, Teletrade, Inc., Wow
Auction, Inc., The BoxLot Company and GoMainline.com. Large corporations with
recognized capabilities in business-to-consumer commerce, including America
Online, Microsoft, Cendant and QVC, have large resources which could also be
directed to compete in the Internet auction market. Barriers to entry are
relatively low and current and new competitors can launch new sites at a
relatively low cost using commercially available software. We believe that the
principal competitive factors in our Internet auction business are: expertise in
the collectibles offered for sale; quality of collectibles content; population
of buyers and sellers that use the service; availability of related services,
such as authentication and grading, customer service and
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<PAGE> 46
staff expertise; reliability of delivery and timely payment; brand name
recognition; and website convenience and accessibility.
INTELLECTUAL PROPERTY
We rely on a combination of trademark, copyright and trade secret laws, as
well as confidentiality agreements and non-competition agreements to establish
and protect our proprietary rights.
The following table sets forth a list of our trademarks, both unregistered
and registered, that are currently being used in the conduct of our business:
<TABLE>
<CAPTION>
UNREGISTERED TRADEMARKS REGISTERED TRADEMARKS
- ----------------------------- ---------------------
<S> <C>
Coin Universe Collectors Universe
Collectors.com PCGS
Lyn Knight Currency Auctions PSA
Superior Sports Auctions PSA/DNA
Kingswood Coin Auctions Good Rockin' Tonight
Record Universe
Sports Collectors Universe
Currency Universe
One-of-a-Kind Auctions
</TABLE>
We have not conducted an exhaustive search of possible prior users of the
unregistered trademarks listed above and, therefore, it is possible that our use
of some of these trademarks may conflict with others.
Collectors Universe has an exclusive six-year license, subject to limited
exceptions, with DNA Technologies, Inc. to use its patented DNA authentication
technology for the authentication of collectibles. Our exclusive license will
allow us to sublicense this technology, subject to the sharing of such
sublicense revenue with DNA Technologies, to other major companies who can
benefit from the security afforded by the DNA authentication technique, such as
manufacturers or distributors of various limited edition merchandise or
collectibles. If the patent for the DNA Technology were challenged successfully,
we could lose our exclusive license to use this technology in the collectibles
market.
As part of our confidentiality procedures, we generally enter into
agreements with our employees and consultants and limit access to and
distribution of our software, documentation and other proprietary information.
Notwithstanding the precautions we take, it might be possible for a third party
to copy or otherwise obtain and use our software or other proprietary
information without authorization or to develop similar software independently.
Policing unauthorized use of our technology is difficult, particularly because
the global nature of the Internet makes it difficult to control the ultimate
destination or security of software or other data transmitted. The laws of other
countries may afford us little or no effective protection of our intellectual
property.
Our proprietary auction software is protected by copyright laws and under
applicable trade secret laws. We may in the future receive notices from third
parties claiming infringement by our software or other aspects of our business.
Any such claim, with or without merit, could result in significant litigation
costs and diversion of resources, including the attention of management, and
require us to
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<PAGE> 47
enter into royalty and licensing agreements. Such royalty and licensing
agreements, if required, may not be available on terms acceptable to us or at
all. In the future, we may also need to file lawsuits to enforce our
intellectual property rights, to protect our trade secrets or to determine the
validity and scope of the proprietary rights of others. Such licensing or
litigation, whether successful or unsuccessful, could result in substantial
costs and diversion of resources, which could harm our business.
GOVERNMENT REGULATION
We are not currently subject to direct federal, state or local regulation,
and laws or regulations applicable to access to or commerce on the Internet,
other than regulations applicable to businesses generally. However, due to the
increasing popularity and use of the Internet and other online services, it is
possible that a number of laws and regulations may be adopted with respect to
the Internet or other online services covering issues such as user privacy,
freedom of expression, pricing, content and quality of products and services,
taxation, advertising, intellectual property rights and information security.
Several states have also proposed legislation that would limit the uses of
personal user information gathered online or require online services to
establish privacy policies. The FTC has also initiated action against at least
one online service regarding the manner in which personal information is
collected from users and provided to third parties. Changes to existing laws or
the passage of new laws intended to address these issues, including some
recently proposed changes, could create uncertainty in the marketplace that
could reduce demand for our services or increase the cost of doing business as a
result of litigation costs or increased service delivery costs. Numerous states,
including the State of California in which our headquarters are located, have
regulations regarding the manner in which "auctions" may be conducted and the
liability of "auctioneers" in conducting such auctions. We do not believe that
such regulations, which were adopted prior to the advent of the Internet, govern
the operations of our business and no state has filed a claim asserting that we
are subject to such legislation. Although we have received no communications
from the State of California or any other state, no legal determination has been
made with respect to the applicability of the California regulations to our
business to date and little precedent exists in this area. However, a state
could attempt to impose these regulations upon us in the future, which could
have a material adverse effect on our business, results of operations and
financial condition.
Generally, we do not collect sales tax or other similar taxes on goods sold
by users through our online service. However, one or more states may seek to
impose sales tax collection obligations on out-of-state companies such as ours,
which engage in or facilitate online commerce, and a number of proposals have
been made at the state and local level that would impose additional taxes on the
sale of goods and services through the Internet. Since the Internet is
worldwide, other jurisdictions may seek to tax or otherwise burden our business
with regulatory requirements. If adopted, these proposals could substantially
impair the growth of electronic commerce, and could adversely affect our ability
to profit from Internet commerce.
Applicability to the Internet of existing laws governing issues such as
property ownership, copyrights and other intellectual property issues, taxation,
libel, obscenity and personal privacy is uncertain. The vast majority of such
laws were adopted prior to the advent of the Internet and related technologies
and, as a result, do not contemplate or address the unique issues of the
Internet and related technologies.
In a consent decree with the FTC dated August 1990, PCGS consented to
limited restrictions in the operation of the PCGS business. Under the consent
decree, PCGS agreed that it will make no representations that are untrue with
respect to the objectivity of its services or the marketability of coins. In
addition, PCGS agreed not to improperly adjust its grading standards, nor to
permit any
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<PAGE> 48
coin graders to knowingly grade coins in which the graders have a financial
interest or to discuss grading procedures with persons not authorized by PCGS.
We believe the consent decree imposes no unduly burdensome restrictions on our
business.
EMPLOYEES
As of August 15, 1999, we had 237 employees, including 115 in grading and
authentication, 60 in auctions, 15 in product development, 10 in sales and
marketing and 37 in other business and administrative services. We have never
had a work stoppage, and no employees are represented under collective
bargaining agreements. We consider our relations with our employees to be good.
FACILITIES
Our existing lease of approximately 35,000 square feet will expire in March
2000 and these facilities are inadequate to accommodate the anticipated growth
of our business. Accordingly, we have entered into a lease for a facility of
approximately 54,000 square feet that will accommodate our anticipated future
growth needs. The lease will commence upon termination of our existing lease,
with a term of eight years. The expenditures and other costs of moving to the
new facility are expected to range from approximately $200,000 to $400,000.
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<PAGE> 49
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth information regarding our directors,
director designee and executive officers:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
David G. Hall........................... 52 Chairman of the Board and Director
Louis M. Crain.......................... 52 President, Chief Executive Officer and
Director
Gary N. Patten.......................... 52 Chief Financial Officer and Secretary
Stephen H. Mayer........................ 52 Senior Vice President and Director
David E. Gioia.......................... 49 Vice President, Marketing
Van D. Simmons(1)(2).................... 48 Director
Armen R. Vartian........................ 41 Director
Roger W. Johnson(1)(2).................. 64 Director Designee
</TABLE>
- -------------------------
(1) Member of Audit Committee following completion of this offering.
(2) Member of Compensation Committee following completion of this offering.
DAVID G. HALL has served as Chairman of the Board and a director since
founding Collectors Universe in February 1986. From 1986 to January 1999, he
also served as our President and Chief Executive Officer. Mr. Hall was honored
in 1999 by COINage Magazine as Numismatist of the Century along with 14 others.
In 1990, Mr. Hall was named an Orange County Entrepreneur of the Year by INC.
magazine. In addition, he has written A Mercenary's Guide to the Rare Coin
Market, a book dedicated to coin collecting. Mr. Hall is also a member of the
Professional Numismatists Guild.
LOUIS M. CRAIN has served as our President and Chief Executive Officer and
a director since January 1999. From 1992 to 1998, Mr. Crain served as President,
Chief Executive Officer and a director of MARC Analysis Research Corporation, a
leading supplier of high-technology engineering software for structural
analysis. Mr. Crain founded Symmetric Software, Inc. in 1989 and served as its
Chief Executive Officer until 1992. From 1975 to 1989, Mr. Crain served as Vice
President and a director of PDA Engineering, where he developed and managed the
growth of PATRAN, a popular software product used in the analysis of stress in
structural systems. Mr. Crain received a B.S. degree from the Massachusetts
Institute of Technology.
GARY N. PATTEN has served as our Vice President, Chief Financial Officer
and Secretary since March 1999. From June 1995 to March 1999, Mr. Patten was
Vice President, Chief Financial Officer and Secretary of Unit Instruments, Inc.,
a manufacturer of component products for the semiconductor equipment industry.
From 1986 to 1995, Mr. Patten served as Vice President, Chief Financial Officer
and Secretary of Optical Radiation Corporation, a diversified manufacturer of
consumer products, medical devices and industrial products. Mr. Patten holds an
M.B.A. degree from the University of California at Los Angeles.
STEPHEN H. MAYER has served as our Senior Vice President since January 1999
and has been a director since 1987. From 1988 to 1998, Mr. Mayer served as Chief
Operations Officer of Collectors Universe. From 1986 to 1988, Mr. Mayer served
as Director of Operations. Mr. Mayer holds a B.A. degree from Central Oklahoma
State University.
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<PAGE> 50
DAVID E. GIOIA joined Collectors Universe in August 1999 as the Vice
President of Marketing. From 1988 to August 1999, Mr. Gioia was a freelance
director, writer and producer of advertising and corporate and marketing
communications materials. From 1983 to 1988, Mr. Gioia was President, Executive
Producer and Creative Director of Luna Park Productions, Inc. Mr. Gioia received
his B.A. degree from Emerson College in Boston.
VAN D. SIMMONS has served as a director of Collectors Universe since its
founding in 1986. Mr. Simmons has been the Chairman of the Board of David Hall's
North American Trading, LLC, a retailer of rare coins, since February 1997. From
1981 to 1997 he served as President of David Hall Rare Coins and Collectibles, a
retailer of rare coins.
ARMEN R. VARTIAN has served as a director for Collectors Universe since
February 1999. Mr. Vartian practices at the Law Offices of Armen Vartian,
specializing in matters relating to art and collectibles. He has represented
auction houses, dealers and collectors and has also served as Special Counsel at
the request of the Federal Trade Commission. Mr. Vartian has also served as
General Counsel to the Professional Numismatists Guild and the American
Numismatic Association. Mr. Vartian is the author of Legal Guide to Buying and
Selling Art and Collectibles. Mr. Vartian holds a B.A. degree from The City
University of New York and a J.D. degree from Harvard University.
ROGER W. JOHNSON will become a director of Collectors Universe immediately
following completion of this offering. Mr. Johnson has been Chief Executive
Officer of the Young Presidents' Organization, International since 1998. Since
1996, Mr. Johnson has been a member of the board of directors of The Needham
Funds, Inc., Sypris Solutions, Inc., Insulectro, Carole Little and the Women's
Consumer Network, Washington, D.C. He was appointed by President Clinton and
served as the Administrator of the General Services Administration of the United
States Government from 1993 to 1996. Mr. Johnson was Chairman and Chief
Executive Officer of Western Digital Corporation from 1982 to 1993. Mr. Johnson
holds an M.B.A. in industrial management from the University of Massachusetts.
OTHER KEY EMPLOYEES
The following table sets forth information regarding other key employees:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
Richard S. Montgomery..................... 37 President, Professional Coin Grading
Service
Stephen Rocchi............................ 41 President, Professional Sports
Authenticator
Lyn F. Knight............................. 49 President, Lyn Knight Currency Auctions
Gregory B. Bussineau...................... 34 President, Superior Sportcard Auctions, LLC
Brent L. Gutekunst........................ 39 Vice President of e-Commerce
Gordon J. Wrubel.......................... 56 President, Good Rockin' Tonight
Michael W. Sherman........................ 44 President, Kingswood Coin Auctions
Jason E. Meyerson......................... 32 President, PSA/DNA
Michael D. Barnes......................... 29 President, One-of-a-Kind Auctions
</TABLE>
RICHARD S. MONTGOMERY serves as the President of PCGS, a position he has
held since 1997. Mr. Montgomery joined PCGS as an authenticator and grader in
1987 and became Director of Grading for PCGS in 1996. Prior to joining PCGS, Mr.
Montgomery held several positions at
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<PAGE> 51
American Numismatic Association Certification Service between 1980 and 1985, and
ultimately served as one of its directors.
STEPHEN ROCCHI serves as the President of PSA, a position he has held since
1996. Mr. Rocchi joined PCGS in 1986 as our first employee and served as
Operations Manager from 1988 until 1996. As Operations Manager, Mr. Rocchi
participated in the development of on-site coin grading and the Collectors Club
at PCGS. Mr. Rocchi received a B.S. degree from California State University,
Long Beach.
LYN F. KNIGHT has served as the President of Lyn Knight Currency Auctions
since February 1999, when Collectors Universe acquired the currency auction
business of Lyn F. Knight Rare Coins, Inc. Mr. Knight was the founder, and from
its inception in 1985, served as the President, of Lyn F. Knight Rare Coins,
Inc., which was engaged in the marketing and selling rare currency. In addition,
Mr. Knight is a founder and past President of the Professional Currency Dealers
Association.
GREGORY B. BUSSINEAU is the founder of and has served as the President of
Superior Sportcard Auctions, LLC, a subsidiary of Collectors Universe, since its
inception in 1995. Mr. Bussineau has been a dealer of sportscards since 1983 and
is the owner of Superior Sportscard, Inc., a retail dealer of sportscards and
other sports collectibles.
BRENT L. GUTEKUNST has served as our Vice President of e-Commerce since
February 1999. He also served as Vice President of Internet Universe, LLC from
August 1996 to February 1999 and as a director of Collectors Universe from
February 1999 to August 1999. Prior to August 1996, Mr. Gutenkunst was the
President of Info Exchange, Inc., an Internet content and auction company,
during which time he created the website known as Coin Universe. From 1988 to
1990, Mr. Gutekunst was the Managing Trustee for Income Properties Equity Trust,
a publicly held real estate investment trust. Mr. Gutekunst holds an M.B.A.
degree from Northwestern University and a B.S. degree from the University of
Kansas.
GORDON J. WRUBEL has served as President of Good Rockin' Tonight, our rare
records division, since 1996. In addition, from 1986 to August 1999, Mr. Wrubel
served as a director and Secretary of Collectors Universe. From 1986 to 1995,
Mr. Wrubel was the Director of Grading for Collectors Universe.
MICHAEL W. SHERMAN, the President of Kingswood Coin Auctions, joined
Collectors Universe in May 1999. From March 1998 to May 1999, Mr. Sherman served
as the Vice President of Jefferson Coin and Bullion, Inc., a retail dealer of
rare coins. Prior to that time, Mr. Sherman served as the General Manager of
Heritage Numismatic Auctions, Inc., an auctioneer of rare coins for 18 years. He
has also been a contributor to the Guide Book of United States Coins Mr. Sherman
holds a B.S. degree from the University of Virginia and an M.B.A. degree from
Washington University in St. Louis.
JASON E. MEYERSON has served as President of PSA/DNA since April 1999. From
1993 to April 1999, Mr. Meyerson served as Sales and Brand Manager for Veltec
Sports, Inc., a sales and distribution company for the bicycle industry.
MICHAEL D. BARNES has served as President of One-of-a-Kind Auctions since
March 1999. Mr. Barnes was the managing partner of Creative Properties
Management Group, a sports and entertainment agency from April 1996 to March
1999. Prior to 1996, Mr. Barnes attended law school at St. Louis University,
where he received a J.D. degree in May 1996. He received a B.A. degree from the
University of Missouri.
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<PAGE> 52
BOARD COMMITTEES
The Audit Committee of the Board of Directors will consist of Van Simmons
and Roger Johnson immediately following completion of this offering. The Audit
Committee recommends to the Board of Directors the independent public
accountants to be selected to audit our annual financial statements and approves
any special assignments given to such accountants. The Audit Committee also
reviews the planned scope of the annual audit and the independent accountants'
letter of comments and management's response thereto, any major accounting
changes made or contemplated and the effectiveness and efficiency of our
internal accounting staff.
The Compensation Committee of the Board of Directors will consist of Van
Simmons and Roger Johnson immediately following completion of this offering. The
Compensation Committee determines the compensation payable to the executive
officers of Collectors Universe. Prior to the formation of our Compensation
Committee, our Board of Directors made decisions relating to compensation of
executive officers.
BOARD COMPENSATION
Our directors who are not employees receive cash compensation of $20,000
per year for service on our Board of Directors. Directors are also reimbursed
for out-of-pocket expenses incurred in connection with their service on our
Board of Directors. Each of our directors is eligible to receive periodic stock
option grants under our 1999 Stock Incentive Plan. Effective upon his
appointment as a director, Mr. Johnson will be granted options to purchase
10,000 shares of our common stock at an exercise price equal to the initial
public offering price.
EXECUTIVE COMPENSATION
The following table sets forth summary information concerning compensation
earned for all services rendered to us in all capacities during the fiscal year
ended June 30, 1999, for our Chief Executive Officer and each of our other most
highly compensated executive officers whose salary and bonus exceeded $100,000
(the "Named Executive Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM
ANNUAL COMPENSATION
COMPENSATION AWARDS
------------------ SECURITIES UNDERLYING
NAME AND PRINCIPAL POSITION SALARY BONUS OPTIONS(#)
- --------------------------- -------- ------- ---------------------
<S> <C> <C> <C>
David G. Hall, Chairman(1).......................... $330,000 $ -- 0
Louis M. Crain, President and Chief Executive
Officer(2)........................................ 180,000 -- 950,000
Stephen H. Mayer, Senior Vice President............. 134,944 71,944 25,000
Gary N. Patten, Chief Financial Officer
and Secretary(3).................................. 48,000 -- 180,000
</TABLE>
- -------------------------
(1) Prior to January 1999, Mr. Hall was also Chief Executive Officer of
Collectors Universe.
(2) Mr. Crain began his employment with us in January 1999. His annual salary is
$360,000.
(3) Mr. Patten began his employment with us in April 1999. His annual salary is
$203,000.
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<PAGE> 53
STOCK OPTION GRANTS IN FISCAL YEAR 1999
<TABLE>
<CAPTION>
POTENTIAL
INDIVIDUAL GRANTS REALIZABLE VALUE
--------------------------------------------------- AT ASSUMED
NUMBER OF ANNUAL RATES OF
SECURITIES PERCENT OF STOCK PRICE
UNDERLYING TOTAL OPTIONS EXERCISE APPRECIATION FOR
OPTIONS GRANTED TO PRICE OPTION TERM(2)
GRANTED EMPLOYEES IN ($ PER EXPIRATION ----------------
NAME (#)(1) FISCAL YEAR(%) SHARE) DATE 5% 10%
- ---- ---------- -------------- -------- ---------- ------ -------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
David G. Hall................. -- -- -- -- -- --
Louis M. Crain................ 950,000 45.1% $2.11 01/04/09 $5,738 $10,298
Stephen H. Mayer.............. 25,000 1.2 5.00 04/01/09 79 199
Gary N. Patten................ 180,000 8.5 5.00 04/01/09 567 1,431
</TABLE>
- -------------------------
(1) Mr. Crain's stock options were fully vested on the grant date. Mr. Mayer's
stock options were fully vested on the grant date. Mr. Patten's stock
options vest with respect to 36,000 shares on the grant date, 8,000 shares
per month between April 1999 and December 1999 and 6,000 shares per month
thereafter until fully vested.
(2) Potential realizable value is based on the assumption that our common stock
appreciates at the annual rate shown, compounded annually, from the date of
grant until the expiration of the ten-year option term as applicable. These
numbers are calculated based on Securities and Exchange Commission
requirements and do not reflect our projection or estimate of future stock
price growth. Potential realizable values are computed by multiplying the
number of shares of common stock subject to a given option by the exercise
price, as determined by our Board of Directors, assuming that the aggregate
stock value derived from that calculation compounds at the annual 5% or 10%
rate shown in the table for the entire term of the option and subtracting
from that result the aggregate option and exercise price.
EMPLOYMENT AGREEMENTS
Mr. Crain is employed as the Chief Executive Officer of Collectors Universe
under a three year employment agreement. The employment agreement provides for
the payment to him of a base salary of $360,000 per year, and annual incentive
compensation equal to 2% of the pre-tax profit of Collectors Universe. Mr. Crain
also received a one-time $100,000 payment for relocation expenses, and a loan in
the principal amount of $180,000, bearing interest at a rate of 9% per year. The
employment agreement provides that, for each year of his employment with
Collectors Universe, $30,000 of the principal amount of that loan will be
forgiven.
Mr. Patten is employed under a three year employment agreement as the Chief
Financial Officer of Collectors Universe. The employment agreement provides for
the payment of an annual base salary of $203,000 in the first year of
employment, $234,000 in the second year and $250,000 in the third year of
employment. Collectors Universe also has entered into a severance agreement with
Mr. Patten that will entitle him to two and one half years' annual base
compensation and bonus in the event his employment is terminated following a
sale or change of control of Collectors Universe.
EMPLOYEE BENEFIT PLANS
STOCK INCENTIVE PLANS. We adopted the PCGS 1999 Stock Incentive Plan in
January 1999. As of October 2, 1999, there were options to purchase 1,076,817
shares outstanding under the PCGS Plan and no shares available for future option
grants. In February 1999, we adopted the Collectors Universe 1999 Stock
Incentive Plan. The Collectors Universe Plan covers an aggregate of
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<PAGE> 54
1,748,585 shares of common stock. As of October 2, 1999, there were options to
purchase 1,007,900 shares outstanding under the Collectors Universe Plan and
740,685 shares available for future option grants.
The PCGS Plan and the Collectors Universe Plan provide for the granting of
"incentive stock options," within the meaning of Section 422 of the Internal
Revenue Code of 1986, as amended, nonstatutory options and restricted stock
grants to directors, officers, employees and consultants of Collectors Universe,
except that incentive stock options may not be granted to non-employee directors
or consultants. The purpose of the Collectors Universe Plan is to provide
participants with an opportunity to acquire an equity interest in Collectors
Universe that will give them incentive to continue to provide services to
Collectors Universe. The PCGS Plan and the Collectors Universe Plan are
administered by the Board of Directors, which has sole discretion and authority,
consistent with the provisions of the PCGS Plan and the Collectors Universe
Plan, to determine which eligible participants will receive options, the time
when options will be granted, the terms of options granted and the number of
shares which will be subject to options granted under the PCGS Plan and the
Collectors Universe Plan.
EMPLOYEE STOCK PURCHASE PLAN. In September 1999, our board of directors
adopted our Employee Stock Purchase Plan, to be effective upon completion of
this offering. A total of 200,000 shares of common stock have been reserved for
issuance under our Employee Stock Purchase Plan. Our Employee Stock Purchase
Plan, which is intended to qualify under Section 423 of the Internal Revenue
Code of 1986, as amended, will be administered by the Board of Directors or by a
committee appointed by the Board. Employees are eligible to participate if they
are customarily employed for at least 20 hours per week and for more than five
months in any calendar year. Employees who own more than 5% of our outstanding
stock may not participate. Our Employee Stock Purchase Plan permits eligible
employees to purchase common stock through payroll deductions which may not
exceed the lesser of 15% of an employee's compensation, or $25,000. Our Employee
Stock Purchase Plan will be implemented through offerings occurring each
six-month period with purchases at the end of each six-month period commencing
on the effective date of this offering. The purchase price of the common stock
under our Employee Stock Purchase Plan will be equal to 85% of the fair market
value per share of common stock on either the start date of the offering period
or on the purchase date, whichever is less.
401(K) PLAN. Collectors Universe established an employee benefit plan,
effective July 1992, that features a 401(k) salary reduction provision, covering
all employees who meet eligibility requirements. Eligible employees can elect to
defer up to 15% of compensation or the statutorily prescribed annual limit.
Collectors Universe can, at its discretion, make contributions to the plan.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During the fiscal year ended June 30, 1999, the Board of Directors
established the levels of compensation for our executive officers. David G.
Hall, who is also a director of Collectors Universe, participated in the
deliberations of the Board regarding executive compensation that occurred during
the fiscal year ended June 30, 1999. See "Certain Relationships and Related
Transactions" for a description of transactions between Collectors Universe and
various members of the Board of Directors or their affiliates.
LIMITATIONS ON DIRECTORS' LIABILITY AND INDEMNIFICATION
The Bylaws of Collectors Universe provide that Collectors Universe will
indemnify its directors and officers and may indemnify its employees and other
agents to the fullest extent permitted by law. We believe that indemnification
under our Bylaws covers at least negligence and gross negligence by
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<PAGE> 55
indemnified parties and permits us to advance litigation expenses in the case of
stockholder derivative actions or other actions, against an undertaking by the
indemnified party to repay such advances if it is ultimately determined that the
indemnified party is not entitled to indemnification. Following this offering of
common stock, we expect to have in place liability insurance coverage for our
directors and officers.
In addition, the Amended and Restated Certificate of Incorporation of
Collectors Universe provides that, pursuant to Delaware law, its directors shall
not be liable for monetary damages for breach of the directors' fiduciary duty
as a director to Collectors Universe and its stockholders. This provision in our
Amended and Restated Certificate of Incorporation does not eliminate the
directors' fiduciary duty, and in appropriate circumstances equitable remedies
such as injunctive or other forms of non-monetary relief will remain available
under Delaware law. In addition, each director will continue to be subject to
liability for breach of the director's duty of loyalty to Collectors Universe
for acts or omissions not in good faith or involving intentional misconduct, for
knowing violations of law, for actions leading to improper personal benefit to
the director, and for payment of dividends or approval of stock repurchases or
redemptions that are unlawful under Delaware law. The provision also does not
affect a director's responsibilities under any other law, such as the federal
securities laws or state or federal environmental laws.
Collectors Universe has entered into separate indemnification agreements
with its directors and executive officers. These agreements require Collectors
Universe, among other things, to indemnify them against specific liabilities
that may arise by reason of their status or service as directors or officers
other than liabilities arising from actions not taken in good faith or in a
manner the indemnitee believed to be opposed to the best interests of Collectors
Universe, to advance their expenses incurred as a result of any proceeding
against them as to which they could be indemnified and to obtain directors'
insurance if available on reasonable terms. Insofar as indemnification for
liabilities arising under the Securities Act of 1933 may be permitted to
directors, officers or persons controlling our company pursuant to the foregoing
provisions, Collectors Universe has been informed that in the opinion of the
Securities and Exchange Commission, such indemnification is against public
policy as expressed in the Securities Act and is therefore unenforceable. We
believe that our Amended and Restated Certificate of Incorporation and Bylaw
provisions and indemnification agreements are necessary to attract and retain
qualified persons as directors and officers.
52
<PAGE> 56
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In February 1999, we completed the reorganization in which we issued shares
of our common stock. See "The Reorganization." In the reorganization, all of the
PCGS stockholders contributed their PCGS shares in exchange for a total of
17,310,585 shares of our common stock, which were allocated among the PCGS
stockholders in the same proportions as they had owned the outstanding shares of
PCGS. In that transaction: David Hall, a director and Chairman of the Board who
owned approximately 48% of PCGS' shares, received 8,252,980 of our shares; Van
Simmons, a director who owned approximately 12% of PCGS' shares, received
2,136,956 of our shares; Stephen Mayer, Senior Vice President and a director who
owned approximately 1% of PCGS' shares, received 229,632 of our shares; Gordon
Wrubel, President of Good Rockin' Tonight who owned approximately 11% of PCGS'
shares, received 1,965,191 of our shares; and Louis Crain, a director and our
President and Chief Executive Officer who owned less than 1% of PCGS' shares,
received 100,808 of our shares.
In addition, as part of the reorganization, we acquired several companies,
including Kingswood Coin Auctions. David Hall, Van Simmons and David Hall's
North American Trading, which is a business in which Mr. Hall and Mr. Simmons,
in the aggregate, own a majority interest, owned an aggregate of 55% of
Kingswood. In that acquisition: Messrs. Hall and Simmons each received 28,500 of
our shares and cash payments of $150,000 each, and David Hall's North American
Trading received 47,500 shares and a cash payment of $250,000.
Before completing the reorganization, while still an S corporation for tax
purposes, PCGS declared a dividend payable to its stockholders in the aggregate
amount of $2.2 million, which represented a substantial portion of S corporation
accumulated earnings that had been or were taxable to the individual
stockholders of PCGS. On February 5, 1999, when the reorganization was
completed, PCGS ceased to be an S corporation. The dividend was paid by us in
April 1999, and the following persons received the amounts indicated as payment
of their proportionate share of the dividend to which they were entitled as
former stockholders of PCGS: David Hall received $1.1 million; Van Simmons
received $272,000; Stephen Mayer received $29,000; Gordon Wrubel received
$250,000; and Louis Crain received $13,000.
In March 1999, Collectors Universe sold 1,281,800 shares at $5.00 per share
for an aggregate of $6,409,000. In the March 1999 private placement, Gary N.
Patten purchased 50,000 shares for $250,000 and Gordon Wrubel purchased 1,600
shares for $8,000. The proceeds from this offering were used, among other
things, to pay the S corporation dividend to the former stockholders of PCGS and
the cash payable in the Kingswood and Lyn Knight acquisitions.
David Hall has purchased coins, records and other collectibles with an
aggregate purchase price of approximately $70,000 in fiscal 1999, $55,000 in
fiscal 1998 and $112,000 in fiscal 1997. Those purchases were made on materially
the same terms as those applicable to purchases of collectibles by other
customers that are not affiliated with Collectors Universe or any of its
officers or directors. We recently adopted a new policy that prohibits employees
and their affiliates, including David Hall's North American Trading and David
Hall Rare Coins and Collectibles, a business which also is owned by David Hall
and Van Simmons, from bidding on collectibles in our auctions. Our employees and
their affiliates may from time to time consign collectibles to us to be sold in
our auctions or galleries.
David Hall's North American Trading, which is owned by Mr. Hall and Mr.
Simmons, is primarily engaged in the retail sale of coins through a direct sales
force. Although David Hall's North American Trading does not conduct auctions,
it may sell coins to collectors who also buy or sell coins at auctions conducted
by Collectors Universe. It also purchases rare coins for resale through a sole
source supplier that is also one of Collectors Universe's coin suppliers.
Therefore, David Hall's North
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<PAGE> 57
American Trading indirectly competes with Collectors Universe in connection with
the purchase and sale of rare coins.
David Hall Rare Coins and Collectibles was primarily engaged in the
purchase and sale of rare coins, records and other collectibles. Collectors
Universe advanced funds to David Hall Rare Coins and Collectibles in the
aggregate amounts of $416,000 in fiscal 1999 and $170,000 in fiscal 1998 to help
fund its acquisitions of collectibles, some of which were sold at auctions
conducted by Collectors Universe. As of June 30, 1999, the balance of such
advances was paid-in-full. We have adopted a policy which prohibits any further
advances to David Hall Rare Coins and Collectibles in the future. In addition,
David Hall Rare Coins and Collectibles has entered into an agreement with
Collectors Universe under which David Hall Rare Coins and Collectibles has
agreed not to purchase any additional collectibles upon completion of this
offering, to sell its existing inventory of collectibles exclusively at auctions
conducted by Collectors Universe and to cease its collectibles business as soon
as is reasonably practicable following completion of this offering.
David Hall's North American Trading purchased authentication and grading
services from us in the aggregate amounts of approximately $10,000 in the
three-month period ended September 30, 1999, $170,000 in fiscal 1999, $131,000
in fiscal 1998 and $64,000 in fiscal 1997. Additionally, we have purchased
collectibles for our inventory from David Hall Rare Coins and Collectibles in
the aggregate amounts of $535,000 in fiscal 1999, $219,000 in fiscal 1998 and
$117,000 in fiscal 1997. In the three-month period ended September 30, 1999, we
purchased collectibles for our inventory in the amount of approximately $37,000
from David Hall's North American Trading. We also sublease a portion of our
facilities to David Hall's North American Trading pursuant to which we received
rental income of approximately $60,000 in each of the fiscal years of 1999, 1998
and 1997.
Mr. Hall has entered into a non-compete agreement with Collectors Universe
under which he has agreed not to buy or sell collectibles, nor own any equity
interest in another business engaged in such activity, except under limited
circumstances, including those described above.
John Dannreuther, a beneficial owner of 7.6% of the outstanding shares of
common stock, is the sole owner of J.D.R.C., Inc., which has received payments
in the amounts of $295,000 in fiscal 1997, $173,000 in fiscal 1998 and $152,000
in fiscal 1999 for research and consulting services related to our coin
authentication and grading services.
Pursuant to Mr. Crain's employment agreement as Chief Executive Officer, in
January 1999 we extended a loan to Mr. Crain in the principal amount of
$180,000, bearing interest at a rate of 9% per year. The employment agreement
provides that, for each year of his employment with Collectors Universe, $30,000
of the principal amount of the loan will be forgiven. As of June 30, 1999, the
unpaid principal and interest under the loan was $178,000.
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<PAGE> 58
PRINCIPAL STOCKHOLDERS
The following table sets forth information with respect to the beneficial
ownership of common stock as of August 31, 1999 by (i) each person or group of
affiliated persons who is known to own beneficially 5% or more of our common
stock, (ii) each of the directors and director nominees of Collectors Universe,
(iii) each of the Named Executive Officers, and (iv) all directors and executive
officers of Collectors Universe as a group.
<TABLE>
<CAPTION>
% OF SHARES
BENEFICIALLY OWNED
-----------------------
SHARES BEFORE AFTER
NAME AND ADDRESS OF BENEFICIAL OWNERS BENEFICIALLY OWNED(1) OFFERING OFFERING(2)
- ------------------------------------- --------------------- -------- -----------
<S> <C> <C> <C>
David G. Hall................................. 8,332,355(3) 40.8% 34.1%
Van D. Simmons................................ 2,204,456(4) 10.8% 9.0%
Gordon J. Wrubel.............................. 1,966,769 9.6% 8.1%
John W. Dannreuther........................... 1,618,906 7.9% 6.6%
868 Mount Moriah, Suite 202
Memphis, Tennessee 38117
Steve Cyrkin.................................. 1,142,420 5.6% 4.7%
1936 Deere Street
Santa Ana, California 92705
Brent L. Gutekunst............................ 1,130,927(5) 5.5% 4.6%
1936 Deere Street
Santa Ana, California 92705
Louis M. Crain................................ 1,050,807(6) 4.9% 4.2%
Stephen H. Mayer.............................. 239,632(7) 1.2% 1.0%
Gary N. Patten................................ 142,000(8) * *
David E. Gioia................................ -- * *
Armen R. Vartian.............................. -- * *
Roger W. Johnson(9)........................... -- * *
All directors and executive officers as a
group (8 persons)(6)(7)(8).................. 11,969,250 56.1% 47.2%
</TABLE>
- -------------------------
* Less than 1%
(1) Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission and generally includes voting or
investment power with respect to securities. Shares of common stock subject
to options or warrants currently exercisable, or exercisable within 60 days
of August 31, 1999, are deemed outstanding for computing the percentage of
the person holding such options or warrants but are not deemed outstanding
for computing the percentage of any other person. Except as indicated by
footnote and subject to community property laws where applicable, to the
knowledge of Collectors Universe the persons named in the table have sole
voting and investment power with respect to all shares of common stock shown
as beneficially owned by them.
(2) Assumes that the Underwriters' over-allotment option is not exercised.
(3) Includes 31,875 shares held by David Hall's North American Trading, an
entity in which Mr. Hall holds an ownership interest. Mr. Hall disclaims
beneficial ownership of the shares owned by David Hall's North American
Trading, except to the extent of his pecuniary interest therein.
(4) Includes 31,875 shares held by David Hall's North American Trading, an
entity in which Mr. Simmons holds an ownership interest. Mr. Simmons
disclaims beneficial ownership of the shares owned by David Hall's North
American Trading, except to the extent of his pecuniary interest therein.
(5) Includes 269,817 shares subject to options which will become exercisable
upon completion of this offering.
(6) Includes 807,000 shares subject to options currently exercisable.
(7) Includes 10,000 shares subject to options currently exercisable.
(8) Includes 92,000 shares subject to option exercisable within 60 days of
August 31, 1999.
(9) Mr. Johnson will become a director upon completion of this offering.
55
<PAGE> 59
DESCRIPTION OF CAPITAL STOCK
Upon the completion of the offering, the authorized capital stock of
Collectors Universe will consist of 45,000,000 shares of common stock, $0.001
par value, and 5,000,000 shares of preferred stock, $0.001 par value.
COMMON STOCK
As of August 31, 1999, there were 20,425,076 shares of common stock
outstanding held of record by 90 stockholders. There will be 24,425,076 shares
of common stock outstanding after the sale of the shares of common stock offered
by this prospectus.
Holders of common stock are entitled to one vote per share on all matters
to be voted upon by the stockholders, including the election of directors, who
are elected annually and serve for one year terms. Subject to preferences that
may be applicable to the holders of outstanding shares of preferred stock, if
any, the holders of common stock are entitled to receive such lawful dividends
as may be declared by the Board of Directors. In the event of liquidation,
dissolution or winding up of Collectors Universe, and subject to the rights of
the holders of outstanding shares of preferred stock, if any, the holders of
shares of common stock shall be entitled to receive all of the remaining assets
of Collectors Universe available for distribution to its stockholders after
satisfaction of all its liabilities and the payment of any liquidation
preference of any outstanding preferred stock. There are no redemption or
sinking fund provisions applicable to the common stock. All outstanding shares
of common stock are fully paid and nonassessable, and all shares of common stock
to be issued pursuant to this offering shall be fully paid and nonassessable.
PREFERRED STOCK
As of August 31, 1999, no shares of preferred stock were outstanding. The
Board of Directors has the authority, without further action by the
stockholders, to issue the authorized shares of preferred stock in one or more
series and to fix the rights, preferences and privileges thereof, including
voting rights, terms of redemption, redemption prices, liquidation preferences,
number of shares constituting any series or the designation of such series,
without further vote or action by the stockholders. Although it presently has no
intention to do so, the Board of Directors, without stockholder approval, may
issue preferred stock with voting and conversion rights which could adversely
affect the voting power of the holders of common stock. This provision may be
deemed to have a potential anti-takeover effect, and the issuance of preferred
stock in accordance with such provision may delay or prevent a change of control
of Collectors Universe.
DELAWARE LAW AND CHARTER PROVISIONS
Delaware law and our Amended and Restated Certificate of Incorporation and
Bylaws could make more difficult our acquisition by means of a tender offer, a
proxy contest or otherwise and the removal of our incumbent officers and
directors. These provisions, summarized below, are expected to discourage
certain types of coercive takeover practices and inadequate takeover bids and to
encourage persons seeking to acquire control of Collectors Universe to first
negotiate with us. We believe that the benefits of increased protection of our
potential ability to negotiate with the proponent of an unfriendly or
unsolicited proposal to acquire or restructure us outweigh the disadvantages of
discouraging such proposals because, among other things, negotiation of such
proposals could result in an improvement of their terms.
We are subject to Section 203 of the Delaware General Corporation Law, an
anti-takeover law. In general, Section 203 prohibits a publicly held Delaware
corporation from engaging in a "business
56
<PAGE> 60
combination" with an "interested stockholder" for a period of three years
following the date the person became an interested stockholder, unless, with
specified exceptions, the "business combination" or the transaction in which the
person became an interested stockholder is approved in a prescribed manner.
Generally, a "business combination" includes a merger, asset or stock sale, or
other transaction resulting in a financial benefit to the interested
stockholder. Generally, an "interested stockholder" is a person who, together
with affiliates and associates, owns (or within three years prior to the
determination of interested stockholder status, did own) 15% or more of a
corporation's voting stock. The existence of this provision would be expected to
have an anti-takeover effect with respect to transactions not approved in
advance by the Board of Directors, including discouraging attempts that might
result in a premium over the market price for the shares of common stock held by
stockholders.
Our Amended and Restated Certificate of Incorporation eliminates the right
of stockholders to act by written consent without a meeting. The Amended and
Restated Certificate of Incorporation and Bylaws of Collectors Universe do not
provide for cumulative voting in the election of directors. The authorization of
undesignated preferred stock makes it possible for the Board of Directors to
issue preferred stock with voting or other rights or preferences that could
impede the success of any attempt to change our control. These and other
provisions may have the effect of deterring hostile takeovers or delaying
changes in our control of management.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for our common stock is U.S. Stock
Transfer Corporation, Glendale, California.
57
<PAGE> 61
SHARES ELIGIBLE FOR FUTURE SALE
Prior to this offering, there has been no public market for the common
stock. Future sales of substantial amounts of common stock in the public market
could adversely affect prevailing market prices and adversely affect our ability
to raise additional capital in the capital markets at a time and price favorable
to us.
Upon completion of this offering, we will have 24,425,076 shares of common
stock outstanding. Of these shares, the 4,000,000 shares sold in the offering
will be freely tradable without restriction or further registration under the
Securities Act, unless they are purchased by "affiliates" of Collectors Universe
as that term is used under the Securities Act of 1933. The remaining 20,425,076
shares held by existing stockholders will be "restricted securities" as defined
in Rule 144 under the Securities Act, or restricted shares. Restricted shares
may be sold in the public market only if registered or if they qualify for an
exemption from registration under Rule 144 promulgated under the Securities Act,
which is summarized below. Sales of restricted shares in the public market, or
the availability of such shares for sale, could adversely affect the market
price of our common stock.
In general, under Rule 144, beginning 90 days after the effective date of
the offering, any person (or persons whose shares are aggregated) who has
beneficially owned restricted shares for at least one year is entitled to sell,
within any three-month period, a number of shares that does not exceed the
greater of 1% of the then outstanding shares of our common stock (approximately
244,250 shares immediately after this offering) or the average weekly trading
volume during the four calendar weeks preceding such sale. Sales under Rule 144
are also subject to requirements as to the manner of sale, notice and
availability of current public information about Collectors Universe. In
addition, restricted shares, which have been beneficially owned for at least two
years and which are held by non-affiliates, may be sold free of any restrictions
under Rule 144.
All officers, directors and stockholders and most option holders have
agreed that they will not sell any common stock of Collectors Universe owned by
them for a period of 180 days after the effective date of this offering without
the prior written consent of Needham & Company, Inc. Other than the 4,000,000
shares of common stock sold in this offering, all of the outstanding shares of
common stock of Collectors Universe are subject to the 180-day lock-up. Upon the
expiration of the 180-day lock-up or earlier upon the consent of Needham &
Company, Inc., 20,425,076 restricted shares will become eligible for sale
subject to the volume and other restrictions of Rule 144. Of these restricted
shares, 13,888,129 shares will be held by affiliates of Collectors Universe.
Pursuant to registration rights agreements by and among Collectors Universe
and the holders of 20,425,076 shares of our common stock, such stockholders have
the right, beginning one year from the effective date of this offering, to cause
us to register their shares under the Securities Act by providing a written
demand from the holders of at least 15% of the shares of common stock. The
registration rights will terminate five years following the closing of this
offering.
We intend to file a registration statement on Form S-8 under the Securities
Act to register shares of common stock reserved for issuance under our stock
option plans and Employee Stock Purchase Plan, thus permitting the resale by
non-affiliates of shares issued under the plans in the public market without
restriction under the Securities Act. Such registration statement will become
effective immediately upon filing which is expected on or shortly after the
closing of this offering. As of the closing of this offering, options or rights
to purchase 3,288,417 shares of common stock will be outstanding, of which
2,020,515 shares are subject to lock-up agreements described above.
58
<PAGE> 62
UNDERWRITING
Subject to the terms and conditions of the Underwriting Agreement, the
underwriters named below, for whom Needham & Company, Inc. and First Security
Van Kasper are acting as representatives, have severally agreed to purchase an
aggregate of 4,000,000 shares of common stock from Collectors Universe at the
initial public offering price less the underwriting discounts and commissions
set forth on the cover page of this prospectus, in the amounts set forth
opposite their respective names below.
<TABLE>
<CAPTION>
UNDERWRITER PARTICIPATION
- ----------- -------------
<S> <C>
Needham & Company, Inc......................................
First Security Van Kasper...................................
---------
Total..................................................
=========
</TABLE>
The Underwriting Agreement provides that the obligations of the
underwriters are subject to specified conditions precedent and that the
underwriters will purchase all shares of common stock offered hereby if any of
those shares are purchased.
Collectors Universe has been advised by the representatives that the
underwriters propose to offer the shares of common stock directly to the public
at the initial public offering price set forth on the cover page of this
prospectus, and to various securities dealers at that price less a concession of
not more than $ per share. The underwriters may allow, and those dealers may
reallow, a concession not in excess of $ per share to various other dealers.
After the shares of common stock are released for sale to the public, the
offering price and other selling terms may from time to time be varied by the
underwriters. No change in those terms shall change the amount of proceeds to be
received by Collectors Universe as set forth on the cover page of this
prospectus.
Collectors Universe has granted to the underwriters an option, exercisable
within 30 days after the date of this prospectus, to purchase up to 600,000
additional shares of common stock at the public offering price less the
underwriting discounts and commissions set forth on the cover page of this
prospectus. The underwriters may exercise that option solely to cover
over-allotments, if any, made in connection with the sale of common stock
offered hereby. To the extent that the underwriters exercise the over-allotment
option, each underwriter will be committed, subject to specified conditions, to
purchase a number of additional shares of common stock which is proportionate to
that underwriter's initial commitment as set forth in the table above.
Collectors Universe, its officers and directors and current stockholders
have agreed that, during the period beginning from the date of this prospectus
and continuing to and including the date 180 days after the date of this
prospectus, they will not offer, sell, contract to sell or otherwise dispose of
any shares of common stock, any securities of Collectors Universe which are
substantially similar to the shares of common stock or which are convertible or
exchangeable for securities which are substantially similar to the shares of
common stock without the prior written consent of Needham & Company, Inc.,
except for the shares of common stock offered in connection with this offering.
59
<PAGE> 63
The representatives have informed Collectors Universe that they do not
expect sales to accounts over which the underwriters exercise discretionary
authority to exceed 5% of the total number of shares of common stock offered by
them.
Prior to this offering, there has not been a public market for the common
stock of Collectors Universe. Consequently, the initial public offering price of
the common stock was determined by arms' length negotiation between Collectors
Universe and the representatives of the underwriters. Among the factors to be
considered by Collectors Universe and the representatives in pricing the common
stock are the results of operations, the current financial condition and future
prospects of Collectors Universe, the experience of management, the amounts of
ownership to be retained by the current stockholders, the general condition of
the economy and the securities markets, the demand for similar securities of
companies considered comparable to Collectors Universe and other factors deemed
relevant.
Collectors Universe has agreed to indemnify the underwriters against
specified liabilities, including liabilities under the Securities Act, or to
contribute to payments that the underwriters may be required to make in respect
thereof.
In connection with the offering, various underwriters and selling group
members and their respective affiliates may engage in transactions that
stabilize, maintain or otherwise affect the market price of the common stock.
Those transactions may include stabilization transactions effected in accordance
with the Exchange Act pursuant to which such persons may bid for or purchase
common stock for the purpose of stabilizing its market price. The underwriters
also may create a short position for the account of the underwriters by selling
more common stock in connection with the offering than they are committed to
purchase from Collectors Universe, and in such case may purchase common stock in
the open market following completion of the offering to cover all or a portion
of those shares of common stock or may exercise the underwriters' over-allotment
option referred to above. In addition, the representatives, on behalf of the
underwriters, may impose "penalty bids" under the contractual arrangements with
the underwriters whereby the representatives may reclaim from an underwriter (or
dealers participating in the offering), for the account of the other
underwriters, the selling concession with respect to common stock that is
distributed in the offering but subsequently purchased for the account of the
underwriters in stabilization or syndicate covering transactions or otherwise.
Any of these activities may stabilize or maintain the price of the common stock
at a level above which might otherwise prevail in the open market. None of the
transactions described in this paragraph is required, and if they are undertaken
they may be discontinued at any time.
The following table summarizes the compensation to be paid to the
underwriters by us.
<TABLE>
<CAPTION>
TOTAL WITHOUT TOTAL WITH
PER SHARE OVERALLOTMENT OVERALLOTMENT
--------- -------------- --------------
<S> <C> <C> <C>
Underwriting discounts and commissions paid by
us...............................................
</TABLE>
Underwriting discounts and commissions are calculated on a percentage basis
of the offering price equal to %. Expenses of the offering, exclusive of
underwriting discounts and commissions, include the SEC filing fee, the NASD
filing fee, the Nasdaq National Market application fee, printing expenses, legal
fees and expenses, accounting fees and expenses, blue sky fees and expenses,
transfer agent and register fees and other miscellaneous fees. We estimate that
the total expenses of this offering, excluding underwriting discounts and
commissions, to be approximately $710,000.
Two investment funds which are managed by and affiliates of Needham &
Company, Inc. own a total of 100,000 shares of Collectors Universe common stock,
which they purchased in March 1999 for $500,000 as part of the private placement
of 1,281,800 shares at $5.00 per share.
60
<PAGE> 64
LEGAL MATTERS
The validity of the common stock offered hereby will be passed upon for
Collectors Universe by Stradling Yocca Carlson & Rauth, a Professional
Corporation, Newport Beach, California. Certain legal matters in connection with
this offering will be passed upon for the underwriters by Heller Ehrman White &
McAuliffe, Los Angeles, California. Members of Stradling Yocca Carlson & Rauth
own a total of 23,000 shares of common stock.
EXPERTS
The consolidated financial statements of Collectors Universe, Inc. and
subsidiaries as of June 30, 1998 and 1999 and for each of the three years in the
period ended June 30, 1999, included in this prospectus, and the related
financial statement schedule included elsewhere in the registration statement
have been audited by Deloitte & Touche LLP, independent auditors, as stated in
their reports appearing herein and elsewhere in the registration statement, and
are included in reliance upon the reports of such firm given upon their
authority as experts in accounting and auditing.
The financial statements of the auction business of Lyn F. Knight Rare
Coins, Inc. for the years ended December 31, 1997 and 1998, included in this
prospectus, have been audited by Deloitte & Touche LLP, independent auditors, as
stated in their report appearing in this prospectus, and are included in
reliance upon the report of such firm given upon their authority as experts in
accounting and auditing.
The financial statements of Kingswood Coin Auctions, LLC for the year ended
December 31, 1998, included in this prospectus, have been audited by Deloitte &
Touche LLP, independent auditors, as stated in their report appearing in this
prospectus, and are included in reliance upon the report of such firm given upon
their authority as experts in accounting and auditing.
AVAILABLE INFORMATION
We have filed with the SEC a registration statement on Form S-1 under the
Securities Act with respect to the shares of common stock offered by this
prospectus. This prospectus, which constitutes a part of the registration
statement, does not contain all the information set forth in the registration
statement and the exhibits and schedules thereto. For further information with
respect to Collectors Universe and the common stock offered by this prospectus,
reference is made to the registration statement and to the exhibits and
schedules filed with the registration statement. A copy of the registration
statement may be inspected without charge at the public reference facilities of
the SEC located at 450 Fifth Street, N.W., Washington, D.C. 20549, and at the
regional offices of the SEC located at 7 World Trade Center, Suite 1300, New
York, New York 10048, and 500 West Madison Street, Suite 1400, Chicago, Illinois
60661. You may obtain information on the operation of the public reference
facilities by calling the SEC at 1-800-SEC-0330. Copies of all or any part of
the registration statement may be obtained at the prescribed rates from the
Public Reference Section of the SEC at 450 Fifth Street, N.W., Washington, D.C.
20549 and its public reference facilities in New York, New York and Chicago,
Illinois, upon the payment of the fees prescribed by the SEC. The registration
statement is also available through the Commission's Website on the World Wide
Web at http://www.sec.gov.
61
<PAGE> 65
INDEX TO FINANCIAL STATEMENTS
UNAUDITED PRO FORMA INFORMATION
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Unaudited Pro Forma Consolidated Statement of
Income -- Narrative Overview.............................. F-2
Unaudited Pro Forma Consolidated Statement of Income........ F-3
</TABLE>
COLLECTORS UNIVERSE, INC. AND SUBSIDIARIES
<TABLE>
<S> <C>
Independent Auditors' Report................................ F-4
Consolidated Balance Sheets................................. F-5
Consolidated Statements of Income........................... F-6
Consolidated Statements of Stockholders' Equity............. F-7
Consolidated Statements of Cash Flows....................... F-8
Notes to Consolidated Financial Statements.................. F-10
</TABLE>
AUCTION BUSINESS OF LYN F. KNIGHT RARE COINS, INC.
<TABLE>
<S> <C>
Independent Auditors' Report................................ F-26
Statements of Income and (Deficiency) Equity................ F-27
Statements of Cash Flows.................................... F-28
Notes to Financial Statements............................... F-29
</TABLE>
KINGSWOOD COIN AUCTIONS, LLC
<TABLE>
<S> <C>
Independent Auditors' Report................................ F-31
Statement of Income and Retained Earnings................... F-32
Statement of Cash Flows..................................... F-33
Notes to Financial Statements............................... F-34
</TABLE>
F-1
<PAGE> 66
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF INCOME
The Unaudited Pro Forma Consolidated Statement of Income for the year ended
June 30, 1999 gives effect to the Lyn F. Knight Rare Coins, Inc. (Lyn Knight)
and Kingswood Coin Auctions, LLC (Kingswood) acquisitions and the acquisitions
of minority ownership interests in Superior Sportscard Auctions, LLC (Superior)
and Internet Universe, LLC (IU), as if such transactions had occurred on July 1,
1998. The Unaudited Pro Forma Consolidated Statement of Income also includes an
adjustment for the income taxes which would have been recorded if Collectors
Universe had been a C corporation, based on the tax laws in effect during the
year.
The pro forma adjustments reflect Collectors Universe's determination of
all adjustments necessary to present fairly Collectors Universe's pro forma
results of operations. These adjustments are based on available information and
assumptions Collectors Universe considers reasonable under the circumstances.
The Unaudited Pro Forma Consolidated Statement of Income is provided for
informational purposes only. This information is not necessarily indicative of
the results of operations of Collectors Universe had the transactions referred
to above occurred on the dates specified. In addition, this information is not
necessarily indicative of the results of operations which may occur in the
future. You should read the unaudited pro forma consolidated statement of income
information together with the historical consolidated financial statements of
Collectors Universe, its predecessor, and acquired companies and the related
notes included elsewhere in this Prospectus.
F-2
<PAGE> 67
COLLECTORS UNIVERSE, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF INCOME
FOR THE YEAR ENDED JUNE 30, 1999
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
PRO FORMA PRO FORMA
HISTORICAL(a) ACQUISITIONS(b) ADJUSTMENTS CONSOLIDATED
------------- --------------- ----------- ------------
<S> <C> <C> <C> <C>
Net revenues........................... $22,563 $988 $ $23,551
Cost of revenues....................... 8,654 124 8,778
------- ---- ----- -------
Gross profit........................... 13,909 864 14,773
Supplier compensation cost............. 585 -- 585
Selling, general and administrative
expenses............................. 13,287 289 204(c) 13,780
------- ---- ----- -------
Operating income....................... 37 575 (204) 408
Interest income, net................... 30 -- 30
Minority interest...................... (28) -- 28(d) --
------- ---- ----- -------
Income before (benefit) provision for
income taxes......................... 39 575 (176) 438
(Benefit) provision for income taxes... (348) -- 563(e) 215
------- ---- ----- -------
Net income............................. $ 387 $575 $(739) $ 223
======= ==== ===== =======
Per share information:
Net income per share, basic and
diluted........................... $ 0.02 $ 0.01
======= =======
Weighted average shares outstanding(f):
Basic................................ 17,644 19,510
Diluted.............................. 18,765 20,630
</TABLE>
- -------------------------
(a) Reflects the historical results of operations of Collectors Universe as
derived from Collectors Universe's audited historical statement of income
for the year ended June 30, 1999.
(b) Reflects the historical results of operations of Lyn Knight Auctions and
Kingswood as derived from the unaudited statements of income for the period
from July 1, 1998 through February 4, 1999. The operations of Superior and
Internet Universe, both of which were majority owned subsidiaries of PCGS
for the period July 1, 1998 through February 4, 1999, are included in the
historical operations of the Company for such period, and were accounted for
under minority interest accounting. All operating results of Lyn Knight
Auctions, Kingswood, Superior and Internet Universe for the period from
February 5, 1999 through June 30, 1999 are included in the Collectors
Universe's statement of income for the year ended June 30, 1999.
(c) Reflects the additional amortization of goodwill that would have been
recognized had the acquisitions occurred on July 1, 1999, based on a 15-year
amortization period.
(d) Reflects the elimination of minority interest in operations of Superior and
Internet Universe for the period July 1, 1998 through February 4, 1999.
(e) Reflects adjustment for the income taxes which would have been recorded if
Collectors Universe had been a C corporation, based on the tax laws in
effect during the year. The adjustment also applies a provision for income
taxes for acquired companies, each of which operated as an S corporation or
limited liability corporation prior to acquisition by the Collectors
Universe.
(f) Pro forma weighted average shares outstanding represent historical weighted
average shares outstanding, adjusted to give effect to (1) the number of
shares that would have been outstanding had the acquisitions of the auction
businesses of Lyn Knight Rare Coins, Inc. and Kingswood Coin Auctions and
the minority interests of Superior Sportscard Auctions and Internet Universe
occurred on July 1, 1998 and (2) the number of shares of common stock which
would be required to be issued (at an assumed offering price of $8 per
share, the mid-point of the estimated range of the initial public offering
price per share) to replace capital withdrawn in excess of current year
earnings.
F-3
<PAGE> 68
INDEPENDENT AUDITORS' REPORT
TO THE STOCKHOLDERS AND BOARD OF DIRECTORS OF
COLLECTORS UNIVERSE, INC.
We have audited the accompanying consolidated balance sheets of Collectors
Universe, Inc. and subsidiaries (the Company) as of June 30, 1998 and 1999, and
the related consolidated statements of income, stockholders' equity, and cash
flows for each of the three years in the period ended June 30, 1999. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of Collectors Universe, Inc. and
subsidiaries as of June 30, 1998 and 1999, and the results of their operations
and their cash flows for each of the three years in the period ended June 30,
1999, in conformity with generally accepted accounting principles.
Deloitte & Touche LLP
Costa Mesa, California
August 27, 1999
(September 1, 1999, as to Note 14)
F-4
<PAGE> 69
COLLECTORS UNIVERSE, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
JUNE 30,
-----------------
1998 1999
------ -------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 612 $ 1,852
Accounts receivable, net.................................. 782 2,026
Inventories, net.......................................... 762 3,148
Prepaid expenses and other................................ 297 514
Deferred taxes............................................ -- 239
------ -------
Total current assets................................... 2,453 7,779
Property and equipment, net............................... 392 1,201
Notes receivable from related parties..................... 101 178
Other assets.............................................. 103 167
Goodwill, net............................................. 55 5,077
Deferred taxes............................................ -- 347
------ -------
$3,104 $14,749
====== =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.......................................... $ 465 $ 2,430
Accrued liabilities....................................... 283 856
Accrued compensation and benefits......................... 201 524
Deferred revenue.......................................... 521 1,616
Income taxes payable...................................... 8 23
------ -------
Total current liabilities.............................. 1,478 5,449
Minority interest........................................... 64 --
Commitments and contingencies (Note 12)
Stockholders' equity:
Preferred stock, $.001 par value; 3,000 shares............ -- --
authorized; no shares issued or outstanding............... -- --
Common stock, $.001 par value; 30,000 shares authorized;
16,132 and 20,282 issued and outstanding at June 30,
1998 and 1999.......................................... 20 20
Additional paid-in capital................................ 70 10,781
Retained earnings (deficit)............................... 2,077 (1,501)
Less: treasury stock...................................... (605) --
------ -------
Total stockholders' equity............................. 1,562 9,300
------ -------
$3,104 $14,749
====== =======
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-5
<PAGE> 70
COLLECTORS UNIVERSE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
-----------------------------
1997 1998 1999
------- ------- -------
<S> <C> <C> <C>
Net revenues.............................................. $ 9,393 $10,989 $22,563
Cost of revenues.......................................... 2,651 2,915 8,654
------- ------- -------
Gross profit.............................................. 6,742 8,074 13,909
Supplier compensation cost................................ -- -- 585
Selling, general and administrative expenses.............. 6,228 7,168 13,287
------- ------- -------
Operating income.......................................... 514 906 37
Interest income, net...................................... 34 26 30
Minority interest......................................... (7) (46) (28)
------- ------- -------
Income before provision (benefit) for income taxes........ 541 886 39
Provision (benefit) for income taxes...................... 36 13 (348)
------- ------- -------
Net income................................................ $ 505 $ 873 $ 387
======= ======= =======
Net income per share, basic and diluted................... $ 0.03 $ 0.05 $ 0.02
======= ======= =======
Weighted average shares outstanding:
Basic................................................ 16,217 16,064 17,644
Diluted.............................................. 16,217 16,064 18,765
PRO FORMA DATA (UNAUDITED) (NOTE 2):
Historical income before provision for income taxes....... $ 541 $ 886 $ 39
Pro forma provision for income taxes...................... 216 354 16
------- ------- -------
Pro forma net income...................................... $ 325 $ 532 $ 23
======= ======= =======
Pro forma net income per share, basic and diluted......... $ --
=======
Pro forma weighted average shares outstanding:
Basic................................................ 17,922
Diluted.............................................. 19,043
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-6
<PAGE> 71
COLLECTORS UNIVERSE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL RETAINED TREASURY STOCK
---------------- PAID-IN EARNINGS ----------------
SHARES AMOUNT CAPITAL (DEFICIT) SHARES AMOUNT TOTAL
------ ------- ---------- --------- ------- ------ -------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at July 1, 1996.............. 20,667 $ 20 $ 70 $ 1,269 4,305 $(499) $ 860
Dividends to stockholders............ (170) (170)
Purchase of treasury stock........... 230 (125) (125)
Net income........................... 505 505
------ ------- ------- ------- ------- ----- -------
Balance at June 30, 1997............. 20,667 20 70 1,604 4,535 (624) 1,070
Dividends to stockholders............ (400) (400)
Sale of treasury stock............... (230) 61 61
Purchase of treasury stock........... 230 (42) (42)
Net income........................... 873 873
------ ------- ------- ------- ------- ----- -------
Balance at June 30, 1998............. 20,667 20 70 2,077 4,535 (605) 1,562
Dividends to stockholders............ (2,610) (2,610)
Undistributed earnings of S
corporation........................ 316 (316)
Sale of treasury stock............... (318) 116 116
Cancellation of treasury stock....... (3,356) (3) 3 (489) (3,356) 489
Issuance of shares in acquisitions... 1,689 2 3,417 (550) (861) 2,869
Issuance of common stock in private
placement.......................... 1,282 1 6,390 6,391
Compensation expense related to stock
options granted.................... 585 585
Net income........................... 387 387
------ ------- ------- ------- ------- ----- -------
Balance at June 30, 1999............. 20,282 $ 20 $10,781 $(1,501) -- $ -- $ 9,300
====== ======= ======= ======= ======= ===== =======
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-7
<PAGE> 72
COLLECTORS UNIVERSE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
-----------------------
1997 1998 1999
----- ----- -------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income................................................ $ 505 $ 873 $ 387
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization.......................... 184 169 407
Supplier compensation cost............................. -- -- 585
Provision for bad debts................................ 29 -- 51
Provision for inventory writedown...................... -- 2 161
Accrued interest income from related party............. (9) (3) (13)
Write-off and forgiveness of note receivable from
related party......................................... -- 134 15
Loss on disposal of property and equipment............. 3 32 74
Minority interest...................................... 7 46 28
Deferred income taxes.................................. -- -- (586)
Changes in operating assets and liabilities, net of
effects of acquisition:
Accounts receivable.................................. (557) (16) (1,295)
Inventories.......................................... (210) (271) (2,547)
Prepaid expenses and other........................... (53) (207) (217)
Income tax refund receivable......................... 19 9 --
Other assets......................................... -- -- (64)
Accounts payable..................................... 168 (184) 1,965
Accrued liabilities.................................. 95 (31) 427
Accrued compensation and benefits.................... 80 (41) 323
Deferred revenue..................................... (73) 302 1,095
Income tax payable................................... -- 9 15
----- ----- -------
Net cash provided by operating activities......... 188 823 811
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of property and equipment.............. 10 -- 84
Advances on notes receivable from related parties......... (83) (100) (180)
Capital expenditures...................................... (138) (109) (1,211)
Cash paid for acquisitions................................ -- -- (262)
Collections on notes receivable from related parties...... 55 7 101
----- ----- -------
Net cash used in investing activities............. (156) (202) (1,468)
</TABLE>
F-8
<PAGE> 73
COLLECTORS UNIVERSE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
-----------------------
1997 1998 1999
----- ----- -------
<S> <C> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
Dividends to stockholders................................. (170) (400) (2,610)
Purchases of treasury stock............................... (32) (42) --
Repayment of acquisition notes payable.................... -- -- (2,000)
Proceeds from sale of common stock........................ -- -- 6,391
Proceeds from sale of treasury stock...................... -- 61 116
----- ----- -------
Net cash (used in) provided by financing
activities..................................... (202) (381) 1,897
----- ----- -------
Net (decrease) increase in cash and cash equivalents........ (170) 240 1,240
Cash and cash equivalents at beginning of year.............. 542 372 612
----- ----- -------
Cash and cash equivalents at end of year.................... $ 372 $ 612 $ 1,852
===== ===== =======
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the year for:
Interest.................................................. $ -- $ -- $ 27
Income taxes.............................................. $ 18 $ 5 $ 223
SUPPLEMENTAL SCHEDULE OF NONCASH TRANSACTIONS:
During the year ended June 30, 1997, the Company accepted
common stock valued at $93 from a stockholder as payment
of a stockholder advance of $93.
During the year ended June 30, 1999, the Company acquired
certain businesses as follows (Note 3):
Common stock issued......................................... $ 3,419
Debt issued................................................. 2,000
Cash paid in acquisitions................................... 262
Minority interest........................................... (92)
Liabilities assumed......................................... 146
Predecessor carryover basis adjustment...................... (550)
-------
Goodwill.................................................... $ 5,185
=======
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-9
<PAGE> 74
COLLECTORS UNIVERSE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED JUNE 30, 1997, 1998 AND 1999
(IN THOUSANDS, EXCEPT PER SHARE DATA)
1. ORGANIZATION AND NATURE OF BUSINESS:
ORGANIZATION
Collectors Universe, Inc. is a Delaware corporation that was organized on
February 5, 1999 for the purpose of enabling Professional Coin Grading Service,
Inc. (PCGS or the Predecessor) to acquire other businesses that, like PCGS,
provide services to the collectibles markets. On February 5, 1999 Collectors
Universe issued 17,311 shares of common stock in exchange for all of the
outstanding shares of PCGS. As a result of that exchange, the former
stockholders of PCGS became stockholders of Collectors Universe, with each of
them receiving a number of our shares based on his or her percentage ownership
of the shares of PCGS. Prior to this exchange, Collectors Universe had no
operating assets or liabilities and had not yet conducted any operations. The
assets and liabilities acquired were recorded at the predecessor basis as the
transaction represented a transfer of assets and liabilities between entities
under common control.
Concurrently with the exchange transaction with PCGS, Collectors Universe
acquired the assets of the auction businesses of Lyn F. Knight Rare Coins, Inc.
and Kingswood Coin Auctions, LLC (Kingswood) and the minority ownership
interests in Superior Sportscard Auctions, LLC (Superior), and Internet
Universe, LLC (IU), both of which were majority owned subsidiaries of PCGS at
the time these acquisitions were consummated.
NATURE OF THE BUSINESS
Collectors Universe provides grading and authentication services for rare
coins, sportscards, sports memorabilia, autographs and other collectible items.
We also conduct Internet, telephone and in-person auctions of high-end
collectibles. Our main sources of revenue are from grading and authentication,
sales of collectibles and auction commissions.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements for periods prior to the fiscal year
ended June 30, 1999 include the accounts of our predecessor corporation, PCGS,
and its majority-owned subsidiaries, Superior and IU, in which PCGS had a 60%
and 55% ownership interest, respectively. The consolidated financial statements
for the fiscal year ended June 30, 1999 include the accounts of PCGS for the
entire fiscal year and the accounts of Lyn Knight Auctions and Kingswood, from
the date of their acquisitions. During 1999, we acquired the remaining ownership
interests in Superior and IU, which resulted in the full consolidation of these
entities from the date of acquisition. All significant intercompany accounts and
transactions have been eliminated in consolidation.
CASH AND CASH EQUIVALENTS
We consider all highly liquid investments with original maturities of three
months or less at the date of purchase to be cash equivalents.
F-10
<PAGE> 75
COLLECTORS UNIVERSE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
CONCENTRATION OF CREDIT RISK
Our financial instruments that are exposed to concentrations of credit risk
consist primarily of accounts receivable and cash deposits and other cash
equivalents that are in excess of federally insured limits. Generally, payment
for grading services or collectibles sold at auction are received before items
are shipped. However, we do extend credit to selected customers but generally
retain possession of purchased items until payment is received. We maintain an
allowance for doubtful accounts and regularly review the adequacy of this
reserve. The allowance for doubtful accounts was $0 and $38 at June 30, 1998 and
1999, respectively.
FAIR VALUE OF FINANCIAL INSTRUMENTS
Our consolidated balance sheets include the following financial
instruments: cash and cash equivalents, accounts receivable, notes receivable,
accounts payable and accrued liabilities. We consider the carrying value of cash
and cash equivalents, accounts receivable, accounts payable and accrued
liabilities in the consolidated financial statements to approximate fair value
for these instruments because of the relatively short period of time between
origination of the instruments and their expected realization. Based on current
market rates, the fair value of the note receivable from a related party at June
30, 1999 approximated its carrying value.
INVENTORIES
We account for collectible inventories under the specific identification
method. Inventories are carried at the lower of cost or market, where market is
generally determined by published price guides.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Depreciation and amortization
are provided using the straight-line method over the estimated useful lives
ranging from three to seven years. Leasehold improvements are amortized over the
shorter of the estimated useful lives of the improvements or the term of the
related lease. Repair and maintenance costs are expensed as incurred.
GOODWILL
Goodwill represents the excess of the purchase price over the fair value of
net assets acquired and is amortized using the straight-line method over periods
ranging from five to fifteen years. We periodically evaluate the recoverability
of goodwill by determining whether the amortization of the balance over its
remaining useful life can be recovered through projected undiscounted future
operating cash flows. Based on our most recent analysis, we believe that no
impairment exists at June 30, 1999. Accumulated amortization of goodwill was $45
and $208 at June 30, 1998 and 1999, respectively.
LONG-LIVED ASSETS
We account for the impairment and disposition of long-lived assets in
accordance with Statement of Financial Accounting Standards (SFAS) No. 121,
Accounting for the Impairment of Long-Lived
F-11
<PAGE> 76
COLLECTORS UNIVERSE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Assets and for Long-Lived Assets to Be Disposed Of (SFAS No. 121). In accordance
with SFAS No. 121, long-lived assets to be held are reviewed for events or
changes in circumstances which indicate that their carrying value may not be
recoverable through projected undiscounted future operating cash flows. The
Company periodically reviews the carrying value of long-lived assets to
determine whether an impairment to such value has occurred. At June 30, 1999,
there was no impairment of long-lived assets.
REVENUE RECOGNITION
The Company's revenue is primarily derived from grading and authentication
services and sales of collectible items through auctions. Grading and
authentication services include coin and sportscard grading along with
authentication of collectibles and autographs. Commissions from buyers and
sellers are derived from the sale of consigned inventory that is sold or
auctioned by the Company. Collectible sales represent sales of inventory
purchased by the Company for sale at auction or in galleries.
Grading and authentication revenue is recognized when the grading and
authentication services are performed and the collectibles have been returned to
the submitting party. Advance payments received for grading and authentication
services are recorded as deferred revenue until such time as the services are
performed and the graded items are shipped. Costs associated with grading and
authentication activities are expensed as incurred. In most instances we offer
dealers a discount on coins submitted for grading, which reduces revenue by the
amount of the discounts. Discounts aggregated $1,697, $1,740 and $1,528 for
fiscal years 1997, 1998 and 1999, respectively. Auction and gallery sales, along
with commissions earned, are recognized when the collectible is shipped to the
customer.
We generally offer a five-day return privilege on collectibles bought
through our auctions. We calculate the necessity for, and the amount of an
allowance for estimated future returns based on historical experience. No return
allowances have been required for the years ended June 30, 1997, 1998 and 1999.
WARRANTY COSTS
Collectors Universe offers a warranty covering the coins and sportscards it
authenticates and grades. Under the terms of the warranty, any coin or
sportscard originally graded by us, which subsequently receives a lower grade
upon resubmittal to us, obligates us to either purchase the coin or sportscard
or pay the difference in value of the item at its original grade as compared
with its lower grade. We accrue for estimated warranty costs based on historical
trends and related experiences.
ADVERTISING COSTS
Advertising costs are expensed as incurred and amounted to approximately
$198, $250 and $612 for the three years ended June 30, 1997, 1998 and 1999,
respectively.
INCOME TAXES
We account for income taxes in accordance with SFAS No. 109, Accounting for
Income Taxes. Deferred taxes on income result from temporary differences between
the reporting of income and
F-12
<PAGE> 77
COLLECTORS UNIVERSE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
expense for financial statements and tax reporting purposes. A valuation
allowance related to a deferred tax asset is recorded when it is more likely
than not that some portion or all of the deferred tax asset will not be
realized. Prior to February 5, 1999, we elected to be treated as an S
corporation under the Internal Revenue Code and California Revenue and Taxation
Code. Accordingly, the provision for income taxes for the years ended June 30,
1997 and 1998 is computed by applying the California franchise tax rate for S
corporations of 1.5% to our income before tax. Effective February 5, 1999, we
converted to a C corporation and became a taxable entity subject to regular
federal and state income taxes on an ongoing basis.
STOCK-BASED COMPENSATION
We account for stock-based awards to employees, using the intrinsic value
method in accordance with Accounting Principles Board (APB) Opinion No. 25,
Accounting for Stock Issued to Employees, and complies with the disclosure
provisions of SFAS No. 123, Accounting for Stock-Based Compensation (SFAS No.
123).
We account for equity instruments issued to non-employees in accordance
with the provisions of SFAS No. 123 and Emerging Issues Task Force (EITF) Issue
No. 96-18, Accounting for Equity Instruments that are Issued to Other Than
Employees for Acquiring, or in Conjunction with Selling Goods or Services. All
transactions in which goods or services are the consideration received for the
issuance of equity instruments are accounted for based on the fair value of the
consideration received or the fair value of the equity instrument issued,
whichever is more reliably measurable. The measurement date of the fair value of
the equity instrument issued is the earlier of the date on which the third-party
performance is complete or the date on which it is probable that performance
will occur.
NET INCOME PER SHARE
We compute net income per share in accordance with SFAS No. 128, Earnings
Per Share (SFAS No. 128). SFAS No. 128 requires the presentation of basic and
diluted earnings per share. Basic earnings per share is computed by dividing net
income available to common stockholders by the weighted average number of common
shares outstanding during the periods presented. Diluted net income per share is
computed by dividing net income available to common stockholders by the weighted
average number of common and common equivalent shares outstanding during the
periods presented assuming the exercise of all outstanding stock options and
other dilutive securities. The following is a reconciliation between the number
of shares used in the basic and diluted net income per share calculations for
the years ended June 30:
<TABLE>
<CAPTION>
1997 1998 1999
------ ------ ------
<S> <C> <C> <C>
Basic net income per share:
Weighted average number of common shares outstanding...... 16,217 16,040 17,644
Effect of dilutive securities -- stock options............ -- -- 1,121
------ ------ ------
Diluted net income per share:
Weighted average number of common shares outstanding...... 16,217 16,040 18,765
====== ====== ======
</TABLE>
F-13
<PAGE> 78
COLLECTORS UNIVERSE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
PRO FORMA NET INCOME (UNAUDITED)
Pro forma net income represents the results of operations adjusted to
reflect a provision for income tax on historical income before provision for
income taxes, as if we had been taxed as a C corporation. The difference between
the pro forma income tax rates utilized and federal statutory rate of 34%
relates primarily to state income taxes (approximately 6%, net of federal tax
benefit).
PRO FORMA NET INCOME PER SHARE (UNAUDITED)
Pro forma net income per share has been computed by dividing pro forma net
income by the weighted average number of shares of common stock outstanding
during the period.
The Company has adopted the provisions of SFAS No. 128 for the purposes of
presenting pro forma basic and diluted net income per common share. The
following table reconciles the historical weighted average shares outstanding to
the pro forma weighted average shares outstanding:
<TABLE>
<S> <C> <C>
Historical weighted average shares outstanding.............. 17,644 18,765
Effect of diluted shares -- number of shares required to
replace capital withdrawn in excess of current year
earnings, estimated to be $2,223 at $8.00 per share....... 278 278
------ ------
Pro forma weighted average shares outstanding............... 17,922 19,043
====== ======
</TABLE>
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the consolidated
financial statements and the reported amounts of revenue and expenses during
reporting years. Actual results could differ from those estimates.
NEW ACCOUNTING PRONOUNCEMENTS
On January 1, 1998, the Company adopted Statement of Financial Accounting
Standard (SFAS) No. 130, Reporting Comprehensive Income ("SFAS No. 130"). SFAS
No. 130 requires that all items required to be recognized under accounting
standards as components of comprehensive income be reported in a financial
statement that is displayed with the same prominence as other financial
statements. The Company does not have any items of other comprehensive income
requiring separate disclosure.
In June 1998, the Financial Accounting Standards Board (FASB) issued SFAS
No. 131, Disclosure About Segments of an Enterprise and Related Information
(SFAS No. 131). SFAS No. 131 establishes standards for the way companies report
information about operating segments in annual financial statements. It also
establishes standards for related disclosure about products and services,
geographic areas and major customers. We adopted SFAS No. 131 on July 1, 1998.
We conduct our business activity in two service segments: authentication and
grading of collectibles and auctions of collectibles.
F-14
<PAGE> 79
COLLECTORS UNIVERSE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
In June 1998, the FASB issued SFAS No. 133, Accounting for Derivative
Instruments and Hedging Activities (SFAS No. 133), which the Company is required
to adopt effective for its fiscal year beginning July 1, 2001. SFAS No. 133 will
require the Company to record all derivatives on the balance sheet at fair
value. The Company does not have any derivative instruments nor does the Company
engage in hedging activities. Therefore, the adoption of SFAS No. 133 is not
expected to have a material impact on the Company's financial position and
results of operations.
In March 1998, the Accounting Standards Executive Committee (AcSEC) issued
Statement of Position No. 98-1, Accounting for the Costs of Computer Software
Developed or Obtained for Internal Use (SOP No. 98-1), which provides guidance
on accounting for the cost of computer software developed or obtained for
internal use. SOP 98-1 is effective for financial statements for fiscal years
beginning after December 15, 1998. We currently expense all internal development
costs and we are evaluating the impact of SOP 98-1 on our financial statements
and related disclosures.
RECLASSIFICATIONS
Certain reclassifications have been made to the 1997 and 1998 financial
statements to conform to the 1999 presentation.
3. ACQUISITIONS
On January 25, 1999, PCGS acquired an additional 40% membership interest in
IU. PCGS exchanged 861 shares of its common stock valued at $1,199 for the 40%
membership interest of IU. The acquisition was accounted for under the purchase
method of accounting. The total purchase price of $1,293, including transaction
costs of $37, was allocated to goodwill to be amortized over 15 years.
On February 5, 1999, we acquired certain assets of Lyn Knight related to
Lyn Knight's currency auction business for $100 in cash, a promissory note of
$1,000, payable within six months of the closing, and 760 shares of the
Company's common stock valued at $1,064. The acquisition was accounted for under
the purchase method of accounting and the entire purchase price of $2,201,
including transaction costs of $37 was allocated to goodwill to be amortized
over 15 years. The results of operations of Lyn Knight have been included in our
consolidated financial statements from the date of acquisition. During the
fourth quarter ended June 30, 1999, we paid in full the outstanding amount due
on the promissory note.
On February 5, 1999, we acquired certain assets of Kingswood for a
promissory note of $1,000, payable within six months of closing, issued 86
shares to the Kingswood noncontrolling minority members at $120 and 104 shares
issued to the controlling members of Kingswood and the Company valued at 0. The
acquisition was accounted for under the purchase method of accounting and took
into account that certain members of Kingswood (affiliated Stockholders) also
had a 55% ownership interest in Collectors Universe at the time of the
acquisition. Accordingly, the assets acquired and liabilities assumed were
recorded at their estimated fair values with the exception of those assets and
liabilities attributed to the affiliated Stockholders which were recorded at the
carryover basis in accordance with generally accepted accounting principles. The
$550 adjustment necessary to reduce, to the extent of the common controlling
stockholder interests, the fair value of the acquired net assets to their
historical cost has been treated as an equity distribution to such controlling
stockholders. The excess of the purchase price of $604 including transaction
costs of 34 was allocated to goodwill to be
F-15
<PAGE> 80
COLLECTORS UNIVERSE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
amortized over 15 years. The results of operations of Kingswood have been
included in our consolidated financial statements from the date of acquisition.
During the fourth quarter ended June 30, 1999, we paid in full the outstanding
amount due on the promissory note.
On February 5, 1999, we acquired the remaining 40% membership interest of
Superior not already owned by the Company. We exchanged 631 shares of the
Company's common stock valued at $885 for the remaining 40% membership interest
of Superior not already owned by the Company. The acquisition was accounted for
under the purchase method of accounting. The total purchase price of $911,
including transaction costs of $26 and a minority interest liability of $149 was
allocated to goodwill to be amortized over 15 years.
On February 5, 1999, we acquired the remaining 5% membership interest of IU
not already owned by us in exchange for 108 shares of our common stock valued at
$151. The acquisition was accounted for under the purchase method of accounting.
The total purchase price of $179 including transaction costs of $28, was
allocated to goodwill to be amortized over 15 years.
The following unaudited pro forma consolidated results of operations give
effect to the above acquisitions as though such acquisitions had occurred on
July 1, 1997. The pro forma information is provided for informational purposes
only. It is based on historical information and does not necessarily reflect the
actual results that would have occurred and is not necessarily indicative of
future results of operations of the combined companies.
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
--------------------
1998 1999
-------- --------
UNAUDITED
<S> <C> <C>
Total revenues............................................ $12,035 $23,551
======= =======
Net income................................................ $ 1,081 $ 786
======= =======
Pro forma net income per share:
Basic and diluted....................................... $ 0.07 $ 0.04
</TABLE>
4. INVENTORIES
Inventories consist of the following at June 30:
<TABLE>
<CAPTION>
1998 1999
---- ------
<S> <C> <C>
Coins and currency.......................................... $134 $1,551
Sportscards................................................. 6 837
Records..................................................... 622 631
Other collectibles.......................................... -- 290
---- ------
762 3,309
Less inventory reserve...................................... -- (161)
---- ------
$762 $3,148
==== ======
</TABLE>
F-16
<PAGE> 81
COLLECTORS UNIVERSE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Inventory reserve represents valuation allowance on certain rare coins and
records.
5. PROPERTY AND EQUIPMENT
Property and equipment consists of the following at June 30:
<TABLE>
<CAPTION>
1998 1999
------- -------
<S> <C> <C>
Coin and sportscard grading reference sets, fair value of
$108 and $19 at June 30, 1998 and 1999, respectively...... $ 199 $ 40
Computer hardware and equipment............................. 518 1,114
Computer software........................................... 184 298
Equipment................................................... 561 790
Furniture and office equipment.............................. 434 615
Leasehold improvements...................................... 14 106
------- -------
1,910 2,963
Less accumulated depreciation and amortization.............. (1,518) (1,762)
------- -------
Property and equipment, net................................. $ 392 $ 1,201
======= =======
</TABLE>
6. ACCRUED LIABILITIES
Accrued liabilities consist of the following at June 30:
<TABLE>
<CAPTION>
1998 1999
---- ----
<S> <C> <C>
Warranty reserve............................................ $175 $232
Professional fees........................................... -- 313
Other....................................................... 108 311
---- ----
$283 $856
==== ====
</TABLE>
F-17
<PAGE> 82
COLLECTORS UNIVERSE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
7. INCOME TAXES
The provision (benefit) for income taxes consists of the following for the
years ended June 30:
<TABLE>
<CAPTION>
1997 1998 1999
---- ---- -----
<S> <C> <C> <C>
Current:
Federal................................................. $-- $-- $ 179
State................................................... 36 13 59
--- --- -----
36 13 238
--- --- -----
Deferred:
Federal................................................. -- -- (463)
State................................................... -- -- (123)
-----
-- -- (586)
--- --- -----
Total income tax provision (benefit)...................... $36 $13 $(348)
=== === =====
</TABLE>
The reconciliation of income tax provision (benefit) computed at federal
statutory rates to income tax provision (benefit) for the years ended June 30,
is as follows:
<TABLE>
<CAPTION>
1997 1998 1999
----- ----- -----
<S> <C> <C> <C>
Tax at federal statutory rates.............................. $ 184 $ 301 $ 13
State income taxes, net..................................... 36 13 (42)
Recording of deferred income tax assets in connection with
the conversion to a C corporation......................... -- -- (122)
S corporation net income not subject to federal tax......... (184) (301) (271)
Goodwill.................................................... 42
Other, net.................................................. 32
----- ----- -----
$ 36 $ 13 $(348)
===== ===== =====
</TABLE>
F-18
<PAGE> 83
COLLECTORS UNIVERSE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Deferred income taxes reflect the net tax effect of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components of
our deferred taxes as of June 30, 1999 are as follows:
<TABLE>
<CAPTION>
CURRENT LONG-TERM TOTAL
------- --------- -----
<S> <C> <C> <C>
Deferred tax assets:
Supplier compensation costs...................... $ -- $256 $256
Reserves......................................... 188 -- 188
Property and equipment........................... -- 84 84
Other............................................ 94 19 113
---- ---- ----
Total deferred tax assets..................... 282 359 641
Deferred tax liabilities:
State taxes...................................... (43) -- (43)
Other............................................ -- (12) (12)
---- ---- ----
Total deferred tax liabilities................ (43) (12) (55)
---- ---- ----
Net deferred tax asset............................. $239 $347 $586
==== ==== ====
</TABLE>
Prior to February 5, 1999, we elected to be treated as an S corporation
under the Internal Revenue Code and California Revenue and Taxation Code.
Accordingly, the provision for income taxes for the years ended June 30, 1997
and 1998 is computed by applying the California franchise tax rate for S
corporations of 1.5% to our pretax earnings. Effective February 5, 1999, we
converted to a C corporation and became a taxable entity subject to regular
federal and state income taxes on an ongoing basis. As a result, we recorded
$122 of net deferred income tax assets on February 5, 1999 through a benefit
recorded in the accompanying consolidated statements of income.
8. EMPLOYEE BENEFIT PLAN
We established an employee benefit plan, effective July 1992, that features
a 401(k) salary reduction provision covering all employees who meet eligibility
requirements. Eligible employees may elect to defer up to 15% of compensation or
the statutorily prescribed annual limit. Collectors Universe, at its discretion,
may make contributions to the plan. To date, we have not made contributions to
the plan and administrative costs have been nominal.
9. STOCKHOLDERS' EQUITY
On February 5, 1999, the Predecessor's stockholders exchanged 75 shares of
Predecessor's common stock for 17,311 shares of Collectors Universe's common
stock. All shares and per share amounts included in the accompanying financial
statements and footnotes have been restated to reflect the exchange ratio of
229.629-for-one. In addition, we also issued 1,689 shares of common stock in
connection with certain business acquisitions.
F-19
<PAGE> 84
COLLECTORS UNIVERSE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
In March 1999, we sold 1,282 shares of common stock in a private placement
at a price of $5.00 per share. Net proceeds from the private placement amounted
to approximately $6,391 after deducting offering expenses of approximately $19.
Net proceeds from the private placement offering were used to pay indebtedness
of $2,000 relating to business acquisitions (Note 3), to fund the distribution
of previously taxed income to Predecessor stockholders in the amount of $2,200,
and to provide working capital for general corporate purposes.
CONSULTING AGREEMENT
In July 1997, we granted options to an individual to purchase 532 shares of
our common stock at an exercise price of $0.33 per share as consideration for a
five-year consulting agreement commencing on July 1, 1997. The options vest 20%
per year commencing December 31, 1997 through December 31, 2001 and are
exercisable on or before December 31, 2005. No amount was allocated to the value
of the options, as the amount was insignificant.
WARRANT AGREEMENT
In May 1999, we granted a warrant to purchase 50 shares of our common stock
at an exercise price of $5.00 per share in connection with an exclusive license
agreement. No amount was allocated to the value of the warrant, as the amount
was insignificant.
SUPPLIER COMPENSATION COST
During the fourth quarter ended June 30, 1999, we entered into agreements
with collectible experts to provide content for our websites and to supply a
specified amount of collectible merchandise over a multi-year period. The
agreements provide for the aggregate award of 622 stock options at an exercise
price of $5.00 per share. The agreements provide for immediate vesting and are
exercisable over the terms of the agreements. We have determined that the
measurement date for the recognition of the fair value of these restricted stock
awards is at the time of agreement execution. The fair value of the restricted
stock awards was based on a third party valuation using the Black-Scholes option
pricing model and the following assumptions:
<TABLE>
<S> <C>
Stock fair value per share.................................. $4.75
Exercise price.............................................. 5.00
Term........................................................ 5 years
Volatility.................................................. --
Risk-free interest rate..................................... 5.5%
</TABLE>
As Collectors Universe is not a public company and its stock does not have
a trading history, a 0% volatility factor was used as permitted under SFAS No.
123.
During the year ended June 30, 1999, we recognized $585 of expense based
upon the fair value of the stock options granted and such amount is included in
supplier compensation costs in the accompanying statements of income.
F-20
<PAGE> 85
COLLECTORS UNIVERSE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
10. STOCK OPTION PLANS
In January 1999, we adopted the PCGS 1999 Stock Incentive Plan (the PCGS
Plan). The PCGS Plan covers an aggregate of 1,751 shares of our common stock. In
February 1999 we adopted the 1999 Stock Incentive Plan (the 1999 Plan), which
provides for grants of incentive stock options, nonstatutory stock options, and
restricted stock grants to directors, officers, employees and consultants of
Collectors Universe who provide valuable services to Collectors Universe,
entitling them to purchase up to 1,499 shares of our common stock. Each of these
Plans provide that the option price per share may not be less than 100% of the
fair market value of a share of common stock on the grant date as determined by
the Board of Directors for incentive stock options and 85% of fair market value
for nonstatutory stock options. For incentive stock options, the exercise price
may not be less than 110% of the fair market value of a share of common stock on
the grant date for any individual possessing 10% or more of the voting power of
all classes of stock of Collectors Universe. The timing of exercise for
individual option grants is at the discretion of the Board of Directors, and the
options expire no later than ten years after the grant date (five years in the
case of incentive stock options granted to individuals possessing 10% or more of
the voting power of all classes of stock of Collectors Universe). In the event
of a change in control of Collectors Universe, an option or award under these
Plans will become fully exercisable if the option or award is not assumed by the
surviving corporation or the surviving corporation does not substitute
comparable awards for the awards granted under these Plans.
The following is a summary of stock option activity for fiscal 1999 under
the PCGS Plan and the 1999 Plan:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
NUMBER OF EXERCISE PRICE
SHARES PRICE PER SHARE PER SHARE
--------- --------------- --------------
<S> <C> <C> <C>
Options outstanding at June 30, 1998......... --
Granted...................................... 2,106 $2.11 -- $5.23 $3.53
Cancelled.................................... -- --
Exercised.................................... -- -- --
----- ------------- -----
Options outstanding at June 30, 1999......... 2,106 $2.11 -- $5.23 $3.53
===== ============= =====
</TABLE>
The following table summarizes information about stock options outstanding
at June 30, 1999:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
WEIGHTED AVERAGE OPTIONS EXERCISABLE
--------------------------------------------- -----------------------------
NUMBER OF REMAINING WEIGHTED NUMBER OF WEIGHTED
RANGE OF SHARES CONTRACTUAL AVERAGE SHARES AVERAGE
EXERCISE PRICE OUTSTANDING LIFE (YEARS) EXERCISE PRICE EXERCISABLE EXERCISE PRICE
- -------------- ----------- ------------ -------------- ----------- --------------
<S> <C> <C> <C> <C> <C>
$2.11 -- $2.61 1,105 9.5 $2.18 950 $2.11
$5.00 -- $5.23 1,001 9.7 $5.03 119 $5.00
</TABLE>
F-21
<PAGE> 86
COLLECTORS UNIVERSE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
At June 30, 1999, there were 1,069 shares exercisable at option prices
ranging from $2.11 to $5.00. The weighted average remaining contractual life of
outstanding stock options was 9.6 years at June 30, 1999. In addition, 270
shares will become 100% vested upon the consummation of an initial public
offering.
SFAS No. 123 encourages but does not require companies to record
compensation cost for employee stock option grants. As permitted by SFAS No.
123, we have chosen to account for employee option grants using APB Opinion No.
25 and apply the disclosure-only provisions of SFAS No. 123. Accordingly, no
compensation expense has been recognized for employee stock option grants; as
such grants have been made at fair market value. Had compensation expense for
the employee stock option grants been determined using the provisions of SFAS
No. 123, our net income for the year ended June 30, 1999 would have been reduced
to the amounts indicated below:
<TABLE>
<S> <C>
Net income:
As reported............................................... $ 387
Pro forma................................................. $ 31
Basic and diluted net income (loss) per share:
As reported............................................... $0.02
=====
Pro forma................................................. $ --
=====
</TABLE>
Because options vest over several years and additional option grants are
expected, the above pro forma effects of applying SFAS No. 123 are not likely to
be representative of the effects of reporting net income (loss) for future
periods.
For purposes of estimating compensation cost of our option grants in
accordance with SFAS No. 123, the fair value of each option grant is estimated
on the date of grant using the Black-Scholes option-pricing model, with the
following weighted average assumptions used for grants during the year ended
June 30, 1999:
<TABLE>
<S> <C>
Average dividend yield...................................... 0%
Expected life in years...................................... 5
Risk free interest rate..................................... 5.5%
Expected volatility......................................... 0%
</TABLE>
11. RELATED-PARTY TRANSACTIONS
During the ordinary course of business, we provided grading services to
certain entities that are owned, controlled or affiliated with our stockholders.
Grading revenues received from these related entities amounted to $98, $153 and
$216 during the years ended June 30, 1997, 1998 and 1999, respectively. In
addition, we purchased inventories from and sold inventories to certain of these
related entities. Purchases of inventories from these related entities amounted
to $120, $220 and $537 during the years ended June 30, 1997, 1998 and 1999,
respectively. Sales of inventories to these
F-22
<PAGE> 87
COLLECTORS UNIVERSE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
related entities amounted to $16, $46 and $0 during the years ended June 30,
1997, 1998 and 1999, respectively.
J.D.R.C., Inc., an entity owned by one of our stockholders, provides
research-consulting services to us related to our coin grading and
authentication services. Amounts paid to J.D.R.C., Inc. related to these
consulting services were $295, $173 and $152 during the years ended June 30,
1997, 1998 and 1999, respectively.
At June 30, 1997, we had an unsecured note receivable from an employee of
$134 for amounts advanced to the employee. During the year ended June 30, 1998,
such note was written-off as uncollectible.
During the year ended June 30, 1997, we accepted common stock valued at $93
from a stockholder as payment of a stockholder advance of $93.
At June 30, 1998, we had an unsecured note receivable from D.H.R.C.C., an
entity owned by one of our stockholders, in the amount of $101. Such note bore
interest at 9% per annum and was paid in full during the year ended June 30,
1999.
In October 1998, we loaned $180 to an officer of Collectors Universe. The
loan bears interest at 9% per annum and is collateralized by 101 shares of our
common stock. The officer's employment agreement provides for annual principal
forgiveness of $30 on each anniversary date of the loan, provided the officer is
then currently employed by us. Unpaid principal and interest is due and payable
on September 23, 2001. Unpaid principal and interest at June 30, 1999 was $178
and is included in notes receivable from related parties in the accompanying
consolidated balance sheets. In addition, during 1999, we paid the officer $100
for relocation expenses which is included in general and administrative expenses
in the accompanying consolidated statements of income.
12. COMMITMENTS AND CONTINGENCIES
LEASES
Collectors Universe leases its facilities and certain equipment under
operating leases which expire at various dates through 2004. We received
sublease rental income of $60 under terms of a month-to-month lease from related
parties for the years ended June 30, 1997 and 1998. We recorded rental expense
of $289, $329 and $578, net of sublease rental income, for the years ended June
30, 1997, 1998 and 1999 respectively. The following are the minimum lease
obligations under these leases at June 30, 1999:
<TABLE>
<S> <C>
2000........................................................ $358
2001........................................................ 170
2002........................................................ 123
2003........................................................ 80
2004........................................................ 53
----
$784
====
</TABLE>
F-23
<PAGE> 88
COLLECTORS UNIVERSE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Subsequent to June 30, 1999, we entered into an eight year operating lease
for a facility that will consolidate all California based operations. Occupancy
is anticipated to be April 2000. Minimum lease obligations, assuming an April
2000 occupancy, are: $907, $930, $953, $972, $1,001 and $3,149 for fiscal years
2000, 2001, 2002, 2003, 2004 and thereafter, respectively. Total minimum lease
payments under this new lease are $7,912.
ROYALTY AGREEMENT
On March 31, 1999, we entered into an exclusive royalty agreement with a
third party for rights within the collectibles industry to certain patented
synthetic DNA technology. Terms of the agreement provide for royalties on each
use of the technology and minimum royalties if certain annual usage volumes are
not achieved. Minimum royalty obligations under this agreement are: $125, $158,
$209, $258, $308 and $292 for fiscal years 2000, 2001, 2002, 2003, 2004 and
thereafter, respectively.
EMPLOYMENT AGREEMENT
The Company has entered into employment agreements with certain executive
officers and other key employees. The employment agreements provide for minimum
salary levels, incentive compensation and severance benefits, among other items.
13. SEGMENT, GEOGRAPHIC AND MAJOR CUSTOMER INFORMATION
We operate principally in two service segments: the authentication and
grading of collectibles and auctions of collectibles. Product sales for all
periods presented are less than 10% of net revenues. We allocate a substantial
portion of operating expenses to each service segment based upon head count. We
do not allocate specific assets to these service segments.
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30, 1999
------------------------------------
GRADING AND
AUCTION AUTHENTICATION TOTAL
------- -------------- -------
<S> <C> <C> <C>
Net revenues from external customers................... $ 4,878 $17,685 $22,563
======= ======= =======
Operating (loss) income................................ $(3,579) $ 4,766 $ 1,187
Unallocated operating expenses......................... (1,150)
-------
Operating income, consolidated......................... $ 37
=======
Goodwill amortization.................................. $ 163 $ 163
Net revenues from external customers................... $ 1,390 $ 9,599 $10,989
======= ======= =======
Operating (loss) income................................ $ (404) $ 2,524 $ 2,120
Unallocated operating expenses......................... (1,214)
-------
Operating income, consolidated......................... $ 906
=======
Goodwill amortization.................................. $ 20 $ 13 $ 33
</TABLE>
F-24
<PAGE> 89
COLLECTORS UNIVERSE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30, 1997
------------------------------------
GRADING AND
AUCTION AUTHENTICATION TOTAL
------- -------------- -------
<S> <C> <C> <C>
Net revenues from external customers................... $ 766 $ 8,627 $ 9,393
======= ======= =======
Operating income (loss)................................ $ (34) $ 733 $ 699
Unallocated operating expenses......................... (185)
-------
Operating income, consolidated......................... $ 514
=======
Goodwill amortization.................................. $ 20 $ 13 $ 33
</TABLE>
All of our sales and identifiable assets are located in the United States.
No individual customer accounted for 10% or more of revenue for the years ended
June 30, 1997, 1998 and 1999.
14. SUBSEQUENT EVENTS
On September 1, 1999 the Board of Directors of Collectors Universe approved
the filing of a registration statement on Form S-1 with the Securities and
Exchange Commission to effect an initial public offering of its common stock
(the Offering).
On September 1, 1999, the Board of Directors of Collectors Universe adopted
the Employee Stock Purchase Plan (the Stock Purchase Plan), which will become
effective upon completion of the Offering. A total of 200 shares of the common
stock of Collectors Universe has been reserved for issuance under the Stock
Purchase Plan.
On September 1, 1999, the Board of Directors of Collectors Universe
approved an increase in the number of shares available for grant under the 1999
Plan by 220, thereby increasing the total amount of shares available under the
1999 Plan to 1,749.
F-25
<PAGE> 90
INDEPENDENT AUDITORS' REPORT
To the Shareholder of
Lyn F. Knight Rare Coins, Inc.:
We have audited the accompanying statements of income and (deficiency)
equity and of cash flows of the auction business of Lyn F. Knight Rare Coins,
Inc. (the Business) for the years ended December 31, 1998 and 1997. These
financial statements are the responsibility of the Business' management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the statements of income and (deficiency)
equity and of cash flows are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the statements of income and (deficiency) equity and of cash flows. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall presentation of the
statements of income and (deficiency) equity, and of cash flows. We believe that
our audits provide a reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the results of operations and of cash flows of the auction business of
Lyn F. Knight Rare Coins, Inc. for the years ended December 31, 1998 and 1997,
in conformity with generally accepted accounting principles.
As described in Note 1, the Business was part of Lyn F. Knight Rare Coins,
Inc. and not a separate legal entity. The financial statements of the Business
have been prepared from the applicable records of Lyn F. Knight Rare Coins,
Inc., and may not necessarily be indicative of the conditions that would have
existed or the results of operations if the Business had operated as an
unaffiliated entity. Portions of certain expenses represent allocations made
from Lyn F. Knight Rare Coins, Inc. expense items applicable to the Business as
a whole.
Deloitte & Touche LLP
Costa Mesa, California
June 4, 1999
F-26
<PAGE> 91
THE AUCTION BUSINESS OF LYN F. KNIGHT RARE COINS, INC.
STATEMENTS OF INCOME AND (DEFICIENCY) EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
1998 1997
----------- ---------
<S> <C> <C>
REVENUES:
Buyer premiums.............................................. $ 914,331 $ 399,219
Auction commissions......................................... 159,785 364,203
----------- ---------
Total revenues......................................... 1,074,116 763,422
COST OF REVENUES............................................ 157,948 103,307
----------- ---------
GROSS PROFIT................................................ 916,168 660,115
OPERATING EXPENSES.......................................... 194,572 223,484
----------- ---------
NET INCOME.................................................. 721,596 436,631
EQUITY, beginning of year................................... 55,141 852
NET CHANGE IN EQUITY ARISING FROM CASH ADVANCES FROM AND
DISTRIBUTIONS TO LYN F. KNIGHT RARE COINS, INC............ (1,733,077) (382,342)
----------- ---------
(DEFICIENCY) EQUITY, end of year............................ $ (956,340) $ 55,141
=========== =========
</TABLE>
See accompanying notes to financial statements.
F-27
<PAGE> 92
THE AUCTION BUSINESS OF LYN F. KNIGHT RARE COINS, INC.
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
1998 1997
----------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income.................................................. $ 721,596 $ 436,631
Adjustments to reconcile net income to net cash provided by
operating activities:
Changes in operating assets and liabilities:
Increase in accounts receivable........................ (4,396,446) (67,439)
Increase (decrease) in accounts payable and accrued
expenses.............................................. 9,661 (10,432)
Increase in due to consignors.......................... 5,398,266 23,582
----------- ---------
Net cash provided by operating activities......... 1,733,077 382,342
CASH FLOWS FROM FINANCING ACTIVITIES:
Advances to corporate division............................ (1,733,077) (382,342)
----------- ---------
NET INCREASE IN CASH AND CASH EQUIVALENTS...................
CASH AND CASH EQUIVALENTS, beginning of year................
----------- ---------
CASH AND CASH EQUIVALENTS, end of year...................... $ -- $ --
=========== =========
</TABLE>
See accompanying notes to financial statements.
F-28
<PAGE> 93
THE AUCTION BUSINESS OF LYN F. KNIGHT RARE COINS, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
1. NATURE OF BUSINESS
The accompanying financial statements represent the revenues, expenses, and
cash flows of the auction business of Lyn F. Knight Rare Coins, Inc. (the
Business). Lyn F. Knight Rare Coins, Inc. is primarily engaged in the business
of marketing and selling rare currencies at coin shows and auctions conducted by
the Business. The Business serves as host to four rare coin and note auctions
each year.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation -- The accompanying financial statements include the
revenues, expenses, and cash flows that are directly related to the Business as
conducted by Lyn F. Knight Rare Coins, Inc. Portions of certain expenses
represent allocations made from Lyn F. Knight Rare Coins, Inc. expense items
applicable to the Business as a whole. These allocations were based on a variety
of factors which management believes provide a reasonable basis for the
accompanying financial statements and include the following:
- Cash balances are not recorded as part of these financial statements as
it was not the practice of Lyn F. Knight Rare Coins, Inc. to maintain
separate cash balances for each of its businesses.
- The net change in equity arising from cash advances and distributions to
Lyn F. Knight Rare Coins, Inc., as reflected in the statements of income
and division (deficiency) equity, includes amounts advanced by the
Business to Lyn F. Knight Rare Coins, Inc. and its other businesses.
- The historical financial statements include certain administrative costs
allocated to the Business from Lyn F. Knight Rare Coins, Inc. Such costs
were based on the percentage of auction business revenues to total
revenues of Lyn F. Knight Rare Coins, Inc. Management believes that such
methodology results in a reasonable allocation of expenses to the
Business.
The accompanying financial statements have been prepared from records
maintained by Lyn F. Knight Rare Coins, Inc., and may not necessarily be
indicative of the conditions that would have existed if the Business had
operated as an unaffiliated entity.
Revenue Recognition -- Revenue is recognized upon the sale of rare
currencies consigned to the Business and is represented by an auction commission
received from the consignor and a premium paid by the buyer. Auction commissions
represent a percentage of the hammer price at auction sales as paid by the buyer
and generally range up to 15%. Buyer premiums represent 10% of the hammer price
at auction sales.
Use of Estimates -- The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the amounts reported in the accompanying
financial statements. Actual results could differ from those estimates.
Income Taxes -- Lyn F. Knight Rare Coins, Inc. has elected to be taxed as
an S corporation under sections of the federal and state of Kansas income tax
laws, whereby income and expense items are included in the personal tax returns
of the members of Lyn F. Knight Coins, Inc. Accordingly, no
F-29
<PAGE> 94
THE AUCTION BUSINESS OF LYN F. KNIGHT RARE COINS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
provision for federal and state income taxes has been included in the
accompanying financial statements for the years ended December 31, 1998 and
1997.
Comprehensive Income -- In June 1997, the Financial Accounting Standards
Board (FASB) issued Statement of Financial Accounting Standards (SFAS) No. 130,
Reporting Comprehensive Income. SFAS No. 130 established standards for reporting
and display of comprehensive income and its components in a full set of
general-purpose financial statements. The Business does not have any items of
other comprehensive income requiring separate disclosure.
3. SUBSEQUENT EVENT
On February 5, 1999, Collectors Universe, Inc. (Collectors) acquired Lyn F.
Knight Rare Coins, Inc.'s auction business for $100,000 in cash, a promissory
note of $1,000,000 and 760,000 shares of Collectors' common stock.
F-30
<PAGE> 95
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
Kingswood Coin Auctions, LLC
Santa Ana, California
We have audited the accompanying statements of income and retained earnings
and of cash flows of Kingswood Coin Auctions, LLC (the Company) for the year
ended 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 statements of income and retained
earnings and of cash flows are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the statements of income and retained earnings and of cash flows. An audit also
includes assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall presentation of the statements
of income and retained earnings and of cash flows. We believe that our audit
provides a reasonable basis for our opinion.
In our opinion, such financial statements referred to above present fairly,
in all material respects, the results of operations and cash flows of Kingswood
Coin Auctions, LLC for the year ended December 31, 1998, in conformity with
generally accepted accounting principles.
Deloitte & Touche LLP
Costa Mesa, California
May 26, 1999
F-31
<PAGE> 96
KINGSWOOD COIN AUCTIONS, LLC
STATEMENT OF INCOME AND RETAINED EARNINGS
FOR THE YEAR ENDED DECEMBER 31, 1998
<TABLE>
<S> <C>
NET REVENUE................................................. $374,789
COST OF REVENUE............................................. 207,122
--------
GROSS INCOME................................................ 167,667
OPERATING EXPENSES.......................................... 86,276
--------
INCOME FROM OPERATIONS...................................... 81,391
OTHER INCOME................................................ 2,105
--------
NET INCOME.................................................. 83,496
RETAINED EARNINGS, beginning of year........................ 40,079
DISTRIBUTIONS TO MEMBERS.................................... (55,000)
--------
RETAINED EARNINGS, end of year.............................. $ 68,575
========
</TABLE>
See accompanying notes to financial statements.
F-32
<PAGE> 97
KINGSWOOD COIN AUCTIONS, LLC
STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1998
<TABLE>
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income.................................................. $ 83,496
Adjustments to reconcile net income to net cash used in
operating activities:
Changes in operating assets and liabilities:
Accounts receivable.................................... 108,007
Prepaid expenses....................................... (3,770)
Other assets........................................... 1,494
Accounts payable and accrued expenses.................. (360,241)
---------
Net cash used in operating activities................ (171,014)
CASH FLOWS FROM FINANCING ACTIVITIES --
Distributions to members.................................. (55,000)
---------
NET DECREASE IN CASH AND CASH EQUIVALENTS................... (226,014)
CASH AND CASH EQUIVALENTS, beginning of year................ 298,950
---------
CASH AND CASH EQUIVALENTS, end of year...................... $ 72,936
=========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION --
Cash paid during the year for income taxes................ $ 800
=========
</TABLE>
See accompanying notes to financial statements.
F-33
<PAGE> 98
KINGSWOOD COIN AUCTIONS, LLC
NOTES TO FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 1998
1. NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Business -- Kingswood Coin Auctions, LLC (the Company) was formed
on November 8, 1996, for the purpose of producing, promoting and conducting
elite live and telephonic rare coin auctions.
Pursuant to the operating agreement, the profits and losses of the Company
are allocated to the members in accordance with each member's percentage
ownership interest. Distributions of available cash are made to the members in
accordance with each member's respective percentage ownership interest. During
the year ended December 31, 1998, the Company distributed $55,000 to its
members.
Revenue Recognition -- Revenue is recognized upon the sale of the coins
consigned to the Company. Such revenue represents approximately 10% of the bid
price charged to the buyer, and approximately 4% of such price charged to the
consignor.
Income Taxes -- The Company is taxed as a limited liability company under
the provisions of the federal and state tax codes. Under federal laws, taxes
based on income of the limited liability company are payable by the members
individually. A provision for California franchise tax of $800 has been provided
in the accompanying financial statements at statutory rates based on gross
receipts (revenues) under California laws.
Use of Estimates -- The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
Comprehensive Income -- In June 1997, the Financial Accounting Standards
Board (FASB) issued Statement of Financial Accounting Standards (SFAS) No. 130,
Reporting Comprehensive Income. SFAS No. 130 establishes standards for reporting
and display of comprehensive income and its components in a full set of
general-purpose financial statements. The Company does not have any items of
other comprehensive income requiring separate disclosure.
2. RELATED-PARTY TRANSACTIONS
During the ordinary course of business, the Company conducts transactions
with certain companies owned and controlled by its members and other related
entities as described below. The Company reimburses David Hall North American
Trading (DHNAT) for certain general and administrative expenses incurred on
behalf of the Company. Such reimbursements amounted to $91,141 for the year
ended December 31, 1998.
The Company has entered into an Auction Services Agreement (the Services
Agreement) with Professional Coin Grading Service, Inc. (PCGS), whereby PCGS
provides the facilities, equipment, personnel, and services necessary for the
Company to conduct its auctions. In consideration for the use of its facilities
and equipment and the services provided pursuant to the Services Agreement, the
Company pays PCGS a service fee in an amount equal to a percentage of the total
actual sales price,
F-34
<PAGE> 99
KINGSWOOD COIN AUCTIONS, LLC
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED DECEMBER 31, 1998
less all returns, of all rare coins sold by the Company at its auctions, as
defined in the Services Agreement. During the year ended December 31, 1998, the
Company paid a service fee of $119,821 to PCGS. Such fee is included in cost of
revenues in the accompanying statement of income and retained earnings.
DHNAT and PCGS consign coins to the Company for sale in the Company's
auctions. Commission revenues received from DHNAT and PCGS during the year ended
December 31, 1998, amounted to $19,582 and $12,330, respectively, and are
included in net revenue in the accompanying statement of income.
3. SUBSEQUENT EVENT
On February 5, 1999, Collectors Universe, Inc. (Collectors) acquired the
Company's auction business for $1,000,000 in cash and 190,000 shares of
Collectors' common stock.
F-35
<PAGE> 100
Inside Back Cover
Includes a banner that states, "More Cool Stuff," and pictures of collectibles
with the captions indicated below:
Collectible Caption
- ----------- -------
Coin 1907 Extremely High Relief Saint Gaudens $20 Gold. Graded by
Collectors Universe.
Record Album "Love In Vain" by Robert Johnson. Sold at auction by
Collectors Universe.
Baseball Card 1952 Topps Mickey Mantle. Sold at auction by Collectors
Universe.
Baseball Babe Ruth Autographed Ball. Authenticated by Collectors
Universe.
Coin 1865 $20 Liberty. Sold at auction by Collectors Universe.
Coin 1913 Liberty Head Nickel. Graded by Collectors Universe.
Record album Red vinyl Elvis Christmas Album. Sold at auction
and cover by Collectors Universe.
Baseball card T-206 Honus Wagner. First card graded by Collectors Universe.
<PAGE> 101
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
[LOGO]
COLLECTORS UNIVERSE, INC.
UNTIL , 1999, ALL DEALERS THAT EFFECT TRANSACTIONS IN THESE
SECURITIES, WHETHER OR NOT PARTICIPATING IN THIS OFFERING, MAY BE REQUIRED TO
DELIVER A PROSPECTUS. THIS IS IN ADDITION TO THE DEALERS' OBLIGATION TO DELIVER
A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD
ALLOTMENTS OR SUBSCRIPTIONS.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 102
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth all costs and expenses, other than
underwriting discounts and commissions, payable by Collectors Universe in
connection with the sale of the common stock being registered. All of the
amounts shown are estimates except for the SEC registration fee and the NASD
filing fee.
<TABLE>
<CAPTION>
TO BE PAID BY
COLLECTORS UNIVERSE
-------------------
<S> <C>
SEC registration fee........................................ $ 12,788
NASD filing fee............................................. 5,100
Nasdaq National Market application fee...................... 95,000
Printing expenses........................................... 200,000
Legal fees and expenses..................................... 155,000
Accounting fees and expenses................................ 225,000
Blue sky fees and expenses.................................. 5,000
Transfer agent and registrar fees........................... 2,000
Miscellaneous............................................... 10,112
--------
Total.................................................. $710,000
========
</TABLE>
- -------------------------
* To be filed by amendment
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
(a) As permitted by the Delaware General Corporation Law, the Amended and
Restated Certificate of Incorporation of Collectors Universe (Exhibit 3.1
hereto) eliminates the liability of directors to Collectors Universe or its
stockholders for monetary damages for breach of fiduciary duty as a directors,
except to the extent otherwise required by the Delaware General Corporation Law.
(b) The Amended and Restated Certificate of Incorporation provides that
Collectors Universe will indemnify each person who was or is made a party to any
proceeding by reason of the fact that such person is or was a director or
officer of Collectors Universe against all expense, liability and loss
reasonably incurred or suffered by such person in connection therewith to the
fullest extent authorized by the Delaware General Corporation Law. The Amended
and Restated Bylaws of Collectors Universe (Exhibit 3.2 hereto) provide for a
similar indemnity to directors and officers of Collectors Universe to the
fullest extent authorized by the Delaware General Corporation Law.
(c) The Amended and Restated Certificate of Incorporation also gives
Collectors Universe the ability to enter into indemnification agreements with
each of its directors and officers. Collectors Universe has entered into
indemnification agreements with certain of its directors and officers (Exhibit
10.7 hereto), which provide for the indemnification of such persons against any
an all expenses, judgments, fines, penalties and amounts paid in settlement, to
the fullest extent permitted by law.
II-1
<PAGE> 103
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
The following is a summary of transactions by Collectors Universe during
the last three years preceding the date hereof involving sales of securities of
Collectors Universe that were not registered under the Securities Act:
(1) In January 1999, we purchased 40% of the membership interest of
Internet Universe, LLC, a California limited liability company. The
purchase was completed through the issuance of 3,750 shares of Professional
Coin Grading Service, Inc. (our predecessor company) to Brent Gutekunst,
which shares were later exchanged for 861,120 shares of common stock of
Collectors Universe in February 1999. The issuance was exempt from
registration under the Securities Act of 1933, as amended (the "Securities
Act"), pursuant to Section 4(2) on the basis that the transaction did not
involve a public offering.
(2) In February 1999, we incorporated in Delaware and acquired PCGS,
assets of Lyn F. Knight Rare Coins, Inc. and Kingswood Auctions, LLC, and
minority interests in two majority owned subsidiaries of PCGS. Pursuant to
this reorganization, we issued 19,000,276 shares of our common stock to the
owners of the acquired companies. The issuance was exempt from registration
under the Securities Act pursuant to Section 4(2) on the basis that the
transaction did not involve a public offering. As part of the acquisition
of Kingswood Auctions, LLC, David Hall, director and Chairman of the Board,
received 28,500 shares of common stock, Van Simmons, director, received
28,500 shares of common stock and David Hall's North American Trading,
which is owned by Mr. Hall and Mr. Simmons, received 47,500 shares of
common stock, each at a per share value of $1.40.
(3) In March 1999, we issued 1,281,800 shares of our common stock at
$5.00 per share to accredited investors only, pursuant to Section 4(2) of
the Securities Act on the basis that the transactions did not involve a
public offering. As part of the private placement in March 1999, Gordon
Wrubel, President of Good Rockin' Tonight, purchased 1,600 shares, and Gary
N. Patten, Chief Financial Officer, purchased 50,000 shares of common
stock, each at a price of $5.00 per share.
(4) As of August 31, 1999, options to purchase 2,687,565 shares of
common stock have been granted in reliance upon the exemptions provided in
Rule 701 of the Securities Act on the basis that these options were offered
and sold either pursuant to a written compensatory benefit plan or pursuant
to written contracts relating to consideration, as provided by Rule 701, or
pursuant to Section 4(2) thereof on the basis that the transactions did not
involve a public offering.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ------- -----------
<C> <C> <S>
1.1 -- Form of Underwriting Agreement.
3.1 -- Amended and Restated Certificate of Incorporation of
Collectors Universe, as in effect.**
3.2 -- Form of Amended and Restated Certificate of Incorporation of
Collectors Universe, to be filed prior to the closing of the
offering made under this Registration Statement.**
3.3 -- Amended and Restated Bylaws of Collectors Universe, as
adopted September 1, 1999.
4.1 -- Registration Rights Agreement.
</TABLE>
II-2
<PAGE> 104
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ------- -----------
<C> <C> <S>
4.2 -- Form of Registration Rights Agreement for Stockholders
pursuant to private placement.
5.1 -- Opinion of Stradling Yocca Carlson & Rauth, a Professional
Corporation.
10.1 -- Collectors Universe 1999 Stock Incentive Plan.**
10.2 -- Form of Stock Option Agreement for the Collectors Universe
1999 Plan.**
10.4 -- PCGS 1999 Stock Incentive Plan.**
10.5 -- Form of Stock Option Agreement for the PCGS 1999 Plan.**
10.6 -- Employee Stock Purchase Plan.**
10.7 -- Form of Indemnification Agreement.
10.8 -- Asset Acquisition Agreement dated January 25, 1999 by and
among Professional Coin Grading Service, Inc., Info
Exchange, Inc. and Brent Gutekunst.**
10.9 -- Collectors Universe/eBay Mutual Services Term Sheet dated
February 10, 1999 by and between Collectors Universe and
eBay, Inc.+**
10.10 -- Net Lease between Orix Searls Santa Ana Venture and
Collectors Universe, dated June, 1999.**
10.11 -- Agreement for the Sale of Goods and Services dated March 31,
1999 by and between Collectors Universe and DNA
Technologies, Inc.+**
10.12 -- Contribution and Acquisition Agreement dated February 3,
1999 by and between Collectors Universe, Inc. and Hugh
Sconyers.**
10.13 -- Contribution and Acquisition Agreement dated February 3,
1999 by and between Collectors Universe and BJ Searls.**
10.14 -- Contribution and Acquisition Agreement dated February 3,
1999 by and between Collectors Universe and Greg
Bussineau.**
10.15 -- Contribution and Acquisition Agreement dated February 3,
1999 by and between Collectors Universe and Lyn F. Knight
Rare Coins, Inc.**
10.16 -- Contribution and Acquisition Agreement dated February 3,
1999 by and between Collectors Universe, Kingswood Coin
Auction, LLC and the Members of Kingswood.**
10.17 -- Contribution and Acquisition Agreement dated February 3,
1999 by and between Collectors Universe and Professional
Coin Grading Service, Inc.**
10.18 -- Employment Agreement dated March 1999, by and between
Superior Sportcard Auctions, LLC and Greg Bussineau.**
10.19 -- Employment Agreement dated March 5, 1999, by and between Lyn
F. Knight, Lyn Knight Currency Auctions, Inc. and Collectors
Universe.**
10.20 -- Employment Agreement dated January 25, 1999 by and between
Internet Universe, LLC and Brent Gutekunst.**
10.21 -- Employment Agreement dated , 1999 by and
between Collectors Universe, Inc. and Louis M. Crain.*
10.22 -- Employment Agreement dated by and between Gary
N. Patten and Collectors Universe, Inc.*
10.23 -- Severance Agreement dated by and between Gary N.
Patten and Collectors Universe, Inc.*
11.1 -- Statement regarding computation of pro forma net income per
share.**
21.1 -- Subsidiaries.
</TABLE>
II-3
<PAGE> 105
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ------- -----------
<C> <C> <S>
23.1 -- Consent of Stradling Yocca Carlson & Rauth, a Professional
Corporation (see Exhibit 5.1).
23.2 -- Consent of Deloitte & Touche LLP.
23.3 -- Consent of Deloitte & Touche LLP.
23.4 -- Consent of Deloitte & Touche LLP.
24.1 -- Power of Attorney (see page II-5).**
27.1 -- Financial Data Schedule.**
</TABLE>
- -------------------------
* To be filed by amendment.
** Previously filed.
+ Portions of this exhibit are omitted and were filed separately with the SEC
pursuant to the Collectors Universe application requesting confidential
treatment under Rule 406 of the Securities Act of 1933.
(b) Financial Statement Schedules
Schedule II -- Financial Statement Schedule of Collectors Universe and
Subsidiaries
All schedules not listed above are omitted because they are not required
under the related instructions, are inapplicable, or the information is included
in the financial statements or the notes thereto.
ITEM 17. UNDERTAKINGS
The undersigned registrant hereby undertakes 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.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions or otherwise, the registrant has
been advised that in the opinion of the SEC such indemnification is against
public policy as expressed in the Securities Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the registrant of expenses incurred or
paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question of whether such indemnification by it is against
public policy as expressed in the Securities Act and will be governed by the
final adjudication of such issue.
The registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part
of this registration statement in reliance upon Rule 430A and contained in
a form of prospectus filed by the registrant pursuant to Rule 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.
(2) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
II-4
<PAGE> 106
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
registrant has duly caused this registration statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Newport
Beach, State of California, on the 12th day of October 1999.
COLLECTORS UNIVERSE, INC.
By: /s/ LOUIS M. CRAIN
------------------------------------
Louis M. Crain
Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, as amended,
this registration statement has been signed below by the following persons in
the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ LOUIS M. CRAIN President, Chief Executive Officer and October 12, 1999
- ---------------------------------- Director (Principal Executive Officer)
Louis M. Crain
/s/ GARY N. PATTEN Chief Financial Officer (Principal October 12, 1999
- ---------------------------------- Financial and Principal Accounting
Gary N. Patten Officer)
* Chairman of the Board and Director October 12, 1999
- ----------------------------------
David G. Hall
* Senior Vice President and Director October 12, 1999
- ----------------------------------
Stephen H. Mayer
* Director October 12, 1999
- ----------------------------------
Van D. Simmons
* Director October 12, 1999
- ----------------------------------
Armen Vartian
</TABLE>
*By: /s/ Louis M. Crain
-------------------------
Louis M. Crain
Attorney-in-Fact
II-5
<PAGE> 107
COLLECTORS UNIVERSE, INC.
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED JUNE 30, 1997, 1998 AND 1999
<TABLE>
<CAPTION>
BALANCE AT CHARGED CHARGED BALANCE AT
BEGINNING TO OPERATING TO COST OF END
DESCRIPTION OF PERIOD EXPENSES REVENUES DEDUCTIONS OF PERIOD
----------- ---------- ------------ ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Allowance for doubtful
accounts................ $ 6,500 $28,996 $ -- $ (6,500) $ 28,996
Inventory reserve......... 12,682 -- 1,580 -- 14,262
Warranty reserve.......... 212,656 -- 185,941 (211,654) 186,943
-------- ------- -------- --------- --------
Total at June 30,
1997............... $231,838 $28,996 $187,521 $(218,154) $230,201
======== ======= ======== ========= ========
Allowance for doubtful
accounts................ $ 28,996 $ -- $ -- $ (28,996) $ --
Inventory reserve......... 14,262 -- -- (14,262) --
Warranty reserve.......... 186,943 -- 282,086 (294,029) 175,000
-------- ------- -------- --------- --------
Total at June 30,
1998............... $230,201 $ -- $282,086 $(337,287) $175,000
======== ======= ======== ========= ========
Allowance for doubtful
accounts................ $ -- $50,783 $ -- $ (13,283) $ 37,500
Inventory reserve......... -- -- 160,500 -- 160,500
Warranty reserve.......... 175,000 -- 412,273 (355,674) 231,599
-------- ------- -------- --------- --------
Total at June 30,
1999............... $175,000 $50,783 $572,773 $(368,957) $429,599
======== ======= ======== ========= ========
</TABLE>
S-1
<PAGE> 108
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ------- -----------
<C> <C> <S>
1.1 -- Form of Underwriting Agreement.
3.1 -- Amended and Restated Certificate of Incorporation of
Collectors Universe, as in effect.**
3.2 -- Form of Amended and Restated Certificate of Incorporation of
Collectors Universe, to be filed prior to the closing of the
offering made under this Registration Statement.**
3.3 -- Amended and Restated Bylaws of Collectors Universe, as
adopted September 1, 1999.
4.1 -- Form of Registration Rights Agreement for stockholders
pursuant to reorganization.
4.2 -- Form of Registration Rights Agreement for stockholders
pursuant to private placement.
5.1 -- Opinion of Stradling Yocca Carlson & Rauth, a Professional
Corporation.
10.1 -- Collectors Universe 1999 Stock Incentive Plan.**
10.2 -- Form of Stock Option Agreement for the Collectors Universe
1999 Plan.**
10.4 -- PCGS 1999 Stock Incentive Plan.**
10.5 -- Form of Stock Option Agreement for the PCGS 1999 Plan.**
10.6 -- Employee Stock Purchase Plan.**
10.7 -- Form of Indemnification Agreement.
10.8 -- Asset Acquisition Agreement dated January 25, 1999 by and
among Professional Coin Grading Service, Inc., Info
Exchange, Inc. and Brent Gutekunst.**
10.9 -- Collectors Universe/eBay Mutual Services Term Sheet dated
February 10, 1999 by and between Collectors Universe and
eBay, Inc.+**
10.10 -- Net Lease between Orix Searls Santa Ana Venture and
Collectors Universe, dated June, 1999.**
10.11 -- Agreement for the Sale of Goods and Services dated March 31,
1999 by and between Collectors Universe and DNA
Technologies, Inc.+**
10.12 -- Contribution and Acquisition Agreement dated February 3,
1999 by and between Collectors Universe, Inc. and Hugh
Sconyers.**
10.13 -- Contribution and Acquisition Agreement dated February 3,
1999 by and between Collectors Universe and BJ Searls.**
10.14 -- Contribution and Acquisition Agreement dated February 3,
1999 by and between Collectors Universe and Greg
Bussineau.**
10.15 -- Contribution and Acquisition Agreement dated February 3,
1999 by and between Collectors Universe and Lyn F. Knight
Rare Coins, Inc.**
10.16 -- Contribution and Acquisition Agreement dated February 3,
1999 by and between Collectors Universe, Kingswood Coin
Auction, LLC and the Members of Kingswood.**
10.17 -- Contribution and Acquisition Agreement dated February 3,
1999 by and between Collectors Universe and Professional
Coin Grading Service, Inc.**
10.18 -- Employment Agreement dated March 1999, by and between
Superior Sportcard Auctions, LLC and Greg Bussineau.**
</TABLE>
<PAGE> 109
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ------- -----------
<C> <C> <S>
10.19 -- Employment Agreement dated March 5, 1999, by and between Lyn
F. Knight, Lyn Knight Currency Auctions, Inc. and Collectors
Universe.**
10.20 -- Employment Agreement dated January 25, 1999 by and between
Internet Universe, LLC and Brent Gutekunst.**
10.21 -- Employment Agreement dated , 1999 by and
between Collectors Universe, Inc. and Louis M. Crain.*
10.22 -- Employment Agreement dated by and between Gary
N. Patten and Collectors Universe, Inc.*
10.23 -- Severance Agreement dated by and between Gary N.
Patten and Collectors Universe, Inc.*
11.1 -- Statement regarding computation of pro forma net income per
share.**
21.1 -- Subsidiaries.
23.1 -- Consent of Stradling Yocca Carlson & Rauth, a Professional
Corporation (see Exhibit 5.1).
23.2 -- Consent of Deloitte & Touche LLP.
23.3 -- Consent of Deloitte & Touche LLP.
23.4 -- Consent of Deloitte & Touche LLP.
24.1 -- Power of Attorney (see page II-5).**
27.1 -- Financial Data Schedule.**
</TABLE>
- -------------------------
* To be filed by amendment.
** Previously filed.
+ Portions of this exhibit are omitted and were filed separately with the SEC
pursuant to the Collectors Universe application requesting confidential
treatment under Rule 406 of the Securities Act of 1933.
<PAGE> 1
EXHIBIT 1.1
_________ SHARES*
COLLECTORS UNIVERSE, INC.
COMMON STOCK
UNDERWRITING AGREEMENT
_______________, 1999
NEEDHAM & COMPANY, INC.
FIRST SECURITY VAN KASPER
As Representatives of the several Underwriters
c/o Needham & Company, Inc.
445 Park Avenue
New York, New York 10022
Ladies and Gentlemen:
Collectors Universe, Inc., a Delaware corporation (the "Company"),
proposes to issue and sell ________ shares (the "Firm Shares") of the Company's
Common Stock, $0.001 par value per share (the "Common Stock"), to you and to the
several other Underwriters named in Schedule I hereto (collectively, the
"Underwriters"), for whom you are acting as representatives (the
"Representatives"). The Company has also agreed to grant to you and the other
Underwriters an option (the "Option") to purchase up to an additional ______
shares of Common Stock, on the terms and for the purposes set forth in Section
1(b) (the "Option Shares"). The Firm Shares and the Option Shares are referred
to collectively herein as the "Shares."
The Company confirms as follows with the Representatives and the several
other Underwriters.
1. Agreement to Sell and Purchase.
(a) On the basis of the representations, warranties and agreements of
the Company herein contained and subject to all the terms and
conditions of this Agreement, (i) the Company agrees to issue and
sell the Firm Shares to the several Underwriters and (ii) each of
the Underwriters, severally and not jointly, agrees to purchase
from the Company the respective number of Firm Shares set forth
opposite that Underwriter's name in Schedule I hereto, at the
purchase price of $____ for each Firm Share.
(b) Subject to all the terms and conditions of this Agreement, the
Company grants the Option to the several Underwriters to
purchase, severally and not jointly, up to ________ Option Shares
at the same price per share as the Underwriters shall pay for the
Firm Shares. The Option may be exercised only to cover
over-allotments in the sale of the Firm Shares by the
Underwriters and may be exercised in whole or in part at any time
(but not more than once) on or before the 30th day after the date
of this Agreement upon written or telegraphic notice (the "Option
Shares Notice") by the Representatives to the Company no later
than 12:00 noon, New York City time, at least two and no more
than five business days before the date specified for closing in
the Option Shares Notice (the
- -------------------
*Plus an option to purchase up to an additional _______ shares to cover over-
allotments.
<PAGE> 2
____________, 1999
Page 2 of 23
"Option Closing Date"), setting forth the aggregate number of
Option Shares to be purchased and the time and date for such
purchase. On the Option Closing Date, the Company will issue and
sell to the Underwriters the number of Option Shares set forth in
the Option Shares Notice, and each Underwriter will purchase such
percentage of the Option Shares as is equal to the percentage of
Firm Shares that such Underwriter is purchasing, as adjusted by
the Representatives in such manner as they deem advisable to
avoid fractional shares.
2. Delivery and Payment. Delivery of the Firm Shares shall be made to
the Representatives for the accounts of the Underwriters against
payment of the purchase price by certified or official bank checks or
by wire transfer payable in same-day funds to the order of the
Company at the office of Needham & Company, Inc., 445 Park Avenue,
New York, New York 10022, at 10:00 a.m., New York City time, on the
third (or, if the purchase price set forth in Section 1(b) hereof is
determined after 4:30 p.m., Washington D.C. time, the fourth)
business day following the commencement of the offering contemplated
by this Agreement, or at such time on such other date, not later than
seven business days after the date of this Agreement, as may be
agreed upon by the Company and the Representatives (such date is
hereinafter referred to as the "Closing Date").
To the extent the Option is exercised, delivery of the Option Shares
against payment by the Underwriters (in the manner specified above)
will take place at the offices specified above for the Closing Date
at the time and date (which may be the Closing Date) specified in the
Option Shares Notice.
Certificates evidencing the Shares shall be in definitive form and
shall be registered in such names and in such denominations as the
Representatives shall request at least two business days prior to the
Closing Date or the Option Closing Date, as the case may be, by
written notice to the Company. For the purpose of expediting the
checking and packaging of certificates for the Shares, the Company
agrees to make such certificates available for inspection at least 24
hours prior to the Closing Date or the Option Closing Date, as the
case may be.
The cost of original issue tax stamps, if any, in connection with the
issuance and delivery of the Firm Shares and Option Shares by the
Company to the respective Underwriters shall be borne by the Company.
The Company will pay and save each Underwriter and any subsequent
holder of the Shares harmless from any and all liabilities with
respect to or resulting from any failure or delay in paying Federal
and state stamp and other transfer taxes, if any, which may be
payable or determined to be payable in connection with the original
issuance or sale to such Underwriter of the Shares.
3. Representations and Warranties of the Company. The Company
represents, warrants and covenants to each Underwriter that:
(a) The Company meets the requirements for use of Form S-1 and a
registration statement (Registration No. 333-86449) on Form S-1
relating to the Shares, including a preliminary prospectus and
such amendments to such registration statement as may have been
required to the date of this Agreement, has been prepared by the
Company under the provisions of the Securities Act of 1933, as
amended (the "Act"), and the rules and regulations (collectively
referred to as the "Rules and Regulations") of the Securities and
Exchange Commission (the "Commission") thereunder, and has been
filed with the Commission. The term "preliminary prospectus" as
used herein means a preliminary prospectus, including the
documents incorporated by reference therein, as contemplated by
Rule 430 or Rule 430A of the Rules and Regulations included at
any time as part of the registration statement. Copies of such
registration statement and amendments and of each related
preliminary prospectus have been delivered to the
Representatives. If such registration statement has not become
effective, a further amendment to such registration statement,
including a form of final prospectus, necessary to permit such
registration statement to become effective will be filed promptly
by the Company with the Commission. If such registration
statement has become effective, a final prospectus containing
information permitted to be omitted at the time of effectiveness
by Rule 430A of the Rules and Regulations will be filed promptly
by the Company with the Commission in accordance with Rule 424(b)
of the Rules and Regulations. The term "Registration Statement"
means the registration statement as amended at the time it
becomes or became effective (the "Effective Date"), including all
<PAGE> 3
____________, 1999
Page 3 of 23
documents incorporated by reference therein, financial statements
and all exhibits and any information deemed to be included by
Rule 430A and includes any registration statement relating to the
offering contemplated by this Agreement and filed pursuant to
Rule 462(b) of the Rules and Regulations. The term "Prospectus"
means the prospectus, including the documents incorporated by
reference therein, as first filed with the Commission pursuant to
Rule 424(b) of the Rules and Regulations or, if no such filing is
required, the form of final prospectus, including the documents
incorporated by reference therein, included in the Registration
Statement at the Effective Date. Any reference herein to the
terms "amend," "amendment" or "supplement" with respect to the
Registration Statement, any preliminary prospectus or the
Prospectus shall be deemed to refer to and include the filing of
any document under the Securities Exchange Act of 1934, as
amended (the "Exchange Act") after the Effective Date, the date
of any preliminary prospectus or the date of the Prospectus, as
the case may be, and deemed to be incorporated therein by
reference.
(b) No order preventing or suspending the use of any preliminary
prospectus has been issued by the Commission. On the Effective
Date, the date the Prospectus is first filed with the Commission
pursuant to Rule 424(b) (if required), at all times subsequent to
and including the Closing Date and, if later, the Option Closing
Date and when any post-effective amendment to the Registration
Statement becomes effective or any amendment or supplement to the
Prospectus is filed with the Commission, the Registration
Statement and the Prospectus (as amended or as supplemented if
the Company shall have filed with the Commission any amendment or
supplement thereto), including the financial statements included
in the Prospectus, did and will comply with all applicable
provisions of the Act, the Exchange Act, the rules and
regulations under the Exchange Act (the "Exchange Act Rules and
Regulations"), and the Rules and Regulations and will contain all
statements required to be stated therein in accordance with the
Act, the Exchange Act, the Exchange Act Rules and Regulations,
and the Rules and Regulations. On the Effective Date and when any
post-effective amendment to the Registration Statement becomes
effective, no part of the Registration Statement, the Prospectus
or any such amendment or supplement did or will contain an untrue
statement of a material fact or omit to state a material fact
required to be stated therein or necessary in order to make the
statements therein not misleading. At the Effective Date, the
date the Prospectus or any amendment or supplement to the
Prospectus is filed with the Commission and at the Closing Date
and, if later, the Option Closing Date, the Prospectus did not
and will not contain any untrue statement of a material fact or
omit to state a material fact necessary to make the statements
therein, in the light of the circumstances under which they were
made, not misleading. The foregoing representations and
warranties in this Section 3(b) do not apply to any statements or
omissions made in reliance on and in conformity with information
relating to any Underwriter furnished in writing to the Company
by the Representatives specifically for inclusion in the
Registration Statement or Prospectus or any amendment or
supplement thereto. The Company acknowledges that the statements
set forth under the heading "Underwriting" in the Prospectus
constitute the only information relating to any Underwriter
furnished in writing to the Company by the Representatives
specifically for inclusion in the Registration Statement.
(c) The documents that are incorporated by reference in the
preliminary prospectus and the Prospectus or from which
information is so incorporated by reference, when they became or
become effective or were or are filed with the Commission, as the
case may be, complied or will comply in all material respects
with the requirements of the Act or the Exchange Act, as
applicable, and the Rules and Regulations or the Exchange Act
Rules and Regulations, as applicable; and any documents so filed
and incorporated by reference subsequent to the Effective Date
shall, when they are filed with the Commission, comply in all
material respects with the requirements of the Act or the
Exchange Act, as applicable, and the Rules and Regulations or the
Exchange Act Rules and Regulations, as applicable.
(d) The Company does not own, and at the Closing Date and, if later,
the Option Closing Date, will not own, directly or indirectly,
any shares of stock or any other equity or long-term debt
securities of any corporation or have any equity interest in any
corporation, firm, partnership, joint venture, association or
other entity, other than the subsidiaries listed in Exhibit 21.1
to the Registration Statement (the "Subsidiaries"). The Company
and each of its Subsidiaries is, and at the Closing Date
<PAGE> 4
____________, 1999
Page 4 of 23
and, if later, the Option Closing Date, will be, a corporation
duly organized, validly existing and in good standing under the
laws of its jurisdiction of incorporation. The Company and each
of its Subsidiaries has, and at the Closing Date and, if later,
the Option Closing Date, will have, full power and authority to
conduct all the activities conducted by it, to own or lease all
the assets owned or leased by it and to conduct its business as
described in the Registration Statement and the Prospectus. The
Company and each of its Subsidiaries is, and at the Closing Date
and, if later, the Option Closing Date, will be, duly licensed or
qualified to do business and in good standing as a foreign
corporation in all jurisdictions in which the nature of the
activities conducted by it or the character of the assets owned
or leased by it makes such license or qualification necessary,
except to the extent that the failure to be so qualified or be in
good standing would not materially and adversely affect the
Company or its business, properties, business prospects,
condition (financial or other) or results of operations. All of
the outstanding shares of capital stock of each Subsidiary have
been duly authorized and validly issued and are fully paid and
nonassessable, and owned by the Company free and clear of all
claims, liens, charges and encumbrances; there are no securities
outstanding that are convertible into or exercisable or
exchangeable for capital stock of any Subsidiary. The Company is
not, and at the Closing Date and, if later, the Option Closing
Date, will not be, engaged in any discussions or a party to any
agreement or understanding, written or oral, regarding the
acquisition of an interest in any corporation, firm, partnership,
joint venture, association or other entity where such
discussions, agreements or understandings would require amendment
to the Registration Statement pursuant to applicable securities
laws. Complete and correct copies of the certificate of
incorporation and of the by-laws of the Company and each of its
Subsidiaries and all amendments thereto have been delivered to
the Representatives, and no changes therein will be made
subsequent to the date hereof and prior to the Closing Date or,
if later, the Option Closing Date.
(e) All of the outstanding shares of capital stock of the Company
have been duly authorized, validly issued and are fully paid and
nonassessable and were issued in compliance with all applicable
state and federal securities laws; the Shares have been duly
authorized and when issued and paid for as contemplated herein
will be validly issued, fully paid and nonassessable; no
preemptive or similar rights exist with respect to any of the
Shares or the issue and sale thereof. The description of the
capital stock of the Company in the Registration Statement and
the Prospectus is, and at the Closing Date and, if later, the
Option Closing Date, will be, complete and accurate in all
respects. Except as set forth in the Prospectus, the Company does
not have outstanding, and at the Closing Date and, if later, the
Option Closing Date, will not have outstanding, any options to
purchase, or any rights or warrants to subscribe for, or any
securities or obligations convertible into, or any contracts or
commitments to issue or sell, any shares of capital stock, or any
such warrants, convertible securities or obligations. No further
approval or authority of stockholders or the Board of Directors
of the Company will be required for the issuance and sale of the
Shares as contemplated herein.
(f) The financial statements and schedules included in the
Registration Statement or the Prospectus present fairly the
financial condition of the Company and its consolidated
Subsidiaries as of the respective dates thereof and the results
of operations and cash flows of the Company and its consolidated
Subsidiaries for the respective periods covered thereby, all in
conformity with generally accepted accounting principles applied
on a consistent basis throughout the entire period involved,
except as otherwise disclosed in the Prospectus. No other
financial statements or schedules of the Company are required by
the Act, the Exchange Act, the Exchange Act Rules and Regulations
or the Rules and Regulations to be included in the Registration
Statement or the Prospectus. Deloitte & Touche (the
"Accountants"), who have reported on such financial statements
and schedules, are independent accountants with respect to the
Company as required by the Act and the Rules and Regulations. The
summary consolidated financial and statistical data included in
the Registration Statement present fairly the information shown
therein and have been compiled on a basis consistent with the
financial statements presented therein.
(g) Subsequent to the respective dates as of which information is
given in the Registration Statement and the Prospectus and prior
to the Closing Date and, if later, the Option Closing Date,
except as set forth in or contemplated by the Registration
Statement and the Prospectus, (i) there has not been and will not
have been any change in the capitalization of the Company (other
than in connection with the
<PAGE> 5
____________, 1999
Page 5 of 23
exercise of options to purchase the Company's Common Stock
granted pursuant to the Company's stock option plans from the
shares reserved therefor as described in the Registration
Statement), or any material adverse change in the business,
properties, business prospects, condition (financial or
otherwise) or results of operations of the Company or any of its
Subsidiaries, arising for any reason whatsoever, (ii) neither the
Company nor any of its Subsidiaries has incurred nor will any of
them incur, except in the ordinary course of business as
described in the Prospectus, any material liabilities or
obligations, direct or contingent, nor has the Company or any of
its Subsidiaries entered into nor will it enter into, except in
the ordinary course of business as described in the Prospectus,
any material transactions other than pursuant to this Agreement
and the transactions referred to herein and (iii) the Company has
not and will not have paid or declared any dividends or other
distributions of any kind on any class of its capital stock.
(h) The Company is not, will not become as a result of the
transactions contemplated hereby, and does not intend to conduct
its business in a manner that would cause it to become, an
"investment company" or an "affiliated person" of, or "promoter"
or "principal underwriter" for, an "investment company," as such
terms are defined in the Investment Company Act of 1940, as
amended.
(i) Except as set forth in the Registration Statement and the
Prospectus, there are no actions, suits or proceedings pending
or, to the knowledge of the Company, threatened against or
affecting the Company, and of its Subsidiaries or any of its or
their officers in their capacity as such, nor any basis therefor,
before or by any Federal or state court, commission, regulatory
body, administrative agency or other governmental body, domestic
or foreign, wherein an unfavorable ruling, decision or finding
might materially and adversely affect the Company, any of its
Subsidiaries or the business, properties, business prospects,
condition (financial or otherwise) or results of operations of
the Company or any of its Subsidiaries.
(j) The Company and each Subsidiary has, and at the Closing Date and,
if later, the Option Closing Date, will have, performed all the
obligations required to be performed by it, and is not, and at
the Closing Date, and, if later, the Option Closing Date, will
not be, in default, under any contract or other instrument to
which it is a party or by which its property is bound or
affected, which default might materially and adversely affect the
Company or the business, properties, business prospects,
condition (financial or other) or results of operations of the
Company or any of its Subsidiaries. To the best knowledge of the
Company, no other party under any contract or other instrument to
which it or any of its Subsidiaries is a party is in default in
any respect thereunder, which default might reasonably be
expected to materially and adversely affect the Company, any of
its Subsidiaries or the business, properties, business prospects,
condition (financial or other) or results of operations of the
Company or any of its Subsidiaries. Neither the Company nor any
of its Subsidiaries is, and at the Closing Date and, if later,
the Option Closing Date, will be, in violation of any provision
of its certificate or articles of organization or by-laws or
other organizational documents.
(k) No consent, approval, authorization or order of, or any filing or
declaration with, any court or governmental agency or body is
required for the consummation by the Company of the transactions
on its part contemplated herein, except such as have been
obtained under the Act or the Rules and Regulations and such as
may be required under state securities or Blue Sky laws or the
by-laws and rules of the National Association of Securities
Dealers, Inc. (the "NASD") in connection with the purchase and
distribution by the Underwriters of the Shares.
(l) The Company has full corporate power and authority to enter into
this Agreement. This Agreement has been duly authorized, executed
and delivered by the Company and constitutes a valid and binding
agreement of the Company, enforceable against the Company in
accordance with the terms hereof. The performance of this
Agreement and the consummation of the transactions contemplated
hereby will not result in the creation or imposition of any lien,
charge or encumbrance upon any of the assets of the Company
pursuant to the terms or provisions of, or result in a breach or
violation of any of the terms or provisions of, or constitute a
default under, or give any party a right to terminate any of its
obligations under, or result in the acceleration of any
obligation under, the certificate or articles of incorporation or
by-laws of the Company or any of its Subsidiaries, any indenture,
mortgage, deed of trust, voting trust agreement, loan agreement,
bond, debenture, note agreement or
<PAGE> 6
____________, 1999
Page 6 of 23
other evidence of indebtedness, lease, contract or other
agreement or instrument to which the Company or any of its
Subsidiaries is a party or by which the Company, any of its
Subsidiaries or any of its or their properties is bound or
affected, or violate or conflict with any judgment, ruling,
decree, order, statute, rule or regulation of any court or other
governmental agency or body applicable to the business or
properties of the Company or any of its Subsidiaries.
(m) The Company or one of its Subsidiaries has good and marketable
title to all properties and assets described in the Prospectus as
owned by them, free and clear of all liens, charges, encumbrances
or restrictions, except such as are described in the Prospectus
or are not material to the business of the Company or its
Subsidiaries. The Company or its Subsidiaries has valid,
subsisting and enforceable leases for the properties described in
the Prospectus as leased by them. The Company or one of its
Subsidiaries owns or leases all such properties as are necessary
to its operations as now conducted or as proposed to be
conducted, except where the failure to so own or lease would not
materially and adversely affect the business, properties,
business prospects, condition (financial or otherwise) or results
of operations of the Company or its Subsidiaries.
(n) There is no document or contract of a character required to be
described in the Registration Statement or the Prospectus or to
be filed as an exhibit to the Registration Statement which is not
described or filed as required. All such contracts to which the
Company or any of its Subsidiaries is a party have been duly
authorized, executed and delivered by the Company or such
Subsidiary, constitute valid and binding agreements of the
Company or such Subsidiary and are enforceable against and by the
Company or such Subsidiary in accordance with the terms thereof.
(o) No statement, representation, warranty or covenant made by the
Company in this Agreement or made in any certificate or document
required by Section 4 of this Agreement to be delivered to the
Representatives was or will be, when made, inaccurate, untrue or
incorrect.
(p) Neither the Company nor any of its directors, officers or
controlling persons has taken, directly or indirectly, any action
designed, or which might reasonably be expected, to cause or
result, under the Act or otherwise, in, or which has constituted,
stabilization or manipulation of the price of any security of the
Company to facilitate the sale or resale of the Shares.
(q) No holder of securities of the Company has rights to the
registration of any securities of the Company because of the
filing of the Registration Statement, which rights have not been
waived by the holder thereof as of the date hereof.
(r) The Company has filed a registration statement pursuant to
Section 12(g) of the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), to register the Common Stock, has filed an
application to list the Shares on the Nasdaq National Market
("NNM"), and has received notification that the listing has been
approved, subject to notice of issuance of the Shares.
(s) Except as disclosed in or specifically contemplated by the
Prospectus (i) the Company and its Subsidiaries have sufficient
trademarks, trade names, patent rights, mask works, copyrights,
licenses, approvals and governmental authorizations to conduct
their businesses as now conducted, (ii) the Company has no
knowledge of any infringement by it or any of its Subsidiaries of
trademarks, trade name rights, patent rights, mask work rights,
copyrights, licenses, trade secrets or other similar rights of
others, where such infringement could have a material and adverse
effect on the Company, any of its Subsidiaries or the business,
properties, business prospects, condition (financial or
otherwise) or results of operations of the Company or any of its
Subsidiaries, and (iii) there is no claim being made against the
Company or any of its Subsidiaries, or to the best of the
Company's knowledge, any employee of the Company or any of its
Subsidiaries, regarding trademark, trade name, patent, mask work,
copyright, license, trade secret or other infringement which
could have a material and adverse effect on the Company, any of
its Subsidiaries or the business, properties, business prospects,
condition (financial or otherwise) or results of operations of
the Company or any of its Subsidiaries.
(t) The Company and each of its Subsidiaries has filed all federal,
state, local and foreign income tax returns which have been
required to be filed and has paid all taxes and assessments
received by it to
<PAGE> 7
____________, 1999
Page 7 of 23
the extent that such taxes or assessments have become due.
Neither the Company nor any of its Subsidiaries has any tax
deficiency which has been or, to the best knowledge of the
Company, might be asserted or threatened against it which could
have a material and adverse effect on the business, properties,
business prospects, condition (financial or otherwise) or results
of operations of the Company or its Subsidiaries.
(u) The pro forma financial information set forth in the Registration
Statement reflects, subject to the limitations set forth in the
Registration Statement as to such pro forma financial
information, the results of operations of the Company and its
consolidated Subsidiaries purported to be shown thereby for the
periods indicated and conforms to the requirements of Regulation
S-X of the Rules and Regulations and management of the Company
believes (i) the assumptions underlying the pro forma adjustments
are reasonable, (ii) that such adjustments have been properly
applied to the historical amounts in the compilation of such
statements, and (iii) that such statements present fairly, with
respect to the Company and its consolidated Subsidiaries, the pro
forma financial position and results of operations and the other
information purported to be shown therein at the respective dates
or for the respective periods therein specified.
(v) The Company or its Subsidiaries owns or possesses all
authorizations, approvals, orders, licenses, registrations, other
certificates and permits of and from all governmental regulatory
officials and bodies, necessary to conduct its business their
respective businesses as contemplated in the Prospectus, except
where the failure to own or possess all such authorizations,
approvals, orders, licenses, registrations, other certificates
and permits would not materially and adversely affect the
Company, any of its Subsidiaries or the business, properties,
business prospects, condition (financial or otherwise) or results
of operations of the Company or any of its Subsidiaries. There is
no proceeding pending or threatened (or any basis therefor known
to the Company) which may cause any such authorization, approval,
order, license, registration, certificate or permit to be
revoked, withdrawn, cancelled, suspended or not renewed; and the
Company and each of its Subsidiaries is conducting its business
in compliance with all laws, rules and regulations applicable
thereto (including, without limitation, all applicable federal,
state and local environmental laws and regulations) except where
such noncompliance would not materially and adversely affect the
Company, any of its Subsidiaries or the business, properties,
business prospects, condition (financial or otherwise) or results
of operations of the Company or any of its Subsidiaries.
(w) The Company and each of its Subsidiaries maintains insurance of
the types and in the amounts generally deemed adequate for its
business, including, but not limited to, insurance covering real
and personal property owned or leased by the Company and its
Subsidiaries against theft, damage, destruction, acts of
vandalism and all other risks customarily insured against, all of
which insurance is in full force and effect.
(x) Neither the Company nor any of its Subsidiaries has nor, to the
best of the Company's knowledge, any of its or their respective
employees or agents at any time during the last five years (i)
made any unlawful contribution to any candidate for foreign
office, or failed to disclose fully any contribution in violation
of law, or (ii) made any payment to any federal or state
governmental officer or official, or other person charged with
similar public or quasi-public duties, other than payments
required or permitted by the laws of the United States or any
jurisdiction thereof.
4. Agreements of the Company. The Company covenants and agrees with the
several Underwriters as follows:
(a) The Company will not, either prior to the Effective Date or
thereafter during such period as the Prospectus is required by
law to be delivered in connection with sales of the Shares by an
Underwriter or dealer, file any amendment or supplement to the
Registration Statement or the Prospectus, unless a copy thereof
shall first have been submitted to the Representatives within a
reasonable period of time prior to the filing thereof and the
Representatives shall not have objected thereto in good faith.
<PAGE> 8
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Page 8 of 23
(b) The Company will use its best efforts to cause the Registration
Statement to become effective, and will notify the
Representatives promptly, and will confirm such advice in
writing, (i) when the Registration Statement has become effective
and when any post-effective amendment thereto becomes effective,
(ii) of any request by the Commission for amendments or
supplements to the Registration Statement or the Prospectus or
for additional information, (iii) of the issuance by the
Commission of any stop order suspending the effectiveness of the
Registration Statement or the initiation of any proceedings for
that purpose or the threat thereof, (iv) of the happening of any
event during the period mentioned in the second sentence of
Section 4(e) that in the judgment of the Company makes any
statement made in the Registration Statement or the Prospectus
untrue or that requires the making of any changes in the
Registration Statement or the Prospectus in order to make the
statements therein, in the light of the circumstances in which
they are made, not misleading and (v) of receipt by the Company
or any representative or attorney of the Company of any other
communication from the Commission relating to the Company, the
Registration Statement, any preliminary prospectus or the
Prospectus. If at any time the Commission shall issue any order
suspending the effectiveness of the Registration Statement, the
Company will make every reasonable effort to obtain the
withdrawal of such order at the earliest possible moment. If the
Company has omitted any information from the Registration
Statement pursuant to Rule 430A of the Rules and Regulations, the
Company will comply with the provisions of and make all requisite
filings with the Commission pursuant to said Rule 430A and notify
the Representatives promptly of all such filings.
(c) The Company will furnish to each Representative, without charge,
one signed copy of each of the Registration Statement and of any
post-effective amendment thereto, including financial statements
and schedules, and all exhibits thereto and will furnish to the
Representatives, without charge, for transmittal to each of the
other Underwriters, a copy of the Registration Statement and any
post-effective amendment thereto, including financial statements
and schedules but without exhibits.
(d) The Company will comply with all the provisions of any
undertakings contained in the Registration Statement.
(e) On the Effective Date, and thereafter from time to time, the
Company will deliver to each of the Underwriters, without charge,
as many copies of the Prospectus or any amendment or supplement
thereto as the Representatives may reasonably request. The
Company consents to the use of the Prospectus or any amendment or
supplement thereto by the several Underwriters and by all dealers
to whom the Shares may be sold, both in connection with the
offering or sale of the Shares and for any period of time
thereafter during which the Prospectus is required by law to be
delivered in connection therewith. If during such period of time
any event shall occur which in the judgment of the Company or
counsel to the Underwriters should be set forth in the Prospectus
in order to make any statement therein, in the light of the
circumstances under which it was made, not misleading, or if it
is necessary to supplement or amend the Prospectus to comply with
law, the Company will forthwith prepare and duly file with the
Commission an appropriate supplement or amendment thereto, and
will deliver to each of the Underwriters, without charge, such
number of copies of such supplement or amendment to the
Prospectus as the Representatives may reasonably request. The
Company will not file any document under the Exchange Act or the
Exchange Act Rules and Regulations before the termination of the
offering of the Shares by the Underwriters, if such document
would be deemed to be incorporated by reference into the
Prospectus, that is not approved by the Representatives after
reasonable notice thereof.
(f) Prior to any public offering of the Shares, the Company will
cooperate with the Representatives and counsel to the
Underwriters in connection with the registration or qualification
of the Shares for offer and sale under the securities or Blue Sky
laws of such jurisdictions as the Representatives may request;
provided, that in no event shall the Company be obligated to
qualify to do business in any jurisdiction where it is not now so
qualified or to take any action which would subject it to general
service of process in any jurisdiction where it is not now so
subject.
(g) The Company will, so long as required under the Rules and
Regulations, furnish to its stockholders as soon as practicable
after the end of each fiscal year an annual report (including a
balance sheet and statements of income, stockholders' equity and
cash flow of the Company and its consolidated
<PAGE> 9
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Subsidiaries, if any, certified by independent public
accountants) and, as soon as practicable after the end of each of
the first three quarters of each fiscal year (beginning with the
fiscal quarter ending after the effective date of the
Registration Statement), consolidated summary financial
information of the Company and its Subsidiaries, if any, for such
quarter in reasonable detail.
(h) During the period of five years commencing on the Effective Date,
the Company will furnish to the Representatives and each other
Underwriter who may so request copies of such financial
statements and other periodic and special reports as the Company
may from time to time distribute generally to the holders of any
class of its capital stock, and will furnish to the
Representatives and each other Underwriter who may so request a
copy of each annual or other report it shall be required to file
with the Commission.
(i) The Company will make generally available to holders of its
securities as soon as may be practicable but in no event later
than the last day of the fifteenth full calendar month following
the calendar quarter in which the Effective Date falls, an
earnings statement (which need not be audited but shall be in
reasonable detail) for a period of 12 months ended commencing
after the Effective Date, and satisfying the provisions of
Section 11(a) of the Act (including Rule 158 of the Rules and
Regulations).
(j) Whether or not the transactions contemplated by this Agreement
are consummated or this Agreement is terminated, the Company will
pay or reimburse if paid by the Representatives all costs and
expenses incident to the performance of the obligations of the
Company under this Agreement and in connection with the
transactions contemplated hereby, including but not limited to
costs and expenses of or relating to (i) the preparation,
printing and filing of the Registration Statement and exhibits to
it, each preliminary prospectus, Prospectus and any amendment or
supplement to the Registration Statement or Prospectus, (ii) the
preparation and delivery of certificates representing the Shares,
(iii) the printing of this Agreement, the Agreement Among
Underwriters, any Selected Dealer Agreements, any Underwriters'
Questionnaires, any Underwriters' Powers of Attorney, and any
invitation letters to prospective Underwriters, (iv) furnishing
(including costs of shipping and mailing) such copies of the
Registration Statement, the Prospectus and any preliminary
prospectus, and all amendments and supplements thereto, as may be
requested for use in connection with the offering and sale of the
Shares by the Underwriters or by dealers to whom Shares may be
sold, (v) the listing of the Shares on the NNM, (vi) any filings
required to be made by the Underwriters with the NASD, and the
fees, disbursements and other charges of counsel for the
Underwriters in connection therewith, (vii) the registration or
qualification of the Shares for offer and sale under the
securities or Blue Sky laws of such jurisdictions designated
pursuant to Section 4(f), including the fees, disbursements and
other charges of counsel to the Underwriters in connection
therewith, and the preparation and printing of preliminary,
supplemental and final Blue Sky memoranda, (viii) fees,
disbursements and other charges of counsel to the Company (but
not those of counsel for the Underwriters, except as otherwise
provided herein) and (ix) the transfer agent for the Shares.
(k) The Company will not at any time, directly or indirectly, take
any action designed or which might reasonably be expected to
cause or result in, or which will constitute, stabilization of
the price of the shares of Common Stock to facilitate the sale or
resale of any of the Shares.
(l) The Company will apply the net proceeds from the offering and
sale of the Shares to be sold by the Company in the manner set
forth in the Prospectus under "Use of Proceeds" and shall file
such reports with the Commission with respect to the sale of the
Shares and the application of the proceeds therefrom as may be
required in accordance with Rule 463 under the Act.
(m) During the period beginning from the date hereof and continuing
to and including the date 180 days after the date of the
Prospectus, without the prior written consent of Needham &
Company, Inc., the Company will not offer, sell, contract to
sell, grant options to purchase or otherwise dispose of any of
the Company's equity securities of the Company or any other
securities convertible into or exchangeable with its Common Stock
or other equity security (other than pursuant to employee stock
option plans or the conversion of convertible securities or the
exercise of warrants outstanding on the date of this Agreement).
<PAGE> 10
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(n) During the period of 180 days after the date of the Prospectus,
the Company will not, without the prior written consent of
Needham & Company, Inc., grant options to purchase shares of
Common Stock at a price less than the initial public offering
price. During the period of 180 days after the date of the
Prospectus, the Company will not file with the Commission or
cause to become effective any registration statement relating to
any securities of the Company without the prior written consent
of Needham & Company, Inc.
(o) The Company will cause each of its officers, directors and
certain stockholders designated by the Representatives to, enter
into lock-up agreements with the Representatives to the effect
that they will not, without the prior written consent of Needham
& Company, Inc., sell, contract to sell or otherwise dispose of
any shares of Common Stock or rights to acquire such shares
according to the terms set forth in Schedule II hereto.
(p) The Company will not file with the Commission any registration
statement on Form S-8 relating to shares of its Common Stock
prior to 90 days after the effective date of the Registration
Statement.
5. Conditions of the Obligations of the Underwriters. The obligations of
each Underwriter hereunder are subject to the following conditions:
(a) Notification that the Registration Statement has become effective
shall be received by the Representatives not later than 5:00
p.m., New York City time, on the date of this Agreement or at
such later date and time as shall be consented to in writing by
the Representatives and all filings required by Rule 424 and Rule
430A of the Rules and Regulations shall have been made.
(b) (i) No stop order suspending the effectiveness of the
Registration Statement shall have been issued and no proceedings
for that purpose shall be pending or threatened by the
Commission, (ii) no order suspending the effectiveness of the
Registration Statement or the qualification or registration of
the Shares under the securities or Blue Sky laws of any
jurisdiction shall be in effect and no proceeding for such
purpose shall be pending before or threatened or contemplated by
the Commission or the authorities of any such jurisdiction, (iii)
any request for additional information on the part of the staff
of the Commission or any such authorities shall have been
complied with to the satisfaction of the staff of the Commission
or such authorities and (iv) after the date hereof no amendment
or supplement to the Registration Statement or the Prospectus
shall have been filed unless a copy thereof was first submitted
to the Representatives and the Representatives do not object
thereto in good faith, and the Representatives shall have
received certificates, dated the Closing Date and, if later, the
Option Closing Date and signed by the Chief Executive Officer and
the Chief Financial Officer of the Company (who may, as to
proceedings threatened, rely upon the best of their information
and belief), to the effect of clauses (i), (ii) and (iii) of this
paragraph.
(c) Since the respective dates as of which information is given in
the Registration Statement and the Prospectus, (i) there shall
not have been a material adverse change in the general affairs,
business, business prospects, properties, management, condition
(financial or otherwise) or results of operations of the Company
or any of its Subsidiaries, whether or not arising from
transactions in the ordinary course of business, in each case
other than as described in or contemplated by the Registration
Statement and the Prospectus, and (ii) the Company shall not have
sustained any material loss or interference with its business or
properties from fire, explosion, flood or other casualty, whether
or not covered by insurance, or from any labor dispute or any
court or legislative or other governmental action, order or
decree, which is not described in the Registration Statement and
the Prospectus, if in the judgment of the Representatives any
such development makes it impracticable or inadvisable to
consummate the sale and delivery of the Shares by the
Underwriters at the initial public offering price.
(d) Since the respective dates as of which information is given in
the Registration Statement and the Prospectus, there shall have
been no litigation or other proceeding instituted against the
Company, any of its Subsidiaries, or any of its or their officers
or directors in their capacities as such, before or by any
Federal, state or local court, commission, regulatory body,
administrative agency or other governmental body, domestic or
foreign, in which litigation or proceeding an unfavorable ruling,
<PAGE> 11
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Page 11 of 23
decision or finding would, in the judgment of the
Representatives, materially and adversely affect the business,
properties, business prospects, condition (financial or
otherwise) or results of operations of the Company or any of its
Subsidiaries.
(e) Each of the representations and warranties of the Company
contained herein shall be true and correct in all material
respects at the Closing Date and, with respect to the Option
Shares, at the Option Closing Date, and all covenants and
agreements contained herein to be performed on the part of the
Company and all conditions contained herein to be fulfilled or
complied with by the Company at or prior to the Closing Date and,
with respect to the Option Shares, at or prior to the Option
Closing Date, shall have been duly performed, fulfilled or
complied with.
(f) The Representatives shall have received an opinion, dated the
Closing Date and, with respect to the Option Shares, the Option
Closing Date, satisfactory in form and substance to the
Representatives and counsel for the Underwriters from Stradling
Yocca Carlson & Rauth, counsel to the Company, with respect to
the following matters:
(i) Each of the Company and its Subsidiaries is a corporation
or limited liability company duly organized, validly
existing and in good standing under the laws of its
jurisdiction of incorporation or organization; has full
corporate power and authority to conduct all the
activities conducted by it, to own or lease all the assets
owned or leased by it and to conduct its business as
described in the Registration Statement and Prospectus;
and to the knowledge of such counsel is duly licensed or
qualified to do business and is in good standing as a
foreign corporation in all jurisdictions in which the
nature of the activities conducted by it or the character
of the assets owned or leased by it makes such license or
qualification necessary and where the failure to be
licensed or qualified would have a material and adverse
effect on the Company.
(ii) All of the outstanding shares of capital stock of the
Company have been duly authorized, validly issued and are
fully paid and nonassessable, to such counsel's knowledge,
were issued pursuant to exemptions from the registration
and qualification requirements of federal and applicable
state securities laws, and were not issued in violation of
or subject to any preemptive or, to such counsel's
knowledge, similar rights.
(iii) The specimen certificate evidencing the Common Stock filed
as an exhibit to the Registration Statement is in due and
proper form under Delaware law, the Shares have been duly
authorized and, when issued and paid for as contemplated
by this Agreement, will be validly issued, fully paid and
nonassessable; and no preemptive or similar rights exist
with respect to any of the Shares or the issue and sale
thereof.
(iv) All of the outstanding shares of capital stock or
membership units of each Subsidiary have been duly
authorized and validly issued and are fully paid and
nonassessable, and to our knowledge are owned by the
Company free of any Adverse Interests (other than
transferability restrictions under applicable securities
laws); and to such counsel's knowledge, there are no
securities outstanding that are convertible into or
exercisable or exchangeable for capital stock of any
Subsidiary.
(v) The authorized capital stock and to such counsel's
knowledge the outstanding capital stock of the Company is
as set forth in the Registration Statement and the
Prospectus in the column entitled "Actual" under the
caption "Capitalization" (except for subsequent issuances,
if any, pursuant to this Agreement or pursuant to
reservations, agreements, employee benefit plans or the
exercise of convertible securities, options or warrants
referred to in the Prospectus). To such counsel's
knowledge, except as disclosed in or specifically
contemplated by the Prospectus, there are no outstanding
options, warrants of other rights calling for the issuance
of, and no commitments, plans or arrangements to issue,
any shares of capital stock of the Company or any security
convertible into or exchangeable or exercisable for
capital stock of the Company. The
<PAGE> 12
____________, 1999
Page 12 of 23
description of the capital stock of the Company in the
Registration Statement and the Prospectus conforms in all
material respects to the terms thereof.
(vi) To such counsel's knowledge, there are no legal or
governmental proceedings pending or threatened to which
the Company or any of its Subsidiaries is a party or to
which any of their respective properties is subject that
are required to be described in the Registration Statement
or the Prospectus but are not so described.
(vii) No consent, approval, authorization or order of, or any
filing or declaration with, any court or governmental
agency or body is required for the consummation by the
Company of the transactions on its part contemplated under
this Agreement, except such as have been obtained or made
under the Act or the Rules and Regulations except that
such counsel need not opine as to any such consents,
approvals, authorizations, orders, filings or declarations
required under state securities or Blue Sky laws or the
by-laws and rules of the NASD in connection with the
purchase and distribution by the Underwriters of the
Shares.
(viii) The Company has full corporate power and authority to
enter into this Agreement. This Agreement has been duly
authorized, executed and delivered by the Company.
(ix) The execution and delivery of this Agreement, the
compliance by the Company with all of the terms hereof and
the consummation of the transactions contemplated hereby
does not contravene any provision of applicable law or the
Certificate of Incorporation or By-Laws, or Articles of
Organization, as applicable, of the Company or any of its
Subsidiaries, and to the best of such counsel's knowledge
will not result in the creation or imposition of any lien,
charge or encumbrance upon any of the assets of the
Company pursuant to the terms and provisions of, result in
a breach or violation of any of the terms or provisions
of, or constitute a default under, or give any party a
right to terminate any of its obligations under, or result
in the acceleration of any obligation under, any lease,
contract or other agreement or instrument filed as an
exhibit to the Registration Statement, or violate or
conflict with (i) any judgment, ruling, decree or order
known to such counsel or (ii) any California or federal
statute, rule or regulation of any court or other
California or federal governmental agency or body,
applicable to the business or properties of the Company or
any of its Subsidiaries.
(x) To such counsel's knowledge, there is no document or
contract of a character required to be described in the
Registration Statement or the Prospectus or to be filed as
an exhibit to the Registration Statement which is not
described or filed or incorporated by reference as
required, and each description of such contracts and
documents that is contained in the Registration Statement
and Prospectus fairly presents in all material respects
the information required under the Act and the Rules and
Regulations.
(xi) The statements under the captions "Risk Factors -- A
significant number of shares are eligible for sale and
their sale could depress our stock price," "Risk Factors
-- provisions in our charter documents may make an
acquisition of us more difficult," "Management -- Employee
Benefit Plans," "Management -- Employment Agreements,"
"Certain Relationships and Related Transactions,"
"Description of Capital Stock," and "Shares Eligible for
Future Sale" in the Prospectus, insofar as the statements
constitute a summary of documents referred to therein or
matters of law, are accurate summaries and fairly and
correctly present, in all material respects, the
information called for with respect to such documents and
matters (provided, however, that such counsel may rely on
representations of the Company with respect to the factual
matters contained in such statements, and provided further
that such counsel shall state that nothing has come to the
attention of such counsel which leads them to believe that
such representations are not true and correct in all
material respects).
<PAGE> 13
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Page 13 of 23
(xii) The Company is not an "investment company" or an
"affiliated person" of, or "promoter" or "principal
underwriter" for, an "investment company," as such terms
are defined in the Investment Company Act of 1940, as
amended.
(xiii) The Shares have been duly authorized for listing on the
NNM, subject to notice of issuance.
(xiv) To such counsel's knowledge, no holder of securities of
the Company has rights, which have not been waived or
satisfied, to require the register with the Commission
shares of Common Stock or other securities, as part of the
offering contemplated hereby.
(xv) The Registration Statement has become effective under the
Act, and such counsel's knowledge, no stop order
suspending the effectiveness of the Registration Statement
has been issued and no proceeding for that purpose has
been instituted or is pending, threatened or contemplated.
(xvi) The Registration Statement and the Prospectus comply as to
form in all material respects with the requirement of the
Act and the Rules and Regulations (other than the
financial statements, schedules and other financial or
statistical data contained or incorporated by reference in
the Registration Statement or the Prospectus, as to which
such counsel need express no opinion).
Such counsel shall state, separately and not as a part of
its opinion, that such counsel participated in the
preparation of the Registration Statement and Prospectus
and such counsel has no reason to believe that, as of the
Effective Date the Registration Statement, or any
amendment or supplement thereto, (other than the financial
statements, schedules and other financial and statistical
data contained or incorporated by reference therein, as to
which such counsel need express no opinion) contained any
untrue statement of a material fact or omitted to state a
material fact required to be stated therein or necessary
to make the statements therein, in light of the
circumstances under which they were made, not misleading,
or that the Prospectus, or any amendment or supplement
thereto, as of its date and the Closing Date and, if
later, the Option Closing Date, contained or contains any
untrue statement of a material fact or omitted or omits to
state a material fact necessary to make the statements
therein, in the light of the circumstances under which
they were made, not misleading (other than the financial
statements, schedules and other financial and statistical
data contained or incorporated by reference therein, as to
which such counsel need express no opinion).
In rendering such opinion, such counsel may rely upon as to matters of
local law on opinions of counsel satisfactory in form and substance to the
Representatives and counsel for the Underwriters, provided that the opinion of
counsel to the Company shall state that they are doing so, that they have no
reason to believe that they and the Underwriters are not entitled to rely on
such opinions and that copies of such opinions are to be attached to the
opinion.
(g) The Representatives shall have received an opinion, dated the
Closing Date and the Option Closing Date, from Heller Ehrman
White & McAuliffe, counsel to the Underwriters, with respect to
the Registration Statement, the Prospectus and this Agreement,
which opinion shall be satisfactory in all respects to the
Representatives.
(h) Concurrently with the execution and delivery of this Agreement,
the Accountants shall have furnished to the Representatives a
letter, dated the date of its delivery, addressed to the
Representatives and in form and substance satisfactory to the
Representatives, confirming that they are independent accountants
with respect to the Company and its Subsidiaries as required by
the Act and the Exchange Act and the Rules and Regulations and
with respect to certain financial and other statistical and
numerical information contained or incorporated by reference in
the Registration Statement. At the Closing Date and, as to the
Option Shares, the Option Closing Date, the Accountants shall
have furnished to the Representatives a letter, dated the date of
its delivery, which
<PAGE> 14
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shall confirm, on the basis of a review in accordance with the
procedures set forth in the letter from the Accountants, that
nothing has come to their attention during the period from the
date of the letter referred to in the prior sentence to a date
(specified in the letter) not more than five days prior to the
Closing Date and the Option Closing Date, as the case may be,
which would require any change in their letter dated the date
hereof if it were required to be dated and delivered at the
Closing Date and the Option Closing Date.
(i) Concurrently with the execution and delivery of this
Agreement and at the Closing Date and, as to the Option
Shares, the Option Closing Date, there shall be furnished
to the Representatives a certificate, dated the date of
its delivery, signed by each of the Chief Executive
Officer and the Chief Financial Officer of the Company, in
form and substance satisfactory to the Representatives, to
the effect that:
(ii) Each signer of such certificate has carefully examined the
Registration Statement and the Prospectus (including any
documents filed under the Exchange Act and deemed to be
incorporated by reference into the Prospectus) and (A) as
of the date of such certificate, such documents are true
and correct in all material respects and do not omit to
state a material fact required to be stated therein or
necessary in order to make the statements therein not
untrue or misleading and (B) in the case of the
certificate delivered at the Closing Date and the Option
Closing Date, since the Effective Date no event has
occurred as a result of which it is necessary to amend or
supplement the Prospectus in order to make the statements
therein not untrue or misleading.
(iii) Each of the representations and warranties of the Company
contained in this Agreement were, when originally made,
and are, at the time such certificate is delivered, true
and correct.
(iv) Each of the covenants required to be performed by the
Company herein on or prior to the date of such certificate
has been duly, timely and fully performed and each
condition herein required to be satisfied or fulfilled on
or prior to the date of such certificate has been duly,
timely and fully satisfied or fulfilled.
(j) On or prior to the Closing Date, the Representatives shall have
received the executed agreements referred to in Section 4(o).
(k) The Shares shall be qualified for sale in such jurisdictions as
the Representatives may reasonably request and each such
qualification shall be in effect and not subject to any stop
order or other proceeding on the Closing Date or the Option
Closing Date.
(l) Prior to the Closing Date, the Shares shall have been duly
authorized for listing on the NNM upon official notice of
issuance.
(m) The Company shall have furnished to the Representatives such
certificates, in addition to those specifically mentioned herein,
as the Representatives may have reasonably requested as to the
accuracy and completeness at the Closing Date and the Option
Closing Date of any statement in the Registration Statement or
the Prospectus, as to the accuracy at the Closing Date and the
Option Closing Date of the representations and warranties of the
Company herein, as to the performance by the Company of its
obligations hereunder, or as to the fulfillment of the conditions
concurrent and precedent to the obligations hereunder of the
Representatives.
6. Indemnification.
(a) The Company will indemnify and hold harmless each Underwriter,
the directors, officers, employees and agents of each Underwriter
and each person, if any, who controls each Underwriter within the
meaning of Section 15 of the Act or Section 20 of the Exchange
Act, from and against any and all losses, claims, liabilities,
expenses and damages (including any and all investigative, legal
and other expenses reasonably incurred in connection with, and
any amount paid in settlement of, any action,
<PAGE> 15
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Page 15 of 23
suit or proceeding or any claim asserted), to which they, or any
of them, may become subject under the Act, the Exchange Act or
other Federal or state statutory law or regulation, at common law
or otherwise, insofar as such losses, claims, liabilities,
expenses or damages arise out of or are based on any untrue
statement or alleged untrue statement of a material fact
contained in any preliminary prospectus, the Registration
Statement or the Prospectus or any amendment or supplement to the
Registration Statement or the Prospectus, or the omission or
alleged omission to state in such document a material fact
required to be stated in it or necessary to make the statements
in it not misleading in the light of the circumstances in which
they were made, or arise out of or are based in whole or in part
on any inaccuracy in the representations and warranties of the
Company contained herein or any failure of the Company to perform
its obligations hereunder or under law in connection with the
transactions contemplated hereby; provided, however, that (i) the
Company will not be liable to the extent that such loss, claim,
liability, expense or damage arises from the sale of the Shares
in the public offering to any person by an Underwriter and is
based on an untrue statement or omission or alleged untrue
statement or omission made in reliance on and in conformity with
information relating to any Underwriter furnished in writing to
the Company by the Representatives, on behalf of any Underwriter,
expressly for inclusion in the Registration Statement, the
preliminary prospectus or the Prospectus and (ii) the Company
will not be liable to any Underwriter, the directors, officers,
employees or agents of such Underwriter or any person controlling
such Underwriter with respect to any loss, claim, liability,
expense, or damage arising out of or based on any untrue
statement or omission or alleged untrue statement or omission or
alleged omission to state a material fact in the preliminary
prospectus which is corrected in the Prospectus if the person
asserting any such loss, claim, liability, charge or damage
purchased Shares from such Underwriter but was not sent or given
a copy of the Prospectus at or prior to the written confirmation
of the sale of such Shares to such person. The Company
acknowledges that the statements set forth under the heading
"Underwriting" in the preliminary prospectus and the Prospectus
constitute the only information relating to any Underwriter
furnished in writing to the Company by the Representatives on
behalf of the Underwriters expressly for inclusion in the
Registration Statement, the preliminary prospectus or the
Prospectus. This indemnity agreement will be in addition to any
liability that the Company might otherwise have.
(b) Each Underwriter will indemnify and hold harmless the Company,
each director of the Company, each officer of the Company who
signs the Registration Statement, and each person, if any, who
controls the Company within the meaning of Section 15 of the Act
or Section 20 of the Exchange Act, to the same extent as the
foregoing indemnity from the Company to each Underwriter, as set
forth in Section 6(a), but only insofar as losses, claims,
liabilities, expenses or damages arise out of or are based on any
untrue statement or omission or alleged untrue statement or
omission made in reliance on and in conformity with information
relating to any Underwriter furnished in writing to the Company
by the Representatives, on behalf of such Underwriter, expressly
for use in the Registration Statement, the preliminary prospectus
or the Prospectus. The Company acknowledges that the statements
set forth under the heading "Underwriting" in the preliminary
prospectus and the Prospectus constitute the only information
relating to any Underwriter furnished in writing to the Company
by the Representatives on behalf of the Underwriters expressly
for inclusion in the Registration Statement, the preliminary
prospectus or the Prospectus. This indemnity will be in addition
to any liability that each Underwriter might otherwise have.
(c) Any party that proposes to assert the right to be indemnified
under this Section 6 shall, promptly after receipt of notice of
commencement of any action against such party in respect of which
a claim is to be made against an indemnifying party or parties
under this Section 6, notify each such indemnifying party in
writing of the commencement of such action, enclosing with such
notice a copy of all papers served, but the omission so to notify
such indemnifying party will not relieve it from any liability
that it may have to any indemnified party under the foregoing
provisions of this Section 6 unless, and only to the extent that,
such omission results in the loss of substantive rights or
defenses by the indemnifying party. If any such action is brought
against any indemnified party and it notifies the indemnifying
party of its commencement, the indemnifying party will be
entitled to participate in and, to the extent that it elects by
delivering written notice to the indemnified party promptly after
receiving notice of the commencement of the action from the
indemnified party, jointly with any
<PAGE> 16
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Page 16 of 23
other indemnifying party similarly notified, to assume the
defense of the action, with counsel reasonably satisfactory to
the indemnified party. After notice from the indemnifying party
to the indemnified party of its election to assume the defense,
the indemnifying party will not be liable to the indemnified
party for any legal or other expenses except as provided below
and except for the reasonable costs of investigation subsequently
incurred by the indemnified party in connection with the defense.
The indemnified party will have the right to employ its own
counsel in any such action, but the fees, expenses and other
charges of such counsel will be at the expense of such
indemnified party unless (i) the employment of counsel by the
indemnified party has been authorized in writing by the
indemnifying party, (ii) the indemnified party has reasonably
concluded (based on advice of counsel) that there may be legal
defenses available to it or other indemnified parties that are
different from or in addition to those available to the
indemnifying party, (iii) a conflict or potential conflict exists
(based on advice of counsel to the indemnified party) between the
indemnified party and the indemnifying party (in which case the
indemnifying party will not have the right to direct the defense
of such action on behalf of the indemnified party) or (iv) the
indemnifying party has not in fact employed counsel to assume the
defense of such action within a reasonable time after receiving
notice of the commencement of the action, in each of which cases
the reasonable fees, disbursements and other charges of counsel
will be at the expense of the indemnifying party or parties. It
is understood that the indemnifying party or parties shall not,
in connection with any proceeding or related proceedings in the
same jurisdiction, be liable for the reasonable fees,
disbursements and other charges of more than one separate firm
admitted to practice in such jurisdiction at any one time for all
such indemnified party or parties. All such fees, disbursements
and other charges will be reimbursed by the indemnifying party
promptly as they are incurred. Any indemnifying party will not be
liable for any settlement of any action or claim effected without
its written consent (which consent will not be unreasonably
withheld).
(d) If the indemnification provided for in this Section 6 is
applicable in accordance with its terms but for any reason is
held to be unavailable to or insufficient to hold harmless an
indemnified party under paragraphs (a), (b) and (c) of this
Section 6 in respect of any losses, claims, liabilities, expenses
and damages referred to therein, then each applicable
indemnifying party, in lieu of indemnifying such indemnified
party, shall contribute to the amount paid or payable (including
any investigative, legal and other expenses reasonably incurred
in connection with, and any amount paid in settlement of, any
action, suit or proceeding or any claim asserted, but after
deducting any contribution received by the Company from persons
other than the Underwriters, such as persons who control the
Company within the meaning of the Act, officers of the Company
who signed the Registration Statement and directors of the
Company, who also may be liable for contribution) by such
indemnified party as a result of such losses, claims,
liabilities, expenses and damages in such proportion as shall be
appropriate to reflect the relative benefits received by the
Company, on the one hand, and the Underwriters, on the other
hand. The relative benefits received by the Company, on the one
hand, and the Underwriters, on the other hand, shall be deemed to
be in the same proportion as the total net proceeds from the
offering (before deducting expenses) received by the Company bear
to the total underwriting discounts and commissions received by
the Underwriters, in each case as set forth in the table on the
cover page of the Prospectus. If, but only if, the allocation
provided by the foregoing sentence is not permitted by applicable
law, the allocation of contribution shall be made in such
proportion as is appropriate to reflect not only the relative
benefits referred to in the foregoing sentence but also the
relative fault of the Company, on the one hand, and the
Underwriters, on the other hand, with respect to the statements
or omissions which resulted in such loss, claim, liability,
expense or damage, or action in respect thereof, as well as any
other relevant equitable considerations with respect to such
offering. Such relative fault shall be determined by reference to
whether the untrue or alleged untrue statement of a material fact
or omission or alleged omission to state a material fact relates
to information supplied by the Company or the Representatives on
behalf of the Underwriters, the intent of the parties and their
relative knowledge, access to information and opportunity to
correct or prevent such statement or omission. The Company and
the Underwriters agree that it would not be just and equitable if
contributions pursuant to this Section 6(d) were to be determined
by pro rata allocation (even if the Underwriters were treated as
one entity for such purpose) or by any other method of allocation
which does not take into account the equitable considerations
referred to herein. The amount paid or payable by an indemnified
party as a result of
<PAGE> 17
____________, 1999
Page 17 of 23
the loss claim, liability, expense or damage, or action in
respect thereof, referred to above in this Section 6(d) shall be
deemed to include, for purposes of this Section 6(d), any legal
or other expenses reasonably incurred by such indemnified party
in connection with investigating or defending any such action or
claim. Notwithstanding the provisions of this Section 6(d), no
Underwriter shall be required to contribute any amount in excess
of the underwriting discounts received by it and no person found
guilty of fraudulent misrepresentation (within the meaning of
Section 11(f) of the Act) will be entitled to contribution from
any person who was not guilty of such fraudulent
misrepresentation. The Underwriters' obligations to contribute as
provided in this Section 6(d) are several in proportion to their
respective underwriting obligations and not joint. For purposes
of this Section 6(d), any person who controls a party to this
Agreement within the meaning of the Act will have the same rights
to contribution as that party, and each officer of the Company
who signed the Registration Statement will have the same rights
to contribution as the Company, subject in each case to the
provisions hereof. Any party entitled to contribution, promptly
after receipt of notice of commencement of any action against any
such party in respect of which a claim for contribution may be
made under this Section 6(d), will notify any such party or
parties from whom contribution may be sought, but the omission so
to notify will not relieve the party or parties from whom
contribution may be sought from any other obligation it or they
may have under this Section 6(d). No party will be liable for
contribution with respect to any action or claim settled without
its written consent (which consent will not be unreasonably
withheld).
(e) The indemnity and contribution agreements contained in this
Section 6 and the representations and warranties of the Company
contained in this Agreement shall remain operative and in full
force and effect regardless of (i) any investigation made by or
on behalf of the Underwriters, (ii) acceptance of any of the
Shares and payment therefor or (iii) any termination of this
Agreement.
<PAGE> 18
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Page 18 of 23
7. Reimbursement of Certain Expenses. In addition to its other
obligations under Section 6(a) of this Agreement, the Company hereby
agrees to reimburse on a quarterly basis the Underwriters for all
reasonable legal and other expenses incurred in connection with
investigating or defending any claim, action, investigation, inquiry
or other proceeding arising out of or based upon, in whole or in
part, any statement or omission or alleged statement or omission, or
any inaccuracy in the representations and warranties of the Company
contained herein or failure of the Company to perform its or their
respective obligations hereunder or under law, all as described in
Section 6(a), notwithstanding the absence of a judicial determination
as to the propriety and enforceability of the obligations under this
Section 7 and the possibility that such payment might later be held
to be improper; provided, however, that, to the extent any such
payment is ultimately held to be improper, the persons receiving such
payments shall promptly refund them.
8. Termination. The obligations of the several Underwriters under this
Agreement may be terminated at any time on or prior to the Closing
Date (or, with respect to the Option Shares, on or prior to the
Option Closing Date), by notice to the Company from the
Representatives, without liability on the part of any Underwriter to
the Company if, prior to delivery and payment for the Firm Shares or
Option Shares, as the case may be, in the sole judgment of the
Representatives, (i) trading in any of the equity securities of the
Company shall have been suspended by the Commission or by The Nasdaq
Stock Market, (ii) trading in securities generally on the The Nasdaq
Stock Market shall have been suspended or limited or minimum or
maximum prices shall have been generally established on such
exchange, or additional material governmental restrictions, not in
force on the date of this Agreement, shall have been imposed upon
trading in securities generally by such exchange, by order of the
Commission or any court or other governmental authority, or by The
Nasdaq Stock Market, (iii) a general banking moratorium shall have
been declared by either Federal or New York State authorities or (iv)
any material adverse change in the financial or securities markets in
the United States or in political, financial or economic conditions
in the United States or any outbreak or material escalation of
hostilities or other calamity or crisis shall have occurred, the
effect of which is such as to make it, in the sole judgment of the
Representatives, impracticable or inadvisable to proceed with
completion of the public offering or the delivery of and payment for
the Shares.
If this Agreement is terminated pursuant to Section 9 hereof, neither
the Company nor any Selling Stockholder shall be under any liability
to any Underwriter except as provided in Sections 7 and 8 hereof;
but, if for any other reason the purchase of the Shares by the
Underwriters is not consummated or if for any reason the Company
shall be unable to perform its obligations hereunder, the Company
will reimburse the several Underwriters for all out-of-pocket
expenses (including the fees, disbursements and other charges of
counsel to the Underwriters) incurred by them in connection with the
offering of the Shares.
9. Substitution of Underwriters. If any one or more of the Underwriters
shall fail or refuse to purchase any of the Firm Shares which it or
they have agreed to purchase hereunder, and the aggregate number of
Firm Shares which such defaulting Underwriter or Underwriters agreed
but failed or refused to purchase is not more than one-tenth of the
aggregate number of Firm Shares, the other Underwriters shall be
obligated, severally, to purchase the Firm Shares which such
defaulting Underwriter or Underwriters agreed but failed or refused
to purchase, in the proportions which the number of Firm Shares which
they have respectively agreed to purchase pursuant to Section 1 bears
to the aggregate number of Firm Shares which all such non-defaulting
Underwriters have so agreed to purchase, or in such other proportions
as the Representatives may specify; provided that in no event shall
the maximum number of Firm Shares which any Underwriter has become
obligated to purchase pursuant to Section 1 be increased pursuant to
this Section 10 by more than one-tenth of such number of Firm Shares
without the prior written consent of such Underwriter. If any
Underwriter or Underwriters shall fail or refuse to purchase any Firm
Shares and the aggregate number of Firm Shares which such defaulting
Underwriter or Underwriters agreed but failed or refused to purchase
exceeds one-tenth of the aggregate number of the Firm Shares and
arrangements satisfactory to the Representatives and the Company for
the purchase of such Firm Shares are not made within 48 hours after
such default, this Agreement will terminate without liability on the
part of any non-defaulting Underwriter and the Company for the
purchase or sale of any Shares under this Agreement. In any such case
either the Representatives or the Company shall have the right to
postpone
<PAGE> 19
____________, 1999
Page 19 of 23
the Closing Date, but in no event for longer than seven days, in
order that the required changes, if any, in the Registration
Statement and the Prospectus or in any other documents or
arrangements may be effected. Any action taken pursuant to this
Section 10 shall not relieve any defaulting Underwriter from
liability in respect of any default of such Underwriter under this
Agreement.
10. Miscellaneous. Notice given pursuant to any of the provisions of this
Agreement shall be in writing and, unless otherwise specified, shall
be mailed or delivered (a) if to the Company, at the office of the
Company, 1936 Deere Street, Suite 102, Santa Ana, California 92705,
Attention: Chief Executive Officer, with a copy to Ben A. Frydman,
Esq., Stradling Yocca Carlson & Rauth, 660 Newport Center Drive,
Suite 1600, Newport Beach, California 92660, or (b) if to the
Underwriters, to the Representatives at the offices of Needham &
Company, Inc., 445 Park Avenue, New York, New York 10022, Attention:
Corporate Finance Department, with a copy to Victor A. Hebert, Esq.,
Heller Ehrman White & McAuliffe, 601 South Figueroa Street, Los
Angeles, California 90017-5758. Any such notice shall be effective
only upon receipt. Any notice under such Section 9 or 10 may be made
by telex or telephone, but if so made shall be subsequently confirmed
in writing.
This Agreement has been and is made solely for the benefit of the
several Underwriters, the Company, and the controlling persons, directors and
officers referred to in Section 6, and their respective 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" as used in this Agreement shall not
include a purchaser, as such purchaser, of Shares from any of the several
Underwriters.
Any action required or permitted to be made by the Representatives under
this Agreement may be taken by them jointly or by Needham & Company, Inc.
This Agreement shall be governed by and construed in accordance with the
laws of the State of New York applicable to contracts made and to be performed
entirely within such State.
This Agreement may be signed in two or more counterparts with the same
effect as if the signatures thereto and hereto were upon the same instrument.
In case any provision in this Agreement shall be invalid, illegal or
unenforceable, the validity, legality and enforceability of the remaining
provisions shall not in any way be affected or impaired thereby.
The Company and the Underwriters each hereby waive any right they may
have to a trial by jury in respect of any claim based upon or arising out of
this Agreement or the transactions contemplated hereby.
Please confirm that the foregoing correctly sets forth the agreement
among the Company and the several Underwriters.
<PAGE> 20
____________, 1999
Page 20 of 23
Very truly yours,
COLLECTORS UNIVERSE, INC.
By:
---------------------------------
Title: Chief Executive Officer
Confirmed as of the date first
above mentioned:
NEEDHAM & COMPANY, INC.
FIRST SECURITY VAN KASPER
Acting on behalf of themselves
and as the Representatives of
the other several Underwriters
named in Schedule I hereto.
NEEDHAM & COMPANY, INC.
By:
-----------------------------------
Title:
<PAGE> 21
____________, 1999
Page 21 of 23
SCHEDULE I
UNDERWRITERS
<TABLE>
<CAPTION>
Number of
Firm
Shares
Underwriters to be Purchased
------------ ---------------
<S> <C>
Needham & Company, Inc.
First Security Van Kasper
--------------
Total ______________
</TABLE>
<PAGE> 22
____________, 1999
Page 22 of 23
SCHEDULE II
FORM OF LOCK-UP AGREEMENT
[AND DIRECTORS, OFFICERS AND STOCKHOLDERS
OF THE COMPANY WHO SHALL SIGN SUCH AGREEMENT]
The undersigned is a holder of securities of Collectors Universe, Inc.,
a Delaware corporation (the "Company"), and wishes to facilitate the public
offering of shares of the Common Stock (the "Common Stock") of the Company (the
"Offering"). The undersigned recognizes that such Offering will be of benefit to
the undersigned.
In consideration of the foregoing and in order to induce you to act as
underwriters in connection with the Offering, the undersigned hereby agrees that
he, she or it will not, without the prior written approval of Needham & Company,
Inc., acting on its own behalf and/or on behalf of other representatives of the
underwriters, directly or indirectly, sell, contract to sell, make any short
sale, pledge, or otherwise dispose of, or enter into any hedging transaction
that is likely to result in a transfer of, any shares of Common Stock, options
to acquire shares of Common Stock or securities exchangeable for or convertible
into shares of Common Stock of the Company which he, she or it may own,
exclusive of any shares of Common Stock purchased in connection with the
Company's public offering or purchased in the public trading market, for a
period commencing as of the date hereof and ending on the date which is one
hundred eighty (180) days after the date of the final Prospectus relating to the
Offering; provided, however, that the foregoing shall not prohibit any
distribution by a partnership to its partners so long as such partners agree to
be bound by the terms of this Agreement. The undersigned confirms that he, she
or it understands that the underwriters and the Company will rely upon the
representations set forth in this Agreement in proceeding with the Offering. The
undersigned further confirms that the agreements of the undersigned are
irrevocable and shall be binding upon the undersigned's heirs, legal
representatives, successors and assigns. The undersigned agrees and consents to
the entry of stop transfer instructions with the Company's transfer agent
against the transfer of securities held by the undersigned except in compliance
with this Agreement.
This Agreement shall be binding on the undersigned and his, her or its
respective successors, heirs, personal representatives and assigns.
<PAGE> 1
EXHIBIT 3.3
AMENDED AND RESTATED
BYLAWS
OF
COLLECTORS UNIVERSE, INC.
A DELAWARE CORPORATION
AS EFFECTIVE ON SEPTEMBER 1, 1999
<PAGE> 2
AMENDED AND RESTATED
BYLAWS
OF
COLLECTORS UNIVERSE, INC.
A DELAWARE CORPORATION
ARTICLE I
OFFICES
SECTION 1. REGISTERED OFFICE. The address of the registered office of
the Corporation in the State of Delaware is 1013 Centre Road, Wilmington,
Delaware 19805, County of New Castle. The name of the Corporation's registered
agent at that address is Corporation Service Company.
SECTION 2. OTHER OFFICES. The Corporation may also have offices at such
other places, both within and without the State of Delaware, as the Board of
Directors may from time to time determine or the business of the Corporation may
require.
SECTION 3. BOOKS. The books of the Corporation may be kept within or
without the State of Delaware as the Board of Directors may from time to time
determine or the business of the Corporation may require.
ARTICLE II
MEETINGS OF STOCKHOLDERS
SECTION 1. PLACE OF MEETINGS. All meetings of stockholders for the
election of directors shall be held at such place either within or without the
State of Delaware as may be fixed from time to time by the Board of Directors,
or at such other place either within or without the State of Delaware as shall
be designated from time to time by the Board of Directors and stated in the
notice of the meeting. Meetings of stockholders for any other purpose may be
held at such time and place, within or without the State of Delaware, as shall
be stated in the notice of the meeting or in a duly executed waiver of notice
thereof.
SECTION 2. ANNUAL MEETINGS. Annual meetings of stockholders shall be
held at a time and date designated by the Board of Directors for the purpose of
electing directors and transacting such other business as may properly be
brought before the meeting.
SECTION 3. SPECIAL MEETINGS. A special meeting of stockholders may be
called at any time by the Board of Directors, or by a majority of the Board of
Directors or by a committee of the Board of Directors which has been duly
designated by the Board of Directors and whose powers and authority, as provided
in a resolution of the Board of Directors, include the power to call such
meetings, but such special meetings may not be called by any other person or
persons.
SECTION 4. NOTIFICATION OF BUSINESS TO BE TRANSACTED AT MEETING. To be
properly brought before a meeting, business must be (a) specified in the notice
of meeting (or any supplement thereto) given by or at the direction of the Board
of Directors, (b) otherwise properly brought before the
1
<PAGE> 3
meeting by or at the direction of the Board of Directors, or (c) otherwise
properly brought before the meeting by a stockholder entitled to vote at the
meeting.
SECTION 5. NOTICE; WAIVER OF NOTICE. Whenever stockholders are required
or permitted to take any action at a meeting, a written notice of the meeting
shall be given which shall state the place, date and hour of the meeting, and,
in the case of a special meeting, the purpose or purposes for which the meeting
is called. Unless otherwise required by law, such notice shall be given not less
than 10 nor more than 60 days before the date of the meeting to each stockholder
of record entitled to vote at such meeting. If mailed, such notice shall be
deemed to be given when deposited in the mail, postage prepaid, directed to the
stockholder at his address as it appears on the records of the Corporation. A
written waiver of any such notice signed by the person entitled thereto, whether
before or after the time stated therein, shall be deemed equivalent to notice.
Attendance of a person at a meeting shall constitute a waiver of notice of such
meeting, except when the person attends the meeting for the express purpose of
objecting, at the beginning of the meeting, to the transaction of any business
because the meeting is not lawfully called or convened.
SECTION 6. QUORUM; ADJOURNMENT. Except as otherwise required by law, or
provided by the Certificate of Incorporation or these Bylaws, the holders of a
majority of the capital stock issued and outstanding and entitled to vote
thereat, present in person or represented by proxy, shall constitute a quorum
for the transaction of business at all meetings of the stockholders. A meeting
at which a quorum is initially present may continue to transact business,
notwithstanding the withdrawal of enough votes to leave less than a quorum, if
any action taken is approved by at least a majority of the required quorum to
conduct that meeting. If, however, such quorum shall not be present or
represented at any meeting of the stockholders, the chairman of the meeting
shall have power to adjourn the meeting from time to time, without notice other
than announcement at the meeting of the time and place of the adjourned meeting,
until a quorum shall be present or represented. At such adjourned meeting at
which a quorum shall be present or represented, any business may be transacted
which might have been transacted at the meeting as originally noticed. If the
adjournment is for more than 30 days, or if after the adjournment a new record
date is fixed for the adjourned meeting, a notice of the adjourned meeting shall
be given to each stockholder entitled to vote at the meeting.
SECTION 7. VOTING. Except as otherwise required by law, or provided by
the Certificate of Incorporation or these Bylaws, any question brought before
any meeting of stockholders at which a quorum is present shall be decided by the
vote of the holders of a majority of the stock represented and entitled to vote
thereat. Unless otherwise provided in the Certificate of Incorporation, each
stockholder represented at a meeting of stockholders shall be entitled to cast
one vote for each share of the capital stock entitled to vote thereat held by
such stockholder. Such votes may be cast in person or by proxy, but no proxy
shall be voted on or after three years from its date, unless such proxy provides
for a longer period. Elections of directors need not be by ballot unless the
Chairman of the meeting so directs or unless a stockholder demands election by
ballot at the meeting and before the voting begins.
SECTION 8. STOCKHOLDER ACTION BY WRITTEN CONSENT WITHOUT A MEETING. The
stockholders may not take action by written consent.
SECTION 9. RECORD DATE FOR STOCKHOLDER NOTICE AND VOTING. For purposes
of determining the holders entitled to notice of any meeting or to vote, the
Board of Directors may fix, in advance, a record date, which shall not be more
than 60 days nor less than 10 days prior to the date of any such meeting, and in
such case only stockholders of record on the date so fixed are entitled to
2
<PAGE> 4
notice and to vote, notwithstanding any transfer of any shares on the books of
the Corporation after the record date fixed as aforesaid, except as otherwise
provided in the Delaware General Corporation Law. If the Board of Directors does
not so fix a record date, the record date for determining stockholders entitled
to notice of or to vote at a meeting of stockholders shall be at the close of
business on the business day next preceding the day on which notice is given or,
if notice is waived, at the close of business on the business day next preceding
the day on which the meeting is held.
SECTION 10. STOCK LEDGER. The stock ledger of the Corporation shall be
the only evidence as to who are the stockholders entitled to examine the stock
ledger, the list required by Section 9 of this Article II or the books of the
Corporation, or to vote in person or by proxy at any meeting of stockholders.
SECTION 11. INSPECTORS OF ELECTION. In advance of any meeting of
stockholders, the Board of Directors may appoint one or more persons (who shall
not be candidates for office) as inspectors of election to act at the meeting or
any adjournment thereof. If an inspector or inspectors are not so appointed, or
if an appointed inspector fails to appear or fails or refuses to act at a
meeting, the Chairman of any meeting of stockholders may, and on the request of
any stockholder or his proxy shall, appoint an inspector or inspectors of
election at the meeting. The duties of such inspector(s) shall include:
determining the number of shares outstanding and the voting power of each; the
shares represented at the meeting; the existence of a quorum; the authenticity,
validity and effect of proxies; receiving votes, ballots or consents; hearing
and determining all challenges and questions in any way arising in connection
with the right to vote; counting and tabulating all votes or consents;
determining the result; and such acts as may be proper to conduct the election
or vote with fairness to all stockholders. In the event of any dispute between
or among the inspectors, the determination of the majority of the inspectors
shall be binding.
SECTION 12. ORGANIZATION. At each meeting of stockholders the Chairman
of the Board of Directors, if one shall have been elected, (or in his absence or
if one shall not have been elected, the President) shall act as Chairman of the
meeting. The Secretary (or in his absence or inability to act, the person whom
the Chairman of the meeting shall appoint Secretary of the meeting) shall act as
Secretary of the meeting and keep the minutes thereof.
3
<PAGE> 5
SECTION 13. ORDER OF BUSINESS.
(A) ANNUAL MEETINGS OF STOCKHOLDERS.
(1) Nominations of persons for election to the Board of Directors
of the Corporation and the proposal of business to be considered by the
stockholders may be made at an annual meeting of stockholders (a) pursuant to
the Corporation's notice of meeting, (b) by or at the direction of the Board of
Directors or (c) by any stockholder of the Corporation who was a stockholder of
record at the time of giving of notice provided for in this Bylaw, who is
entitled to vote at the meeting and who complies with the notice procedures set
forth in this Bylaw.
(2) For nominations or other business to be properly brought
before an annual meeting by a stockholder pursuant to clause (c) of paragraph
(A)(1) of this Bylaw, the stockholder must have given timely notice thereof in
writing to the Secretary of the Corporation and such other business must
otherwise be a proper matter for stockholder action. To be timely, a
stockholder's notice shall be delivered to the Secretary at the principal
executive offices of the Corporation not less than the close of business on the
120th calendar day in advance of the first anniversary of the date the
Corporation's proxy statement was released to stockholders in connection with
the preceding year's annual meeting; provided, however, that if no annual
meeting was held in the previous year or the date of the annual meeting has been
changed by more than 30 calendar days from the date contemplated at the time of
the previous year's proxy statement, a proposal shall be received by the
Corporation no later than the close of business on the tenth day following the
day on which notice of the date of the meeting was mailed or public announcement
of the date of the meeting was made, whichever comes first. In no event shall
the public announcement of an adjournment of an annual meeting commence a new
time period for the giving of a stockholder's notice as described above. Such
stockholder's notice shall set forth (a) as to each person whom the stockholder
proposes to nominate for election or reelection as a director all information
relating to such person that is required to be disclosed in solicitations of
proxies for election of directors in an election contest, or is otherwise
required, in each case pursuant to applicable federal securities laws,
including, without limitation, Regulation 14A under the Securities Exchange Act
of 1934, as amended (the "Exchange Act"), and Rule 14a-11 thereunder (including
such person's written consent to being named in the proxy statement as a nominee
and to serving as a director if elected); (b) as to any other business that the
stockholder proposes to bring before the meeting, a brief description of the
business desired to be brought before the meeting, the reasons for conducting
such business at the meeting and any material interest in such business of such
stockholder and the beneficial owner, if any, on whose behalf the proposal is
made; and (c) as to the stockholder giving the notice and the beneficial owner,
if any, on whose behalf the nomination or proposal is made (i) the name and
address of such stockholder, as they appear on the Corporation's books, and of
such beneficial owner and (ii) the class and number of shares of the Corporation
which are owned beneficially and of record by such stockholder and such
beneficial owner.
(3) Notwithstanding anything in the second sentence of paragraph
(A)(2) of this Bylaw to the contrary, in the event that the number of directors
to be elected to the Board of Directors of the Corporation is increased and
there is no public announcement by the Corporation naming all of the nominees
for director or specifying the size of the increased Board of Directors at least
70 days prior to the first anniversary of the date of the preceding years annual
meeting, a stockholders notice required by this Bylaw shall also be considered
timely, but only with respect to nominees for any new positions created by such
increase, if it shall be delivered to the Secretary at the principal executive
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offices of the Corporation not later than the close of business on the tenth day
following the day on which such public announcement is first made by the
Corporation.
(B) SPECIAL MEETINGS OF STOCKHOLDERS.
Only such business shall be conducted at a special meeting of
stockholders as shall be brought before the meeting pursuant to the
Corporation's notice of meeting.
A stockholder's nomination of one or more persons for election to
the Board of Directors shall only be permitted to be made at a special meeting
of stockholders if: (i) the Corporation's notice of such meeting specified that
directors are to be elected at such special meeting; (ii) such stockholder was a
stockholder of record entitled to vote at the meeting at the time of giving of
notice provided for in this Bylaw; and (iii) if such stockholder complies with
the notice procedures set forth in this Bylaw. In the event the Corporation
calls a special meeting of stockholders for the purpose of electing one or more
directors to the Board of Directors, any such stockholder may nominate a person
or persons (as the case may be), for election to such position(s) as specified
in the Corporation's notice of meeting, if the stockholder's notice required by
paragraph (A)(2) of this Bylaw shall be delivered to the Secretary at the
principal executive offices of the Corporation not earlier than the close of
business on the 90th day prior to such special meeting and not later than the
close of business on the later of the 60th day prior to such special meeting or
the 10th day following the day on which public announcement is first made of the
date of the special meeting and of the nominees proposed by the Board of
Directors to be elected at such meeting. In no event shall the public
announcement of an adjournment of a special meeting commence a new time period
for the giving of a stockholder's notice as described above.
(C) GENERAL.
(1) Only such persons who are nominated in accordance with the
procedures set forth in this Bylaw shall be eligible to serve as directors.
Except as otherwise provided by law, the Certificate of Incorporation or these
Bylaws, the chairman of the meeting shall have the power and authority to
determine the procedures of a meeting of stockholders, including, without
limitation, the authority to determine whether a nomination or any other
business proposed to be brought before the meeting was made or proposed, as the
case may be, in accordance with the procedures set forth in this Bylaw and, if
any proposed nomination or business is not in compliance with this Bylaw, to
declare that such defective proposal or nomination shall be disregarded.
(2) For purposes of this Bylaw, "public announcement" shall mean
disclosure in a press release reported by the Dow Jones News Service, Associated
Press or comparable national news service or in a document publicly filed by the
Corporation with the Securities and Exchange Commission pursuant to Section 13,
14 or 15(d) of the Exchange Act.
(3) Notwithstanding the foregoing provisions of this Bylaw, a
stockholder shall also comply with all applicable requirements of the Exchange
Act and the rules and regulations thereunder with respect to the matters set
forth in this Bylaw. Nothing in this Bylaw shall be deemed to affect any rights
(i) of stockholders to request inclusion of proposals in the Corporation's proxy
statement pursuant to Rule 14a-8 under the Exchange Act or (ii) of the holders
of any series of preferred stock, if any, to elect directors under certain
circumstances.
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ARTICLE III
DIRECTORS
SECTION 1. POWERS. Except as otherwise required by law or provided by
the Certificate of Incorporation, the business and affairs of the Corporation
shall be managed by or under the direction of the Board of Directors.
SECTION 2. NUMBER AND ELECTION OF DIRECTORS. The exact number of
directors shall be fixed from time to time by a resolution adopted by a majority
of the directors, or by resolution of the stockholders, by the vote of the
holders of 66 2/3% of the outstanding voting stock of the Corporation, at any
annual or special meeting of stockholders, provided that notice of such proposed
amendment, modification, repeal or adoption is given in the notice of the annual
or special meeting; provided, however, that such resolution would not conflict
with the Certificate of Incorporation. Directors shall be elected at each annual
meeting of the stockholders to replace the directors whose terms then expire,
and each director elected shall hold office until his successor is duly elected
and qualified, or until his earlier death, resignation or removal. The Board of
Directors shall be classified as set forth in the Certificate of Incorporation.
SECTION 3. VACANCIES. Subject to the limitations in the Certificate of
Incorporation, vacancies in the Board of Directors resulting from death,
resignation, removal or otherwise and newly created directorships resulting from
any increase in the authorized number of directors may be filled by a majority
of the directors then in office, although less than a quorum, or by a sole
remaining director. Each director so selected shall hold office for the
remainder of the full term of office of the former director which such director
replaces and until his successor is duly elected and qualified, or until his
earlier death, resignation or removal. No decrease in the authorized number of
directors constituting the Board of Directors shall shorten the term of any
incumbent directors.
SECTION 4. TIME AND PLACE OF MEETINGS. The Board of Director's shall
hold its meetings at such place, either within or without the State of Delaware,
and at such time as may be determined from time to time by the Board of
Directors.
SECTION 5. ANNUAL MEETING. The Board of Directors shall meet for the
purpose of organization, the election of officers and the transaction of other
business, as soon as practicable after each annual meeting of stockholders, on
the same day and at the same place where such annual meeting shall be held.
Notice of such meeting need not be given. In the event such annual meeting is
not so held, the annual meeting of the Board of Directors may be held at such
place, either within or without the State of Delaware, on such date and at such
time as shall be specified in a notice thereof given as hereinafter provided in
Section 7 of this Article III or in a waiver of notice thereof.
SECTION 6. REGULAR MEETINGS. Regular meetings of the Board of Directors
may be held at such places within or without the State of Delaware at such date
and time as the Board of Directors may from time to time determine and, if so
determined by the Board of Directors, notices thereof need not be given.
SECTION 7. SPECIAL MEETINGS. Special meetings of the Board of Directors
may be called by the Chairman of the Board, the President, the Secretary or by
any director. Notice of the date, time and place of special meetings shall be
delivered personally or by telephone to each director or sent by
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first-class mail or telegram, charges prepaid, addressed to each director at the
director's address as it is shown on the records of the Corporation. In case the
notice is mailed, it shall be deposited in the United States mail at least four
days before the time of the holding of the meeting. In case the notice is
delivered personally or by telephone or telegram, it shall be delivered
personally or by telephone or to the telegraph company at least 24 hours before
the time of the holding of the meeting. The notice need not specify the purpose
of the meeting. A written waiver of any such notice signed by the person
entitled thereto, whether before or after the time stated therein, shall be
deemed equivalent to notice. Attendance of a person at a meeting shall
constitute a waiver of notice of such meeting, except when the person attends
the meeting for the express purpose of objecting, at the beginning of the
meeting, to the transaction of any business because the meeting is not lawfully
called or convened.
SECTION 8. QUORUM; VOTE REQUIRED FOR ACTION; ADJOURNMENT. Except as
otherwise required by law, or provided in the Certificate of Incorporation or
these Bylaws, a majority of the directors shall constitute a quorum for the
transaction of business at all meetings of the Board of Directors and the
affirmative vote of not less than a majority of the directors present at any
meeting at which there is a quorum shall be the act of the Board of Directors.
If a quorum shall not be present at any meeting of the Board of Directors, the
directors present thereat may adjourn the meeting, from time to time, without
notice other than announcement at the meeting, until a quorum shall be present.
A meeting at which a quorum is initially present may continue to transact
business, notwithstanding the withdrawal of directors, if any action taken is
approved by at least a majority of the required quorum to conduct that meeting.
When a meeting is adjourned to another time or place (whether or not a quorum is
present), notice need not be given of the adjourned meeting if the time and
place thereof are announced at the meeting at which the adjournment is taken. At
the adjourned meeting, the Board of Directors may transact any business which
might have been transacted at the original meeting.
SECTION 9. ACTION BY WRITTEN CONSENT. Unless otherwise restricted by the
Certificate of Incorporation, any action required or permitted to be taken at
any meeting of the Board of Directors or of any committee thereof may be taken
without a meeting if all the members of the Board of Directors or committee, as
the case may be, consent thereto in writing, and the writing or writings are
filed with the minutes of proceedings of the Board of Directors or committee.
SECTION 10. TELEPHONE MEETINGS. Unless otherwise restricted by the
Certificate of Incorporation, members of the Board of Directors of the
Corporation, or any committee designated by the Board of Directors, may
participate in a meeting of the Board of Directors or such committee, as the
case may be, by conference telephone or other communications equipment by means
of which all persons participating in the meeting can hear each other.
Participation in a meeting pursuant to this Section 10 shall constitute presence
in person at such meeting.
SECTION 11. COMMITTEES. The Board of Directors may, by resolution passed
unanimously by the entire Board, designate one or more committees, each
committee to consist of one or more of the directors of the Corporation. The
Board of Directors may designate one or more directors as alternate members of
any such committee, who may replace any absent or disqualified member at any
meeting of the committee. In the event of absence or disqualification of a
member of a committee, and in the absence of a designation by the Board of
Directors of an alternate member to replace the absent or disqualified member,
the committee member or members present at any meeting and not disqualified from
voting, whether or not he or they constitute a quorum, may unanimously appoint
another member of the Board of Directors to act at the meeting in the place of
the absent or disqualified member. Any committee, to the extent allowed by law
and as provided in the resolution establishing such committee,
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shall have and may exercise all the power and authority of the Board of
Directors in the management of the business and affairs of the Corporation, but
no such committee shall have the power or authority in reference to amending the
Certificate of Incorporation, adopting an agreement of merger or consolidation,
recommending to the stockholders the sale, lease or exchange of all or
substantially all of the Corporation's property and assets, recommending to the
stockholders a dissolution of the Corporation or a revocation of a dissolution,
or amending the Bylaws of the Corporation; and, unless the resolution or the
Certificate of Incorporation expressly so provides, no such committee shall have
the power or authority to declare a dividend or to authorize the issuance of
stock. Each committee shall keep regular minutes of its meetings and report to
the Board of Directors when required.
SECTION 12. COMPENSATION. The directors may be paid such compensation
for their services as the Board of Directors shall from time to time determine.
SECTION 13. INTERESTED DIRECTORS. No contract or transaction between the
Corporation and one or more of its directors or officers, or between the
Corporation and any other Corporation, partnership, association, or other
organization in which one or more of its directors or officers are directors or
officers, or have a financial interest, shall be void or voidable solely for
this reason, or solely because the director or officer is present at or
participates in the meeting of the Board of Directors or the committee thereof
which authorizes the contract or transaction, or solely because his of their
votes are counted for such purpose if: (i) the material facts as to his or their
relationship or interest and as to the contract or transaction are disclosed or
are known to the Board of Directors or the committee, and the Board of Directors
or committee in good faith authorizes the contract or transaction by the
affirmative votes of a majority of the disinterested directors, even though the
disinterested directors be less than a quorum; or (ii) the material facts as to
his or their relationship or interest and as to the contract or transaction are
disclosed or are known to the stockholders entitled to vote thereon, and the
contract or transaction is specifically approved in good faith by vote of the
stockholders; or (iii) the contract or transaction is fair as to the Corporation
as of the time it is authorized, approved or ratified, by the Board of
Directors, a committee thereof, or the stockholders. Common or interested
directors may be counted in determining the presence of a quorum at a meeting of
the Board of Directors or of a committee which authorizes the contract or
transaction.
SECTION 14. REMOVAL OF DIRECTORS. Any director or the entire Board of
Directors may be removed with cause, by the holders of a majority of the shares
then entitled to vote at an election of directors.
ARTICLE IV
OFFICERS
SECTION 1. OFFICERS. The officers of the Corporation shall be a
President, a Secretary and a Chief Financial Officer. The Corporation may also
have, at the discretion of the Board of Directors, a Chairman of the Board, a
Vice Chairman of the Board, a Chief Executive Officer, one or more Vice
Presidents, one or more Assistant Financial Officers and Treasurers, one or more
Assistant Secretaries and such other officers as may be appointed in accordance
with the provisions of Section 3 of this Article IV.
SECTION 2. APPOINTMENT OF OFFICERS. The officers of the Corporation,
except such officers as may be appointed in accordance with the provisions of
Section 3 or Section 5 of this
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Article IV, shall be appointed by the Board of Directors, and each shall serve
at the pleasure of the Board, subject to the rights, if any, of an officer under
any contract of employment.
SECTION 3. SUBORDINATE OFFICERS. The Board of Directors may appoint, and
may empower the Chief Executive Officer or President to appoint, such other
officers as the business of the Corporation may require, each of whom shall hold
office for such period, have such authority and perform such duties as are
provided in the Bylaws or as the Board of Directors may from time to time
determine.
SECTION 4. REMOVAL AND RESIGNATION OF OFFICERS. Subject to the rights of
an officer under any contract, any officer may be removed at any time, with or
without cause, by the Board of Directors or, except in case of an officer chosen
by the Board of Directors, by any officer upon whom such power of removal may be
conferred by the Board of Directors. Any officer may resign at any time by
giving written notice to the Corporation. Any resignation shall take effect at
the date of the receipt of that notice or at any later time specified in that
notice; and, unless otherwise specified in that notice, the acceptance of the
resignation shall not be necessary to make it effective. Any resignation shall
be without prejudice to the rights of the Corporation under any contract to
which the officer is a party.
SECTION 5. VACANCIES IN OFFICES. A vacancy in any office because of
death, resignation, removal, disqualification or any other cause shall be filled
in the manner prescribed in these Bylaws for regular appointments to that
office.
SECTION 6. CHAIRMAN OF THE BOARD. The Chairman of the Board, if such an
officer is elected, shall, if present, preside at meetings of the stockholders
and of the Board of Directors, unless otherwise determined by the Board of
Directors. He shall, in addition, perform such other functions (if any) as may
be prescribed by the Bylaws or the Board of Directors.
SECTION 7. VICE CHAIRMAN OF THE BOARD. The Vice Chairman of the Board,
if such an officer is elected, shall, in the absence or disability of the
Chairman of the Board, perform all duties of the Chairman of the Board and when
so acting shall have all the powers of and be subject to all of the restrictions
upon the Chairman of the Board. The Vice Chairman of the Board shall have such
other powers and duties as may be prescribed by the Board of Directors or the
Bylaws.
SECTION 8. CHIEF EXECUTIVE OFFICER. The Chief Executive Officer of the
Corporation shall, subject to the control of the Board of Directors, have
general supervision, direction and control of the business and the officers of
the Corporation. He shall exercise the duties usually vested in the chief
executive officer of a Corporation and perform such other powers and duties as
may be assigned to him from time to time by the Board of Directors or prescribed
by the Bylaws. In the absence of the Chairman of the Board and any Vice Chairman
of the Board, the Chief Executive Officer shall preside at all meetings of the
stockholders and of the Board of Directors.
SECTION 9. PRESIDENT. The President of the Corporation shall, subject to
the control of the Board of Directors and the Chief Executive Officer of the
Corporation, if there be such an officer, have general powers and duties of
management usually vested in the office of president of a Corporation and shall
have such other powers and duties as may be prescribed by the Board of Directors
or the Bylaws or the Chief Executive Officer of the Corporation. In the absence
of the Chairman of the Board, Vice
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Chairman of the Board and Chief Executive Officer, the President shall preside
at all meetings of the Board of Directors and stockholders.
SECTION 10. VICE PRESIDENT. In the absence or disability of the
President, the Vice Presidents, if any, in order of their rank as fixed by the
Board of Directors or, if not ranked, a Vice President designated by the Board
of Directors, shall perform all the duties of the President, and when so acting
shall have all the powers of, and subject to all the restrictions upon, the
President. The Vice Presidents shall have such other powers and perform such
other duties as from time to time may be prescribed for them respectively by the
Board of Directors or the Bylaws, and the President, or the Chairman of the
Board.
SECTION 11. SECRETARY. The Secretary shall keep or cause to be kept, at
the principal executive office or such other place as the Board of Directors may
direct, a book of minutes of all meetings and actions of directors, committees
of directors, and stockholders, with the time and place of holding, whether
regular or special, and, if special, how authorized, the notice given, the names
of those present at directors' meetings or committee meetings, the number of
shares present or represented at stockholders' meetings, and a summary of the
proceedings.
The Secretary shall keep, or cause to be kept, at the principal
executive office or at the office of the Corporation's transfer agent or
registrar, as determined by resolution of the Board of Directors, a share
register, or a duplicate share register, showing the names of all stockholders
and their addresses, the number and classes of shares held by each, the number
and date of certificates issued for the same, and the number and date of
cancellation of every certificate surrendered for cancellation.
The Secretary shall give, or cause to be given, notice of all meetings
of the stockholders and of the Board of Directors required by the Bylaws or by
law to be given, and he shall keep or cause to be kept the seal of the
Corporation if one be adopted, in safe custody, and shall have such powers and
perform such other duties as may be prescribed by the Board of Directors or by
the Bylaws.
SECTION 12. CHIEF FINANCIAL OFFICER. The Chief Financial Officer shall
keep and maintain, or cause to be kept and maintained, adequate and correct
books and records of accounts of the properties and business transactions of the
Corporation. The Chief Financial Officer shall deposit all moneys and other
valuables in the name and to the credit of the Corporation with such
depositories as may be designated by the Board of Directors. He shall make such
disbursements of the funds of the Corporation as are authorized and shall render
from time to time an account of all of his transactions as Chief Financial
Officer and of the financial condition of the Corporation. The Chief Financial
Officer shall also have such other powers and perform such other duties as may
be prescribed by the Board of Directors or the Bylaws.
ARTICLE V
STOCK
SECTION 1. FORM OF CERTIFICATES. Every holder of stock in the
Corporation shall be entitled to have a certificate signed by, or in the name of
the Corporation (i) by the Chairman or Vice Chairman of the Board of Directors,
or the President or a Vice President and (ii) by the Chief Financial Officer or
the Treasurer or an Assistant Treasurer, or the Secretary or an Assistant
Secretary of the Corporation, certifying the number of shares owned by such
stockholder in the Corporation.
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SECTION 2. SIGNATURES. Any or all of the signatures on the certificate
may be a facsimile. In case any officer, transfer agent or registrar who has
signed or whose facsimile signature has been placed upon a certificate shall
have ceased to be such officer, transfer agent or registrar before such
certificate is issued, it may be issued by the Corporation with the same effect
as if he were such officer, transfer agent or registrar at the date of issue.
SECTION 3. LOST CERTIFICATES. The Corporation may issue a new
certificate to be issued in place of any certificate theretofore issued by the
Corporation, alleged to have been lost, stolen or destroyed, upon the making of
an affidavit of that fact by the person claiming the certificate to be lost,
stolen or destroyed. The Corporation may, in the discretion of the Board of
Directors and as a condition precedent to the issuance of such new certificate,
require the owner of such lost, stolen, or destroyed certificate, or his legal
representative, to give the Corporation a bond (or other security) sufficient to
indemnify it against any claim that may be made against the Corporation
(including any expense or liability) on account of the alleged loss, theft or
destruction of any such certificate or the issuance of such new certificate.
SECTION 4. TRANSFERS. Stock of the Corporation shall be transferable in
the manner prescribed by law and in these Bylaws or in any agreement with the
stockholder making the transfer. Transfers of stock shall be made on the books
of the Corporation only by the person named in the certificate or by his
attorney lawfully constituted in writing and upon the surrender of the
certificate therefor, which shall be cancelled before a new certificate shall be
issued.
SECTION 5. RECORD HOLDERS. The Corporation shall be entitled to
recognize the exclusive right of a person registered on its books as the record
holder of shares to receive dividends, and to vote as such record holder, and to
hold liable for calls and assessments a person registered on its books as the
record holder of shares, and shall not be bound to recognize any equitable or
other claim to or interest in such share or shares on the part of any other
person, whether or not it shall have express or other notice thereof, except as
otherwise required by law.
ARTICLE VI
INDEMNIFICATION
SECTION 1. RIGHT TO INDEMNIFICATION. Each person who was or is made a
party or is threatened to be made a party to or is otherwise involved in any
action, suit or proceeding, whether civil, criminal, administrative or
investigative (hereinafter a "proceeding"), by reason of the fact that he or she
is or was a director or officer of the Corporation or is or was serving at the
request of the Corporation as a director or officer of another Corporation or of
a partnership, joint venture, trust or other enterprise, including service with
respect to employee benefit plans (hereinafter an "indemnitee"), whether the
basis of such proceeding is alleged action in an official capacity as a director
or officer or in any other capacity while serving as a director or officer,
shall be indemnified and held harmless by the Corporation to the fullest extent
authorized by the Delaware General Corporation Law, as the same exists or may
hereafter be amended (but, in the case of any such amendment, only to the extent
that such amendment permits the Corporation to provide broader indemnification
rights than such law permitted the Corporation to provide prior to such
amendment), against all expense, liability and loss (including attorneys' fees,
judgments, fines, ERISA excise taxes or penalties and amounts paid in
settlement) reasonably incurred or suffered by such indemnitee in connection
therewith and such
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indemnification shall continue as to an indemnitee who has ceased to be a
director or officer and shall inure to the benefit of the indemnitee's heirs,
executors and administrators; provided, however, that, except as provided in
Section 2 of this Article VI with respect to proceedings to enforce rights to
indemnification, the Corporation shall indemnify any such indemnitee in
connection with a proceeding (or part thereof) initiated by such indemnitee only
if such proceeding (or part thereof) was authorized by the Board of Directors of
the Corporation. The right to indemnification conferred in this Section shall be
a contract right and shall include the right to be paid by the Corporation the
expenses incurred in defending any such proceeding in advance of its final
disposition (hereinafter an "advancement of expenses"); provided, however, that,
if the Delaware General Corporation Law requires, an advancement of expenses
incurred by an indemnitee in his or her capacity as a director or officer (and
not in any other capacity in which service was or is rendered by such
indemnitee, including without limitation, service to an employee benefit plan)
shall be made only upon delivery to the Corporation of an undertaking, by or on
behalf of such indemnitee, to repay all amounts so advanced if it shall
ultimately be determined that such indemnitee is not entitled to be indemnified
for such expenses under this Article VI or otherwise (hereinafter an
"undertaking").
SECTION 2. RIGHT OF INDEMNITEE TO BRING SUIT. If a claim under Section 1
of this Article VI is not paid in full by the Corporation within 45 days after a
written claim has been received by the Corporation, the indemnitee may at any
time thereafter bring suit against the Corporation to recover the unpaid amount
of the claim. If successful in whole or part in any such suit or in a suit
brought by the Corporation to recover an advancement of expenses pursuant to the
terms of an undertaking, the indemnitee shall be entitled to be paid also the
expense of prosecuting or defending such suit. In (i) any suit brought by the
indemnitee to enforce a right to indemnification hereunder (but not in a suit
brought by the indemnitee to enforce a right to an advancement of expenses) it
shall be a defense that, and (ii) any suit by the Corporation to recover an
advancement of expenses pursuant to the terms of an undertaking the Corporation
shall be entitled to recover such expenses upon a final adjudication that, the
indemnitee has not met the applicable standard of conduct set forth in the
Delaware General Corporation Law. Neither the failure of the Corporation
(including its Board of Directors, independent legal counsel, or its
stockholders) to have made a determination prior to the commencement of such
suit that indemnification of the indemnitee is proper in the circumstances
because the indemnitee has met the applicable standard of conduct set forth in
the Delaware General Corporation Law, nor an actual determination by the
Corporation (including its Board of Directors, independent legal counsel, or its
stockholders) that the indemnitee has not met such applicable standard of
conduct, shall create a presumption that the indemnitee has not met the
applicable standard of conduct or, in the case of such a suit brought by
indemnitee, be a defense to such suit. In any suit brought by the indemnitee to
enforce a right hereunder, or by the Corporation to recover an advancement of
expenses pursuant to the terms of an undertaking, the burden of proving that the
indemnitee is not entitled to be indemnified or to such advancement of expenses
under this Article VI or otherwise shall be on the Corporation.
SECTION 3. NON-EXCLUSIVITY OF RIGHTS. The rights of indemnification and
to the advancement of expenses conferred in this Article VI shall not be
exclusive of any other right which any person may have or hereafter acquire
under any statute, provision of the Certificate of Incorporation, Bylaw,
agreement, vote of stockholders or disinterested directors or otherwise.
SECTION 4. INSURANCE. The Corporation may maintain insurance, at its
expense, to protect itself and any director, officer, employee or agent of the
Corporation or another Corporation, partnership, joint venture, trust or other
enterprise against any expense, liability or loss, whether or not
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the Corporation would have the power to indemnify such person against such
expense, liability or loss under the Delaware General Corporation Law.
SECTION 5. INDEMNIFICATION OF EMPLOYEES OR AGENTS OF THE CORPORATION.
The Corporation may, to the extent authorized from time to time by the Board of
Directors, grant rights to indemnification and to the advancement of expenses,
to any employee or agent of the Corporation to the fullest extent of the
provisions of this Article VI with respect to the indemnification and
advancement of expenses of directors or officers of the Corporation.
SECTION 6. INDEMNIFICATION CONTRACTS. The Board of Directors is
authorized to enter into a contract with any director, officer, employee or
agent of the Corporation, or any person serving at the request of the
Corporation as a director, officer, employee or agent of another Corporation,
partnership, joint venture, trust or other enterprise, including employee
benefit plans, providing for indemnification rights equivalent to or, if the
Board of Directors so determinates, greater than, those provided for in this
Article VI.
SECTION 7. EFFECT OF AMENDMENT. Any amendment, repeal or modification of
any provision of this Article VI by the stockholders or the directors of the
Corporation shall not adversely affect any right or protection of a director or
officer of the Corporation existing at the time of such amendment, repeal or
modification.
ARTICLE VII
GENERAL PROVISIONS
SECTION 1. DIVIDENDS. Subject to limitations contained in the General
Corporation Law of the State of Delaware and the Certificate of Incorporation,
the Board of Directors may declare and pay dividends upon the shares of capital
stock of the Corporation, which dividends may be paid either in cash, securities
of the Corporation or other property.
SECTION 2. DISBURSEMENTS. All checks or demands for money and notes of
the Corporation shall be signed by such officer or officers or such other person
or persons as the Board of Directors may from time to time designate.
SECTION 3. FISCAL YEAR. The fiscal year of the Corporation shall be
fixed by resolution of the Board of Directors.
SECTION 4. CORPORATE SEAL. The Corporation shall have a corporate seal
in such form as shall be prescribed by the Board of Directors.
SECTION 5. RECORD DATE. In order that the Corporation may determine the
stockholders entitled to notice of or to vote at any meeting of stockholders or
any adjournment thereof, or entitled to receive payment of any dividend or other
distribution or allotment of any rights, or entitled to exercise any rights in
respect of any change, conversion or exchange of stock, or for the purpose of
any other lawful action, the Board of Directors may fix, in advance, a record
date, which shall not be more than 60 days nor less than 10 days before the date
of such meeting, nor more than 60 days prior to any other action. A
determination of stockholders of record entitled to notice of or to vote at a
meeting of stockholders shall apply to any adjournment of the meeting; provided,
however, that the Board of Directors may fix a new record date for the adjourned
meeting. Stockholders on the record date are
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entitled to notice and to vote or to receive the dividend, distribution or
allotment of rights or to exercise the rights, as the case may be,
notwithstanding any transfer of any shares on the books of the Corporation after
the record date, except as otherwise provided by agreement or by applicable law.
SECTION 6. VOTING OF STOCK OWNED BY THE CORPORATION. The Chairman of the
Board, the Chief Executive Officer, the President and any other officer of the
Corporation authorized by the Board of Directors shall have power, on behalf of
the Corporation, to attend, vote and grant proxies to be used at any meeting of
stockholders of any corporation (except this Corporation) in which the
Corporation may hold stock.
SECTION 7. CONSTRUCTION AND DEFINITIONS. Unless the context requires
otherwise, the general provisions, rules of construction and definitions in the
General Corporation Law of the State of Delaware shall govern the construction
of these Bylaws.
SECTION 8. AMENDMENTS. The Bylaws, or any of them, may be rescinded,
altered, amended or repealed, and new Bylaws may be made (i) by the Board of
Directors, by vote of a majority of the number of directors then in office as
directors, acting at any meeting of the Board of Directors, or (ii) by the
stockholders, by the vote of the holders of 66 2/3% of the outstanding voting
stock of the Corporation, at any annual or special meeting of stockholders,
provided that notice of such proposed amendment, modification, repeal or
adoption is given in the notice of the annual or special meeting; provided,
however, that the Bylaws can only be amended if such amendment would not
conflict with the Certificate of Incorporation. Any Bylaw made or altered by the
requisite number of stockholders may be altered or repealed by the Board of
Directors or may be altered or repealed by the requisite number of stockholders.
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EXHIBIT 4.1
REGISTRATION RIGHTS AGREEMENT
This REGISTRATION RIGHTS AGREEMENT (the "Agreement") is dated as of
February 5, 1999, by and among COLLECTORS UNIVERSE, INC., a Delaware corporation
(the "Company") and the stockholder of the Company identified on the signature
page of this Agreement (the "Stockholder"), with reference to the following
facts and circumstances:
A. On this date the Company is issuing, as its initial issuance of
shares, a total of 19,000,000 shares of Common Stock, par value $.001 per share
(the "Shares"), concurrently, to a total of twenty-one Persons (the "Founding
Stockholders"), pursuant to Contribution and Acquisition Agreements, each dated
as of February 3, 1999 (collectively, the "Contribution Agreements" and,
individually, a "Contribution Agreement"), between the Company and the Founding
Stockholders. The Stockholder is one of the Founding Stockholders.
B. The issuance of the Shares to the Founding Stockholders have not been
registered under the 1933 Act (as defined below) and the transferability of the
Shares are subject to restrictions under that Act and also pursuant to a
Stockholders Agreement (the "Stockholders Agreement") to be entered into on the
date hereof by each of the Founding Stockholders, including the Stockholder,
with the Company.
C. In order to induce the Stockholder and other Founding Stockholders to
acquire the Shares and enter into the Stockholders Agreements, the Company has
agreed to grant to each Founding Stockholder registration rights with respect to
the Shares on the terms and subject to the conditions contained in this
Agreement.
AGREEMENT
In consideration of the mutual covenants and agreements set forth
herein, and for good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, the parties hereto agree as follows:
1. Definitions. For purposes of this Agreement, the following terms
shall have the meanings specified with respect thereto below:
"1933 Act" shall mean the Securities Act of 1933, as amended, and
the rules and regulations of the Commission thereunder, all as the same
shall be in effect at the time.
"1934 Act" shall mean the Securities Exchange Act of 1934, as
amended, and the rules and regulations of the Commission thereunder, all
as the same shall be in effect at the time.
"Commission" shall mean the Securities and Exchange Commission or
any other Federal agency at the time administering the 1933 Act.
"Common Stock" shall mean the common stock, par value $.001 per
share, of the Company.
"Company" shall have the meaning set forth in the preamble of
this Agreement.
"Contribution Agreement" shall have the meaning specified in the
Recitals to this Agreement.
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"Founding Stockholder" shall have the meaning specified in the
Recitals to this Agreement, but shall also include any Permitted
Assignee (as defined in Section 7.1 below) of any Founding Stockholder.
"Indemnified Party" shall have the meaning specified in Section
5.3.
"Indemnifying Party" shall have the meaning specified in Section
5.3.
"Inspectors" shall have the meaning specified in Section 4.1(h).
"IPO" shall mean the first public offering of Common Stock by
the Company that is registered under the 1933 Act and generates gross
proceeds to the Company of at least $10,000,000.
"Lock-Up Period" means a period of time, that follows the
effectiveness of a registration statement filed under the 1933 Act by
the Company for an offering of shares of its Common Stock or other
securities (whether or not any Stockholders are selling Shares in that
offering), including the registration statement for the Company's IPO
(as defined in Section 2 hereof), during which the Company or any
Stockholders, including any Founding Stockholders, have agreed with any
Underwriters for such offering, to refrain from selling any of their
shares of Common Stock without the consent of such Underwriter.
"Maximum Numbers of Shares" shall have the meaning specified in
Section 3.2.
"Piggy-Back Registration" shall have the meaning specified in
Section 3.
"Records" shall have the meaning specified in Section 4.1(h).
"Registrable Securities" shall mean, collectively, the Shares
and any securities issued or issuable upon any stock dividend, stock
split, recapitalization, merger, consolidation or similar event with
respect to the Shares. As to any particular Registrable Securities, such
securities shall cease to be Registrable Securities when (i) a
registration statement covering such securities shall have become
effective under the 1933 Act and such securities shall have been
disposed of in accordance with such registration statement, (ii) such
securities shall have been distributed to the public pursuant to Rule
144 or Rule 144A (or any successor provisions) under the 1933 Act, (iii)
such securities have become eligible to be sold pursuant to Section (k)
of Rule 144, or (iv) such securities shall have ceased to be
outstanding.
"Registration Rights Period" shall mean the period commencing on
the 180th day following the consummation of the Company's IPO (as
defined above) and continuing until the earlier of (i) the 5th
anniversary of such consummation or (ii) the date that the Registrable
Securities cease to be such.
"Requested Registration" shall have the meaning specified in
Section 2.
"Selling Holder" shall mean a Founding Stockholder who is
selling Registrable Securities pursuant to a registration statement
under the 1933 Act.
"Shares" shall have the meaning set forth in the recitals of
this Agreement.
"Stockholders Agreement" shall have the meaning set forth in the
recitals to this Agreement.
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"Underwriter" shall mean a securities dealer who purchases any
Registrable Securities as principal in an underwritten offering and not
as part of such dealer's market-making activities.
Capitalized terms not otherwise defined herein shall have the meaning
given to them in the Contribution Agreement.
2. Shelf Registration Rights.
2.1 Request for Registration. One or more of the Founding
Stockholders of the Company owning, individually or in the aggregate, not less
than fifteen percent (15%) of the outstanding Common Stock of the Company, at
any time on or after the 90th day following the date that the Company
consummates its IPO and continuing until the end of the Registration Rights
Period, may make a written request for registration under the 1933 Act of all or
part of their Registrable Securities (a "Requested Registration"). Any such
request shall specify the number of shares of Registrable Securities proposed to
be sold by such Founding Stockholders (the "Requesting Stockholders") pursuant
to such Requested Registration. The Company shall give written notice of such
registration request within 15 days after the receipt thereof to all of the
other Founding Stockholders who were not parties to the registration request
(the "Other Founding Stockholders"). Within ten days after receipt of such
notice by the Other Founding Stockholders, such Stockholders may request in
writing that all or any of their Registrable Securities be included in such
registration. Each such request by such Other Founding Stockholders shall
specify the number of Registrable Securities they propose to sell pursuant to
the Requested Registration. The Company shall include in the Requested
Registration at least the total number of Registrable Securities requested to be
included therein by the Founding Stockholders, including the Stockholder, within
the applicable time period specified above in this Section 2.1. Notwithstanding
the foregoing, the Company shall not be obligated to effect more than one
Requested Registration with respect to the Shares under this Section 2 during
the first twelve (12) months following the registration of its shares under
either Section 12(b) or Section 12(g) of the 1934 Act and more than two (2)
additional Requested Registrations during the period thereafter that any of the
Shares continue to be Registrable Securities (as defined herein). In addition,
the Company shall not be obligated to effect a Requested Registration if the
total number of Registrable Securities requested to be included therein totals
less than at least 5% of the outstanding shares of Common Stock of the Company.
2.2 Nature of Requested Registration. The Requested Registrations
required under this Section 2 shall take the form of non-underwritten "shelf"
registrations that will permit the Founding Stockholders who have elected to
include some or all of their Registrable Securities in the Requested
Registration to sell such Securities in open market transactions free of any
holding period and manner of sale restrictions under Rule 144 under the 1933
Act.
2.3 Reduction of Offering. If the Board of Directors of the
Company determines that the number of Registrable Securities requested to be
included in any Requested Registration could adversely affect the trading market
for the Company's shares or a planned financing by the Company , the Company
shall promptly notify the Founding Stockholders requesting the inclusion of
their Registrable Securities in the Requested Registration, in writing, thereof.
Such written notice shall specify that the aggregate dollar amount or number of
shares of Registrable Securities that the Board of Directors believes can be
registered without causing such adverse effect and the number thereof that each
Founding Stockholder shall be able to include in the Requested Registration
after giving effect to such reduction (which shall be determined by allocating
that aggregate number pro rata among such Founding Stockholders, as nearly as
practicable, on the basis of the number (or dollar amount, as the case may be)
of Registrable Securities they have requested to have included in such Requested
Registration).
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<PAGE> 4
2.4 Withdrawal. Stockholder may elect to withdraw his or its
request for inclusion of its Registrable Securities in any Requested
Registration by giving written notice to the Company of its request to withdraw
prior to the effectiveness of the registration statement.
2.5 Effective Registration. A registration under this Section 2
will not count as a Requested Registration until it has become effective and has
remained effective for a period of not less than nine (9) months or until all
the securities covered by such registration statement have been sold, whichever
period is shorter.
3. Piggy-Back Registrations.
3.1 Piggy-Back Rights. If at any time during the Registration
Rights Period, the Company proposes to file a registration statement under the
1933 Act with respect to an offering of equity securities, or securities
convertible or exchangeable into equity securities, by the Company for its own
account other than a registration statement (i) on Form S-4 or S-8 (or any
substitute or successor form that may be adopted by the Commission), (ii) filed
in connection with any employee stock option or other benefit plan, (iii) for an
exchange offer or offering of securities solely to the Company's existing
securityholders, (iv) for a dividend reinvestment plan, then the Company shall:
(a) give written notice of such proposed filing to the
Founding Stockholders, including the Stockholder, as soon as practicable but in
no event less than 30 days before the anticipated filing date, which notice
shall describe the amount and type of securities to be included in such
offering, the intended method(s) of distribution, and the name of the proposed
managing Underwriter or Underwriters, if any, of the offering; and
(b) offer in such notice to the Founding Stockholders,
including the Stockholder, the opportunity to register such number of shares of
Registrable Securities as each such Founding Stockholder may request in writing
within 10 days following receipt of such notice (a "Piggy-Back Registration").
Subject to the provisions of Sections 3.2 and 3.3, the Company shall cause such
Registrable Securities to be included in such registration and shall use its
best efforts to cause the managing Underwriter or Underwriters of a proposed
underwritten offering to permit the Registrable Securities requested to be
included in such registration on the same terms and conditions as any similar
securities of the Company are to be offered for sale in such registration and to
permit the sale or other disposition of such Registrable Securities in
accordance with the intended method of distribution thereof.
3.2 Reduction of Offering. If the managing Underwriter or
Underwriters for a Piggy-Back Registration that is to be an underwritten
offering advises the Company and the Founding Stockholders requesting inclusion
in the Piggy-Back Registration, in writing, that the dollar amount or number of
shares of Registrable Securities and other shares of Common Stock or other
securities to be included in the offering exceeds the maximum dollar amount or
number that can be sold in such offering without adversely affecting the
proposed offering price, the timing, the distribution method or the probability
of success of such offering (the "Maximum Number of Shares"), then, the Company
shall include in such registration: (i) first, the shares of Common Stock or
other securities that the Company proposes to sell which can be sold without
exceeding the Maximum Number of Shares; and (ii) second, to the extent the
Maximum Number of Shares has not been reached under the foregoing clause (i),
the Registrable Securities requested to be included in such registration by the
Founding Stockholders which can be sold without exceeding the Maximum Number of
Shares (allocated pro rata among such Founding Stockholders, as nearly as
practicable, on the basis of the number (or dollar amount, as the case may be)
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<PAGE> 5
of Registrable Securities requested to be included in such offering by each of
such Founding Stockholders).
3.3 Withdrawal. Stockholder may elect to withdraw his or its
request for inclusion of its Registrable Securities in any Piggy-Back
Registration by giving written notice to the Company of its request to withdraw
prior to the effectiveness of the registration statement. The Company may also
elect to withdraw a registration statement including shares being registered
pursuant to a Founding Stockholder's Piggy-Back Registration rights at any time
prior to the effectiveness of the registration statement, and such withdrawal
shall not require the consent of any such Founding Stockholders; provided,
however, that the Company shall reimburse promptly, but in no more than twenty
(20) business days, all Founding Stockholders for all reasonable out-of-pocket
expenses (other than the fees or disbursements of counsel or accountants
retained by any of the Founding Stockholders) incurred by them in connection
with such Piggy-Back Registration prior to such withdrawal by the Company.
4. Registration Procedures.
4.1 Filings; Information. If and whenever the Company is required
to effect the registration of any Registrable Securities under the 1933 Act
pursuant to Section 2 or Section 3, the Company shall use its best efforts to
effect the registration as expeditiously as practicable, and in connection or in
furtherance therewith:
(a) Filing Registration Statement. The Company shall, as
expeditiously as possible, prepare and, in the case of a Requested Registration
pursuant to Section 2, within 60 days after receipt of the initial request for
such registration, to file with the Commission a registration statement on any
form for which the Company then qualifies or which counsel for the Company shall
deem appropriate and which form shall be available for the sale of the
Registrable Securities to be registered thereunder in accordance with the
intended method of distribution thereof, and use its best efforts to cause such
filed registration statement to become and remain effective; provided, however,
that in the case of the registration statement for a Requested Registration
requested during the Lock-Up period following the effectiveness of the IPO, such
registration statement shall not become effective until the end of that Lock-Up
Period.
(b) Copies. The Company shall, prior to filing a
registration statement or prospectus or any amendment or supplement thereto,
furnish without charge to Stockholder and legal counsel for Stockholder, copies
of such registration statement as proposed to be filed, each amendment and
supplement to such registration statement (in each case including all exhibits
thereto and documents incorporated by reference therein), the prospectus
included in such registration statement (including each preliminary prospectus),
and such other documents as Stockholder may request in order to facilitate the
disposition of the Registrable Securities owned by Stockholder.
(c) Amendments and Supplements. The Company shall prepare
and file with the Commission such amendments, including post-effective
amendments, and supplements to such registration statement and the prospectus
used in connection therewith as may be necessary to keep such registration
statement effective and in compliance with the provisions of the 1933 Act until
all Registrable Securities and other securities covered by such registration
statement have been disposed of in accordance with the intended methods of
disposition set forth in such registration statement (which period shall not
exceed nine months) or such securities have been withdrawn.
(d) Notification. After the filing of the registration
statement, the Company shall promptly, and in no event more than three Business
Days, notify Stockholder, and confirm such
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<PAGE> 6
advice in writing, (i) when such registration statement becomes effective, (ii)
when any post-effective amendment to such registration statement becomes
effective, (iii) of any stop order issued or threatened by the Commission (and
the Company shall take all actions required to prevent the entry of such stop
order or to remove it if entered) and (iv) of any request by the Commission for
any amendment or supplement to such registration statement of any prospectus
relating thereto or for additional information or of the occurrence of an event
requiring the preparation of a supplement or amendment to such prospectus so
that, as thereafter delivered to the purchasers of such Registrable Securities
covered by such Registration Statement, such prospectus will not contain an
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
and promptly make available to Stockholder any such supplement or amendment;
except that before filing with the Commission a registration statement or
prospectus or any amendment or supplement thereto, including documents
incorporated by reference, the Company shall furnish to Stockholder and to legal
counsel representing Stockholder, copies of all such documents proposed to be
filed sufficiently in advance of filing to provide Stockholder, Underwriters and
legal counsel with a reasonable opportunity to review such documents and comment
thereon, and the Company shall not file any registration statement or prospectus
or amendment or supplement thereto, including documents incorporated by
reference to which Stockholder or legal counsel representing Stockholder, shall
reasonably object on a timely basis in light of the requirements of the 1933 Act
or any other applicable laws and regulations.
(e) State Securities Laws Compliance. The Company shall
use its best efforts to register or qualify the Registrable Securities covered
by a registration statement for a Requested Registration or a Piggy-Back
Registration under such securities or blue sky laws of such jurisdictions in the
United States as Stockholder (in light of the intended plan of distribution)
requests; provided, however, that the Company shall not be required to qualify
generally to do business in any jurisdiction where it would not otherwise be
required to qualify but for this paragraph (e), or subject itself to taxation in
any such jurisdiction.
(f) Agreements for Disposition. The Company shall enter
into customary agreements (including, if applicable, an underwriting agreement
in customary form) and take such other actions as are reasonably required in
order to expedite or facilitate the disposition of such Registrable Securities
in connection with a underwritten Piggy-Back Registration. Stockholder may, at
its option, require that any or all of the representations, warranties and
covenants of the Company in any underwriting agreement for a Piggy-Back
Registration to or for the benefit of any Underwriters also be made to and for
the benefit of Founding Stockholders whose Registrable Securities have been
included in such Registration.
(g) Cooperation. The Executive Officers and other members
of the management of the Company shall cooperate fully in any offering of
Registrable Securities hereunder, which cooperation shall include, without
limitation, the preparation of the Registration Statement and all other offering
materials and related documents, and participation in meetings with
Underwriters, attorneys, accountants.
(h) Records. The Company shall make available, for
inspection by any Underwriter for any Underwritten Piggy Back Registration and
any attorney, accountant or other professional retained by any Underwriter, all
financial and other records, pertinent corporate documents and properties of the
Company (collectively, the "Records"), as shall be necessary to enable them to
exercise their due diligence responsibility, and cause the Company's officers,
directors and employees to supply all information requested by such Underwriter
or its counsel or accountants or other professional advisors in connection with
such Registration.
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<PAGE> 7
(i) Earnings Statement. The Company shall comply with all
applicable rules and regulations of the Commission and the 1933 Act, and make
available to its Stockholders, as soon as practicable, an earnings statement
covering a period of 12 months, beginning within three months after the
effective date of the registration statement, which earnings statement shall
satisfy the provisions of Section 11(a) of the 1933 Act and Rule 158 thereunder.
(j) Listing. The Company shall use its best efforts to
cause all such Registrable Securities registered pursuant to this Agreement to
be listed on such exchanges or otherwise designated for trading in the same
manner as similar securities issued by the Company are then listed or
designated.
4.2 Obligation to Suspend Distribution. Stockholder agrees that,
upon receipt of any notice from the Company of the happening of any event of the
kind described in Section 4.1(d), Stockholder will forthwith discontinue
disposition of Registrable Securities pursuant to the registration statement
covering such Registrable Securities until Stockholder's receipt of the copies
of the supplemented or amended prospectus contemplated by Section 4.1(d), and,
if so directed by the Company, Stockholder will deliver to the Company all
copies, other than permanent file copies then in Stockholder's possession, of
the most recent prospectus covering such Registrable Securities at the time of
receipt of such notice. In the event the Company shall give such notice, the
Company shall extend the period during which such registration statement shall
be maintained effective by the number of days during the period from and
including the date of the giving of notice pursuant to Section 4.1(d) to the
date when the Company shall make available to Stockholder a prospectus
supplemented or amended to conform with the requirements of Section 4.1(d).
4.3 Registration Expenses. The Company shall pay all expenses
incurred in connection with any Requested Registration pursuant to Section 2 and
any Piggy-Back Registration pursuant to Section 3, and all expenses incurred in
performing or complying with the Company's obligations under this Section 4,
whether or not the registration statement becomes effective, in each case
including, but not limited to: (i) all registration and filing fees, (ii) fees
and expenses of compliance with securities or blue sky laws (including fees and
disbursements of counsel in connection with blue sky qualifications of the
Registrable Securities), printing expenses, (iii) the Company's internal
expenses (including, without limitation, all salaries and expenses of its
officers and employees performing legal or accounting duties), (iv) the fees and
expenses incurred in connection with the listing of the Registrable Securities
as required by Section 4.1(j), (iv) National Association of Securities Dealers,
Inc. fees, (v) fees and disbursements of counsel for the Company and fees and
expenses for independent certified public accountants retained by the Company,
(vi) the fees and expenses of any special experts retained by the Company in
connection with such registration. The Company shall have no obligation to pay
any underwriting fees, discounts or selling commissions attributable to the
Registrable Securities being sold by Stockholder or any of the other Founding
Stockholders, or any expenses incurred by the Stockholder or any of the other
Founding Stockholders incurred in connection with such registration, such as but
not limited to the fees and disbursement of counsel, accountants or experts
retained by Stockholder or any other of the Founding Stockholders to represent
or assist them in connection with such registration.
5. Indemnification and Contribution.
5.1 Indemnification by the Company. The Company agrees to
indemnify and hold harmless Stockholder and, if Stockholder is a corporation or
other business entity, its officers, employees, affiliates, directors, partners,
members and agents, and each person, if any, who controls the Stockholder within
the meaning of Section 15 of the 1933 Act or Section 20 of the 1934 Act
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<PAGE> 8
(collectively, the Stockholder's Related Parties"), from and against any loss,
claim, damage or liability and any action in respect thereof to which the
Stockholder or any of his or its Related Parties become subject under the 1933
Act or the 1934 Act, insofar as such loss, claim, damage, liability or action
arises out of, or is based upon, any untrue statement or alleged untrue
statement of a material fact contained or incorporated by reference in any
registration statement or prospectus (including any preliminary prospectus)
relating to the Registrable Securities (as amended or supplemented if the
Company shall have furnished any amendments or supplements thereto), or any
omission or alleged omission to state a material fact required to be stated in
any such registration statement or prospectus in order to make the statements
therein not misleading. The Company also shall promptly, but in no event more
than twenty (20) business days after request for payment, pay directly or
reimburse the Stockholder and its Related Parties for any reasonable legal and
other expenses incurred by Stockholder or such Related Parties in investigating
or defending or preparing to defend against any such loss, claim, damage,
liability or action provided that the Stockholder or such Related Party is
entitled to be indemnified therefor under the provisions of this Section 5;
provided, however, that notwithstanding anything to the contrary set forth in
this Section 5 (i) the indemnity agreement contained in this Section 5.1 shall
not apply to amounts paid in settlement of any such loss, claim, damage or
liability or any action in respect thereof if such settlement is effected
without the consent of the Company (which consent shall not be unreasonably
withheld), (ii) the Company shall not be liable to Stockholder or any of its
Related Parties in any such case for any loss, claim, damage, liability or any
action in respect thereof to the extent that it arises solely from or is based
solely upon and is in conformity with information related to Stockholder
furnished in writing by Stockholder expressly for use in connection with such
registration, (iii) the Company shall not be liable to Stockholder for any such
loss, claim, damage or liability or any action in respect thereof to the extent
it arises solely from or is based solely upon any untrue statement or alleged
untrue statement of a material fact contained in any registration statement or
prospectus relating to the Registrable Securities delivered by Stockholder after
the Company had provided written notice to Stockholder that such registration
statement or prospectus contained such untrue statement or alleged untrue
statement of a material fact, or any omission or alleged omission to state
therein a material fact required to be stated therein or necessary to make the
statements therein not misleading after the Company had provided written notice
to Stockholder that such registration statement or prospectus contained such
omission or alleged omission; and (iv) the obligation of the Company to pay or
reimburse expenses of the Stockholder set forth above in this Section 5.1 shall
be subject to the provisions of Section 5.3 hereof. The Company also shall
indemnify any Underwriter of Registrable Securities, their officers, affiliates,
directors, partners, members and agents and each person who controls such
Underwriter on substantially the same basis as that of the indemnification of
Stockholder provided in this Section 5.1;
5.2 Indemnification by Stockholder. Stockholder shall indemnify
and hold harmless the Company, its officers, directors, employees and agents and
each person, if any, who controls the Company within the meaning of Section 15
of the 1933 Act or Section 20 of the 1934 Act to the same extent as the
foregoing indemnity from the Company to Stockholder, but solely with reference
to information in conformity with and related to Stockholder furnished in
writing by Stockholder expressly for use in any registration statement or
prospectus relating to the Registrable Securities, or any amendment or
supplement thereto, or any preliminary prospectus. Stockholder shall also
indemnify and hold harmless any Underwriter of the Registrable Securities, their
officers, directors, partners, members and agents and each person who controls
such Underwriters on substantially the same basis as that of the indemnification
of the Company provided in this Section 5.2; provided, however, that in no event
shall any indemnity obligation under this Section 5.2 exceed the dollar amount
of the net proceeds actually received by Stockholder from the sale of
Registrable Securities, which gave rise to such indemnification obligation under
such registration statement or prospectus.
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5.3 Conduct of Indemnification Proceedings. Promptly after
receipt by any person of any notice of any loss, claim, damage or liability or
any action in respect of which indemnity may be sought pursuant to Section 5,
such person (the "Indemnified Party") shall, if a claim in respect thereof is to
be made against any other person for indemnification hereunder, notify such
other person (the "Indemnifying Party") in writing of the loss, claim damage,
liability or action; provided, however, that the failure by the Indemnified
Party to notify the Indemnifying Party shall not relieve the Indemnifying Party
from any liability which the Indemnifying Party may otherwise have to such
Indemnified Party. If the Indemnified Party is seeking Indemnification with
respect to any claim or action brought against the Indemnified Party, then the
Indemnifying Party shall be entitled to participate in such claim or action,
and, to the extent that it wishes, jointly with all other Indemnifying Parties,
to assume the defense thereof with counsel reasonably satisfactory to the
Indemnified Party. After notice from the Indemnifying Party to the Indemnified
Party of its election to assume the defense of such claim or action, the
Indemnifying Party shall not be liable to the Indemnified Party for any legal or
other expenses subsequently incurred by the Indemnified Party in connection with
the defense thereof other than reasonable costs of investigation; provided,
however, that in any action in which both the Indemnified Party and the
Indemnifying Party are named as defendants, the Indemnified Party shall have the
right to employ separate counsel (but no more than one such separate counsel) to
represent the Indemnified Party and its controlling persons who may be subject
to liability arising out of any claim in respect of which indemnity may be
sought by the Indemnified Party against the Indemnifying Party, with the fees
and expenses of such counsel to be paid by such Indemnifying Party if, based
upon the written opinion of counsel of such Indemnified Party, representation of
both parties by the same counsel would be inappropriate due to actual or
potential differing interests between them. No Indemnifying Party shall, without
the prior written consent of the Indemnified Party, consent to entry of judgment
or effect any settlement of any claim or pending or threatened proceeding in
respect of which the Indemnified Party is or could have been a party and
indemnity could have been sought hereunder by such Indemnified Party, unless
such judgment or settlement includes an unconditional release of such
Indemnified Party from all liability arising out of such claim or proceeding.
5.4 Contribution. If the indemnification provided for in the
foregoing provisions of this Sections 5, is unavailable to any Indemnified Party
in respect of any loss, claim, damage, liability or action referred to herein,
then each such Indemnifying Party, in lieu of indemnifying such Indemnified
Party, shall contribute to the amount paid or payable by such Indemnified Party
as a result of such loss, claim, damage, liability or action in such proportion
as is appropriate to reflect the relative fault of the Indemnified Parties and
the Indemnifying Parties in connection with the actions or omissions which
resulted in such loss, claim, damage, liability or action, as well as any other
relevant equitable considerations. The relative fault of any Indemnified Party
and any Indemnifying Party shall be determined by reference to, among other
things, whether the untrue or alleged untrue statement of a material fact or the
omission or alleged omission to state a material fact relates to information
supplied by such Indemnified Party or such Indemnifying Party and the parties'
relative intent, knowledge, access to information and opportunity to correct or
prevent such statement or omission. The parties hereto further agree that it
would not be just and equitable if contribution pursuant to this Section 5.4
were determined by pro rata allocation or by any other method of allocation
which does not take account of the equitable considerations referred to in the
immediately preceding provisions of this Section 5.4. The amount paid or payable
by an Indemnified Party as a result of any loss, claim, damage, liability or
action referred to in the immediately preceding provisions shall be deemed to
include, subject to the limitations set forth above, any legal or other expenses
incurred by such Indemnified Party in connection with investigating or defending
any such action or claim. Notwithstanding the provisions of this Section 5.4,
Stockholder shall not be required to contribute any amount in excess of the
dollar amount of the net proceeds actually received by Stockholder from the sale
of Registrable Securities, which gave rise to
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such contribution obligation. No person guilty of fraudulent misrepresentation
(within the meaning of Section 11(f) of the 1933 Act) shall be entitled to
contribution from any person who was not guilty of such fraudulent
misrepresentation.
6. Certain Obligations of the Company and Stockholder.
6.1 Rule 144. The Company covenants that it shall use its best
efforts to file any reports required to be filed by it under the 1933 Act and
the 1934 Act to enable Stockholder to sell Registrable Securities without
registration under the 1933 Act within the limitation of the exemptions provided
by Rule 144 or Rule 144A under the 1933 Act, as such Rules may be amended from
time to time, or any similar Rule or regulation hereafter adopted by the
Commission.
6.2 "Lock-up" Agreement by Stockholder. Stockholder, by its
acceptance hereof, agrees that, upon request, in connection with any
underwritten public offering by the Company, Stockholder will enter "lock-up"
agreements, in customary form, pursuant to which it or he or she will agree not
to effect any sale or distribution of any securities similar to those being
registered by the Company, or any securities convertible into or exchangeable or
exercisable for such securities, including a sale pursuant to Rule 144 or 144A
under the 1933 Act, during the 30 days prior to, and during the 180-day period
beginning on, the effective date of the registration statement relating to such
offering (except as part of such registration statement); provided, however,
that the obligation of Stockholder to execute such lock-up agreements is subject
to the execution of similar agreements by all of the executive officers and the
directors of the Company.
7. Miscellaneous
7.1 Successors and Assigns. The rights and obligations of
Stockholder under this Agreement shall be assignable to any person or entity to
whom the Stockholder sells or transfers any of his or its Registrable Securities
in conformity with the Stockholders Agreement while that Agreement is in effect
(a "Permitted Assignee"); provided, however that any assignee or transferee of
such Securities that acquires them in a transaction pursuant to Rule 144 or Rule
144A shall not be deemed to be a Permitted Assignee that is entitled to any
rights under this Agreement. Any Permitted Assignee of such rights, upon
agreeing, in writing, to assume the obligations of Stockholder hereunder, shall
be entitled to such benefits of this Agreement as is set forth in an agreement
between Stockholder and such Permitted Assignee. Stockholder shall promptly
notify the Company in writing of such assignment and any limitations binding on
the Permitted Assignee.
7.2 Entire Agreement. This Agreement, the Contribution Agreement
and the Stockholders Agreement, and the other agreements and instruments
furnished pursuant thereto or in connection therewith, constitute the full and
entire agreement and understanding between Stockholder and the Company, and
supersede all prior agreements and understandings relating to the subject matter
of this Agreement.
7.3 Notices. All notices, requests, demands and other
communications which are required or may be given under this Agreement shall be
in writing and shall be deemed to have been duly given if transmitted by
telecopier with receipt acknowledged, or upon delivery, if delivered personally
or by recognized commercial courier with receipt acknowledged, or upon the
expiration of 72 hours after mailing, if mailed by registered or certified mail,
return receipt requested, postage prepaid, addressed to the Company and to
Stockholder at their respective addresses set forth in Exhibit C to the
Stockholders
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Agreement, or at such other address or addresses as Stockholder or the Company,
as the case may be, may specify by written notice given in accordance with this
Section 7.3.
7.4 Severability. In case any provision of this Agreement shall
be invalid, illegal or unenforceable, the validity, legality and enforceability
of the remaining provisions shall not in any way be affected or impaired
thereby.
7.5 Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be an original, but all of which together
shall constitute one instrument.
7.6 Headings. The headings of the Sections and paragraphs of this
Agreement are for convenience of reference only and do not constitute a part of
this Agreement and are not to be considered in construing or interpreting this
Agreement.
7.7 Waivers and Amendments. Neither this Agreement nor any
provision hereof may be changed, waived, discharged or terminated orally or by
course of dealing, except by a statement in writing signed by the party against
which enforcement of the change, waiver, discharge or termination is sought.
7.8 Remedies. In the event that the Company fails to observe or
perform any covenant or agreement to be observed or performed under this
Agreement, Stockholder may proceed to protect and enforce its rights by suit in
equity or action at law, whether for specific performance of any term contained
in this Agreement or for an injunction against the breach of any such term or in
aid of the exercise of any power granted in this Agreement or to enforce any
other legal or equitable right of Stockholder, or to take any one or more of
such actions. The non-prevailing party in any such proceeding agrees to pay all
fees, costs, and expenses incurred by the prevailing party in connection with
any such proceeding, including without limitation, the reasonable attorneys fees
and disbursements incurred by the prevailing party. None of the rights, powers
or remedies conferred under this Agreement shall be mutually exclusive, and each
such right, power or remedy shall be cumulative and in addition to any other
right, power or remedy whether conferred by this Agreement or now or hereafter
available at law, in equity, by statute or otherwise.
7.9 Governing Law. In all respects, including all matters of
construction, validity and performance, this Agreement and the rights and
obligations arising hereunder shall be governed by, and construed and enforced
in accordance with, the laws of the State of California applicable to contracts
made and performed in such state, without regard to principles thereof regarding
conflicts of laws.
7.10 WAIVER OF JURY TRIAL. BECAUSE DISPUTES ARISING IN CONNECTION
WITH COMPLEX FINANCIAL TRANSACTIONS ARE MOST QUICKLY AND ECONOMICALLY RESOLVED
BY AN EXPERIENCED AND EXPERT PERSON AND THE PARTIES WISH APPLICABLE STATE AND
FEDERAL LAWS TO APPLY (RATHER THAN ARBITRATION RULES), THE PARTIES DESIRE THAT
THEIR DISPUTES BE RESOLVED BY A JUDGE APPLYING SUCH APPLICABLE LAWS. THEREFORE,
TO ACHIEVE THE BEST COMBINATION OF THE BENEFITS OF THE JUDICIAL SYSTEM AND OF
ARBITRATION, AND UNDERSTANDING THEY ARE WAIVING A CONSTITUTIONAL RIGHT, THE
PARTIES HERETO WAIVE ALL RIGHT TO TRIAL BY JURY IN ANY ACTION, SUIT, OR
PROCEEDING BROUGHT TO RESOLVE ANY DISPUTE, WHETHER IN CONTRACT, TORT, OR
OTHERWISE, ARISING OUT OF, CONNECTED WITH, RELATED TO, OR INCIDENTAL TO, THIS
AGREEMENT OR THE TRANSACTIONS COMPLETED HEREBY.
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IN WITNESS WHEREOF, the parties have caused this Registration Rights
Agreement to be executed and delivered by their duly authorized representatives
as of the date first above written.
COMPANY: COLLECTORS UNIVERSE, INC.,
a Delaware corporation
By:_________________________________________
David Hall, Chairman
STOCKHOLDER: ____________________________________________
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<PAGE> 1
EXHIBIT 4.2
REGISTRATION RIGHTS AGREEMENT
This REGISTRATION RIGHTS AGREEMENT (the "Agreement") is dated as of
_____ __, 1999, by and among COLLECTORS UNIVERSE, INC., a Delaware corporation
(the "Company") and the stockholder of the Company identified on the signature
page of this Agreement (the "Stockholder"), with reference to the following
facts and circumstances:
A. On this date the Company is issuing shares of its Common Stock, par
value $.001 per share (the "Shares"), to the Stockholder that were sold to him
or her in a Private Placement by the Company of its shares to a select number of
accredited investors.
B. The sale and issuance of the Shares to Stockholder have not been
registered under the 1933 Act (as defined below) and the transferability of the
Shares are subject to restrictions under that Act and also pursuant to a
Stockholders Agreement (the "Stockholders Agreement") to be entered into by the
Stockholder with the Company.
C. In order to induce the Stockholder to acquire the Shares and enter
into the Stockholders Agreements, the Company has agreed to grant to the
Stockholder, and has granted to each of its other stockholders, registration
rights with respect to the shares of Common Stock of the Company owned by each
of them, subject to the conditions contained in this Agreement.
AGREEMENT
In consideration of the mutual covenants and agreements set forth
herein, and for good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, the parties hereto agree as follows:
1. Definitions. For purposes of this Agreement, the following terms
shall have the meanings specified with respect thereto below:
"1933 Act" shall mean the Securities Act of 1933, as amended, and
the rules and regulations of the Commission thereunder, all as the same
shall be in effect at the time.
"1934 Act" shall mean the Securities Exchange Act of 1934, as
amended, and the rules and regulations of the Commission thereunder, all
as the same shall be in effect at the time.
"Commission" shall mean the Securities and Exchange Commission or
any other Federal agency at the time administering the 1933 Act.
"Common Stock" shall mean the common stock, par value $.001 per
share, of the Company.
"Company" shall have the meaning set forth in the preamble of
this Agreement.
"Indemnified Party" shall have the meaning specified in Section
5.3.
"Indemnifying Party" shall have the meaning specified in Section
5.3.
"IPO" shall mean the first public offering of Common Stock by the
Company that is registered under the 1933 Act and generates gross
proceeds to the Company of at least $10,000,000.
<PAGE> 2
"Lock-Up Period" means a period of time, that follows the
effectiveness of a registration statement filed under the 1933 Act by
the Company for an offering of shares of its Common Stock or other
securities (whether or not any Stockholders are selling Shares in that
offering), including the registration statement for the Company's IPO
(as defined in Section 2 hereof), during which the Company or any
Stockholders, including the Stockholder, have agreed with any
Underwriters for such offering, to refrain from selling any of their
shares of Common Stock without the consent of such Underwriter.
"Maximum Numbers of Shares" shall have the meaning specified in
Section 3.2.
"Piggy-Back Registration" shall have the meaning specified in
Section 3.
"Records" shall have the meaning specified in Section 4.1(h).
"Registrable Securities" shall mean, collectively, the Shares and
any securities issued or issuable upon any stock dividend, stock split,
recapitalization, merger, consolidation or similar event with respect to
the Shares. As to any particular Registrable Securities, such securities
shall cease to be Registrable Securities when (i) a registration
statement covering such securities shall have become effective under the
1933 Act and such securities shall have been disposed of in accordance
with such registration statement, (ii) such securities shall have been
distributed to the public pursuant to Rule 144 or Rule 144A (or any
successor provisions) under the 1933 Act, (iii) such securities have
become eligible to be sold pursuant to Section (k) of Rule 144, or (iv)
such securities shall have ceased to be outstanding.
"Registration Rights Period" shall mean the period commencing on
the 180th day following the consummation of the Company's IPO (as
defined above) and continuing until the earlier of (i) the 5th
anniversary of such consummation or (ii) the date that the Registrable
Securities cease to be such.
"Requested Registration" shall have the meaning specified in
Section 2.
"Selling Holder" shall mean a Stockholder who is selling
Registrable Securities pursuant to a registration statement under the
1933 Act.
"Shares" shall have the meaning set forth in the recitals of
this Agreement.
"Stockholders" shall mean all of the stockholders of the Company
that are parties to registration rights agreements with the Company that
are substantially similar to this Agreement and includes the Stockholder
unless the context indicates otherwise.
"Stockholders Agreement" shall have the meaning set forth in the
recitals to this Agreement.
"Underwriter" shall mean a securities dealer who purchases any
Registrable Securities as principal in an underwritten offering and not
as part of such dealer's market-making activities.
Capitalized terms not otherwise defined herein shall have the meaning
given to them in the Contribution Agreement.
2. Shelf Registration Rights.
2.1 Request for Registration. One or more of the stockholders of
the Company owning, individually or in the aggregate, not less than fifteen
percent (15%) of the outstanding Common
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<PAGE> 3
Stock of the Company, at any time on or after the 90th day following the date
that the Company consummates its IPO and continuing until the end of the
Registration Rights Period, may make a written request for registration under
the 1933 Act of all or part of their Registrable Securities (a "Requested
Registration"). Any such request shall specify the number of shares of
Registrable Securities proposed to be sold by such stockholders (the "Requesting
Stockholders") pursuant to such Requested Registration. The Company shall give
written notice of such registration request within 15 days after the receipt
thereof to all of the other stockholders who were not parties to the
registration request (the "Other Stockholders"). Within ten days after receipt
of such notice by the Other Stockholders, such Stockholders may request in
writing that all or any of their Registrable Securities be included in such
registration. Each such request by such Other Stockholders shall specify the
number of Registrable Securities they propose to sell pursuant to the Requested
Registration. The Company shall include in the Requested Registration at least
the total number of Registrable Securities requested to be included therein by
the stockholders, including the Stockholder, within the applicable time period
specified above in this Section 2.1. Notwithstanding the foregoing, the Company
shall not be obligated to effect more than one Requested Registration with
respect to shares of common stock owned by the Stockholder and the Other
Stockholders under this Section 2 during the first twelve (12) months following
the registration of its shares under either Section 12(b) or Section 12(g) of
the 1934 Act and more than two (2) additional Requested Registrations during the
period thereafter that any of the Shares continue to be Registrable Securities
(as defined herein). In addition, the Company shall not be obligated to effect a
Requested Registration if the total number of Registrable Securities requested
to be included therein totals less than at least 5% of the outstanding shares of
Common Stock of the Company.
2.2 Nature of Requested Registration. The Requested Registrations
required under this Section 2 shall take the form of non-underwritten "shelf"
registrations that will permit the stockholders who have elected to include some
or all of their Registrable Securities in the Requested Registration to sell
such Securities in open market transactions free of any holding period and
manner of sale restrictions under Rule 144 under the 1933 Act.
2.3 Reduction of Offering. If the Board of Directors of the
Company determines that the number of Registrable Securities requested to be
included in any Requested Registration could adversely affect the trading market
for the Company's shares or a planned financing by the Company, the Company
shall promptly notify the Stockholder and the other Stockholders requesting the
inclusion of their Registrable Securities in the Requested Registration, in
writing, thereof. Such written notice shall specify that the aggregate dollar
amount or number of shares of Registrable Securities that the Board of Directors
believes can be registered without causing such adverse effect and the number
thereof that Stockholder and each of such other Stockholders shall be able to
include in the Requested Registration after giving effect to such reduction
(which shall be determined by allocating that aggregate number pro rata among
such Stockholders, as nearly as practicable, on the basis of the number (or
dollar amount, as the case may be) of Registrable Securities they have requested
to have included in such Requested Registration).
2.4 Withdrawal. Stockholder may elect to withdraw his or its
request for inclusion of its Registrable Securities in any Requested
Registration by giving written notice to the Company of its request to withdraw
prior to the effectiveness of the registration statement.
2.5 Effective Registration. A registration under this Section 2
will not count as a Requested Registration until it has become effective and has
remained effective for a period of not less than nine (9) months or until all
the securities covered by such registration statement have been sold, whichever
period is shorter.
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<PAGE> 4
3. Piggy-Back Registrations.
3.1 Piggy-Back Rights. If at any time during the Registration
Rights Period, the Company proposes to file a registration statement under the
1933 Act with respect to an offering of equity securities, or securities
convertible or exchangeable into equity securities, by the Company for its own
account other than a registration statement (i) on Form S-4 or S-8 (or any
substitute or successor form that may be adopted by the Commission), (ii) filed
in connection with any employee stock option or other benefit plan, (iii) for an
exchange offer or offering of securities solely to the Company's existing
securityholders, (iv) for a dividend reinvestment plan, then the Company shall:
(a) give written notice of such proposed filing to the
Stockholders, including the Stockholder, as soon as practicable but in no event
less than 30 days before the anticipated filing date, which notice shall
describe the amount and type of securities to be included in such offering, the
intended method(s) of distribution, and the name of the proposed managing
Underwriter or Underwriters, if any, of the offering; and
(b) offer in such notice to the Stockholders, including
the Stockholder, the opportunity to register such number of shares of
Registrable Securities as each such Stockholder may request in writing within 10
days following receipt of such notice (a "Piggy-Back Registration"). Subject to
the provisions of Sections 3.2 and 3.3, the Company shall cause such Registrable
Securities to be included in such registration and shall use its best efforts to
cause the managing Underwriter or Underwriters of a proposed underwritten
offering to permit the Registrable Securities requested to be included in such
registration on the same terms and conditions as any similar securities of the
Company are to be offered for sale in such registration and to permit the sale
or other disposition of such Registrable Securities in accordance with the
intended method of distribution thereof.
3.2 Reduction of Offering. If the managing Underwriter or
Underwriters for a Piggy-Back Registration that is to be an underwritten
offering advises the Company and the Stockholders requesting inclusion in the
Piggy-Back Registration, in writing, that the dollar amount or number of shares
of Registrable Securities and other shares of Common Stock or other securities
to be included in the offering exceeds the maximum dollar amount or number that
can be sold in such offering without adversely affecting the proposed offering
price, the timing, the distribution method or the probability of success of such
offering (the "Maximum Number of Shares"), then, the Company shall include in
such registration: (i) first, the shares of Common Stock or other securities
that the Company proposes to sell which can be sold without exceeding the
Maximum Number of Shares; and (ii) second, to the extent the Maximum Number of
Shares has not been reached under the foregoing clause (i), the Registrable
Securities requested to be included in such registration by the Stockholders
which can be sold without exceeding the Maximum Number of Shares (allocated pro
rata among such Stockholders, as nearly as practicable, on the basis of the
number (or dollar amount, as the case may be) of Registrable Securities
requested to be included in such offering by each of such Stockholders).
3.3 Withdrawal. Stockholder may elect to withdraw his or her
request for inclusion of its Registrable Securities in any Piggy-Back
Registration by giving written notice to the Company of its request to withdraw
prior to the effectiveness of the registration statement. The Company may also
elect to withdraw a registration statement including shares being registered
pursuant to a Stockholder's Piggy-Back Registration rights at any time prior to
the effectiveness of the registration statement, and such withdrawal shall not
require the consent of any Stockholders; provided, however, that the Company
shall reimburse promptly, but in no more than twenty (20) business days, all
Stockholders for all reasonable out-of-pocket expenses (other than the fees or
disbursements of counsel or accountants
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<PAGE> 5
retained by any of the Stockholders) incurred by them in connection with such
Piggy-Back Registration prior to such withdrawal by the Company.
4. Registration Procedures.
4.1 Filings; Information. If and whenever the Company is required
to effect the registration of any Registrable Securities under the 1933 Act
pursuant to Section 2 or Section 3, the Company shall use its best efforts to
effect the registration as expeditiously as practicable, and in connection or in
furtherance therewith:
(a) Filing Registration Statement. The Company shall, as
expeditiously as possible, prepare and, in the case of a Requested Registration
pursuant to Section 2, within 60 days after receipt of the initial request for
such registration, to file with the Commission a registration statement on any
form for which the Company then qualifies or which counsel for the Company shall
deem appropriate and which form shall be available for the sale of the
Registrable Securities to be registered thereunder in accordance with the
intended method of distribution thereof, and use its best efforts to cause such
filed registration statement to become and remain effective; provided, however,
that in the case of the registration statement for a Requested Registration
requested during the Lock-Up period following the effectiveness of the IPO, such
registration statement shall not become effective until the end of that Lock-Up
Period.
(b) Copies. The Company shall, prior to filing a
registration statement or prospectus or any amendment or supplement thereto,
furnish without charge to Stockholder and legal counsel for Stockholder, copies
of such registration statement as proposed to be filed, each amendment and
supplement to such registration statement (in each case including all exhibits
thereto and documents incorporated by reference therein), the prospectus
included in such registration statement (including each preliminary prospectus),
and such other documents as Stockholder may request in order to facilitate the
disposition of the Registrable Securities owned by Stockholder.
(c) Amendments and Supplements. The Company shall prepare
and file with the Commission such amendments, including post-effective
amendments, and supplements to such registration statement and the prospectus
used in connection therewith as may be necessary to keep such registration
statement effective and in compliance with the provisions of the 1933 Act until
all Registrable Securities and other securities covered by such registration
statement have been disposed of in accordance with the intended methods of
disposition set forth in such registration statement (which period shall not
exceed nine months) or such securities have been withdrawn.
(d) Notification. After the filing of the registration
statement, the Company shall promptly, and in no event more than three Business
Days, notify Stockholder, and confirm such advice in writing, (i) when such
registration statement becomes effective, (ii) when any post-effective amendment
to such registration statement becomes effective, (iii) of any stop order issued
or threatened by the Commission (and the Company shall take all actions required
to prevent the entry of such stop order or to remove it if entered) and (iv) of
any request by the Commission for any amendment or supplement to such
registration statement of any prospectus relating thereto or for additional
information or of the occurrence of an event requiring the preparation of a
supplement or amendment to such prospectus so that, as thereafter delivered to
the purchasers of such Registrable Securities covered by such Registration
Statement, such prospectus will not contain an 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 and promptly make
available to Stockholder any such supplement or amendment; except that before
filing with the Commission a registration statement or prospectus or any
amendment or
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<PAGE> 6
supplement thereto, including documents incorporated by reference, the Company
shall furnish to Stockholder and to legal counsel representing Stockholder,
copies of all such documents proposed to be filed sufficiently in advance of
filing to provide Stockholder, Underwriters and legal counsel with a reasonable
opportunity to review such documents and comment thereon, and the Company shall
not file any registration statement or prospectus or amendment or supplement
thereto, including documents incorporated by reference to which Stockholder or
legal counsel representing Stockholder, shall reasonably object on a timely
basis in light of the requirements of the 1933 Act or any other applicable laws
and regulations.
(e) State Securities Laws Compliance. The Company shall
use its best efforts to register or qualify the Registrable Securities covered
by a registration statement for a Requested Registration or a Piggy-Back
Registration under such securities or blue sky laws of such jurisdictions in the
United States as Stockholder (in light of the intended plan of distribution)
requests; provided, however, that the Company shall not be required to qualify
generally to do business in any jurisdiction where it would not otherwise be
required to qualify but for this paragraph (e), or subject itself to taxation in
any such jurisdiction.
(f) Agreements for Disposition. The Company shall enter
into customary agreements (including, if applicable, an underwriting agreement
in customary form) and take such other actions as are reasonably required in
order to expedite or facilitate the disposition of such Registrable Securities
in connection with a underwritten Piggy-Back Registration. Stockholder may, at
its option, require that any or all of the representations, warranties and
covenants of the Company in any underwriting agreement for a Piggy-Back
Registration to or for the benefit of any Underwriters also be made to and for
the benefit of the Stockholders whose Registrable Securities have been included
in such Registration.
(g) Cooperation. The Executive Officers and other members
of the management of the Company shall cooperate fully in any offering of
Registrable Securities hereunder, which cooperation shall include, without
limitation, the preparation of the Registration Statement and all other offering
materials and related documents, and participation in meetings with
Underwriters, attorneys, accountants.
(h) Records. The Company shall make available, for
inspection by any Underwriter for any Underwritten Piggy Back Registration and
any attorney, accountant or other professional retained by any Underwriter, all
financial and other records, pertinent corporate documents and properties of the
Company (collectively, the "Records"), as shall be necessary to enable them to
exercise their due diligence responsibility, and cause the Company's officers,
directors and employees to supply all information requested by such Underwriter
or its counsel or accountants or other professional advisors in connection with
such Registration.
(i) Earnings Statement. The Company shall comply with all
applicable rules and regulations of the Commission and the 1933 Act, and make
available to its Stockholders, as soon as practicable, an earnings statement
covering a period of 12 months, beginning within three months after the
effective date of the registration statement, which earnings statement shall
satisfy the provisions of Section 11(a) of the 1933 Act and Rule 158 thereunder.
(j) Listing. The Company shall use its best efforts to
cause all such Registrable Securities registered pursuant to this Agreement to
be listed on such exchanges or otherwise designated for trading in the same
manner as similar securities issued by the Company are then listed or
designated.
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4.2 Obligation to Suspend Distribution. Stockholder agrees that,
upon receipt of any notice from the Company of the happening of any event of the
kind described in Section 4.1(d), Stockholder will forthwith discontinue
disposition of Registrable Securities pursuant to the registration statement
covering such Registrable Securities until Stockholder's receipt of the copies
of the supplemented or amended prospectus contemplated by Section 4.1(d), and,
if so directed by the Company, Stockholder will deliver to the Company all
copies, other than permanent file copies then in Stockholder's possession, of
the most recent prospectus covering such Registrable Securities at the time of
receipt of such notice. In the event the Company shall give such notice, the
Company shall extend the period during which such registration statement shall
be maintained effective by the number of days during the period from and
including the date of the giving of notice pursuant to Section 4.1(d) to the
date when the Company shall make available to Stockholder a prospectus
supplemented or amended to conform with the requirements of Section 4.1(d).
4.3 Registration Expenses. The Company shall pay all expenses
incurred in connection with any Requested Registration pursuant to Section 2 and
any Piggy-Back Registration pursuant to Section 3, and all expenses incurred in
performing or complying with the Company's obligations under this Section 4,
whether or not the registration statement becomes effective, in each case
including, but not limited to: (i) all registration and filing fees, (ii) fees
and expenses of compliance with securities or blue sky laws (including fees and
disbursements of counsel in connection with blue sky qualifications of the
Registrable Securities), printing expenses, (iii) the Company's internal
expenses (including, without limitation, all salaries and expenses of its
officers and employees performing legal or accounting duties), (iv) the fees and
expenses incurred in connection with the listing of the Registrable Securities
as required by Section 4.1(j), (iv) National Association of Securities Dealers,
Inc. fees, (v) fees and disbursements of counsel for the Company and fees and
expenses for independent certified public accountants retained by the Company,
(vi) the fees and expenses of any special experts retained by the Company in
connection with such registration. The Company shall have no obligation to pay
any underwriting fees, discounts or selling commissions attributable to the
Registrable Securities being sold by Stockholder or any of the Other
Stockholders, or any expenses incurred by the Stockholder or any of the Other
Stockholders incurred in connection with such registration, such as but not
limited to the fees and disbursement of counsel, accountants or experts retained
by Stockholder or any other of the Stockholders to represent or assist them in
connection with such registration.
5. Indemnification and Contribution.
5.1 Indemnification by the Company. The Company agrees to
indemnify and hold harmless Stockholder and, if Stockholder is a corporation or
other business entity, its officers, employees, affiliates, directors, partners,
members and agents, and each person, if any, who controls the Stockholder within
the meaning of Section 15 of the 1933 Act or Section 20 of the 1934 Act
(collectively, the Stockholder's Related Parties"), from and against any loss,
claim, damage or liability and any action in respect thereof to which the
Stockholder or any of his or its Related Parties become subject under the 1933
Act or the 1934 Act, insofar as such loss, claim, damage, liability or action
arises out of, or is based upon, any untrue statement or alleged untrue
statement of a material fact contained or incorporated by reference in any
registration statement or prospectus (including any preliminary prospectus)
relating to the Registrable Securities (as amended or supplemented if the
Company shall have furnished any amendments or supplements thereto), or any
omission or alleged omission to state a material fact required to be stated in
any such registration statement or prospectus in order to make the statements
therein not misleading. The Company also shall promptly, but in no event more
than twenty (20) business days after request for payment, pay directly or
reimburse the Stockholder and its Related Parties for any reasonable legal and
other expenses incurred by Stockholder or such Related Parties in
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<PAGE> 8
investigating or defending or preparing to defend against any such loss, claim,
damage, liability or action provided that the Stockholder or such Related Party
is entitled to be indemnified therefor under the provisions of this Section 5;
provided, however, that notwithstanding anything to the contrary set forth in
this Section 5 (i) the indemnity agreement contained in this Section 5.1 shall
not apply to amounts paid in settlement of any such loss, claim, damage or
liability or any action in respect thereof if such settlement is effected
without the consent of the Company (which consent shall not be unreasonably
withheld), (ii) the Company shall not be liable to Stockholder or any of its
Related Parties in any such case for any loss, claim, damage, liability or any
action in respect thereof to the extent that it arises solely from or is based
solely upon and is in conformity with information related to Stockholder
furnished in writing by Stockholder expressly for use in connection with such
registration, (iii) the Company shall not be liable to Stockholder for any such
loss, claim, damage or liability or any action in respect thereof to the extent
it arises solely from or is based solely upon any untrue statement or alleged
untrue statement of a material fact contained in any registration statement or
prospectus relating to the Registrable Securities delivered by Stockholder after
the Company had provided written notice to Stockholder that such registration
statement or prospectus contained such untrue statement or alleged untrue
statement of a material fact, or any omission or alleged omission to state
therein a material fact required to be stated therein or necessary to make the
statements therein not misleading after the Company had provided written notice
to Stockholder that such registration statement or prospectus contained such
omission or alleged omission; and (iv) the obligation of the Company to pay or
reimburse expenses of the Stockholder set forth above in this Section 5.1 shall
be subject to the provisions of Section 5.3 hereof. The Company also shall
indemnify any Underwriter of Registrable Securities, their officers, affiliates,
directors, partners, members and agents and each person who controls such
Underwriter on substantially the same basis as that of the indemnification of
Stockholder provided in this Section 5.1;
5.2 Indemnification by Stockholder. Stockholder shall indemnify
and hold harmless the Company, its officers, directors, employees and agents and
each person, if any, who controls the Company within the meaning of Section 15
of the 1933 Act or Section 20 of the 1934 Act to the same extent as the
foregoing indemnity from the Company to Stockholder, but solely with reference
to information in conformity with and related to Stockholder furnished in
writing by Stockholder expressly for use in any registration statement or
prospectus relating to the Registrable Securities, or any amendment or
supplement thereto, or any preliminary prospectus. Stockholder shall also
indemnify and hold harmless any Underwriter of the Registrable Securities, their
officers, directors, partners, members and agents and each person who controls
such Underwriters on substantially the same basis as that of the indemnification
of the Company provided in this Section 5.2; provided, however, that in no event
shall any indemnity obligation under this Section 5.2 exceed the dollar amount
of the net proceeds actually received by Stockholder from the sale of
Registrable Securities, which gave rise to such indemnification obligation under
such registration statement or prospectus.
5.3 Conduct of Indemnification Proceedings. Promptly after
receipt by any person of any notice of any loss, claim, damage or liability or
any action in respect of which indemnity may be sought pursuant to Section 5,
such person (the "Indemnified Party") shall, if a claim in respect thereof is to
be made against any other person for indemnification hereunder, notify such
other person (the "Indemnifying Party") in writing of the loss, claim damage,
liability or action; provided, however, that the failure by the Indemnified
Party to notify the Indemnifying Party shall not relieve the Indemnifying Party
from any liability which the Indemnifying Party may otherwise have to such
Indemnified Party. If the Indemnified Party is seeking Indemnification with
respect to any claim or action brought against the Indemnified Party, then the
Indemnifying Party shall be entitled to participate in such claim or action,
and, to the extent that it wishes, jointly with all other Indemnifying Parties,
to assume the defense thereof with counsel reasonably satisfactory to the
Indemnified Party. After notice from the Indemnifying Party
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<PAGE> 9
to the Indemnified Party of its election to assume the defense of such claim or
action, the Indemnifying Party shall not be liable to the Indemnified Party for
any legal or other expenses subsequently incurred by the Indemnified Party in
connection with the defense thereof other than reasonable costs of
investigation; provided, however, that in any action in which both the
Indemnified Party and the Indemnifying Party are named as defendants, the
Indemnified Party shall have the right to employ separate counsel (but no more
than one such separate counsel) to represent the Indemnified Party and its
controlling persons who may be subject to liability arising out of any claim in
respect of which indemnity may be sought by the Indemnified Party against the
Indemnifying Party, with the fees and expenses of such counsel to be paid by
such Indemnifying Party if, based upon the written opinion of counsel of such
Indemnified Party, representation of both parties by the same counsel would be
inappropriate due to actual or potential differing interests between them. No
Indemnifying Party shall, without the prior written consent of the Indemnified
Party, consent to entry of judgment or effect any settlement of any claim or
pending or threatened proceeding in respect of which the Indemnified Party is or
could have been a party and indemnity could have been sought hereunder by such
Indemnified Party, unless such judgment or settlement includes an unconditional
release of such Indemnified Party from all liability arising out of such claim
or proceeding.
5.4 Contribution. If the indemnification provided for in the
foregoing provisions of this Sections 5, is unavailable to any Indemnified Party
in respect of any loss, claim, damage, liability or action referred to herein,
then each such Indemnifying Party, in lieu of indemnifying such Indemnified
Party, shall contribute to the amount paid or payable by such Indemnified Party
as a result of such loss, claim, damage, liability or action in such proportion
as is appropriate to reflect the relative fault of the Indemnified Parties and
the Indemnifying Parties in connection with the actions or omissions which
resulted in such loss, claim, damage, liability or action, as well as any other
relevant equitable considerations. The relative fault of any Indemnified Party
and any Indemnifying Party shall be determined by reference to, among other
things, whether the untrue or alleged untrue statement of a material fact or the
omission or alleged omission to state a material fact relates to information
supplied by such Indemnified Party or such Indemnifying Party and the parties'
relative intent, knowledge, access to information and opportunity to correct or
prevent such statement or omission. The parties hereto further agree that it
would not be just and equitable if contribution pursuant to this Section 5.4
were determined by pro rata allocation or by any other method of allocation
which does not take account of the equitable considerations referred to in the
immediately preceding provisions of this Section 5.4. The amount paid or payable
by an Indemnified Party as a result of any loss, claim, damage, liability or
action referred to in the immediately preceding provisions shall be deemed to
include, subject to the limitations set forth above, any legal or other expenses
incurred by such Indemnified Party in connection with investigating or defending
any such action or claim. Notwithstanding the provisions of this Section 5.4,
Stockholder shall not be required to contribute any amount in excess of the
dollar amount of the net proceeds actually received by Stockholder from the sale
of Registrable Securities, which gave rise to such contribution obligation. No
person guilty of fraudulent misrepresentation (within the meaning of Section
11(f) of the 1933 Act) shall be entitled to contribution from any person who was
not guilty of such fraudulent misrepresentation.
6. Certain Obligations of the Company and Stockholder.
6.1 Rule 144. The Company covenants that it shall use its best
efforts to file any reports required to be filed by it under the 1933 Act and
the 1934 Act to enable Stockholder to sell Registrable Securities without
registration under the 1933 Act within the limitation of the exemptions provided
by Rule 144 or Rule 144A under the 1933 Act, as such Rules may be amended from
time to time, or any similar Rule or regulation hereafter adopted by the
Commission.
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<PAGE> 10
6.2 "Lock-up" Agreement by Stockholder. Stockholder, by its
acceptance hereof, agrees that, upon request, in connection with any
underwritten public offering by the Company, Stockholder will enter "lock-up"
agreements, in customary form, pursuant to which it or he or she will agree not
to effect any sale or distribution of any securities similar to those being
registered by the Company, or any securities convertible into or exchangeable or
exercisable for such securities, including a sale pursuant to Rule 144 or 144A
under the 1933 Act, during the 30 days prior to, and during the 180-day period
beginning on, the effective date of the registration statement relating to such
offering (except as part of such registration statement); provided, however,
that the obligation of Stockholder to execute such lock-up agreements is subject
to the execution of similar agreements by all of the executive officers and the
directors of the Company.
7. Miscellaneous
7.1 Successors and Assigns. The rights and obligations of
Stockholder under this Agreement shall be assignable to any person or entity to
whom the Stockholder sells or transfers any of his or its Registrable Securities
in conformity with the Stockholders Agreement while that Agreement is in effect
(a "Permitted Assignee"); provided, however that any assignee or transferee of
such Securities that acquires them in a transaction pursuant to Rule 144 or Rule
144A shall not be deemed to be a Permitted Assignee that is entitled to any
rights under this Agreement. Any Permitted Assignee of such rights, upon
agreeing, in writing, to assume the obligations of Stockholder hereunder, shall
be entitled to such benefits of this Agreement as is set forth in an agreement
between Stockholder and such Permitted Assignee. Stockholder shall promptly
notify the Company in writing of such assignment and any limitations binding on
the Permitted Assignee.
7.2 Entire Agreement. This Agreement, the Contribution Agreement
and the Stockholders Agreement, and the other agreements and instruments
furnished pursuant thereto or in connection therewith, constitute the full and
entire agreement and understanding between Stockholder and the Company, and
supersede all prior agreements and understandings relating to the subject matter
of this Agreement.
7.3 Notices. All notices, requests, demands and other
communications which are required or may be given under this Agreement shall be
in writing and shall be deemed to have been duly given if transmitted by
telecopier with receipt acknowledged, or upon delivery, if delivered personally
or by recognized commercial courier with receipt acknowledged, or upon the
expiration of 72 hours after mailing, if mailed by registered or certified mail,
return receipt requested, postage prepaid, addressed to the Company and to
Stockholder at their respective addresses set forth in Exhibit C to the
Stockholders Agreement, or at such other address or addresses as Stockholder or
the Company, as the case may be, may specify by written notice given in
accordance with this Section 7.3.
7.4 Severability. In case any provision of this Agreement shall
be invalid, illegal or unenforceable, the validity, legality and enforceability
of the remaining provisions shall not in any way be affected or impaired
thereby.
7.5 Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be an original, but all of which together
shall constitute one instrument.
7.6 Headings. The headings of the Sections and paragraphs of this
Agreement are for convenience of reference only and do not constitute a part of
this Agreement and are not to be considered in construing or interpreting this
Agreement.
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<PAGE> 11
7.7 Waivers and Amendments. Neither this Agreement nor any
provision hereof may be changed, waived, discharged or terminated orally or by
course of dealing, except by a statement in writing signed by the party against
which enforcement of the change, waiver, discharge or termination is sought.
7.8 Remedies. In the event that the Company fails to observe or
perform any covenant or agreement to be observed or performed under this
Agreement, Stockholder may proceed to protect and enforce its rights by suit in
equity or action at law, whether for specific performance of any term contained
in this Agreement or for an injunction against the breach of any such term or in
aid of the exercise of any power granted in this Agreement or to enforce any
other legal or equitable right of Stockholder, or to take any one or more of
such actions. The non-prevailing party in any such proceeding agrees to pay all
fees, costs, and expenses incurred by the prevailing party in connection with
any such proceeding, including without limitation, the reasonable attorneys fees
and disbursements incurred by the prevailing party. None of the rights, powers
or remedies conferred under this Agreement shall be mutually exclusive, and each
such right, power or remedy shall be cumulative and in addition to any other
right, power or remedy whether conferred by this Agreement or now or hereafter
available at law, in equity, by statute or otherwise.
7.9 Governing Law. In all respects, including all matters of
construction, validity and performance, this Agreement and the rights and
obligations arising hereunder shall be governed by, and construed and enforced
in accordance with, the laws of the State of California applicable to contracts
made and performed in such state, without regard to principles thereof regarding
conflicts of laws.
7.10 WAIVER OF JURY TRIAL. BECAUSE DISPUTES ARISING IN CONNECTION
WITH COMPLEX FINANCIAL TRANSACTIONS ARE MOST QUICKLY AND ECONOMICALLY RESOLVED
BY AN EXPERIENCED AND EXPERT PERSON AND THE PARTIES WISH APPLICABLE STATE AND
FEDERAL LAWS TO APPLY (RATHER THAN ARBITRATION RULES), THE PARTIES DESIRE THAT
THEIR DISPUTES BE RESOLVED BY A JUDGE APPLYING SUCH APPLICABLE LAWS. THEREFORE,
TO ACHIEVE THE BEST COMBINATION OF THE BENEFITS OF THE JUDICIAL SYSTEM AND OF
ARBITRATION, AND UNDERSTANDING THEY ARE WAIVING A CONSTITUTIONAL RIGHT, THE
PARTIES HERETO WAIVE ALL RIGHT TO TRIAL BY JURY IN ANY ACTION, SUIT, OR
PROCEEDING BROUGHT TO RESOLVE ANY DISPUTE, WHETHER IN CONTRACT, TORT, OR
OTHERWISE, ARISING OUT OF, CONNECTED WITH, RELATED TO, OR INCIDENTAL TO, THIS
AGREEMENT OR THE TRANSACTIONS COMPLETED HEREBY.
(Signatures of the Parties follow on next page)
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IN WITNESS WHEREOF, the parties have caused this Registration Rights
Agreement to be executed and delivered by their duly authorized representatives
as of the date first above written.
COMPANY: COLLECTORS UNIVERSE, INC.,
a Delaware corporation
By:_____________________________________
David Hall, Chairman
STOCKHOLDER:
By:_____________________________________
Its: Authorized Representative
By:______________________________________
Its: Authorized Representative
12
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IN WITNESS WHEREOF, the parties have caused this Registration Rights
Agreement to be executed and delivered by their duly authorized representatives
as of the date first above written.
COMPANY: COLLECTORS UNIVERSE, INC.,
a Delaware corporation
By: ____________________________________
David Hall, Chairman
STOCKHOLDER: _________________________________________
By:______________________________________
_________________________________________
13
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EXHIBIT 5.1
STRADLING YOCCA CARLSON & RAUTH
A PROFESSIONAL CORPORATION
ATTORNEYS AT LAW
660 NEWPORT CENTER DRIVE, SUITE 1600
NEWPORT BEACH, CALIFORNIA 92660-6441
TELEPHONE (949) 725-4000
FACSIMILE (949) 725-4100
October 12, 1999
Collectors Universe, Inc.
1936 Deere Street
Santa Ana, California 92705
Re: Registration Statement on Form S-1; Registration No. 333-86449
Ladies and Gentlemen::
We have examined the Registration Statement on Form S-1, Registration
No. 333-86449, filed by you with the Securities and Exchange Commission (the
"Commission") on September 2, 1999 (as amended by Amendment No. 1 thereto and
as may be further amended or supplemented, the "Registration Statement"), in
connection with the registration under the Securities Act of 1933, as amended,
of 4,600,000 shares of your common stock (the "Shares"). The Shares, which
include up to 600,000 shares of common stock issuable pursuant to an
over-allotment option granted to the underwriters (the "Underwriters"), are to
be sold to the Underwriters as described in such Registration Statement for sale
to the public. As your counsel in connection with this transaction, we have
examined the proceedings taken and are familiar with the proceedings proposed to
be taken by you in connection with the sale and issuance of the Shares.
Based on the foregoing, it is our opinion that, upon conclusion of the
proceedings being taken or contemplated by us, as your counsel, to be taken
prior to the issuance of the Shares and upon completion of the proceedings taken
in order to permit such transactions to be carried out in accordance with the
securities laws of various states where required, the Shares, when issued and
sold in the manner described in the Registration Statement, will be legally and
validly issued, fully paid and nonassessable.
We consent to the use of this opinion as an exhibit to the Registration
Statement and to the use of our name under the caption "Legal Matters" in the
Registration Statement, including the Prospectus constituting a part thereof and
any amendment thereto.
Very truly yours,
/s/ STRADLING YOCCA CARLSON & RAUTH
-----------------------------------------
Stradling Yocca Carlson & Rauth
<PAGE> 1
EXHIBIT 10.7
COLLECTORS UNIVERSE, INC.
INDEMNIFICATION AGREEMENT
This INDEMNIFICATION AGREEMENT is made as of ___________ __, 1999, between
COLLECTORS UNIVERSE, INC., a Delaware corporation (the "Company"), and
_________________ ("Indemnitee"), an officer and/or member of the Board of
Directors of the Company.
WHEREAS, the Company desires the benefits of having Indemnitee serve as an
officer and/or director secure in the knowledge that expenses, liability and
losses incurred by him in his good faith service to the Company will be borne by
the Company or its successors and assigns in accordance with applicable law; and
WHEREAS, the Company desires that Indemnitee resist and defend against what
Indemnitee may consider to be unjustified investigations, claims, actions, suits
and proceedings which have arisen or may arise in the future as a result of
Indemnitee's service to the Company notwithstanding that conditions in the
insurance markets may make directors' and officers' liability insurance coverage
unavailable or available only at premium levels which the Company may deem
inappropriate to pay; and
WHEREAS, the parties believe it appropriate to memorialize and reaffirm the
Company's indemnification obligations to Indemnitee and, in addition, set forth
the indemnification agreements contained herein;
NOW, THEREFORE, in consideration of the mutual agreements herein contained, the
parties agree as follows:
1. Indemnification. Indemnitee shall be indemnified and held harmless by
the Company to the fullest extent permitted by its Certificate of Incorporation,
Bylaws and applicable law, as the same exists or may hereafter be amended,
against all expenses, liability and loss (including attorneys' fees, judgments,
fines, and amounts paid or to be paid in any settlement approved in advance by
the Company, such approval not to be unreasonably withheld) (collectively,
"Indemnifiable Expenses") actually reasonably incurred or suffered by Indemnitee
in connection with any present or future threatened, pending or contemplated
investigation, claim, action, suit or proceeding, whether civil, criminal,
administrative or investigative (collectively, "Indemnifiable Litigation"), (i)
to which Indemnitee is or was a party or is threatened to be made a party by
reason of any action or inaction in Indemnitee's capacity as a director or
officer of the Company, or (ii) with respect to which Indemnitee is otherwise
involved by reason of the fact that Indemnitee is or was serving as a director,
officer, employee or agent of the Company, or of any subsidiary or division, or
is or was serving at the request of the Company as a director, officer, employee
or agent of another corporation, partnership, joint venture, trust or other
enterprise. Notwithstanding the foregoing, Indemnitee shall have no right to
indemnification for expenses and the payment of profits arising from the
purchase and sale by Indemnitee of securities in violation of Section 16(b) of
the Securities and Exchange Act of 1934, as amended.
2. Interim Expenses. The Company agrees to pay Indemnifiable Expenses
incurred by Indemnitee in connection with any Indemnifiable Litigation in
advance of the final disposition thereof, provided that the Company has received
an undertaking by or on behalf of Indemnitee, substantially in the form attached
hereto as Exhibit A, to repay the amount so advanced to the extent that it is
ultimately determined that Indemnitee is not entitled to be indemnified by the
Company under this Agreement or otherwise.
<PAGE> 2
3. Trust Fund.
(a) The Company may, but is not obligated to, establish a trust
(the "Trust") to fund certain of its obligations under this Agreement and
similar agreements with other directors and/or officers (collectively, including
Indemnitee, the "Beneficiaries"). Therefore, in such event, in addition to
Indemnitee's rights under this Indemnification Agreement and any applicable
insurance policy, Indemnitee shall also have the right to seek indemnification
payments from the trustee (the "Trustee") of any such trust that may be
established hereafter in accordance with the terms of this Agreement and of the
trust agreement.
(b) All communications or demands made by and among the Trustee
and the Beneficiaries of any such Trust are to be made through the individual
designated as the Beneficiaries' Representative. As of the date of this
Agreement, a Trust has not been established, nor has a Beneficiaries'
Representative been designated. The Beneficiaries' Representative shall be
designated and may be changed from time to time and at any time upon agreement
of two-thirds of the Beneficiaries at such time.
4. Procedure for Making Demand. In order to receive his rights to be
indemnified under this Agreement, including rights to receive advance payments
as set forth in Paragraph 2, Indemnitee shall make demand upon the Company to
honor its indemnity obligations and pay the Indemnifiable Expenses. If the
Company fails to do so within fifteen (15) days, the Indemnitee shall then have
the right and obligation to make demand under any applicable policy of
directors' and officers' liability insurance then in effect upon the insurance
company (the "Insurance Company") issuing such policy. If Insurance Company
fails to pay the demand within fifteen (15) days, then, if a Trust shall have
been established, the Indemnitee, through the Beneficiaries' Representative,
shall then be entitled and obligated to make demand upon the Trustee of the
Trust for such payment. Indemnitee shall not be required to institute a lawsuit
or take other actions against the Company, Insurance Company or any insurer to
recover the unpaid amount prior to the Beneficiaries' Representative making a
demand and receiving payment from the Trustee on his behalf, but the
Beneficiaries' Representative shall deliver a certificate to the Trustee at the
time of payment of each distribution from the Trust certifying that no part of
such payment has been previously received from the Company or any insurer.
5. Failure to Indemnify.
(a) If a claim under this Agreement, or any statute, or under any
provision of the Company's Certificate of Incorporation or Bylaws providing for
indemnification, is not paid in full by the Company, Insurance Company or, if
the Trust Fund shall have been established, by the Trustee, within forty-five
(45) days after a written request for payment thereof has been received by the
Company, Indemnitee may, but need not, at any time thereafter bring an action
against the Company to recover the unpaid amount of the claim and, if successful
in whole or in part, Indemnitee shall also be entitled to be paid for the
expense (including attorneys' fees) of bringing such action.
(b) It shall be a defense to such action (other than an action
brought to enforce a claim pursuant to Section 2 hereof for expenses incurred in
connection with any action, suit or proceeding in advance of its final
disposition) that Indemnitee has not met the standard of conduct which makes it
permissible under applicable law for the Company to indemnify Indemnitee for the
amount claimed, but the burden of proving such defense shall be on the Company
and Indemnitee shall be entitled to receive interim payments of interim expenses
pursuant to Section 2 hereof unless and until such defense may be finally
adjudicated by court order or judgment from which no further right of
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<PAGE> 3
appeal exists. It is the parties' intention that if the Company contests
Indemnitee's right to indemnification, the question of Indemnitee's right to
indemnification shall be for the court to decide, and neither the failure of the
Company (including its board of directors, independent legal counsel, or its
stockholders) to have made a determination that indemnification of Indemnitee is
proper in the circumstances because Indemnitee has met the applicable standard
of conduct required by applicable law, nor an actual determination by the
Company (including its board of directors, any committee or subgroup of the
board of directors, independent legal counsel, or its stockholders) that
Indemnitee has not met such applicable standard of conduct, shall create a
presumption that Indemnitee has or has not met the applicable standard of
conduct.
6. Notice to Insurers. If, at the time of the receipt of a notice of a
claim pursuant to Section 4 thereof, the Company has director and/or officer
liability insurance in effect, the Company shall give prompt notice of the
commencement of such proceeding to the insurers in accordance with the
procedures set forth in the respective policies. The Company shall thereafter
take all necessary or desirable action to cause such insurers to pay, on behalf
of the indemnitee, all amounts payable as a result of such proceeding in
accordance with the terms of such policies.
7. Retention of Counsel.
(a) Whether Indemnitee is seeking payment of Indemnifiable
Expenses directly from the Company or from the Trustee of a Trust, the
Indemnitee or, if the Trust Fund shall have been established, then the
Beneficiaries' Representative, shall have the right and obligation on behalf of
Indemnitee and other Beneficiaries, in the case of the Beneficiaries'
Representative, to (i) seek counsel to represent Indemnitee with respect to any
matter subject to indemnification and payment hereunder; (ii) coordinate the
defense of any such matter; and (iii) approve the fees and other expenses of
such counsel.
(b) Notwithstanding the foregoing, Indemnitee may retain
different counsel than the other Indemnitees or Beneficiaries, or may incur
expenses not shared in common with the other Indemnitees or Beneficiaries, in
connection with any Indemnifiable Litigation if in the reasonable judgment of
Indemnitee there may be legal defenses available to him which are different from
or additional to those available to the other Indemnitees or Beneficiaries and,
as a consequence, an actual or potential conflict of interest with the other
Indemnitees or Beneficiaries exists. If the Trust Fund shall have been
established, Indemnitee must obtain the prior written approval of the
Beneficiaries' Representative to retain such counsel, which consent shall not be
unreasonably withheld. In the event that the Beneficiaries' Representative
withholds such consent, Indemnitee shall then have the right to seek approval
for such separate counsel from the Trustee, which approval shall not be
unreasonably withheld. Nothing contained herein shall prohibit Indemnitee from
retaining other counsel at Indemnitee's own expense.
8. Successors. This Agreement establishes contract rights which shall be
binding upon, and shall inure to the benefit of, the successors, assigns, heirs
and legal representatives of the parties hereto.
9. Mutual Acknowledgment. Both the Company and Indemnitee acknowledge
that in certain instances, Federal law or applicable public policy may prohibit
the Company from indemnifying its directors and officers under this Agreement or
otherwise. Indemnitee understands and acknowledges that the Company may be
required in the future to undertake to the Securities and Exchange Commission to
submit the question of indemnification to a court in certain circumstances for a
determination of the Company's right under public policy to indemnify
Indemnitee, and, in that event, the Indemnitee's rights and the Company's
obligations hereunder shall be subject to that determination.
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<PAGE> 4
10. Contract Rights Not Exclusive. The contract rights conferred by this
Agreement shall be in addition to, but not exclusive of, any other right which
Indemnitee may have or may hereafter acquire under any statute, provision of the
Company's Certificate of Incorporation or Bylaws, agreement, vote of
shareholders or disinterested directors, or otherwise.
11. Indemnitee's Obligations. The Indemnitee shall promptly advise the
Company in writing of the institution of any investigation, claim, action, suit
or proceeding which is or may be subject to this Agreement and keep the Company
generally informed of, and consult with the Company with respect to, the status
of any such investigation, claim, action, suit or proceeding. Notices to the
Company shall be directed to Collectors Universe, Inc., 1936 E. Deere Street,
Suite 100 Santa Ana, CA 92705, Attn: President (or other such address as the
Company shall designate in writing to Indemnitee). Notice shall be deemed
received three days after the date postmarked if sent by certified or registered
mail, properly addressed. In addition, Indemnitee shall give the Company such
information and cooperation as it may reasonably require and as shall be within
Indemnitee's power.
12. Attorneys' Fees. In the event that any action is instituted by
Indemnitee under this Agreement to enforce or interpret any of the terms hereof,
Indemnitee shall be entitled to be paid all court costs and expenses, including
reasonable attorneys' fees, incurred by Indemnitee with respect to such action,
unless as a part of such action, a court of competent jurisdiction determines
that each of the material assertions made by Indemnitee as a basis for such
action were not made in good faith or were frivolous. In the event of an action
instituted by or in the name of the Company under this Agreement, or to enforce
or interpret any other terms of this Agreement, Indemnitee shall be entitled to
be paid all court costs and expenses, including attorneys' fees, incurred by
Indemnitee in defense of such action (including with respect to Indemnitee's
counterclaims and cross-claims made in such action), unless as a part of such
action the court determines that each of Indemnitee's material defenses to such
action were made in bad faith or were frivolous.
13. Severability. Should any provision of this Agreement, or any clause
thereof, be held to be invalid, illegal or unenforceable, in whole or in part,
the remaining provisions and clauses of this Agreement shall remain fully
enforceable and binding on the parties.
14. Modification and Waiver. No supplement, modification or amendment of
this Agreement shall be binding unless executed in writing by both of the
parties hereto. No waiver of any of the provisions of this Agreement shall be
deemed or shall constitute a waiver of any other provisions hereof (whether of
not similar) nor shall such waiver constitute a continuing waiver.
15. Choice of Law. The validity, interpretation, performance and
enforcement of this Agreement shall be governed by the laws of the State of
Delaware.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the day and
year first written above.
INDEMNITEE COLLECTORS UNIVERSE, INC.
_____________________________ By:_________________________________
Its:
-4-
<PAGE> 5
EXHIBIT A
UNDERTAKING AGREEMENT
This AGREEMENT is made as of _______________, 1999, between COLLECTORS UNIVERSE,
INC., a Delaware corporation (the "Company") and ______________, a member of the
board of directors and/or an officer of the Company ("Indemnitee").
WHEREAS, Indemnitee may become involved in investigations, claims, actions,
suits or proceedings which have arisen or may arise in the future as a result of
Indemnitee's service to the Company; and
WHEREAS, Indemnitee desires that the Company pay any and all expenses
(including, but not limited to, attorneys' fees and court costs) actually and
reasonably incurred by Indemnitee or on Indemnitee's behalf in defending or
investigating any such suits or claims and that such payment be made in advance
of the final disposition of such investigations, claims, actions, suits or
proceedings to the extent that Indemnitee has not been previously reimbursed by
insurance; and
WHEREAS, the Company is willing to make such payments but, in accordance with
the Bylaws of the Company and Section 145 of the General Corporation Law of the
State of Delaware, the Company may make such payments only if it receives an
undertaking to repay from Indemnitee; and
NOW, THEREFORE, in consideration of the mutual promises contained herein, the
parties agree as follows:
1. In regard to any payments made by the Company to Indemnitee pursuant
to the terms of the Indemnification Agreement dated as of September __, 1999,
between the Company and Indemnitee, Indemnitee hereby undertakes and agrees to
repay to the Company any and all amounts so paid promptly and in any event
within thirty (30) days after the disposition, including any appeals, of any
litigation or threatened litigation on account of which payments were made, but
only to the extent that Indemnitee is ultimately found not to be entitled to be
indemnified by the Company under the Bylaws of the Company and Section 145 of
the General Corporation Law of the State of Delaware, or other applicable law.
2. This Agreement shall not affect in any manner rights which Indemnitee
may have against the Company, any insurer or any other person to seek
indemnification for or reimbursement of any expenses referred to herein or any
judgment which may be rendered in any litigation or proceeding.
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed on the
date first above written.
INDEMNITEE COLLECTORS UNIVERSE, INC.
_____________________________ By:_________________________________
Its:
-5-
<PAGE> 1
EXHIBIT 21.1
SUBSIDIARIES
Professional Coin Grading Service, Inc., a Delaware Corporation
Lyn Knight Currency Auctions, Inc., a Delaware Corporation
Internet Universe, LLC, a California limited liability company
Superior Sportcard Auctions, LLC, a Delaware limited liability company
<PAGE> 1
EXHIBIT 23.2
INDEPENDENT AUDITORS' CONSENT
AND REPORT ON SCHEDULE
To the Board of Directors and Stockholders of
Collectors Universe, Inc.
We consent to the use in this Amendment No. 1 to Registration Statement No.
333-86449 of Collectors Universe, Inc. on Form S-1 of our report dated August
27, 1999 (September 1, 1999 as to Note 14), appearing in the Prospectus, which
is a part of this Registration Statement, and to the references to us under the
headings "Selected Consolidated Financial Data" and "Experts" in such
Prospectus.
Our audits of the financial statements referred to in our aforementioned
report also included the financial statement schedule, "Valuation and Qualifying
Accounts," of Collectors Universe, Inc. and subsidiaries listed in Item 16(b).
This financial statement schedule is the responsibility of the management of
Collectors Universe, Inc. Our responsibility is to express an opinion based on
our audits. In our opinion, such financial statement schedule, when considered
in relation to the basic financial statements taken as a whole, presents fairly
in all material respects the information set forth therein.
DELOITTE & TOUCHE LLP
Costa Mesa, California
October 11, 1999
<PAGE> 1
EXHIBIT 23.3
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Amendment No. 1 to Registration Statement No.
333-86449 of Collectors Universe, Inc. on Form S-1 of our report dated May 26,
1999, related to the statements of income and retained earnings and of cash
flows of Kingswood Coin Auctions, LLC, for the year ended December 31, 1998,
appearing in the Prospectus, which is part of this Registration Statement.
We also consent to the reference to us under the heading "Experts" in such
Prospectus.
DELOITTE & TOUCHE LLP
Costa Mesa, California
October 11, 1999
<PAGE> 1
EXHIBIT 23.4
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Amendment No. 1 to Registration Statement No.
333-86449 of Collectors Universe, Inc. on Form S-1 of our report dated June 4,
1999, related to the statements of income and (deficiency) equity and of cash
flows of the auction business of Lyn F. Knight Rare Coins, Inc. for the years
ended December 31, 1997 and 1998, appearing in the Prospectus, which is part of
this Registration Statement.
We also consent to the reference to us under the heading "Experts" in such
Prospectus.
DELOITTE & TOUCHE LLP
Costa Mesa, California
October 11, 1999
