As filed with the Securities and Exchange Commission on May 19, 2000
Registration No. 333-92223
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------
Amendment No. 4 to
FORM S-1
REGISTRATION STATEMENT
Under
THE SECURITIES ACT OF 1933
----------
Urban Cool Network, Inc.
(Name of Registrant in its charter)
Delaware 7375 75-2753953
(State or other jurisdiction of (Primary Standard (I.R.S. Employer
incorporation or organization) Industrial Classification Identification No.)
Code Number)
1401 Elm Street, Suite 1955
Dallas, Texas 75202
(214) 752-5818
(Address, including zip code, and telephone number, including area code, of
Registrant's principal executive offices)
Jacob R. Miles, III, Chief Executive Officer
Urban Cool Network, Inc.
1401 Elm Street, Suite 1955
Dallas, Texas 75202
(214) 752-5818
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
----------
Copies to:
Martin C. Licht, Esq. Jay M. Kaplowitz, Esq.
Silverman, Collura & Chernis, P.C. Gersten Savage & Kaplowitz, LLP
381 Park Avenue South 101 East 52nd Street
New York, New York 10016 New York, New York 10022
Telephone: (212) 779-8600 Telephone (212) 752-9700
Facsimile: (212) 779-8858 Facsimile (212) 980-5192
----------
Approximate date of proposed sale to the public: As soon as practicable
after the effective date of this Registration Statement.
If any of the securities being registered on this Form are to be
offered on a delayed or continuous basis pursuant to Rule 415 under the
Securities Act of 1933, check the following box. [ ]
If this Form is filed to register additional securities 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.
Registrant hereby amends this Registration Statement on such date or dates as
may be necessary to delay its effective date until the Registrant shall file a
further amendment which specifically states that this Registration Statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to Section 8(a), may
determine.
================================================================================
<PAGE>
The information in this prospectus is not complete and may be changed. We may
not sell these securities until the registration statement filed with the
Securities and Exchange Commission is effective. This prospectus is not an offer
to sell these securities and it is not soliciting an offer to buy these
securities in any state where the offer or sale is not permitted.
Preliminary Prospectus Dated May 19, 2000
Subject to Completion
[LOGO]
UCN
2,000,000 Shares
Urban Cool Network,Inc.
Common Stock
This is an initial public offering. No public market currently exists for
our shares. We anticipate that the initial public offering price of the common
stock will be between $9.00 and $11.00 per share. Our common stock has been
approved for listing on The American Stock Exchange under the symbol "UBN."
Per Share Total
--------- -----
Initial public offering price ................. $ $
Underwriting discount ......................... $ $
Proceeds, before expenses, to us .............. $ $
Please see the risk factors beginning on page 6 to read about factors you
should consider before buying shares of our common stock.
Neither the Securities and Exchange Commission nor any other regulatory
body has approved or disapproved of these securities or passed upon the accuracy
or adequacy of this prospectus. Any representation to the contrary is a criminal
offense.
The underwriters may purchase up to 300,000 additional shares from us at
the initial public offering price less the underwriting discount.
----------
Delivery of the shares of common stock will be made on or about _________,
2000, in New York, New York.
Kashner Davidson Securities Corp.
Nutmeg Securities, Ltd.
Prospectus dated , 2000
<PAGE>
[The inside front cover contains a graphic
showing pages from Urban Cool's website.]
<PAGE>
TABLE OF CONTENTS
PROSPECTUS SUMMARY ....................................................... 3
RISK FACTORS ............................................................. 6
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS ..................... 10
USE OF PROCEEDS .......................................................... 11
DIVIDEND POLICY .......................................................... 12
DILUTION ................................................................. 13
PRIVATE FINANCINGS ....................................................... 14
CAPITALIZATION ........................................................... 15
SELECTED FINANCIAL DATA .................................................. 16
PLAN OF OPERATION ........................................................ 17
BUSINESS ................................................................. 22
MANAGEMENT ............................................................... 32
PRINCIPAL STOCKHOLDERS ................................................... 37
CERTAIN TRANSACTIONS ..................................................... 38
DESCRIPTION OF SECURITIES ................................................ 39
SHARES ELIGIBLE FOR FUTURE SALE .......................................... 42
PLAN OF DISTRIBUTION ..................................................... 43
LEGAL MATTERS ............................................................ 45
EXPERTS .................................................................. 45
HOW TO GET MORE INFORMATION .............................................. 45
Financial Statements ..................................................... F-1
----------
You should rely only on the information contained in this document or to which
we have referred you. We have not authorized anyone to provide you with
information that is different. This document may be used only where it is legal
to sell these securities. The information in this document may only be accurate
on the date of this document.
<PAGE>
- --------------------------------------------------------------------------------
PROSPECTUS SUMMARY
This summary highlights some information from this prospectus. You should
carefully read the entire prospectus, including the "Risk Factors" section and
the financial statements and the notes to the financial statements. This summary
does not contain all of the information that investors should consider before
investing in our common stock.
Our business
We operate urbancool.com, an online network targeted to the urban consumer
that provides a forum for communications, information and electronic commerce.
Our online network, which has been operational since January 1999, consists of
15 channels with original content organized by subject matter, and includes a
search engine for users. The channels cover topics of interest to urban
consumers such as arts and literature, health and fitness, sports, education,
children, entertainment, finance, women's issues and travel. In addition, our
online network includes urbanmall.net, a shopping site, urbanjobs.com, a job
site and urbancoolnet.com and urbantrends.com, business-to-business sites.
Through our search engine, our online network of web sites is linked to more
than 2,000 web sites. According to Web Trends, page view impressions from
January 1999 through December 31, 1999 exceeded 500,000.
Our objective is to establish our online network as a leading online
destination of urban consumers and businesses who market their products to urban
consumers.
Our strategy
We plan to establish the Urban Cool brand name through advertising, and
through the use of NetStand kiosks and CyberCenters. NetStand kiosks are
individual kiosks that we intend to place in high-traffic locations, and will
contain computers that feature high-speed Internet access to use our online
network. CyberCenters are intended to be central meeting areas that will contain
between 10 and 20 computers, which will provide users with a place to access the
Internet through our online network. Our business strategy also includes web
site development, hosting, application services and marketing electronic
commerce capable web sites to urban-based small businesses.
Corporate background
We were incorporated in Delaware in January 1998. Our principal executive
office is located at 1401 Elm Street, Dallas, Texas 75202. Our telephone number
is (214) 752-5818. Our Internet address is urbancoolnet.com. Information
contained in our web sites is not intended to be part of this prospectus.
- --------------------------------------------------------------------------------
3
<PAGE>
- --------------------------------------------------------------------------------
The Offering
Shares offered by us .......................... 2,000,000 shares of common
stock.
Shares outstanding upon completion
of this offering .............................. 6,225,000 shares of common
stock. This number excludes:
o an aggregate of 2,480,000
shares of common stock
reserved for issuance upon
the exercise of outstanding
options, warrants and
contingent shares, excluding
options to purchase 767,850
shares of common stock
issuable upon the exercise
of options granted under our
stock option plans, as
discussed below;
o 500,000 shares of common
stock reserved for issuance
upon the exercise of options
issuable pursuant to our
employee stock option plan,
of which options to purchase
267,850 shares of common
stock have been granted;
o 500,000 shares of common
stock reserved for issuance
upon the exercise of options
issuable under our executive
stock option plan, all of
which have been granted;
o 200,000 shares of common
stock reserved for issuance
upon the exercise of
warrants granted to the
underwriters of this
offering; and
o 300,000 shares reserved for
issuance upon exercise of
the underwriters'
over-allotment option.
Use of proceeds ............................... We intend to use the net
proceeds from the sale of the
common stock for:
o advertising, sales and
marketing;
o capital expenditures;
o development and marketing of
electronic commerce capable
web sites and other services
offered by e-commerce
solutions, our subsidiary;
o development and acquisition
of web sites, content and
procurement of traffic;
o repayment of debt;
o accrued expenses and other
payments; and
o working capital and general
corporate purposes.
- --------------------------------------------------------------------------------
4
<PAGE>
- --------------------------------------------------------------------------------
Summary Financial Data
<TABLE>
<CAPTION>
Period From Period From Period From
January 23, January 23, January 23,
Three Months Period 1998 1998 1998
Ended Year (Inception) (Inception) (Inception)
March 31, Ended Through Through Through
------------------------ December 31, December 31, December 31, March 31,
2000 1999 1999 1998 1999 2000
----------- ---------- ----------- ------------- ------------ -----------
(Unaudited) (Unaudited)
----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Statement of operations data:
Revenues ............................... -- -- -- -- -- --
----------- ---------- ----------- --------- ----------- ------------
Costs and expenses:
Content costs for website .............. $ 8,000 $ 392,000 $ 421,000 $ 130,000 $ 551,000 $ 559,000
General and administrative ............. 1,206,000 98,000 2,481,000 198,000 2,679,000 3,885,000
Amortization of software costs ......... 189,000 -- 126,000 -- 126,000 315,000
----------- ---------- ----------- --------- ----------- ------------
Total costs and expenses ............... 1,403,000 490,000 3,028,000 328,000 3,356,000 4,759,000
Amortization of debt discounts ......... 4,830,000 2,482,000 2,482,000 7,312,000
Amortization of debt issuance costs .... 281,000 142,000 142,000 423,000
Interest and related costs ............. 59,000 34,000 34,000 93,000
----------- ---------- ----------- --------- ----------- ------------
Loss before income tax benefit ......... (6,573,000) (490,000) (5,686,000) (328,000) (6,014,000) (12,587,000)
Income tax benefit -- -- -- --
----------- ---------- ----------- --------- ----------- ------------
Net loss/comprehensive loss ............ $(6,573,000) $ (490,000) $(5,686,000) $(328,000) $(6,014,000) $(12,587,000)
=========== ========== =========== ========= =========== ============
Loss per share-- basic and diluted ..... $ (1.78) $ (0.22) $ (1.99) $ (0.16)
=========== ========== =========== =========
Weighted average number of shares
outstanding-- basic and diluted ........ 3,693,736 2,276,488 2,858,559 2,066,082
=========== ========== =========== =========
</TABLE>
The following table provides a summary of our balance sheets on an actual
basis at December 31, 1998 December 31, 1999 (on an actual basis) and at March
31, 2000:
o on an actual basis;
o on a pro forma basis to reflect:
o the borrowing of $60,000, pursuant to a loan of up to
$1,000,000 with The Elite Funding Group, Inc., in the second
quarter of 2000; and
o an advance of $25,000 from an unconsolidated subsidiary in May
2000.
o on a pro forma as adjusted basis to further reflect:
o the issuance of an aggregate of 15,000 shares of common stock to
three non-employee directors upon the consummation of this offering;
o the capital contribution of $2,950,000 to e-commerce solutions and
the resulting minority interest therein;
o the receipt of the net proceeds from our sale of 2,000,000 shares of
common stock in this offering, at an estimated initial public
offering price of $10.00 per share, representing the mid-point of
the filing range, after deducting underwriting discounts and
commissions and our estimated offering expenses and the anticipated
application of the estimated net proceeds, including repayment of
debt. See also "Use of Proceeds" and "Capitalization."
<TABLE>
<CAPTION>
Balance sheet data: December 31, At March 31, 2000
---------------------- --------------------------------------
(unaudited)
1998 1999 Pro Forma
Actual Actual Actual Pro Forma as Adjusted
--------- ---------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Cash including escrow ...................... $ 2,000 $ 68,000 $ 80,000 $ 165,000 $14,726,000
Working capital (deficit) .................. $(220,000) $ (842,000) $(1,130,000) $(1,070,000) $14,215,000
Total assets ............................... $ 88,000 $3,406,000 $ 8,722,000 $ 8,807,000 $22,733,000
Total long-term debt ....................... -- -- -- -- --
Total liabilities .......................... $ 222,000 $ 972,000 $ 1,218,000 $ 1,243,000 $ 519,000
Minority interest .......................... -- -- -- -- 983,000
Total stockholders' equity (deficiency) .... $(134,000) $2,434,000 $ 7,504,000 $ 7,564,000 $21,231,000
</TABLE>
- --------------------------------------------------------------------------------
5
<PAGE>
RISK FACTORS
This offering involves a high degree of risk. You should carefully
consider the following factors and other information in this prospectus before
deciding to invest in shares of our common stock.
We have a limited operating history and will face difficulties encountered
by early stage companies in new and rapidly evolving markets.
Because we have a limited operating history, we will face difficulties
encountered by early stage companies in new and rapidly evolving markets. Our
online network commenced operating in January 1999. Accordingly, an investor
must consider the risks and uncertainties we will face as an early stage
company. These risks include our ability to:
o attract a larger audience to our online network;
o increase awareness of our brand;
o attract a large number of advertisers from a variety of industries;
o manage growth and respond effectively to competitive pressures; and
o attract, retain and motivate qualified personnel.
See "Plan of Operation" for detailed information on our limited operating
history.
We may have to cease or curtail our operations if we are unable to obtain
sufficient financing or achieve profitability.
The independent auditor's report on our financial statements contains
explanatory language that substantial doubt exists about our ability to continue
as a going concern. The report states that we have incurred net losses, and have
a working capital deficiency. If we are unable to obtain sufficient financing in
the near term or achieve profitability, then we would, in all likelihood,
experience severe liquidity problems and may have to curtail or cease our
operations. In addition, a secured loan in the approximate amount of $875,000
became due and payable on May 18, 2000.
We may never be profitable since we have no revenues, have incurred net
losses since our inception and anticipate continuing losses.
To date, we have had no revenue. We expect to continue to incur
significant operating losses and net losses for at least the next 12 months. As
of March 31, 2000, our accumulated deficit was $12,587,000 and our working
capital deficit was $1,130,000. In addition, as of the date of this prospectus,
we have failed to make the monthly payments to Analysts International pursuant
to a promissory note in the principal amount of approximately $400,000. We
intend to expand our marketing of products and services, and expect that our
operating expenses will increase substantially. As a result, we will need to
generate substantial revenues to achieve profitability. We may never be
profitable. If profitability is achieved, we may not be able to sustain it.
If we are unable to raise additional capital in the future to implement
our plan to become a leading online destination for urban consumers, then we may
have to curtail or cease operations.
We anticipate that the net proceeds from the sale of the shares of our
common stock in this offering will be sufficient to satisfy our contemplated
cash requirements for the 12 month period following the consummation of this
offering. We may then require additional funding in order to implement our
business plan to become a leading online destination for urban consumers. We
have no current arrangements with respect to sources of additional financing,
which may not be available on commercially reasonable terms, or at all. If we do
not obtain necessary financing, then we may have to curtail or cease operations.
If any future financing involves the sale of our equity securities, the shares
of our common stock held by our stockholders would be substantially diluted. If
we incur indebtedness, then we may not be able to pay principal or interest.
6
<PAGE>
If we are unable to derive substantial revenues from sponsorship and
advertising, we may have to curtail operations and reevaluate our business
strategy.
We expect to derive a substantial portion of our revenues from
sponsorships and advertising on our online network and our NetStand kiosks.
Because we have not had revenues to date, demand and market acceptance for
sponsorships and advertising on our online network and NetStand kiosks is
uncertain. If we cannot derive substantial revenues from the sale of advertising
and sponsorships, our business may not succeed or we may have to curtail
operations and reevaluate our business strategy.
If we are unable to effectively manage our plan of rapid expansion, we
will not achieve profitability.
We plan to rapidly expand all aspects of our operations. As a result, we
need to expand our financial and management controls, reporting systems and
procedures. We will also have to expand, train and manage our work force for
marketing, sales and technical support, product development, site design, and
network and equipment repair and maintenance, and manage multiple relationships
with various customers, strategic partners and other third parties. We will need
to continually expand and upgrade our technology infrastructure and systems and
ensure continued high levels of service, speedy operation, and reliability. If
we are unable to manage our growth effectively, we may be unable to handle our
operations, control costs or otherwise function in a profitable manner, or at
all.
Because users seek out reliable web sites, system failures that interfere
with users' access to our online network could harm our reputation.
Our business depends on the efficient and uninterrupted operation of our
computer and communications hardware and software systems. Substantially all of
our computer and communications hardware operations are located in Dallas,
Texas. Fire, floods, earthquakes, power loss, telecommunications failures and
similar events could damage these systems. Computer viruses, electronic
break-ins or other similar disruptive problems could also adversely affect our
web sites. If our systems were shut down by any of these occurrences, our
reputation and ability to attract and retain users could be irreparably harmed.
Our insurance policies may not adequately compensate us for any losses that may
occur due to failures or interruptions in our systems. We do not presently have
any secondary "off-site" systems or a formal disaster recovery plan.
If we do not establish the Urban Cool brand name and reputation, then we
may not be able to attract and retain users.
We believe our success depends on our ability to successfully establish
and maintain our brand recognition and reputation with urban consumers. Growing
the popularity of our web sites and the Urban Cool brand name requires that we
are perceived as offering trendsetting and "cool" sites for urban consumers. We
believe that we need to invest heavily in our marketing and maintain high
standards to establish brand recognition. However, we cannot assure you that our
marketing efforts will attract urban consumers to our web sites. Even if our
marketing efforts are successful in attracting urban consumers, we may not be
able to retain users.
If we are unable to respond to rapid technological changes in our
industry, we may be unable to attract and retain users.
The Internet is characterized by rapidly changing technologies, frequent
new product and service introductions and evolving industry standards. We must
continue to develop, enhance and improve the responsiveness and features of our
web sites and develop new features to meet users needs. We also need to
integrate the various software programs and tools required to enhance and
improve our product offerings and manage our business. We may experience
difficulties that could delay or prevent the successful development,
introduction or marketing of new products and services. If we are unable to
respond to the rapid technological changes in our industry and integrate new
software products and services into our network, then we may be unable to
attract and retain users. We could also incur substantial costs if we need to
modify our services or infrastructure to adapt to these changes.
We must expand quickly or competitors may copy or block our strategy.
We believe we must rapidly establish Urban Cool as a leading online
destination for urban consumers in order to maximize traffic to our web sites
and increase our customer base. If we fail to do so, competitors may copy our
business strategy or take other steps to prevent us from achieving our goal. In
addition, a competing kiosk program could dilute our sales and the marketing
effectiveness of the NetStand kiosks, which are a central part of our business
strategy.
7
<PAGE>
If we are unable to complete the development of our proprietary software
to construct electronic commerce capable web sites on a timely basis, we may
lose all or a portion of our investment in e-commerce solutions.
In November 1999, we acquired a 66 2/3% interest in e-commerce solutions,
which is developing proprietary software to construct electronic commerce
capable web sites for small businesses. We have no experience with software
development. We cannot assure you that we will be able to complete development
of the software on a timely basis, or at all. If we do not complete development
of the software on a timely basis, we may lose all or a portion of our
investment in e-commerce solutions.
If we are unable to successfully market low-cost electronic commerce
capable web sites, we may incur substantial losses.
The demand and market acceptance for low-cost electronic commerce capable
web sites is uncertain. We have no experience in marketing electronic commerce
capable web sites and we cannot predict if a market will develop, or if it will
develop more slowly than anticipated. If we are unable to market the electronic
commerce web sites, we may incur substantial losses.
If we are unable to develop a substantial sales force to market electronic
commerce capable web sites, we will not generate significant revenue.
We believe that we need to develop a substantial sales force to market
electronic commerce capable web sites. We currently do not have such a sales
force and we cannot assure you we will be able to build a substantial sales
force. Moreover, even if we build a substantial sales force, we cannot assure
you that our sales force will be able to attract customers and generate revenue,
or that our operations will achieve profitably.
We may be unable to successfully market web site design services in the
face of competition from many proven, well-established companies.
We have no experience in web site design services, but we expect to
compete with IBM, EDS, and many other local, regional and national competitors
for web site design services that we will offer through e-commerce solutions. We
have limited marketing and sales capabilities and name recognition. Many of our
competitors have well established, large and experienced marketing and sales
capabilities and greater name recognition. As a result, our competitors may be
in a stronger position to respond quickly to new or emerging technologies and
changes in client requirements. They may also develop and promote their services
more effectively than we do. In addition, since barriers to entry into our
market are low, we expect additional competitors to enter our market.
If we are unable to license third-party content on our web sites, we may
not be able to attract and retain users.
We intend to license third-party content, including news reports and
features. We believe that in order to attract and retain web site users we will
need to significantly increase the content on our web sites. If we are unable to
obtain desirable content, it could reduce visits to our web sites. If we are not
able to attract and retain users for our web site, we will not be able to
generate sponsorship and advertising revenue. If we are unable to obtain content
at an acceptable cost, it could materially harm our ability to compete and
operate profitably. In addition, even if we are able to license third party
content, we could be subject to possible copyright infringement actions based
upon such content since third-party sites may not have licenses for the use of
the intellectual property they display. Any such claim, with or without merit
could subject us to costly litigation.
If we are unable to protect our domain names our brand recognition may be
harmed.
We currently utilize various web domain names relating to our brand,
including urbancoolnet.com urbancool.com, urbantrends.com and urbanmall.net. The
acquisition and maintenance of domain names generally is regulated by
governmental agencies and their designees. The regulation of domain names in the
United States and in foreign countries is expected to change in the near future.
As a result, we may be unable to acquire or maintain relevant domain names in
all places in which we may conduct business. If our ability to acquire or
maintain domain names is limited, it could harm our ability to establish brand
recognition, which we believe is essential to our success.
8
<PAGE>
Our reliance on third parties to provide NetStand kiosks and other
computer hardware may impair our ability to operate and maintain our network and
fulfill our commitments to advertisers.
Although our computer and network hardware and our NetStand kiosks are
assembled from standard components which may be outsourced from a number of
manufacturers and distributors, we have no equipment manufacturing capacity and
we have no agreements with any manufacturers or distributors. We rely upon the
timely delivery of quality equipment by third-party manufacturers and
distributors. We also depend upon third-parties for the timely, cost-effective,
and proper installation, maintenance, and repair of our NetStand kiosks and for
the maintenance and repair of our equipment and network infrastructure. Failure
by any of these third-parties to perform as we require could impair our ability
to operate and maintain our network, and to fulfill our commitments to
advertisers.
Possible infringement by others of our intellectual property rights could
harm our business.
Although we have filed for trademark protection for the Urban Cool brand
name, we cannot be certain that the steps we have taken to protect the Urban
Cool brand name, or any other intellectual property rights, will be adequate or
that third parties will not infringe or misappropriate our proprietary rights.
Any such infringement or misappropriation could result in a significant claim
for damages which, whether or not successful, could seriously damage our
reputation and our business.
We may be subject to future government regulation and legal liabilities
that may be costly and may interfere with our ability to conduct business.
There are currently few laws or regulations that specifically regulate
communications or commerce on the Internet. However, laws and regulations may be
adopted in the future that address issues such as user privacy, pricing, and the
characteristics and quality of products and services. These laws and regulations
could expose us to compliance costs and substantial liability. In addition, the
growth of the Internet, coupled with publicity regarding Internet fraud, may
lead to the enactment of more stringent consumer protection laws.These laws
would also be likely to impose additional burdens on our business.
Several members of senior management have only recently joined us and may
not work together effectively.
Several members of our senior management joined us in 1999, including our
Chief Operating Officer and Chief Financial Officer. These individuals have not
previously worked together and are becoming integrated as a management team. As
a result, our senior managers may not work together effectively as a team to
successfully manage our growth.
Management will control approximately 39% of Urban Cool after completion
of this offering; management's interests may differ and conflict with yours.
Upon completion of this offering, our directors and executive officers
will own approximately 39% of the then outstanding shares of our common stock.
Accordingly, these stockholders will possess substantial control over our
operations. This control may allow them to amend corporate filings, elect all of
our board of directors, other than the director to be designated by the
representative, and substantially control all matters requiring approval by our
stockholders, including approval of significant corporate transactions. If you
purchase our common stock, you may have no effective voice in our management.
You will incur immediate and substantial dilution.
The initial public offering price substantially exceeds the amount of our
assets minus our liabilities on a per share basis. Investors in this offering
will contribute 59% of total capital contributed to Urban Cool, but will receive
only 32% of the shares of common stock. In addition, you will suffer immediate
and substantial dilution of $7.84 per share, or approximately 78.4% of the
estimated initial public offering price of $10.00 per share. The dilution to an
investor represents the comparison of the assets minus liabilities of Urban
Cool, including pro forma, adjustments, before and after the offering on a per
share basis. In addition, the exercise of options and warrants currently
outstanding could cause additional, substantial dilution to you. See "Dilution"
for more detailed information regarding the potential dilution you may incur.
9
<PAGE>
Shares eligible for future sale after this offering could impair our stock
price.
The market price of our common stock could drop due to sales of a large
number of shares of our common stock or the perception that these sales could
occur. These factors could also make it more difficult to raise funds through
future offerings of common stock. Our officers, directors and substantially all
of our stockholders have entered into lock-up agreements under which they have
agreed not to offer or sell any shares of common stock or securities convertible
into or exchangeable or exercisable for shares of common stock for various
periods without the prior written consent of Nutmeg Securities on behalf of the
underwriters or The American Stock Exchange, as the case may be. See "Shares
Eligible for Future Sale" for further information concerning potential sales of
our shares after this offering.
Failure of computer systems and software products to be Year 2000
compliant could negatively impact our business.
To date, customers have not reported any problems with our online network
as a result of the commencement of year 2000. Similarly, we have not experienced
any internal impairment in our operations associated with the year 2000 issue.
Nevertheless, in the future, we may experience year 2000 compliance issues with
our online network and/or our internal systems. Our failure to adequately
address any year 2000 compliance issues could result in claims against us, lost
revenue, increased operating expenses and other business interruptions. We have
not developed any specific contingency plans for year 2000 issues.
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This prospectus contains forward-looking statements. These forward-looking
statements are not historical facts, but rather are based on our current
expectations, estimates and projections about our industry, our beliefs and
assumptions. Words including "may," "could," "would," "will," "anticipates,"
"expects," "intends," "plans," "projects," "believes," "seeks," "estimates" and
similar expressions are intended to identify forward-looking statements. These
statements are not guarantees of future performance and are subject to risks,
uncertainties and other factors, some of which are beyond our control, are
difficult to predict and could cause actual results to differ materially from
those expressed or forecasted in the forward-looking statements. These risks and
uncertainties are described in "Risk Factors" and elsewhere in this prospectus.
We caution you not to place undue reliance on these forward-looking statements,
which reflect our management's view only as of the date of this prospectus. We
are not obligated to update these statements or publicly release the result of
any revisions to them to reflect events or circumstances after the date of this
prospectus or to reflect the occurrence of unanticipated events.
10
<PAGE>
USE OF PROCEEDS
We will receive net proceeds from the sale of the shares of common stock
in this offering of approximately $17,035,000, or $19,735,000 if the
underwriters' over-allotment option is exercised in full, based upon an
estimated initial offering price of $10.00 per share, representing the midpoint
of the filing range. These numbers take into account underwriting discounts and
commissions, and other estimated offering expenses that we will pay.
We intend to use the net proceeds as follows:
<TABLE>
<CAPTION>
Approximate
Amount of Percentage of
Application of Net Proceeds Net Proceeds Net Proceeds
- --------------------------- ------------ ------------
<S> <C> <C>
Advertising, sales and marketing ............................................... $ 4,500,000 26.4%
Capital expenditures ........................................................... 4,000,000 23.5%
Development and marketing of electronic commerce capable web sites
and other services offered by e-commerce solutions ........................... 2,950,000 17.3%
Development and acquisition of web sites, content and procurement of traffic ... 2,000,000 11.7%
Repayment of debt .............................................................. 2,705,000 15.9%
Accrued salaries ............................................................... 145,000 .9%
Working capital and general corporate purposes ................................. 735,000 4.3%
----------- -----
Total $17,035,000 100.0%
=========== =====
</TABLE>
Advertising, sales and marketing. We intend to utilize outdoor, radio,
print, Internet and television advertising in order to promote the Urban Cool
brand name and increase traffic on our web sites. We also intend to open
regional sales offices to market our products and services.
Capital expenditures. We intend to deploy NetStand kiosks in major urban
areas.
Development and marketing of electronic commerce capable web sites and
other services offered by e-commerce solutions. We intend to sell electronic
commerce capable web sites to urban-based small businesses through e-commerce
solutions. We intend to utilize a portion of the net proceeds of the offering to
make our required capital contribution in the aggregate amount of $3,000,000 to
e-commerce solutions, which will be utilized to complete the development of
proprietary software to construct these web sites and to set up a sales and
marketing organization for the sale of electronic commerce capable web sites. In
addition, it is anticipated that a portion of such funds will be utilized by
e-commerce solutions for other e-commerce and business related services,
including consulting, financing, reciprocal trade and barter services and
infrastructure related services for e-commerce, Internet and other related
businesses.
Development and acquisition of web sites, content and procurement of
traffic. We intend to develop original content, acquire web sites, license
third-party content, including financial information, news reports,
entertainment reports, features, and enter into content agreements to increase
and maintain traffic on our web sites.
Repayment of debt. We intend to repay:
o $1,050,000 in promissory notes issued during July through November
in a private financing transaction plus accrued interest, at the
rate of 10% per annum,
o a promissory note in the amount of approximately $400,000 payable to
Analysts International Corporation plus accrued interest at the rate
of 18% per annum,
o an advance in the amount of $25,000 from Master Craft Builders,
Inc., a subsidiary of e-commerce solutions,
o a loan in the amount of up to $1,000,000 from The Elite Funding
Group, of which approximately $875,000 has been drawn as of the date
of this prospectus plus accrued interest at the rate of 10% per
annum plus an extension fee in the amount of $75,000 and
o accrued salary and expenses in the amount of $183,000 payable to
Jacob R. Miles, III, our Chairman, Chief Executive Officer and
majority stockholder.
11
<PAGE>
Working Capital and other general corporate purposes
We intend to utilize a portion of net proceeds of offer for working
capital and general corporate purposes, including:
o $112,500 to RMH Consulting, an affiliate of the Elite Funding Group
and our lender and a principal stockholder, pursuant to the
consulting agreement between us and RMH;
o approximately $100,000 to Sheila Creque, Vice President of Celebrity
Relations and Merchandising;
o approximately $30,000 to our officers for unpaid compensation and
expense reimbursements; and
o $492,500 for other miscellaneous accrued expenses.
We anticipate that the net proceeds from this offering and cash provided
by operations will be sufficient to fund our operations and cash requirements
for at least the 12 months following the date of this prospectus. We cannot
assure you, however, that such funds will not be expended earlier due to
unanticipated changes in economic conditions or other circumstances that we
cannot foresee. In the event our plans or assumptions change or prove to be
inaccurate, we might seek additional financing sooner than currently
anticipated. Any net proceeds from the sale of the underwriters' over-allotment
option will be allocated to working capital and general corporate purposes.
The proposed allocation of the net proceeds represents our management's
best estimate of its current intentions concerning the expected use of funds to
finance our activities in accordance with our management's current objectives
and current market conditions. Our management and board of directors may
allocate the funds in significantly different proportions, depending on their
needs at the time.
Pending use of the net proceeds of this offering, we intend to invest the
net proceeds in short-term, interest-bearing, investment-grade securities.
DIVIDEND POLICY
We have never paid any dividends on our common stock. We do not intend to
declare or pay dividends on our common stock; rather, we intend to retain our
earnings, if any, for the operation and expansion of our business. Dividends
will be subject to the discretion of our board of directors and will be
contingent on future earnings, if any, our financial condition, capital
requirements, general business conditions and other factors as our board of
directors deems relevant.
12
<PAGE>
DILUTION
Purchasers of our shares of common stock will experience immediate and
substantial dilution in the net tangible book value of their investment. The
difference between the initial public offering price per share of common stock
and the pro forma net tangible book value per share of common stock after this
offering constitutes the dilution per share of common stock to investors in this
offering. Pro forma net tangible book value per share represents Urban Cool's
total tangible assets less total liabilities, divided by the number of issued
and outstanding shares of common stock at March 31, 2000, after giving effect
to:
o the borrowing of $60,000 pursuant to a loan of up to $1,000,000,
from The Elite Funding Group, Inc., in the second quarter of 2000;
o an advance of $25,000 from an unconsolidated subsidiary in May 2000;
As of March 31, 2000, we had a pro forma net tangible book value of
$(794,000), $(.19) per share of common stock. Giving effect to the sale of
2,000,000 shares of common stock at the estimated initial public offering price
of $10.00 per share, representing the midpoint of the filing range, and after
deducting underwriting discounts and commissions and estimated offering
expenses, our pro forma as adjusted net tangible book value on March 31, 2000
would have been $13,458,000 or $2.16 per share. This represents an immediate
increase in the net tangible book value of approximately $2.35 per share to
existing stockholders and an immediate and substantial dilution of $7.84 per
share to new investors. The following table illustrates this per share dilution:
<TABLE>
<CAPTION>
<S> <C> <C>
Assumed initial public offering price per share .......................... $10.00
Pro forma net tangible book value per share as of March 31, 2000 ......... (.19)
Increase per share attributable to new investors ......................... 2.35
----
Pro forma as adjusted net tangible book value per share after
this offering .......................................................... $ 2.16
------
Dilution per share to new investors ...................................... $ 7.84
======
</TABLE>
Giving effect to the sale of 2,300,000 shares of our common stock, which
assumes the underwriters exercise the over-allotment option in full, at the
estimated initial public offering price of $10.00 per share, representing the
midpoint of the filing range, the pro forma adjusted net tangible book value on
March 31, 2000 would have been $2.48 per share. This represents an immediate
increase in the net tangible book value of approximately $2.67 per share to
existing stockholders and an immediate and substantial dilution of $7.52 per
share to new investors.
The following table summarizes, on a pro forma basis, as of March 31,
2000, the number of shares of common stock purchased from us, the total
consideration paid to us and the average price per share paid by existing
stockholders and by new investors. The following table excludes the deduction of
underwriting discounts and commissions and other estimated expenses payable by
us.
<TABLE>
<CAPTION>
Shares Purchased Total Consideration Average
--------------------- ----------------------- Price per
Number Percent Amount Percent Share
---------- ------- ------------- ------- --------
<S> <C> <C> <C> <C> <C>
Existing stockholders .................. 4,210,000 68% $13,796,000 41% $ 3.28
New investors .......................... 2,000,000 32% $20,000,000 59% $10.00
--------- -- ----------- --
Total .................................. 6,210,000 100% $33,796,000 100% $ 5.44
========= === =========== ===
</TABLE>
13
<PAGE>
PRIVATE FINANCINGS
From July through November 1999, we completed the sale of 105 units at a
price of $10,000 per unit in a private financing transaction. Each unit in the
private financing consisted of a promissory note in the principal amount of
$10,000, 1,000 shares of common stock and warrants to purchase 5,000 shares of
common stock. The warrants are exercisable at an exercise price of $2.00 per
share commencing January 2000 through May 2000 and expire July 2004 through
November 2004. The notes bear interest at the rate of 10% per annum and are
payable on the earlier of 24 months from the date of issuance or upon the
closing of an initial public offering of our securities.
In addition, the holders of at least 50% of the shares of common stock and
the shares of common stock underlying the warrants issued in the private
financing have the right to demand the registration of their shares on one
occasion. The holders of the shares of common stock and the warrants have agreed
not to sell, transfer, assign or otherwise dispose of the shares of common
stock, the warrants and the shares of common stock underlying the warrants for a
period of 12 months from the date of this prospectus.
Security Capital acted as the placement agent for the private financing.
We paid Security Capital a fee of $105,000, which was equal to 10% of the
aggregate purchase price of the units sold, a portion of which was re-allowed to
a sub-placement agent, and a non-accountable expense allowance of $31,500 which
was equal to 3% of the aggregate purchase price of the units sold.
On November 23, 1999, we entered into a loan agreement with The Elite
Funding Group, Inc. which provides for a loan in an amount of up to $1,000,000
at an interest rate of 10% per annum, payable monthly. On the date we entered
into the agreement, we issued to the lender common stock purchase warrants for
the purchase of up to 750,000 shares of common stock at an as adjusted exercise
price of $1.00 per share. However if we issue shares of common stock or
securities convertible into shares of common stock at a lower price, then the
exercise price will be reduced to such amount. We have received advances in the
aggregate amount of approximately $815,000 through March 31, 2000. The warrants
are exercisable by the lender at any time for a period of ten years. To secure
the repayment of advances under the loan agreement, we have pledged
substantially all of our assets to the lender. We must prepay any outstanding
advances under the loan agreement to the extent of any proceeds available to us
from the sale of our assets outside of the ordinary course of business, the
issuance of any indebtedness or the sale of any equity securities. We must pay
the full amount of all outstanding advances under the loan agreement on the
earlier of May 18, 2000 or the closing of this offering. In April 2000 we agreed
to pay the lender an extension fee of $75,000 payable upon the maturity of the
loan to extend the maturity date from April 14, 2000 to May 18, 2000.
We have also granted registration rights to the lender for the
registration of the shares of common stock underlying the warrants, including
demand and "piggy-back" registration rights. Pursuant to an agreement with the
lender, the shares of common stock underlying the lender's warrant may not be
sold for a period of 12 months from the date of this prospectus. However, we
have agreed to cooperate with the lender to modify the lock-up, if the lender
obtains the consent of The American Stock Exchange.
We have also entered into a consulting agreement with RMH Consulting
Corp., an affiliate of The Elite Funding Group, a principal stockholder and our
lender. The consulting agreement is for a period of two years commencing as of
November 1, 1999 and requires us to pay the consultant a fee of $6,250 per
month. In April 2000 we agreed to pay an additional $75,000 to the consultant
upon the closing of the offering. Pursuant to the consulting agreement we issued
150,000 shares of common stock to the consultant and we will be required to
issue additional shares of common stock to the consultant if we commence an
initial public offering at a price of $9.00 or less per share, so that the total
number of shares issued to the consultant will be equal to the number of shares
which could have been purchased in the initial public offering for $1,500,000.
We have also granted registration rights to the consultant for the registration
of the shares of common stock, including demand and "piggy-back" registration
rights. Pursuant to an agreement with the consultant, the shares of common stock
may not be sold for a period of 12 months from the date of this prospectus.
However, we have agreed to cooperate with the consultant to modify the lock-up,
if the consultant obtains the consent of The American Stock Exchange.
Security Capital and MayDavis Group assisted us in procuring the loan from
The Elite Funding Group and as compensation for such services received warrants
to purchase 40,000 shares of common stock and 20,000 shares of common stock,
respectively. In May 2000 the warrants issued to Security Capital were
cancelled.
14
<PAGE>
CAPITALIZATION
The following table sets forth our capitalization as of March 31, 2000:
o on an actual basis;
o on a pro forma basis to reflect:
o the borrowing of $60,000, pursuant to a loan of up to
$1,000,000, with The Elite Funding Group, Inc., in the second
quarter 2000; and
o an advance of $25,000 from an unconsolidated subsidiary in May
2000;
o on a pro forma as adjusted basis to further reflect:
o the issuance of an aggregate of 15,000 shares of common stock
to three non-employee directors upon the consummation of this
offering;
o the capital contribution of $2,950,000 to e-commerce solutions
and the resulting minority interest therein;
o the receipt of the net proceeds from our sale of common stock
in this offering, at an estimated initial public offering
price of $10.00 per share, representing the midpoint of the
filing range, and the anticipated application of the net
proceeds, including repayment of debt. See also "Use of
Proceeds."
The pro forma as adjusted table does not give effect to the following:
o 300,000 shares of our common stock issuable upon exercise of the
underwriters' over-allotment option;
o 200,000 shares of our common stock reserved for issuance upon the
exercise of the warrants granted to the underwriters of this
offering exercisable during the four-year period commencing one year
from the date of this prospectus at an exercise price of 120% of the
public offering price; and
o 500,000 shares of our common stock reserved for issuance upon the
exercise of options pursuant to our employee stock option plan, of
which options to purchase 267,850 shares of common stock have been
granted and 500,000 shares of common stock reserved for issuance
upon the exercise of options pursuant to our executive stock option
plan, all of which have been granted.
You should read this table in conjunction with our financial statements,
including the notes to our financial statements, which appear elsewhere in this
prospectus.
<TABLE>
<CAPTION>
As of March 31, 2000
--------------------
Pro Forma
Actual Pro Forma as adjusted
------------ ----------- -----------
(unaudited) (unaudited) (unaudited)
<S> <C> <C> <C>
Notes payable (face value--$1,050,000, actual, and
$1,050,000, pro forma) .................................. $ -- $ -- $ --
----------- ----------- -----------
Minority interest ......................................... -- -- 983,000
----------- ----------- -----------
Stockholders' equity:
Preferred stock--authorized 3,000,000 shares,
$.01 par value: none outstanding,
actual, pro forma and pro forma as adjusted ............. --
Common stock--authorized 30,000,000 shares,
$.01 par value: 4,210,000 outstanding(actual),
4,210,000 outstanding (pro forma), 6,225,000
outstanding (pro forma as adjusted) ..................... 42,000 42,000 62,000
Additional paid-in capital ................................ 28,288,000 28,288,000 45,453,000
Unearned compensation ..................................... (5,441,000) (5,441,000) (5,441,000)
Deficit accumulated during the development stage .......... (12,587,000) (12,587,000) (18,843,000)
Unamortized debt discount in excess of
notes payable ........................................... (2,798,000) (2,738,000) --
----------- ----------- -----------
Total stockholders' equity ................................ $ 7,504,000 $ 7,564,000 $21,231,000
----------- ----------- -----------
Total capitalization ...................................... $ 7,504,000 $ 7,564,000 $22,214,000
=========== =========== ===========
</TABLE>
15
<PAGE>
SELECTED FINANCIAL DATA
The following table sets forth our selected financial information as of
and for the periods indicated. We derived the statement of operations data for
year ended December 31, 1999, for the period January 23, 1998 (inception)
through December 31, 1998, for the period January 23, 1998 (inception) through
December 31, 1999 and the balance sheet data as of December 31, 1998 and 1999
from our audited financial statements included elsewhere in this prospectus. The
statement of operations data presented for the three month periods ended March
31, 2000, March 31, 1999 and the periods from January 23, 1998 through March 31,
2000, and the balance sheet data at March 31, 2000, are unaudited and were
prepared by the management of Urban Cool on the same basis as the audited
financial statements of Urban Cool included elsewhere herein and, in the opinion
of management, include all adjustments consisting of normal recurring
adjustments, necessary to present fairly the information set forth herein. The
financial data for the interim periods presented are not necessarily indicative
of the results to be expected for the full year. You should read the selected
financial information in conjunction with our financial statements, the notes to
our financial statements, and the discussion under "Plan of Operation" included
elsewhere in this prospectus.
<TABLE>
<CAPTION>
Period From Period From Period From
January 23, January 23, January 23,
Three Months Period 1998 1998 1998
Ended Year (Inception) (Inception) (Inception)
March 31, Ended Through Through Through
------------------------- December 31, December 31, December 31, March 31,
2000 1999 1999 1998 1999 2000
----------- ---------- ----------- ------------- ------------ ------------
(Unaudited) (Unaudited)
----------- ------------
<S> <C> <C> <C> <C> <C> <C>
Statement of operations data:
Revenues .................................. -- -- -- -- -- --
----------- --------- ----------- --------- ----------- ------------
Costs and expenses:
Content costs for website ................. $ 8,000 $ 392,000 $ 421,000 $ 130,000 $ 551,000 $ 559,000
General and administrative ................ 1,206,000 98,000 2,481,000 198,000 2,679,000 3,885,000
Amortization of software costs ............ 189,000 -- 126,000 -- 126,000 315,000
----------- --------- ----------- --------- ----------- ------------
Total costs and expenses .................. 1,403,000 490,000 3,028,000 328,000 3,356,000 4,759,000
Amortization of debt discounts ............ 4,830,000 2,482,000 -- 2,482,000 7,312,000
Amortization of debt issuance costs ....... 281,000 142,000 -- 142,000 423,000
Interest and related costs ................ 59,000 34,000 -- 34,000 93,000
----------- --------- ----------- --------- ----------- ------------
Loss before income tax benefit ............ (6,573,000) (490,000) (5,686,000) (328,000) (6,014,000) (12,587,000)
Income tax benefit -- -- -- --
----------- --------- ----------- --------- ----------- ------------
Net loss/comprehensive loss ............... $(6,573,000) $(490,000) $(5,686,000) $(328,000) $(6,014,000) $(12,587,000)
=========== ========= =========== ========= =========== ============
Loss per share-- basic and diluted ........ $ (1.78) $ (0.22) $ (1.99) $ (0.16)
=========== ========= =========== =========
Weighted average number of shares
outstanding-- basic and diluted ........... 3,693,736 2,276,488 2,858,559 2,066,082
=========== ========= =========== =========
</TABLE>
<TABLE>
Balance sheet data: December 31, 1998 December 31, 1999 March 31, 2000
----------------- ----------------- --------------
<S> <C> <C> <C>
Balance sheet data: (Unaudited)
Cash including escrow ........................ $ 2,000 $ 68,000 $ 80,000
Working capital (deficit) .................... $(220,000) $ (842,000) $(1,130,000)
Total assets ................................. $ 88,000 $3,406,000 $ 8,722,000
Total long-term debt ......................... -- $ -- $ --
Total liabilities ............................ $ 222,000 $ 972,000 $ 1,218,000
Stockholders' equity (deficiency) ............ $(134,000) $2,434,000 $ 7,504,000
</TABLE>
16
<PAGE>
PLAN OF OPERATION
You should read the following discussion and analysis of our financial
condition and results of operations in conjunction with our financial
statements, the notes to our financial statements and the other financial
information contained elsewhere in this prospectus.
Overview
We are a development stage company. We were incorporated in January 1998,
and have not generated any revenues in offering products or services for sale.
Since our inception, we have primarily been engaged in the initial planning and
development of our web sites and operations, negotiating agreements with content
providers and raising capital. As a result, there has not been any operating
revenue generated by our web sites through March 31, 2000.
We believe that the minority segment of the urban population has not been
meaningfully targeted for Internet services. Accordingly, we believe there is a
significant opportunity for Urban Cool to capitalize upon the demand for
Internet access in the urban market. Our objective is to establish Urban Cool as
a leading online destination of the urban consumer (B2C) and businesses (B2B)
who market their products to urban consumers. Our strategy is to establish the
Urban Cool brand name and utilize our urbancool.com online network, NetStand
kiosks and CyberCenter locations to reach our target market of urban consumers
and businesses who market their products to urban consumers.
During the next twelve months, we intend to pursue our strategy by
substantially following the plan of operation discussed below.
Plan of operation
We believe creating brand recognition will be critical to attracting urban
consumers to our web sites, NetStand kiosks, CyberCenters and businesses to our
business to business services. We intend to utilize approximately $4,500,000
from the net proceeds of the offering for advertising, sales and marketing in
order to help establish brand recognition. We intend to utilize outdoor,
television, print, Internet and radio advertising as well as displays, events,
direct mail, telemarketing and public relations efforts to promote the Urban
Cool brand name. We plan to co-market our services through strategic alliances
with major corporations. In addition, we intend to utilize celebrities,
primarily on a volunteer basis, to promote technology within our urban markets.
Our advertising and marketing efforts will also include radio giveaways and
in-house promotions. We have retained McCann-Erickson to develop and manage our
brand building campaign.
We intend to use approximately $4,000,000 of the net proceeds of this
offering for capital expenditures, of which approximately $3,000,000 will be
utilized to deploy NetStand kiosks. We intend to deploy the PC based NetStand
kiosk in at least 500 locations in urban markets. We anticipate that the cost of
each NetStand kiosk will be approximately $4,000 We intend to locate the
NetStand kiosks in high-traffic locations such as shopping malls, small
businesses, community centers, bus terminals and multi-family housing
developments.
We intend to open a model CyberCenter at 439 West 125th Street in Harlem,
New York in the third quarter of 2000. The CyberCenters are intended to provide
users with a place to socialize and access the Internet. The CyberCenters will
be 1,000 to 2,000 square feet and will contain 10 to 20 computers that provide
Internet access through our online network. We currently have no operating
CyberCenters. We intend to utilize approximately $200,000 from the net proceeds
of the offering to complete the development of the CyberCenter in Harlem. We
intend to license future CyberCenters to urban non-profit organizations, which
will own and operate the CyberCenters. The cost for each CyberCenter is
anticipated to range from $50,000 to $100,000. We plan to offer corporate
sponsorships of the CyberCenters in order to derive sponsorship revenue. We
intend to charge users a fee for the use of the Internet access stations at the
CyberCenters and charge a management fee to the non-profit organization which
will own and operate the CyberCenters. We plan to offer introductory classes at
the CyberCenters on the use of computers and the Internet.
We plan to pursue relationships with membership-based groups such as
non-profit organizations, churches, alumni organizations, fraternities and other
similar organizations for brand building and membership acquisitions. We also
plan to pursue relationships with local and national businesses for content,
products, services and the sponsoring of our NetStand kiosks We may utilize a
portion of the net proceeds of this offering to make strategic acquisitions.
17
<PAGE>
We plan to derive a substantial portion of our revenue from advertising
and sponsorships. We believe that a major portion of our revenue will be derived
from our NetStand kiosks, including corporate sponsorships, billboard treatment
of the NetStand kiosks, advertising, web site development, hosting and
application services. We initially plan to generate revenue of approximately
$10,000 per NetStand kiosk. We also plan to offer corporate sponsorship and
advertising packages for the CyberCenters. In addition, we plan to generate
revenue from other advertising sponsorship packages including banner
advertising, e-mail advertising, outdoor advertising, live and broadcast events
and contest promotions. We are uncertain as to whether we will be able to
generate revenue from our NetStand kiosks or CyberCenters or the sale of
advertising on our online network. However, even if we do not generate any
revenue, we believe that the net proceeds of the offering will be sufficient to
meet our anticipated needs for working capital for at least 12 months.
We also will seek to promote electronic commerce through our online
network. For example, we offer links to major Internet retailers and service
providers who have entered into revenue sharing agreements with us. The
agreements generally provide that we receive a commission for products purchased
through a link from our web site.
Pursuant to an agreement in November 1999, we acquired a 662/3% interest
in e-commerce solutions, Inc., which is developing proprietary software to
construct electronic commerce capable web sites and electronic commerce
communities. We intend to utilize approximately $2,950,000 of the net proceeds
of the offering to complete development of the software and to fund the start-up
costs for e-commerce solutions. In addition, it is anticipated that a portion of
such funds will be utilized by e-commerce solutions for other e-commerce and
business related services, including consulting, financing, reciprocal trade and
barter services and infrastructure related services for e-commerce, Internet and
other related businesses. We intend to market electronic commerce web sites
through e-commerce solutions to small businesses. We initially believe that a
basic electronic commerce capable web site can be marketed to small business
owners at a reasonable price. In addition, we believe that the sales of
electronic commerce web sites will provide us with additional opportunities to
increase revenue. However, we may not be able to develop the proprietary
technology on a timely basis, or at all, or generate significant revenues from
the sales of electronic commerce capable web sites.
Results of operations
From inception, operations have been in the early stages of development.
We had no revenues for the period ended December 31, 1998, the year ended
December 31, 1999 or the three months ended March 31, 2000. We incurred losses
of $328,000, $5,686,000, and $6,573,000, respectively, for those periods, in
connection with web site development costs, amortization of software costs, debt
discount and debt issuance costs, interest expenses and other general and
administrative expenses. The increase in expenses for the year ended December
31, 1999 as compared to the period ended December 31, 1998 was primarily
attributable to a $291,000 increase in content costs for our web site, a
$2,658,000 increase in interest expenses and amortization of debt discount and a
$2,283,000 increase in general and administrative expenses consisting primarily
of consulting and professional fees of $907,000, employee compensation of
$1,078,000 (which includes compensatory stock options) and advertising,
marketing and promotional expenses of $131,000. The increase in expenses of
$6,083,000 for the three months ended March 31, 2000 as compared to the three
months ended March 31, 1999 was primarily attributable to a $1,108,000 increase
in general and administrative expenses, a $189,000 increase in amortization of
software costs, a $4,830,000 increase in amortization of debt discounts, a
$281,000 increase in amortization of debt issuance costs and a $59,000 increase
in interest and related costs.
As of March 31, 2000 we had net operating loss carryforwards for federal
income tax purposes of approximately $3,350,000. There can be no assurance that
we will realize the benefit of the net operating loss carryforwards. The federal
net operating loss carryforward will expire in 2018 through 2020. We have
established a valuation allowance with respect to these federal net operating
loss carryforward.
For the period commencing on March 31, 2000 through the completion of the
offering, we will incur charges in the aggregate amount of approximately
$5,273,000 attributable to debt issuance costs, original issue discount and
estimated interest expenses incurred in connection with the sale of $1,050,000
of our promissory notes, the loan agreement with respect to The Elite Funding
Group loan in an amount up to $1,000,000, and the issuance of shares of common
stock to directors. Additionally, we will record a charge in the amount of
$983,000 directly to stockholders' equity representing a portion of our capital
contribution to e-commerce solutions, Inc., which reflects the minority
interest. An additional $5,441,000 of equity instrument
18
<PAGE>
compensatory charges are attributable to various consulting agreements and an
employee option, which are amortizeable over the term of such agreements. In
addition, upon the vesting of warrants to purchase up to 800,000 shares of
common stock issued to Stanley Wolfson in connection with the acquisition of a
662/3% interest in e-commerce solutions we will record a charge equal to the
fair value of such warrants upon such vesting in accordance with performance
criteria. In connection with the acquisition of all of the capital stock of
Wilhelmina UrbanCool.com in March 2000 for 580,000 shares of common stock we
will record an annual charge of $1,160,000 for a period of five years.
We expect operating results to fluctuate significantly in the future as a
result of a variety of factors, many of which are outside our control. These
factors include:
o our ability to derive sponsorship and advertising revenue for our
online network;
o our ability to generate revenue from web site development, hosting
and application services
o obtaining licenses of third-party content;
o consumers' acceptance of electronic commerce;
o the development of our software to market electronic commerce
capable web sites;
o the level of traffic on our web sites;
o the amount and timing of the deployment of NetStand kiosks and other
capital expenditures and other costs relating to the expansion of
our operations;
o the success of our efforts to market electronic commerce capable web
sites;
o the introduction of new or enhanced services by us or our
competitors, including low-cost electronic commerce capable web
sites;
o the availability of desirable products and services for sale through
our web sites;
o the loss of a key affiliation or relationship by us;
o changes in our pricing policy or those of our competitors;
o technical difficulties with our web sites;
o incurrence of costs relating to general economic conditions; and
o economic conditions specific to the Internet or all or a portion of
the technology market.
As a strategic response to changes in the competitive environment, we may
from time to time make pricing, service or marketing decisions or business
combinations that could have a material adverse effect on our business, results
of operations and financial condition. In addition, in order to accelerate the
promotion of our brand name, we intend to significantly increase our sales and
marketing budget, which could materially and adversely affect our business,
results of operations and financial condition.
Liquidity and capital resources
We have funded our requirements for working capital to support operations
primarily from private placements of our securities, credit from our web site
developer, Analysts International Corp., and borrowings under a loan agreement.
As of March 31, 2000, we had a working capital deficit of $1,130,000.
The independent auditor's report on our financial statements contains
explanatory language that substantial doubt exists about our ability to continue
as a going concern. The report specifies that we have incurred net losses, and
have a working capital deficiency. If we are unable to obtain sufficient
financing in the near term or achieve profitability, then we would, in all
likelihood, experience severe liquidity problems and may have to curtail our
operations.
For the period ended December 31, 1998, net cash provided by operating
activities was $73,000, which was primarily attributable to increases in
accounts payable, accrued expenses and a payable to officer/stockholder of
$222,000, offset by our net loss of $328,000 and increased by non-cash expenses
in the amount of $179,000. For the year ended December 31, 1999, cash used in
operating activities was $798,000. The cash used by operating activities for the
year ended December 31, 1999 was attributable to a net loss of $5,686,000 and
offset by non-cash expenses in the amount of $4,203,000 and an increase in
accounts payable, accrued expenses, payable to officer/stockholder, note payable
and net of an increase in other assets in the amount of $685,000.
19
<PAGE>
For the three months ended March 31, 1999, net cash used in operating
activities was $74,000 which was primarily attributable to a net loss of
$490,000 and an increase in other current assets and other assets of $5,000
offset by depreciation and amortization of $10,000, payable to
officer/stockholder of $42,000 and an increase in accounts payable and accrued
expenses of $369,000.
For the three months ended March 31, 2000, net cash used in operating
activities was $304,000 which was primarily attributable to a net loss of
$6,573,000 offset by depreciation and amortization of $24,000, amortization of
unearned compensation of $698,000, amortization of software costs of $189,000,
amortization of debt discount and issuance costs of $5,111,000, payable to
officer/stockholder of $41,000, an increase of accounts and accrued expenses of
$119,000 accrued payroll of $82,000 and a decrease in other current assets and
other assets of $5,000.
For the period ended December 31, 1998, net cash used in investing
activities was $86,000, which was attributable to the purchase of computer
equipment and software and web site development. For the year ended December 31,
1999, net cash used in investing activities was $219,000 which was attributable
to the purchase of computer equipment and software.
For the three months ended March 31, 1999 we did not use any net cash in
investing activities. For the three months ended March 31, 2000 net cash used in
investing activities was $2,000 which was attributable to the purchase of
computer equipment and software.
For the period ended December 31, 1998, net cash provided by financing
activities was $15,000, which was attributable to the sale of common stock. For
the year ended December 31, 1999, net cash provided by financing activities was
$1,083,000. The increase in net cash provided by financing activities was
primarily attributable to proceeds from the sale of our common stock of
$177,000, proceeds from a line of credit of $500,000 and net proceeds from a
private financing transaction of $791,000 offset by deferred offering costs of
$385,000.
For the three months ended March 31, 1999 net cash provided by financing
activities was $85,000 which was attributable to proceeds from the sale of
common stock of $155,000 offset by deferred offering costs of $70,000. For the
three months ended March 31, 2000 net cash provided by financing activities was
$238,000 which was attributable to proceeds from a line of credit and a bank
overdraft.
In November 1999, we delivered an unsecured promissory note to Analysts
International, our web site developer, in the amount of $400,432, representing
the amount of the accounts payable plus accrued interest owed to Analysts
International. The note bears interest at the rate of 18% per annum, requires
monthly payments of $25,000 and is payable on the earlier of the closing of this
offering or June 1, 2000. We have not made the monthly payments due in December
1999 through April 2000. We intend to repay this note from the net proceeds of
this offering.
In December 1999, we contributed $50,000 to e-commerce solutions, Inc. in
connection with our acquisition of a 662/3% interest in e-commerce solutions. We
have also agreed to contribute an additional $2,950,000 to e-commerce solutions
upon the closing of this offering.
In July through November, 1999, we completed the sale of 105 units at a
price of $10,000 per unit in a private financing transaction. Each unit in the
private financing consisted of a promissory note in the amount of $10,000, 1,000
shares of common stock and warrants to purchase 5,000 shares of common stock.
The warrants are exercisable at an exercise price of $2.00 per share commencing
January 2000 through November 2000 expiring in July 2004 through November 2004.
The notes bear interest at the rate of 10% per annum and are payable on the
earlier of 24 months from the date of issuance or upon the closing of this
offering.
On November 23, 1999, we entered into a loan agreement with The Elite
Funding Group, Inc. which provides for a loan in an amount of up to $1,000,000
at an interest rate of 10% per annum, payable monthly. On the date we entered
into the agreement, we issued to the lender common stock purchase warrants for
the purchase of up to 750,000 shares of common stock at an exercise price of
$1.00 per share, subject to adjustment, exercisable at any time for a period of
ten years. We have received advances in the aggregate amount of approximately
$875,000. We must prepay any outstanding advances under the loan agreement to
the extent of any proceeds available to us from the sale of our assets outside
of the ordinary course of business, the issuance of any indebtedness or the sale
of any equity securities. We must pay the full amount of all outstanding
advances under the loan agreement on the earlier of May 18, 2000 or the closing
of this offering.
20
<PAGE>
In April 2000 we agreed to pay the lender an extension fee of $75,000 payable
upon the maturity of the loan to extend the maturity date from April 14, 2000 to
May 18, 2000. To secure the repayment of advances under the loan agreement, we
have pledged substantially all of our assets to the lender.
In November 1999, Jacob R. Miles, III, our Chairman, Chief Executive
Officer and majority stockholder entered into a deferred compensation agreement
with us which provides that Mr. Miles shall receive accrued salary in the amount
of $131,250, payable out of the net proceeds of this offering, which amount was
accrued from January 1, 1999 through September 30, 1999. As of March 31, 2000 we
owed Mr. Miles approximately $183,000 for accrued salary and expenses which has
been recorded as a non-interest bearing loan.
We have also entered into a consulting agreement with RMH Consulting
Corp., an affiliate of The Elite Funding Group, a principal stockholder and our
lender. The consulting agreement is for a period of two years commencing as of
November 1, 1999 and requires us to pay the consultant a fee of $6,250 per month
and $75,000 upon the closing of this offering. Pursuant to the consulting
agreement we issued 150,000 shares of common stock to the consultant. See
"Management--Consulting Agreements" and "Certain Transactions."
In January 2000, we entered into a one-year agreement with Ask Jeeves
which provides for payments in the aggregate amount of $437,000 during the term
of the agreement. Ask Jeeves has developed a proprietary search engine which
utilizes a question and answer format. Pursuant to the agreement, Ask Jeeves
will customize its search engine with an urban theme for use and resale by Urban
Cool.
Our capital requirements depend on numerous factors, including, market
acceptance of our products and services, the resources we devote to marketing
and selling our services and our brand promotions, capital expenditures and
other factors. We have experienced a substantial increase in our capital
expenditures since our inception consistent with the growth in our operations
and staffing. We anticipate this increase will continue for the foreseeable
future particularly relating to our development of NetStand kiosks, creation of
CyberCenters and systems infrastructure. We believe that, together with the
proceeds of the offering and anticipated revenues from operations, our current
cash will be sufficient to meet our anticipated needs for working capital,
capital expenditures and business expansion for the next 12 months. After 12
months, if cash generated from operations is insufficient to satisfy our
liquidity requirements, we may seek to sell additional equity or debt securities
or to obtain a credit facility. The sale of additional equity or convertible
debt securities could result in additional dilution to our stockholders. There
can be no assurance that financing will be available in amounts or on terms
acceptable to us, if at all. If we do not obtain such financing, we may have to
curtail or cease our operations.
Recent accounting pronouncements
In March 1998, the Accounting Standards Executive Committee issued AICPA
Statement of Position 98-5, "Reporting on the Costs of Start-up Activities."
This statement provides guidance on the financial reporting of start-up costs
and organization costs. It requires that the cost of start-up activities and
organization costs be expensed as incurred. This statement of position is
effective for financial statements for fiscal years beginning after December 15,
1998. We do not expect adoption of this statement to have a material impact on
our financial statements.
We are required to adopt Statement of Financial Accounting Standards No.
131, "Disclosures about Segments of an Enterprise and Related Information."
Statement No. 131 superseded statement No. 14, "Financial Reporting for Segments
of a Business Enterprise" and is effective for years beginning after December
31, 1997. Statement 131 establishes standards for the way that public business
enterprises report selected information about operating segments in financial
reports. Statement 131 also establishes standards for related disclosures about
products and services, geographic areas, and major customers. The addition of
statement 131 will not affect our results of operations or financial position,
but may affect the disclosure of the segment information in the future.
In June 1998, the Financial Accounting Standards Board or "FASB," issued
statement No. 133, "Accounting for Derivative Instruments and Hedging
Activities." This statement changes the previous accounting definition of
derivative, which focused on freestanding contracts such as options and
forwards, including futures and swaps, expanding it to include embedded
derivatives and many commodity contracts. Under the statement, every derivative
is recorded in the balance sheet as either an asset or liability measured at its
fair value. The statement requires that changes in the derivative's fair value
be recognized currently in
21
<PAGE>
earnings unless specific hedge accounting criteria are met. Statement No. 133 is
effective for fiscal years beginning after June 15, 2000. Earlier application is
allowed as of the beginning of any quarter beginning after issuance. We do not
anticipate that the adoption of statement No. 133 will have a material impact on
our financial position or results of operations.
BUSINESS
General
We operate urbancool.com, an online network targeted to urban consumers
that provides a forum for communications, information and electronic commerce.
Our online network, which has been operational since January 1999, consists of
15 channels with original content organized by subject matter, and includes a
search engine for users. The channels cover topics of interest to urban
consumers such as arts and literature, health and fitness, sports, education,
children, entertainment, finance, women's issues and travel. In addition, our
online network includes urbanmall.net, a shopping site and business to business
sites urbancoolnet.com, an Internet services site and urbantrends.com, a
business information site. Through our search engine, our online network of web
sites is linked to more than 2,000 web sites. According to Web Trends, page view
impressions from January 1999 through December 1999 exceeded 500,000.
We are a development stage company. We were incorporated in January 1998,
and have not generated any revenues in offering products or services for sale.
Since our inception, we have primarily been engaged in the initial planning and
development of an infrastructure, our web sites and operations, negotiating
agreements with infrastructure companies, marketing partners, content providers
and raising capital.
Our objective is to establish our online network as a leading online
destination of urban consumers and businesses who market their products to urban
consumers. We intend to provide:
o urban residents with a local competitive means of accessing
information, technology, communications and financial products and
services as well as transportation products and services such as
bus, train and airline information and ticketing; and
o businesses with Internet services and access to the urban
marketplace for additional sales and customer service opportunities,
while providing exposure in the urban marketplace for their brands,
including utilizing our Netstand kiosks for web site development,
hosting, application services and content distribution services.
The Internet
Internet access among U.S. households is increasing at a rapid rate.
According to a July 1999 study published by the U.S. Department of Commerce,
approximately 42% of U.S. households own computers. Approximately 26% of U.S.
households now have Internet access, and Internet access has increased for all
demographic groups in all locations. In 1998, Internet access increased 52.8%
for White households, 52% for African American households and 48.3% for Hispanic
households.
We believe that the rapid increase in Internet usage by U.S. households
represents a substantial opportunity for companies to conduct business online.
The functionality and accessibility of the Internet have made it an attractive
commercial medium by providing features that historically have been unavailable
through traditional distribution channels. Applications that allow consumers to
comparison shop or choose from a large selection of goods or services have
flourished on the Internet. Because of these advantages, an increasingly broad
base of products and services is sold online, including consumer goods such as
automobiles, books and CDs, and a variety of services, including travel,
securities trading and other financial services. Forrester Research estimates
that revenues from electronic commerce consumer spending in the U.S. will
increase from approximately $20.2 billion in 1999 to approximately $184 billion
in 2004.
Advertisers and direct marketers are also increasingly using the Internet
to locate and market to customers. Forrester Research estimates that U.S.
Internet advertising will grow from approximately $2.8 billion in 1998 to
approximately $22 billion in 2004.
22
<PAGE>
Urban consumer market segment
Our target audience for our web sites is America's urban residents. The
1990 U.S. Census states that approximately 160 million out of 250 million
Americans live in an urban environment. Within this urban market, we believe the
minority population will be attracted to Urban Cool as one of its primary online
destinations since we believe it has not been meaningfully and directly targeted
for Internet access.
According to the Census, approximately 80% of the U.S. minority population
lives in an urban environment, which includes 24 million African Americans and
18 million Hispanics. Minorities trail whites in computer ownership and usage.
The U.S. Department of Commerce report states that African American and Hispanic
households have far lower ownership levels of computers (at 23% and 26%) and
Internet access levels (11% and 13%) as compared to White household computer
ownership of 47% and Internet access of 30%. However, both African American and
Hispanic households are twice as likely to own computers as they were in 1994
and this rate of increase is greater than the rate of increase for White
ownership of computers. Because minorities are increasing their use of
computers, we believe there is a significant opportunity for Urban Cool to
capitalize on new urban minority demand for Internet access.
Strategy
General
Our objective is to establish our online network as a leading online
destination for the urban consumer. Our strategy is to attract urban consumers
to our online network, NetStand kiosks and CyberCenter locations for
information, products and services and to develop revenue generating
relationships with businesses which desire to reach urban consumers. Our
strategy also includes marketing electronic commerce capable web sites to
urban-based small businesses as well as web site development, hosting,
application services and other Internet services. The key elements of our
strategy are described below.
Create brand recognition
We believe creating brand recognition will be critical to attracting urban
consumers to our web sites, NetStand kiosks and CyberCenters and building brand
awareness among urban businesses. We intend to differentiate our business from
other online networks through our focus on America's inner city residents and
our use of NetStand kiosks and CyberCenters which are intended to introduce and
promote our web sites to urban consumers. We intend to utilize outdoor,
television, print, Internet and radio advertising as well as displays, events,
direct mail, telemarketing and public relations efforts to promote the Urban
Cool brand name. We plan to co-market our services through strategic alliances
with major corporations. In addition, we intend to utilize celebrities,
primarily on a volunteer basis, to promote technology within our urban markets.
We believe celebrities will volunteer their services based on discussions we
have had with several of them who have given exclusive interviews on our online
network. Our advertising and marketing efforts will also include radio giveaways
and in-house promotions. We have retained McCann-Erickson to develop and manage
our brand building campaign.
Develop NetStands
We intend to use a portion of the net proceeds of this offering to place
PC-based NetStand kiosks in at least 500 locations in urban markets. Sites for
Netstand kiosks are initially planned within six urban markets: Brooklyn and
Harlem in New York City, and several areas within Dallas, Detroit, Los Angeles,
Miami and San Francisco Bay area. We intend to locate the NetStand kiosks in
high-traffic locations such as shopping malls, small businesses, community
centers, bus terminals and multi-family housing developments. We have built
seven NetStand kiosks which are fully operational and, in September 1999, we
entered into an agreement with a shopping center in Dallas, Texas to deploy five
NetStand kiosks. We believe that the NetStand kiosks will be an integral part of
our network. The NetStand kiosks provide Internet access in inner city locations
and are designed to be easily operated by people with no previous Internet or
computer experience.
Individuals will be able to use the NetStand kiosks to visit our web
sites, search the Internet, purchase tickets, send money, access local
information and engage in electronic commerce transactions. We intend to rely on
independent third parties to manufacture, install and service the NetStand
kiosks. We anticipate that the cost of each NetStand kiosk will be approximately
$4,000. The NetStand kiosks will be networked, designed and
23
<PAGE>
programmed for the local urban market in which they are deployed. The users of
the NetStand kiosks will be provided with high-speed Internet access and charged
fees for certain functions. The NetStand kiosks are designed to accept cash as
well as major credit and debit cards. We also plan to offer corporate
sponsorship programs and advertising on the NetStand kiosks, which we believe
will constitute a major portion of our revenue. We also intend to utilize the
NetStand kiosks to build a data base of consumers for targeted marketing,
consumer surveys and data mining opportunities.
Build CyberCenters
We intend to open a model CyberCenter at 439 West 125th Street in Harlem,
New York in the third quarter of 2000. The CyberCenters are intended to provide
users with a place to socialize and access the Internet. The CyberCenters will
be 1,000 to 2,000 square feet and will contain 10 to 20 computers in NetStand
kiosks and multi-media computer stations that provide Internet access through
our online network. We currently have no operating CyberCenters. We also intend
to provide technology focused business services at the CyberCenters, such as
computer enhanced photos, Internet telephone service, database research, urban
research and to offer telecommunication products and services.
We intend to license future CyberCenters to urban non-profit
organizations, which will own and operate the CyberCenters. The cost for each
CyberCenter is anticipated to range from $50,000 to $100,000. We anticipate the
non-profit organization will have capital expenditures of between $20,000 to
$40,000 in connection with opening the CyberCenter. We plan to offer corporate
sponsorships of the CyberCenter in order to derive sponsorship revenue. We
intend to charge users a fee for the use of the Internet access stations at the
CyberCenters and charge a management fee to the non-profit organizations which
will own and operate the CyberCenters. We plan to offer introductory classes at
the CyberCenters on the use of computers and the Internet.
Generate sponsorship, advertising revenues and other NetStand kiosk
revenue
We plan to derive a substantial portion of our revenue from Internet
services, advertising and sponsorships. We believe that a major portion of our
revenue will be derived as a result of our NetStand kiosks, including corporate
sponsorships, billboard treatment, advertising, web site development, hosting
and application services. We initially plan to generate revenue of approximately
$10,000 per NetStand kiosk. We also plan to offer corporate sponsorship and
advertising packages for the CyberCenters. In addition we plan to offer other
advertising sponsorship packages including banner advertising, e-mail
advertising, outdoor advertising, live and broadcast events and contest
promotions.
Promote electronic commerce
We also offer links to major Internet retailers and service providers who
have agreed to revenue sharing agreements with us based on either a percentage
of sales or a set fee basis. The agreements generally provide that we receive a
commission for products purchased through a link from our web site. Currently,
through our agreements with Internet retailers and service providers, we sell
gifts, flowers, travel, computer hardware and software, video game hardware and
software, fine art, music, videos and film, entertainment and sports branded
clothing and products, health products and haircare and beauty products. We also
plan to offer auction services, telecommunications products and services,
Internet services, financial services, transportation information and tickets.
We have had discussions with several telephone companies, a financial services
company, and Internet services companies to market their products and services.
Although no definitive agreements have been reached, we believe, although there
can be no assurance, that we will be able to offer their products and services
through our online network.
We also intend to offer merchandise through our online network including
Urban Cool branded and co-branded merchandise. Products anticipated to be
offered include t-shirts and caps, gift products, music and music video
products, video game products, posters, stickers and other printed merchandise
and low cost computers.
Pursue strategic acquisitions and alliances
We plan to pursue relationships with membership-based groups such as
non-profit organizations, churches, alumni organizations, fraternities and other
similar organizations for brand building and membership acquisitions. We also
plan to pursue relationships with local and national businesses for content,
products,
24
<PAGE>
services and the sponsoring of our NetStand kiosks. Additionally, we plan to
pursue strategic acquisitions of Internet-related companies, other web sites and
local urban weekly newspapers that have viewers/subscribers that reach our
target market segment and generate advertising revenue. We may utilize a portion
of the net proceeds of this offering to make strategic acquisitions.
We have entered into a non-binding letter of intent with Bloomberg, L.P.
Pursuant to the letter of intent, Bloomberg will provide content for our web
sites and promote our web sites and, in return, we will pay Bloomberg $66,666
per month. The proposed term of the agreement is three years. However, we have
not reached a definitive agreement with Bloomberg and we cannot assure you that
an agreement will be reached. As of the date of this prospectus, we do not have
any other understandings, commitments or agreements concerning these types of
transactions.
We have entered into a marketing alliance agreement with Navisite, Inc.
Navisite provides web site hosting services, bandwidth and computer equipment to
businesses. Pursuant to the alliance agreement with Navisite, we will resell
Navisite services and receive a commission equal to 10% of all revenue which we
generate for Navisite. We have also entered into an agreement with Akamai
Technologies, Inc. Akamai provides services to businesses which will enhance the
performance and functionality of their web sites. Our web sites will contain a
link to Akamai's site and Akamai's site will contain a link to our site. We
intend to enter into similar agreements with other technology and
telecommunication companies which provide business-to-business services. We
believe that other companies will enter into strategic alliances with us because
of their desire to market their products and services to our target market of
urban consumers and businesses.
Other Business to Business Services
We have recently acquired a 662/3% interest in e-commerce solutions -- in
exchange for warrants to purchase up to 1,050,000 shares of common stock and our
agreement to contribute $3,000,000 -- which is developing proprietary software
to construct electronic commerce capable web sites and electronic commerce
communities. We anticipate completing the development of the software for the
design of the web sites in the third quarter of 2000. We intend to utilize a
portion of the net proceeds of the offering to make a required capital
contribution to e-commerce solutions which will be utilized to complete
development of the software and to set up a sales and marketing organization.
Using the software, our in-house personnel will consult with business customers,
and will design and sell customized electronic commerce capable web sites for
the business customer. We intend to market the electronic commerce web sites to
small urban-based businesses at a relatively low cost. Our goal is to develop a
substantial sales force to market the web sites.
In addition, we believe that the sales of electronic commerce web sites
will provide us with additional opportunities to increase revenue. We intend to
offer purchasers of web sites various services including:
o web hosting services;
o additional sophisticated web site development services; and
o specialized marketing into the African-American and Hispanic
markets.
We intend to enter into agreements with purchasers of web sites to provide
direct links to urbancool.com and to our other web sites.
e-commerce solutions also intends to offer other e-commerce and business
related services, including consulting, financing, reciprocal trade and barter
services and infrastructure related services for e-commerce, Internet and other
related businesses.
Provide other services
Urban Cool, together with non-profit organizations, intends to participate
in providing introductory computer training programs in select cities. By
providing introductory classes, we intend to build a client base familiar with
our services. We do not plan, however, on generating revenue from the classes.
Other services which we plan to offer through our online network, NetStand
kiosks and CyberCenters include money transfer, transportation tickets and
public transportation information. We intend to offer web hosting and related
services pursuant to our marketing alliance agreement with Navisite and
application services and content distribution services pursuant to our agreement
with Akamai.
25
<PAGE>
In addition, we intend to offer via urbancool.com, NetStand kiosks and
CyberCenters financial services such as bill paying and a full line of
telecommunication products and services including prepaid local and long
distance phone usage, prepaid cellular phones, pagers, prepaid home and business
phone services. We have entered into an agreement with NatioNet Online, an
Internet service provider, that offers Internet access to subscribers.
Urban Cool Online Network
Our online network is organized around consumer focused sites anchored by
urbancool.com with 15 content specific channels and three business focused Urban
Cool web sites. Our channels, web sites and special features are described
below.
Arts & literature channel
The Arts & Literature channel provides original content and links to web
sites related to the arts, culture, dance, genealogy, literature, performing
arts and theatre.
Health and fitness channel
The Health and Fitness channel provides news stories on health and fitness
topics as well as links to web sites related to medicine and drugs, diseases,
fitness, medical references, insurance, mental health, natural health,
organ-tissue donation, health organizations and vision.
Sports channel
The Sports channel provides original content, sports news and stories as
well as links to sports magazines and numerous professional and amateur sports
and sporting events.
Education channel
The Education channel provides links to web sites related to education,
including careers, college guides, curriculum, scholarships, educational
organizations and educational references.
U' Cool kids channel
The U' Cool Kids channel provides links to web sites related to books and
stories, clubs, education, games, girls only, holiday fun, museums and
television.
Urban styles channel
The Urban styles channel provides links to web sites related to autos,
auctions, toys, fashion and beauty, men's topics, hip hop and shopping
destinations.
Entertainment channel
The Entertainment channel provides special interest stories and interviews
as well as links to web sites related to entertainment awards, celebrities,
music, entertainment magazines, movies, films, television, games, history,
entertainment organizations, comics, radio and hobbies.
Living and family channel
The Living and Family channel provides top news stories and features as
well as links to web sites related to religions, adoption, gardening, home
improvement, real estate, parenting, environment, organizations, pets,
inspirational stories, seniors, singles, insurance, spiritual well-being and
time management.
Cool technology channel
The Cool Technology channel contains news stories as well as links to web
sites related to computers, stereo and television, telecommunications,
magazines, museums, technology-related organizations and video games.
Food and beverage channel
The Food and Beverage channel provides links to web sites related to food
and beverage, recipes, food and beverage magazines and restaurants.
26
<PAGE>
Money talks channel
The Money talks channel provides links to web sites related to financial
news, careers, financial topics and business, consumer and professional
organizations.
Travel and events channel
The Travel and Events channel provides links to web sites related to city
guides, travel, state guides, events and holidays.
Street watch channel
The Street Watch channel provides links to web sites related to law
enforcement agencies, drugs and crime.
News and government channel
The News and Government channel provides top news stories, as well as
links to web sites related to government, legal information, magazines, news
services, newspapers and organizations.
For women channel
The For Women channel provides original content and links to web sites for
women, related to health issues, business, careers, magazines, organizations and
weddings.
Urbancool.com
Urbancool.com is our consumer focused site for urban consumers and others
who follow trends in the urban community, which contains links to our 15 content
specific channels and our other web sites.
Urbancoolnet.com
The urbancoolnet.com site is our corporate and business to business web
site.
Urbanmall.net
The urbanmall.net site is a shopping site which offers software, videos,
books, music, CDs, Urban Cool caps, t-shirts and backpacks.
Urbantrends.com
The urbantrends.com site is a business-to-business site that provides
information about trends in the urban community and links to urban magazines,
advertising agencies and research about the urban community.
Urbanjobs.com
Urbanjobs.com is a site focused on career development, job searches and
business services for corporate personnel departments.
Future web sites
We intend to develop Urban Cool Magazine, a print and online technology
lifestyle magazine focused on the urban consumer. We also intend to develop
urbanauctions.com, a collection of web pages focused on celebrity, business and
charity auctions.
U' Cool Crew
We intend that each channel will be hosted by one of our 12 proprietary
fictional characters known as part of the U' Cool Crew, presenting original
content, link recommendations and acting as sales persons for
electronic-commerce products and services. Our web sites contain a
computer-generated likeness and description of each of the characters, including
their favorite food, dessert, sport and other interests. We intend to further
develop the personalities of each of these characters, including animating and
casting for the characters and providing scripts for the characters. We also
intend to utilize the characters in television, radio and print
27
<PAGE>
advertising, to make personal appearances and to promote the Urban Cool brand
name and electronic commerce products. Network users are able to send e-mail to
the characters and to vote for their favorite characters. We believe that the U'
Cool Crew will build brand awareness and brand loyalty for the Urban Cool brand
name.
Sales and marketing
We intend to establish a direct sales organization consisting of national,
regional and local sales representatives. Our sales organization will provide
input on design and placement of our Internet-based advertising and the content
on local web sites. The sales representatives' objective will be to provide a
high level of customer service and satisfaction to business customers. We also
intend to have our sales representatives focus on selling sponsorship packages
and banner advertising programs together with web site development services,
hosting and application services.
We intend to utilize a number of methods to promote the Urban Cool brand
name including outdoor advertising, advertising on other Internet sites,
targeted publications, radio stations, cable television and cross promotional
arrangements to secure advertising and other promotional considerations. We have
distributed promotional material at select targeted events such as Black expo,
cinco de mayo events, concerts and other community events. To further promote
the Urban Cool brand name, we intend to enter into strategic alliances with
consumer products and technology companies.
We intend to develop relationships with urban non-profit groups and with
other urban consumer membership based groups, such as churches, alumni
organizations, fraternities and similar organizations, for brand building and
membership acquisitions. We plan to meet with urban non-profit organizations and
other urban consumer membership based groups to identify sponsorship and grass
roots marketing opportunities. We also intend to sponsor events, concerts and
other community activities to promote the Urban Cool brand name.
Distribution - internet service provider
We have entered into an agreement with NatioNet Online, an Internet
service provider, to provide Internet access to our users. Pursuant to the
agreement, we will receive 5.1% of the monthly fee paid by each subscriber. We
intend to promote Internet service access by distributing Urban Cool co-branded
software via direct mail, magazine insertions, at concerts, seminars and events
as well as through our CyberCenters and NetStand kiosk locations. We also will
distribute our software in computer stores, record stores, discount stores,
grocery stores and through churches, community events and other community-based
organizations and membership based groups.
WilhelminaUrbanCool.com Inc.
In March 2000 we acquired all of the capital stock of
WilhelminaUrbanCool.com, Inc. in exchange for 580,000 shares of our common
stock. WilhelminaUrbanCool.com, Inc. was formed in February 2000 in order to
license the Wilhelmina trademark from Wilhelmina Artist Management LLC. The
license agreement provides for an initial term of 25 years and successive
five-year renewal options. Wilhelmina Models which was founded in 1967 is one of
the leading modeling agencies in the industry. Wilhelmina Models is an agent for
over 1,000 models and its current roster of models, athletes and musical talent
includes Mia Tyler, Kevin Garnett, Kate Dillon, Katerina Witt, Jenna Elfman,
Brandy, Paula Cole, Kid Rock, Kool and the Gang, Hootie and the Blowfish, and
Sugar Ray. Pursuant to the license agreement, WilhelminaUrbanCool.com, Inc. has
been granted the license to utilize the Wilhelmina trademark in connection with
a web site known as WilhelminaUrbanCool.com. Wilhelmina Artist Management, llc
has agreed to provide to WilhelminaUrbanCool.com, Inc. all head shots,
photographs and other materials which Wilhelmina has the right to utilize for
self-promotion and to provide content for the WilhelminaUrbanCool.com web site.
In addition, it is anticipated that WilhelminaUrbanCool.com will market
merchandise, sponsor contests, model searches and engage in other promotions
utilizing the web site.
Web site design services and e-commerce solutions
In November 1999, we entered into an agreement to acquire 66 2/3% of the
capital stock of e-commerce solutions, Inc. In connection with the acquisition,
we have advanced $50,000 of capital to e-commerce solutions and have agreed to
contribute an additional $2,950,000 of capital to e-commerce solutions upon the
completion
28
<PAGE>
of the offering. In addition, we issued warrants to purchase up to 1,050,000
shares of common stock to Stanley Wolfson, exercisable are as follows:
o warrants to purchase 50,000 shares of common stock are exercisable
immediately at an exercise price of $2.00 per share;
o warrants to purchase 200,000 shares of common stock are exerciseable
immediately at an exercise price of $1.00 per share;
o warrants to purchase 200,000 shares of common stock are exercisable
provided that e-commerce solutions has gross sales of at least
$2,500,000 within 24 months of our contribution of $3,000,000 to
e-commerce solutions at an exercise price of $1.00 per share;
o warrants to purchase an additional 200,000 shares of common stock
are exercisable provided that e-commerce solutions has gross sales
of at least $7,500,000 within 24 months of our contribution of
$3,000,000 to e-commerce solutions at an exercise price of $1.00 per
share;
o warrants to purchase an additional 200,000 shares of common stock
are exercisable provided that e-commerce solutions has gross sales
of at least $15,000,000 within 24 months of our contribution of
$3,000,000 to e-commerce solutions at an exercise price of $1.00 per
share and
o warrants to purchase an additional 200,000 shares of common stock
are exercisable provided that e-commerce solutions has gross sales
of at least $25,000,000 within 24 months of our contribution of
$3,000,000 to e-commerce solutions at an exercise price of $1.00 per
share.
e-commerce solutions has entered into a three-year employment agreement
with Stanley Wolfson to serve as the president. Mr. Wolfson shall receive a
salary of $175,000 per annum plus 2% of gross sales commencing as of November 1,
1999. Pursuant to our shareholder's agreement with Stanley Wolfson and
e-commerce solutions, Mr. Wolfson has the ability to manage the affairs of
e-commerce solutions, subject to our right to vote on certain shareholder
matters. In connection with the shareholder's agreement, the vote of 70% of the
shares of common stock outstanding is required in connection with a vote of the
shareholders.
e-commerce solutions owns partially developed proprietary software to
construct electronic commerce capable web sites and electronic commerce
communities. We intend to utilize a portion of the net proceeds of the offering
to complete development of the software and to fund the start-up costs for
e-commerce solutions. We anticipate completing the development of the software
in the third quarter of 2000. e-commerce solutions also intends to offer other
e-commerce and business related services, including consulting, financing,
reciprocal trade and barter services and infrastructure services for e-commerce,
Internet and other related businesses. We intend to market electronic commerce
web sites through e-commerce solutions to urban-based small businesses. We
believe that a basic electronic commerce capable web site can be marketed to
urban-based small business owners at a relatively low cost. We plan to utilize a
substantial telemarketing effort and a dedicated sales force to market the web
site design services. We cannot assure you that we will be able to develop such
a sales force or develop web site design services. We intend to offer
competitive performance-based compensation packages to our sales representatives
and telemarketers.
In March 2000 e-commerce solutions formed Mastercraft Builders, Inc., a
90% owned subsidiary, to perform interior alteration services with a specialty
in turnkey facilities for Internet and Internet related companies. In March
2000, Mastercraft entered into an agreement with Urban Fetch to act as the
general contractor in connection with a project located in New York City. In
April 2000 e-commerce solutions formed ModTech Solutions, Inc., a 90% owned
subsidiary, to engage in modular construction with a specialty in the
construction of facilities for Internet and Internet related industries. In
April 2000 ModTech purchased machinery and equipment for a purchase price of
$25,000 and entered into a six month consulting agreement with a consultant
providing for a consulting fee in the aggregate amount of $50,000.
Revenue sharing agreements
We have entered into revenue sharing agreements, none of which are
material to our revenue, with Music Boulevard/CD Now, car prices.com,
electronics.net, Yahoo store, and buydirect.com. The agreements generally
provide that we receive a commission for products purchased through a link on
our web site. We intend to enter
29
<PAGE>
into agreements to offer Internet links to other Internet retailers, including
telecommunications and Internet services, financial services, and transportation
services.
Web site management and development
Analysts International designed our initial web sites. We presently
develop, manage and maintain our network of web sites. Our web site management
and development is supervised by our Vice President of Technology and Internet
Services and is assisted by employees, strategic partners and subcontractors.
Technology
Technology is a critical part of our business and affects our business in
a variety of ways. We intend to upgrade and modify our network hardware systems
and software in order to provide faster, more robust and more reliable
communications, entertainment and Internet services to our customers. We intend
to have servers in multiple locations in order to provide back-up of our
computer systems, quicker access to our online network and the ability to handle
the anticipated increased use of our online network. We intend to utilize
Navisite and Akamai for technology infrastructure support and Ask Jeeves for
search and customer service applications.
Competition
The market for Internet products and services is highly competitive and
competition is expected to continue to increase significantly. There are no
substantial barriers to entry in these markets, and we expect that competition
will continue to intensify. We compete with many other providers of information
and community services such as AOL, Excite, Inc. Infoseek Corporation, Lycos,
Inc., and Yahoo Inc. as well as other web sites including bet.com,
starmedia.com, and quepasa.com. As we expand the scope of our Internet services,
we will compete directly with a greater number of Internet sites and other media
companies. A large number of web sites and online services also offer electronic
commerce products, informational and community features. There can be no
assurance that we will be able to compete successfully or that the competitive
pressures faced by us will not have a material adverse effect on our business.
We compete with IBM and EDS for web site design services as well as other
local, regional and national web site designers. As we expand our web site
design services we will compete directly with other web site design services
offering similar products. In addition, other web site designers may offer
reasonably priced electronic commerce capable web sites or develop similar or
superior software. We cannot assure you that we will be able to compete
successfully.
There are other web sites that attract segments of our potential market.
We believe that we will be able to differentiate Urban Cool from competitors by
promoting the Urban Cool brand name and through access to our online network
through NetStand kiosks and CyberCenters.
Many of our existing competitors, as well as a number of potential new
competitors, have significantly greater financial, technical, marketing and
distribution resources. In addition, other web sites and online networks may be
acquired by, receive investments from, or enter into other commercial
relationships with larger, well-established and well financed companies. Greater
competition resulting from these types of strategies relationships could have a
material adverse effect on our business, operating results and financial
condition.
Government regulation
Due to the increasing popularity and use of the Internet, it is possible
that a number of laws and regulations may be adopted with respect to the
Internet, covering issues such as user privacy, defamation, pricing, taxation,
content regulation, quality of products and services, and intellectual property
ownership and infringement. Such legislation could dampen the growth in use of
the Internet generally, decrease the acceptance of the Internet as a
communications and commercial medium and require us to incur expense in
complying with any new regulations. Other nations have taken actions to restrict
the free flow of material deemed to be objectionable on the Internet. In
addition, several telecommunications carriers are seeking to have
telecommunications over the Internet regulated by the Federal Communications
Commission in the same manner as other telecommunications services. Such laws
and regulations if enacted in the United States or abroad could have a material
adverse effect on our business. Moreover, the applicability to the Internet of
the
30
<PAGE>
existing laws governing issues such as property ownership, copyright,
defamation, obscenity, and personal privacy is uncertain, and we may be subject
to claims that our services violate these laws. Any new legislation or
regulation in the United States or abroad or the application of existing laws
and regulations to the Internet could have a material adverse effect on our
business.
Due to the global nature of the Internet, it is possible that, although
transmissions by us over the Internet originate primarily in the State of Texas,
the governments of other states and foreign countries might attempt to regulate
our transmissions or prosecute us for violations of their laws. There can be no
assurance that violations of local laws will not be alleged or charged by state
or foreign governments, that we might not unintentionally violate such law or
that such laws will not be modified, or new laws enacted, in the future. Any of
the foregoing developments could have a material adverse effect on our business.
Trademarks and proprietary rights
We regard our copyrights, trademarks, trade names, trade dress, trade
secrets, and similar intellectual property as critical to our success, and we
intend to rely on trademark and copyright law, trade secret protection and
confidentiality and/or license agreements with our employees, customers,
independent contractors, partners and others to protect our proprietary rights.
We pursue the registration of our trademarks and service marks in the United
States, and have applied for and obtained registration in the United States for
the Urban Cool brand name. We are in the process of filing for additional
protection. Effective trademark, service mark, copyright and trade secret
protection may not be available in every country in which our products and
services are made available online.
There can be no assurance that the steps taken by us to protect our
proprietary rights will be adequate or that third parties will not infringe or
misappropriate our copyrights, trademarks, trade dress and similar proprietary
rights. In addition, there can be no assurance that other parties will not
assert claims of infringement of intellectual property or alter proprietary
rights against us.
We may be required to obtain licenses from others to refine, develop,
market and deliver new services. There can be no assurance that we will be able
to obtain any license on commercially reasonable terms, or at all or that rights
granted pursuant to any licenses will be valid and enforceable.
Employees
As of March 31, 2000 we had nine full-time employees, four of which were
involved in marketing and sales and five in general management, technology and
administration. We also have two part time employees. We have no collective
bargaining agreement with our employees. We believe that our relationship with
our employees is satisfactory.
Legal proceedings
Urban Cool is not currently involved in any material legal proceedings. We
may from time to time become a party to various legal proceedings arising in the
ordinary course of our business.
Properties
Our Internet hosting and co-location servers are located at 1950 Stemmons
Freeway, Dallas Texas. Our lease is month to month at a monthly rate of $1,200
per month. We also have leased 1,350 square feet at 1401 Elm Street, Dallas,
Texas at a monthly rental of $1,635. We lease space at 439 West 125th Street in
the Harlem area of New York City at a monthly rate of $880 per month, for our
model CyberCenter. e-commerce solutions leases office space at 600 West 57th
Street, New York, New York at a monthly rate of $5,000 per month, which lease
expires in October 2002. We are in the process of locating additional space for
our expanded operations. However, no definitive agreements have been executed.
31
<PAGE>
MANAGEMENT
Directors and executive officers
The following table sets forth information concerning our directors and
executive officers as of the date of this prospectus. Sir Brian Wolfson has
agreed to serve as a director of Urban Cool upon the completion of the offering.
Name Age Position
---- --- --------
Jacob R. Miles, III* .......... 45 Chairman, Chief Executive Officer
and Director
Terrence B. Reddy ............. 57 President, Chief Operating Officer
and Director
Barry M. Levine ............... 56 Secretary, Treasurer and Chief
Financial Officer
Tony Winston .................. 33 Vice President of Technology and
Internet Services
Rosalind Bell ................. 41 Director
Rex Cumming* .................. 36 Director
Sir Brian Wolfson* ............ 64 Director Nominee
- ----------
* We intend to elect such individuals to the audit and compensation
committees.
The following is a brief summary of the background of each executive
officer and director:
Jacob R. Miles, III, our founder, has been Chairman and Chief Executive
Officer since inception. From 1996 to 1998, Mr. Miles was President of Miles
Companies, an entertainment- and technology-focused consulting firm. From 1993
to 1996, he was Chairman and Chief Executive Officer of Cultural Exchange
Entertainment Corp., a developer and marketer of entertainment properties, toys
and electronic learning aids targeted at urban markets, which filed for
protection from its creditors under Chapter 7 of the Bankruptcy Code in United
States Bankruptcy Court for the Southern District of New York in January 1998
and was discharged in July 1998. Prior to 1993, Mr. Miles held engineering
operations and senior management positions with Tonka Corp. and General Mills
Toy Group. He received an engineering management certificate from Xavier
University in 1980. Mr. Miles is the husband of Rosalind Bell, a director of
ours.
Terrence B. Reddy became our President, Chief Operating Officer in
September 1999 and a director in November 1999. From 1993 to August 1999, he
served as President of TransMedia Resources, a media research company that
services the broadcasting industry in markets in the state of Texas. Prior to
1993, Mr. Reddy held sales and general manager positions with various television
and cable network companies.
Barry M. Levine became our Secretary, Treasurer and Chief Financial
Officer in November 1999. From October 1996 to August 1999, Mr. Levine was a
director and the President and Chief Executive Officer of Millennium Sports
Management, Inc., a publicly-traded stadium management company. From April 1996
through September 1996 Mr. Levine was unemployed. From December 1991 through
March 1996, Mr. Levine held various offices and was a director of Sports Heroes,
Inc., a publicly-traded sports memorabilia company. Mr. Levine resigned from
Sports Heroes in March 1996, and subsequently, in May 1996, Sports Heroes, Inc.
filed a voluntary petition for reorganization under Chapter 11 of the United
States Bankruptcy Code; in October 1996, this case was converted to a proceeding
under Chapter 7 of the United States Bankruptcy Code. Mr. Levine is also a
certified public accountant. Mr. Levine received a B.B.A. in accounting from
Pace University in 1967.
Rosalind Bell became a director in November 1999. Ms. Bell has been a
marketing consultant from January 2000 to the present. From May 1999 to January
2000, Ms. Bell was Vice President of Marketing for Optel, a telecommunications
cable and Internet company, from May 1999 to the present. From April 1998 to
April 1999, Ms. Bell was a Vice President of Marketing for the Don Pablo
division of Avado Corporation. From October 1997 to April 1998, she served as
Vice President-Marketing for Time Warner's Six Flags Amusement Parks. From 1994
to 1997, Ms. Bell was Group Marketing Director at Pillsbury Company. Ms. Bell
received a B.A. in Business from Washington University in 1980 and an M.B.A.
from Northwestern University in 1981. Ms. Bell is the wife of Mr. Miles, the
Chairman and Chief Executive Officer, and majority stockholder of Urban Cool.
32
<PAGE>
Rex Cumming became a director in November 1999. Mr. Cumming, a co-founder
of Worksoft Inc., an enterprise productivity solutions company that builds
software testing tools, has been Worksoft's Chief Financial Officer since 1998.
From 1994 to 1998, Mr. Cumming was a co-founder and director of Silicon Reef,
Inc., an Internet service company. From 1992 to the present, Mr. Cumming has
been the President of Hytec Data System, Inc., a consulting firm which provides
investment, development and financial advisory services to start-up companies.
Sir Brian Wolfson has agreed to become a director of ours upon completion
of the offering. Sir Brian served as Chairman of Wembley, PLC from 1986 to 1995.
Sir Brian is currently a director of Fruit of the Loom, Inc., Kepner-Tregoe,
Inc., Playboy Enterprises, Inc., and Autotote Corporation, Inc.
Tony Winston has been Vice President of Technology and Internet Services
since August 1999. From 1994 to 1999, Mr. Winston was the founder and President
of Software Developers and Systems Integrations, Inc., a technology and services
firm, implementing applications for telecommunications, and financial services
companies. Mr. Winston received a Bachelors Degree in Business, with a
concentration in Management Information Systems, from Boston University School
of Business in 1988.
Board composition
Upon the consummation of this offering our board of directors will consist
of five directors. At each annual meeting of our stockholders, all of our
directors are elected to serve from the time of election and qualification until
the next annual meeting following election. In addition, our bylaws provide that
the maximum authorized number of directors, which is currently five, may be
changed by resolution of the stockholders or by resolution of the board of
directors.
We have granted to Nutmeg Securities and RMH Consulting the right, for a
period of five years and 15 months, respectively from the closing of this
offering, to nominate a designee for election to our board of directors. Neither
Nutmeg Securities nor RMH Consulting has indicated who they intend to designate
to our board. If Nutmeg Securities or RMH Consulting exercises its right to
nominate a designee to serve on our board of directors, then we will increase
the size of the board of directors. If in the future either Nutmeg Securities or
RMH Consulting elects not to exercise this right, then Nutmeg Securities or RMH
Consulting may designate one person to attend meetings of our board of
directors.
Each officer is elected by, and serves at the discretion of, our board of
directors. Each of our officers and directors, other than independent directors,
devotes his full time to our affairs. Our independent directors devote such time
to our affairs as is necessary to discharge their duties. There are no family
relationships among any of our directors, officers or key employees, except for
Mr. Miles and Ms. Bell, who are husband and wife.
Board committees
Prior to the completion of this offering, we intend to establish an audit
committee and a compensation committee and that Jacob R. Miles, III, Rex
Cumming, and Sir Brian Wolfson will be members of the audit committee and
compensation committee. The audit committee will make recommendations to the
board of directors regarding the independent auditors for us, approve the scope
of the annual audit activities of our independent auditors, review audit results
and will have general responsibility for all of our auditing related matters.
The compensation committee will review and recommend to the board of directors
the compensation structure of our officers and other management personnel,
including salary rates, participation in incentive compensation and benefit
plans, fringe benefits, non-cash perquisites and other forms of compensation. No
interlocking relationships exist between Urban Cool's board of directors or
compensation committee and the board of directors or compensation committee of
any other company, nor has any such interlocking relationship existed in the
past.
Directors' compensation
Independent directors will receive 5,000 shares of common stock and
options to purchase 10,000 shares of common stock at the initial public offering
price upon completion of the offering. Independent directors will also receive
an annual director's fee of $10,000. Employee directors will not receive
additional compensation for serving on the board of directors. All directors
will be reimbursed for out-of-pocket expenses incurred in attending meetings of
the board of directors and committee meetings.
33
<PAGE>
Executive compensation
Summary Compensation Table
The following table provides a summary of cash and non-cash compensation
for the year ended December 31, 1999 with respect to the following officer of
Urban Cool:
<TABLE>
<CAPTION>
Annual Compensation Long-Term Compensation
------------------- ----------------------
Awards
----------
Securities
Restricted Underlying
Other Annual Stock Options LTIP All Other
Name and Principal Positions Year Salary($) Bonus($) Compensation Award(s)($) SARs(#) Payouts($) Compensation
- ---------------------------- ------ --------- ------------ ------------ ----------- ------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Jacob R. Miles, III 1999 $175,000(1) 0 0 0 0 0 0
</TABLE>
- ----------
(1) We accrued $131,250 of salary which will be payable out of the net
proceeds of this offering.
Employment agreements
Urban Cool has entered into a three-year employment agreement, commencing
as of July 1, 1999, with Jacob R. Miles, III, our Chairman, President and Chief
Executive Officer, which provides for an annual salary of $175,000. The
employment agreement provides that Mr. Miles is eligible to receive incentive
bonus compensation, at the discretion of the board of directors based on his
performance and contributions to our success. The employment agreement provides
for termination based on death, disability or voluntary resignation and for
severance payments upon termination in the event that he is terminated without
cause, as described in the agreement, or he terminates his employment for good
reason as described in the agreement, or in the event of a change in control of
Urban Cool as described in the agreement. If the employment agreement is
terminated without cause, as a result of a change of control, or terminated by
Mr. Miles for good reason the amount of the severance payment shall be equal to
three times the average annual compensation payable under the employment
agreement.
Urban Cool has entered into one-year employment agreements, effective upon
completion of the offering, with Barry M. Levine, our Chief Financial Officer,
and Terrence B. Reddy, our President and Chief Operating Officer, which each
provide for an annual salary of $125,000. In addition, we have entered into a
one-year employment agreement effective upon completion of the offering with
Tony Winston, our Vice President of Technology and Internet Services, which
provides for an annual salary of $100,000. Each employment agreement provides
that the executive is eligible to receive short-term incentive bonus
compensation at the discretion of the board of directors based on his
performance and contributions to our success. Each employment agreement provides
for termination based on death, disability or voluntary resignation and for
severance payments upon termination in the event that the executive is
terminated without cause, as described in the agreement, or he terminates his
employment for good reason as described in the agreement. In the event the
employment agreement is terminated other than for good cause by us, then the
executive shall receive severance payments equal to the compensation payable
through the balance of the term.
In November 1999, Stanley Wolfson entered into a three-year employment
agreement with e-commerce solutions pursuant to which Mr. Wolfson shall receive
an annual salary of $175,000 plus an amount equal to 2% of the gross sales of
e-commerce solutions. The agreement commences as of November 1, 1999. Mr.
Wolfson will be entitled to receive short term incentive bonus compensation at
the discretion of the board of directors based on his performance and
contribution to the company's success. The employment agreement provides for
termination based on death, disability or voluntary resignation and for
severance payments upon termination in the event that Mr. Wolfson is terminated
without cause.
We have entered into a one year employment agreement with Sheila Creque as
Vice President of Celebrity Relations and Merchandising commencing upon the
completion of this offering pursuant to which Ms. Creque shall receive an annual
salary of $125,000. In addition, upon completion of this offering, Ms. Creque
shall receive a signing bonus of $35,000, accrued salary from January 1, 2000
through the closing of the offering and $25,000 attributable to the fourth
quarter of 1999. Ms. Creque shall also receive up to 35,000 shares of common
stock upon obtaining agreements from up to three celebrities to join our
advisory board on terms to be negotiated. The employment agreement provides for
termination based on death, disability or voluntary resignation and for
severance payments upon termination in the event that Ms. Creque is terminated
without cause.
34
<PAGE>
Options Granted in Last Fiscal Year. The following table sets forth
certain information with respect to option grants during the fiscal year ended
December 31, 1999 to the named executive officers.
<TABLE>
<CAPTION>
Potentially Realizable
Value at Assumed Annual
Percent of Rates of Stock Price
Number of Total Options Appreciation for
Securities Granted to Exercise of Option Term(1)
Underlying Employees in Base Price -----------------------
Name Options Granted Fiscal Year ($.SH) Expiration Date 5%($) 10%($)
- ---- --------------- ------------- ----------- --------------- ----- ------
<S> <C> <C> <C> <C> <C> <C>
Jacob R. Miles, III 250,000 39.7% initial public offering price November 2004 677,757 1,494,423
250,000 39.7% 110% of initial public November 2004 427,757 1,244,423
offering price
</TABLE>
- ----------
(1) The potential realizable value is calculated based on the term of the
option at its time of grant. It is calculated assuming that the fair
market value of the common stock on the date of grant (the anticipated
initial public offering price of $10.00 per share) appreciates at the
indicated annual rate compounded annually for the entire term of the
option and that the option is exercised and sold on the last day of its
term for the appreciated stock price.
Year-end Option Table. During the fiscal year ended December 31, 1999,
none of the named executive officers exercised any options issued by us. The
following table sets forth information regarding the stock options held as of
December 31, 1999 by the named executive officers.
<TABLE>
<CAPTION>
Number of Securities Underlying Value of Unexercised In-the-Money Options
Unexercised Options at Fiscal Year End at Fiscal Year-End
-------------------------------------- -----------------------------------------
Name Exercisable Unexercisable Exercisable Unexercisable
- ---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Jacob R, Miles, III 250,000 250,000 $0 $0
</TABLE>
Consulting agreements
In November 1999 we entered into a consulting agreement with RMH
Consulting Corp., an affiliate of The Elite Funding Group, a lender to us and a
principal stockholder of ours, to provide us with consulting services, including
assisting us with implementation of our business plans and strategies. The
consulting agreement is for a period of two years commencing as of November 1,
1999 and requires us to pay the consultant a fee of $6,250 per month and $75,000
upon the closing of the offering. Pursuant to the consulting agreement, we have
issued 150,000 shares of common stock to the consultant and we will be required
to issue additional shares of common stock to the consultant if we commence an
initial public offering at a price of $9.00 or less per share, so that the total
number of shares issued to the consultant will be equal to the number of shares
which could have been purchased in the initial public offering for $1,500,000.
In September 1999, we entered into a three-year consulting agreement with
Surrey Associates, Inc. and issued 200,000 shares of common stock to Surrey.
Pursuant to the consulting agreement, Surrey will assist us in developing a
marketing plan for the deployment of NetStand kiosks in shopping centers. In
September 1999, we entered into a three-year consulting agreement with Upway
Enterprises, Inc. and issued 150,000 shares of common stock to Upway. Pursuant
to the agreement, Upway will consult with us with regard to marketing and
mergers and acquisitions. In October 1999, we entered into a two-year consulting
agreement with Sea Breeze Associates, Inc., and issued 175,000 shares of common
stock to Sea Breeze. Pursuant to the agreement, Sea Breeze will consult with us
with regard to corporate development and mergers and acquisitions.
Stock option plan
In November 1999, we adopted the 1999 Stock Option Plan. The purpose of
the plan is to enable us to attract, retain and motivate key employees,
directors, and consultants, by providing them with stock options. Options
granted under the plan may be either incentive stock options, as defined in
Section 422A of the Internal Revenue Code of 1986, or non-qualified stock
options. We have reserved 500,000 shares of common stock for issuance under the
plan. As of the date of this prospectus, 267,850 options have been granted
pursuant to the plan.
Our board of directors will administer the plan. Our board has the power
to determine the terms of any options granted under the plan, including the
exercise price, the number of shares subject to the option, and conditions of
exercise. Options granted under the plan are generally not transferable, and
each option is generally exercisable during the lifetime of the holder only by
the holder. The exercise price of all incentive stock options granted under the
plan must be at least equal to the fair market value of the shares of common
stock on the date of
35
<PAGE>
the grant. With respect to any participant who owns stock possessing more than
10% of the voting power of all classes of our stock, the exercise price of any
incentive stock option granted must be equal to at least 110% of the fair market
value on the grant date. Our board of directors approves the terms of each
option. These terms are reflected in a written stock option agreement.
The board of directors has the right to grant options pursuant to the plan
whereby the holder, under the conditions of exercise, may, in lieu of payment of
the exercise price in cash, surrender the option and receive a net amount of
shares. Such number of shares will be based upon the fair market value of Urban
Cool's common stock at the time of the exercise of the option, after deducting
the aggregate exercise price.
Executive stock option plan
In November 1999, we adopted the 1999 Executive Stock Option Plan. We have
reserved 500,000 shares of common stock for issuance under the plan. Pursuant to
the plan, we granted options to purchase an aggregate of 500,000 shares of
common stock to Jacob R. Miles, III, our Chairman and Chief Executive Officer.
Of these options, options to purchase 250,000 shares of common stock are
exercisable immediately at an exercise price equal to the initial public
offering price. The balance of these options are exercisable for a period of
five years from the date of grant at an exercise price equal to 110% of the
initial public offering price. Such options are exercisable only if Urban Cool
achieves the annual audited gross revenue as outlined in the table below and
will become exercisable immediately following the fiscal year indicated.
Years Ending Number of Options Exercisable Gross Revenue
------------ ----------------------------- -------------
2001 125,000 $17,500,000
2002 125,000 $25,000,000
These options have net exercise provisions under which Mr. Miles may, in
lieu of payment of the exercise price in cash, surrender the option and receive
a net amount of shares, based on the fair market value of Urban Cool's common
stock at the time of the exercise of the option, after deducting the aggregate
exercise price.
Limitations of liability and indemnification of directors and officers
Our certificate of incorporation, as amended, and bylaws, as amended,
limit the liability of directors and officers to the maximum extent permitted by
Delaware law. We will indemnify any person who was or is a party, or is
threatened to be made a party to, an action, suit or proceeding, whether civil,
criminal, administrative or investigative, if that person is or was a director,
officer, employee, consultant or agent of us or serves or served any other
enterprise at our request.
In addition, our certificate of incorporation provides that generally a
director shall not be personally liable to us or our stockholders for monetary
damages for breach of the director's fiduciary duty. However, in accordance with
Delaware law, a director will not be indemnified for a breach of its duty of
loyalty, acts or omissions not in good faith or involving intentional misconduct
or a knowing violation or any transaction from which the director derived
improper personal benefit.
We intend to purchase and will maintain directors' and officers'
insurance, the amount of which has not yet been determined. This insurance will
insure directors against any liability arising out of the director's status as
our director, regardless of whether we have the power to indemnify the director
against the liability under applicable law.
The underwriting agreement also contains provisions whereby we agree to
indemnify the underwriters, each officer and director of the underwriters, and
each person who controls the underwriters within the meaning of Section 15 of
the Securities Act, against any losses, liabilities, claims or damages arising
out of alleged untrue statements or alleged omissions of material facts
contained in the registration statement or prospectus.
We have been advised that it is the position of the Commission that
insofar as the indemnification provisions referenced above may be invoked to
disclaim liability for damages arising under the Securities Act, these
provisions are against public policy as expressed in the Securities Act and are,
therefore, unenforceable.
36
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth as of May 15, 2000, and as adjusted for the
2,000,000 shares of our common stock offered by this prospectus, the number and
percentage of outstanding shares of common stock beneficially owned by:
o each person who we know beneficially owns more than 5% of the
outstanding shares of our common stock;
o each of our officers and directors; and
o all of our officers and directors as a group.
Except as otherwise noted, the persons named in this table, based upon
information provided by these persons, have sole voting and investment power
with respect to all shares of common stock beneficially owned by them. The
number of shares of common stock outstanding used in calculating the percentage
for each listed person includes the shares of common stock underlying options or
warrants held by such person that are exercisable within 60 days of April 1,
2000, but excludes shares of common stock underlying options or warrants held by
any other person. Unless otherwise indicated, the address of each beneficial
owner is c/o Urban Cool, 1401 Elm Street, Dallas, Texas 75202.
<TABLE>
<CAPTION>
Percentage of
Percentage of common
common stock stock
Name and address of Number of beneficially beneficially
beneficial owner shares owned owned
- ------------------- ------------- ----------------- ----------------
(Before Offering) (After Offering)
<S> <C> <C> <C>
Jacob R. Miles, III .................... 2,336,493(1) 52.4% 36.1%
Terrence B. Reddy ...................... -- * *
Rosalind Bell .......................... 2,336,493(2)(3) 52.4% 36.1%
Rex Cumming ............................ 5,000(3) * *
Sir Brian Wolfson ...................... 5,000(3) * *
The Elite Funding Group, Inc. .......... 853,124(4) 14.6% 10.6%
Wilhelmina Artist Management, LLC ...... 580,000(5) 13.8% 9.3%
Stanley Wolfson ........................ 250,000(6) 5.6% 3.9%
All executive officers and
directors as a group
(7 persons) .......................... 2,446,493 53.5% 38.6%
</TABLE>
- ----------
(1) Includes (a) 20,608 shares of common stock owned by Rosalind Bell, Mr.
Miles' wife, (b) 5,000 shares of common stock issuable to Rosalind Bell
upon the consummation of this offering and (c) 250,000 shares of common
stock issuable upon the exercise of options that are currently exercisable
at an exercise price equal to the initial public offering price, but does
not include options to purchase 302,500 shares of common stock which are
not presently exerciseable.
(2) Includes 2,310,885 shares of common stock beneficially owned by Ms. Bell's
husband, Jacob R. Miles, III.
(3) Includes 5,000 shares of common stock issuable to independent directors
upon the consummation of this offering.
(4) Includes (a) warrants to purchase 703,124 shares of common stock
connection with a loan in an amount of up to $1,000,000 which are
presently exercisable, and (b) 150,000 shares of common stock owned by RMH
Consulting Corp., a consultant and an affiliate of The Elite Funding
Group. Pursuant to the consulting agreement, we are required to issue
additional shares of common stock in the event that the initial public
offering price is less than $9.00 per share.
(5) The address of Wilhelmina Artist Management LLC is 300 Park Avenue South,
New York, New York 10010.
(6) Includes warrants to purchase 250,000 shares of common stock, but does not
include warrants to purchase 800,000 shares of common stock which are not
presently exerciseable.
* Represents less than 1% of the applicable number of shares of common stock
outstanding.
37
<PAGE>
CERTAIN TRANSACTIONS
In November 1999, Jacob R. Miles, III, our Chairman, Chief Executive
Officer and majority stockholder entered into a deferred compensation agreement
with us which provides that Mr. Miles shall receive accrued salary in the amount
of $131,250, payable out of the net proceeds of this offering, which amount was
accrued from January 1, 1999 through September 30, 1999. As of March 31, 2000,
Mr. Miles was owed $183,000 of accrued salary and expenses, which has been
recorded as a non-interest bearing loan.
In November 1999, we entered into a consulting agreement with RMH
Consulting Corp., an affiliate of The Elite Funding Group, a lender to us and a
principal stockholder of ours, to provide us with consulting services, including
assisting us with implementation of our business plans and strategies. We
believe that the terms of the consulting agreement are on terms at least as
favorable as those that could have been obtained from an unrelated third party.
See "Management -- Consulting Agreements."
In November 1999, e-commerce solutions subleased office space at 600 West
57th Street, New York, New York from MEI Associates, Inc., at a monthly rate of
$5,000 per month. Stanley Wolfson, a principal stockholder of ours, is an
affiliate of MEI Associates.
38
<PAGE>
DESCRIPTION OF SECURITIES
The following section should be read in conjunction with detailed
provisions of our certificate of incorporation and bylaws, copies of which have
been filed with our registration statement of which this prospectus forms a
part. Our capital stock is also governed by the provisions of applicable
Delaware law.
General
Our authorized capital stock consists of 30,000,000 shares of common
stock, $.01 par value and 3,000,000 shares of preferred stock, $.01 par value.
As of May 1, 2000, 4,210,000 shares of common stock were issued and outstanding.
As of the date of this prospectus, we have approximately 60 holders of our
common stock. No shares of preferred stock are outstanding.
Common stock
Each holder of common stock is entitled to one vote per share, either in
person or by proxy, on all matters that may be voted upon by the owners of our
shares at meetings of our stockholders. There is no provision for cumulative
voting with respect to the election of directors by the holders of common stock.
Therefore, the holders of more than 50% of our shares of outstanding common
stock can, if they choose to do so, elect all of our directors and approve
significant corporate transactions. In this event, the holders of the remaining
shares of common stock will not be able to elect any directors.
The holders of common stock:
o have equal rights to dividends from funds legally available
therefor, when and if declared by our board of directors;
o are entitled to share ratably in all of our assets available for
distribution to holders of common stock upon liquidation,
dissolution or winding up of our affairs; and
o do not have preemptive rights, conversion rights, or redemption of
sinking fund provisions.
The rights, preferences and privileges of the holders of common stock may
be adversely affected by the rights of the holders of shares of any series of
preferred stock that we designate in the future.
Preferred stock
The board of directors is authorized, without stockholder approval, from
time to time to issue up to an aggregate of 3,000,000 shares of preferred stock
in one or more series. The board of directors can fix the rights, preferences
and privileges of the shares of each series and any qualifications, limitations
or restrictions. Issuance of preferred stock, while providing desirable
flexibility in connection with possible acquisitions and other corporate
purposes, could have the effect of making it more difficult for a third-party to
acquire, or of discouraging a third-party from attempting to acquire a majority
of our outstanding voting stock. We have no present plans to issue any shares of
preferred stock.
Outstanding options, warrants and contingent shares
As of the date of this prospectus, up to 3,247,850 shares of common stock
are issuable pursuant to outstanding options, warrants and contingent shares. Of
such options, warrants and contingent shares, excluding the 200,000 shares of
common stock reserved for issuance upon the exercise of warrants granted to the
underwriters:
o 675,000 shares of common stock are issuable at an exercise price of
$2.00 per share;
o 1,750,000 shares of common stock are issuable at an exercise price
of $1.00 per share;
o 270,000 shares of common stock are issuable at an exercise price of
equal to 110% of the initial public offering price;
o 517,850 shares of common stock are issuable at an exercise price
equal to the initial public offering price per share; and
o 35,000 shares of common stock are issuable upon achieving certain
performance criteria.
39
<PAGE>
These options and warrants generally have net exercise provisions under
which the holder may, in lieu of payment of the exercise price in cash,
surrender the option or warrant and receive a net amount of shares, based on the
fair market value of Urban Cool's common stock at the time of the exercise of
the warrant, after deducting the aggregate exercise price. These warrants expire
on dates ranging from July 2004 to November 2009.
Underwriters' warrants
We have agreed to issue to the underwriters, for a total of $20.00,
warrants to purchase an aggregate of 200,000 shares of common stock exercisable
for a period of four years commencing one year after the effective date of the
registration statement of which this prospectus is a part, at a price equal to
150% of the initial public offering price of the shares of common stock. The
underwriters' warrants contain anti-dilution provisions providing for automatic
adjustments of the exercise price and number of shares issuable on exercise
price and number of shares issuable on exercise of the underwriters' warrants
upon the occurrence of some events, including stock dividends, stock splits,
mergers, acquisitions and recapitalizations.
The underwriters' warrants contain demand and piggyback registration
rights relating to the issuance of 200,000 shares of common stock. For the life
of the underwriters' warrants, the underwriters will have the opportunity to
profit from a rise in the market price for the 200,000 shares of common stock.
The holders of the underwriters' warrants will have no voting, dividend or other
stockholder rights with respect to those warrants. The holders of shares of
common stock issued upon exercise of those warrants will have the voting,
dividend and other stockholder rights of holders of shares of common stock. The
underwriters' warrants are restricted from sale, transfer, assignment or
hypothecation for the one year period from the date of this prospectus, except
to officers or partners of the underwriters and members of the selling group
and/or their officers or partners.
Registration rights
In July through November, 1999, we completed the sale of 105 units at a
price of $10,000 per unit in a private financing transaction. Each unit in the
private financing consisted of a promissory note in the amount of $10,000, 1,000
shares of common stock and warrants to purchase 5,000 shares of common stock.
The holders of at least 50% of the shares of common stock and the shares of
common stock underlying the warrants issued in the private financing have the
right to demand the registration of their shares on one occasion and such
holders have "piggyback registration rights" commencing 12 months from the date
of this prospectus.
We entered into a loan agreement with The Elite Funding Group, Inc. which
provides for a loan in an amount of up to $1,000,000 at an interest rate of 10%
per annum, payable monthly. In connection with the loan, we issued to the lender
common stock purchase warrants for the purchase of up to 750,000 shares of
common stock at an as adjusted exercise price of $1.00 per share, subject to
adjustment. We have granted registration rights to the lender for the
registration of the shares of common stock underlying the warrants, including
demand registration rights, and certain additional "piggy-back" registration
rights. We have granted similar registration rights to RMH Consulting Corp., a
consultant who is an affiliate of the lender with respect to 150,000 shares of
common stock. We have also granted demand and piggyback registration rights
commencing 12 months from the date of this prospectus in connection with up to
1,050,000 shares of common stock underlying warrants granted to Stanley Wolfson.
May Davis Group assisted us in procuring the $1,000,000 loan from The
Elite Funding Group and received warrants to purchase 20,000 shares of common
stock.
Delaware law and certificate of incorporation and bylaw provisions
Urban Cool is subject to Section 203 of the Delaware General Corporation
Law regulating corporate takeovers. This section prevents Urban Cool from
engaging, under some circumstances, in a business combination, which includes a
merger or sale of more than 10% of its assets, with any interested stockholder,
defined as a stockholder who owns 15% or more of its outstanding voting stock,
as well as affiliates and associates of any such persons, for three years
following the date such stockholder became an interested stockholder unless:
40
<PAGE>
o the transaction in which the stockholder became an interested
stockholder is approved by the board of directors prior to the date
the interested stockholder attained that status;
o upon consummation of the transaction which resulted in the
stockholder becoming an interested stockholder, the interested
stockholder owned at least 85% of Urban Cool's voting stock
outstanding at the time the transaction commenced, excluding shares
owned by persons who are directors or officers and shares owned by
employee stock plans; or
o the business combination is approved by the board of directors and
authorized by the affirmative vote of at least two-thirds of the
outstanding voting stock not owned by the interested stockholder.
Some of the provision of our certificate of incorporation and bylaws could
discourage, delay or prevent an acquisition of Urban Cool at a premium price.
Our bylaws provide that any vacancy on the board of directors may be filled by a
majority of the directors then in office. Our bylaws provide that special
meetings of stockholders may be called only by a majority of the directors of
our board or the President or by at least 25% of the holders of shares of common
stock.
In addition, the certificate of incorporation also authorizes 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 control of Urban Cool.
Transfer agent
We intend to appoint Continental Stock Transfer & Trust Company as the
transfer agent and registrar for our shares of common stock.
41
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Prior to this offering, there has been no public market for our common
stock. Future sales of substantial amounts of common stock in the public market,
or the availability of shares for sale, could adversely affect the prevailing
market price of our common stock and our ability to raise capital through an
offering of equity securities.
Upon completion of this offering, we will have 6,225,000 shares of common
stock outstanding, assuming no exercise of outstanding options or warrants or
the underwriters' over-allotment option. After the offering, the 2,000,000
shares sold in this offering will be immediately tradeable without restriction
under the Securities Act, except for any shares purchased by an "affiliate" of
ours, as that term is defined in the Securities Act. Affiliates will be subject
to the resale limitations of Rule 144 under the Securities Act.
We issued the remaining 4,225,000 shares of common stock in private
transactions in reliance upon one or more exemptions contained in the Securities
Act. These shares will be deemed "restricted securities" as defined in Rule 144.
Of these restricted securities 2,602,692 shares have been held for more than one
year as of the date of this prospectus. Therefore, 2,602,692 of these shares
will be eligible for public sale beginning 90 days after the date of this
prospectus in accordance with the requirements of Rule 144, subject to the
lock-up agreements described below.
In general, under Rule 144, a stockholder, or stockholder whose shares are
aggregated, who has beneficially owned "restricted securities" for at least one
year will be entitled to sell an amount of shares within any three month period
equal to the greater of:
o 1% of the then outstanding shares of common stock; or
o the average weekly trading volume in the common stock during the
four calendar weeks immediately preceding the date on which notice
of the sale is filed with the Commission, provided certain
requirements are satisfied.
In addition, our affiliates must comply with additional requirements of
Rule 144 in order to sell shares of common stock, including shares acquired by
affiliates in this offering. Under Rule 144, a stockholder who had not been our
affiliate at any time during the 90 days preceding a sale by him, would be
entitled to sell those shares without regard to the Rule 144 requirements if he
owned the restricted shares of common stock for a period of at least two years.
The foregoing summary of Rule 144 is not a complete description. Non-affiliates
may resell our securities issued under Rule 701 in reliance upon Rule 144
without having to comply with Rule 144's public information holding, volume and
notice requirements
Substantially all of our stockholders, our warrant holders and our
officers and directors, have agreed to not directly or indirectly, offer, sell,
pledge, grant any option to purchase, or otherwise sell or dispose of any of our
shares for a period of at least 12 months after the offering without the prior
written consent of Nutmeg Securities or The American Stock Exchange, as the case
may be.
42
<PAGE>
PLAN OF DISTRIBUTION
The underwriters named below, for whom Kashner Davidson Securities Corp.
is acting as representative, have severally agreed, subject to the terms and
conditions contained in the underwriting agreement, to purchase from us, and we
have agreed to sell to the underwriters on a firm commitment basis, the
respective number of shares of common stock set forth opposite their names:
Number of
Underwriters Shares
------------ ---------
Kashner Davidson Securities Corp. .................
Nutmeg Securities, Ltd. ...........................
Security Capital Trading, Inc. ....................
Total .......................................... 2,000,000
The underwriters are committed to purchase all the securities offered by
this prospectus, if any of the securities are purchased. The underwriting
agreement provides that the obligations of the several underwriters are subject
to the conditions specified in the underwriting agreement.
The representative has advised us that it initially proposes to offer the
common stock to the public at the public offering price set forth on the cover
page of this prospectus, and to certain dealer concessions not in excess of
$____ per share of common stock. The dealers may reallow a concession not in
excess of $____ per share of common stock to other dealers. After completion of
the offering, the public offering price, concessions and reallowances may be
changed by the representative. The representative has informed us that it does
not expect sales to discretionary accounts by the representative to exceed five
percent of the shares of common stock offered by us in this prospectus.
We have granted to the underwriters an over-allotment option, exercisable
during the 45-day period from the date of this prospectus, to purchase from us
up to an additional 300,000 shares of common stock at the initial public
offering price, less underwriting discounts and the non-accountable expense
allowance. This option may be exercised only for the purpose of covering
over-allotments, if any, incurred in the sale of the shares of common stock. To
the extent this option is exercised in whole or in part, each underwriter will
have a firm commitment, subject to some conditions, to purchase the number of
the additional shares of common stock proportionate to its initial commitment.
We have agreed to pay to the representative a non-accountable expense
allowance equal to three percent of the gross proceeds derived from the sale of
the shares of common stock underwritten, of which $70,000 has been paid to date.
We have agreed to indemnify the underwriters against some liabilities, including
liabilities under the Securities Act arising out of alleged untrue statements or
alleged omissions of material facts contained in the registration statement or
prospectus. We have also agreed to pay all expenses in connection with
qualifying the securities under the laws of those states the underwriter may
designate, including fees and expenses of counsel retained for such purposes by
the representative and the costs and disbursements in connection with qualifying
the offering with the National Association of Securities Dealers, Inc.
Substantially all of our stockholders, our warrant holders and our
officers and directors, have agreed to not directly or indirectly, offer, sell,
pledge, grant any option to purchase, or otherwise sell or dispose of any of our
shares for a period of at least 12 months after the offering without the prior
written consent of Nutmeg Securities, or The American Stock Exchange, as the
case may be. An appropriate legend shall be placed on the certificates
representing the securities. The representative has no general policy with
respect to the release of shares prior to the expiration of the lock-up period
and has no present intention to waive or modify any of these restrictions on the
sale of our securities.
Security Capital acted as the placement agent for the private financing in
July through November, 1999. We paid Security Capital a fee of $105,000, which
was equal to 10% of the aggregate purchase price of the units sold, a portion of
which was reallowed to a sub-placement agent, May Davis Group, and a
non-accountable expense allowance of $31,500, which was equal to 3% of the
aggregate purchase price of the units sold.
43
<PAGE>
May Davis Group assisted us in procuring the $1,000,000 loan with The
Elite Funding Group, Inc. and received warrants to purchase 20,000 shares of
common stock at an exercise price equal to 110% of the initial public offering
price.
In connection with this offering, we have agreed to sell to the
underwriters, and/or their designees, for nominal consideration, five-year
underwriters' warrants to purchase up to 200,000 shares of our common stock. The
underwriters' warrants are initially exercisable at any time during a period of
four years beginning one year from the date of the prospectus at a price equal
to 150% of the initial public offering price per share. The shares of common
stock underlying the warrants are identical to those offered to the public. The
underwriters' warrants provide for adjustment in the number of securities
issuable upon their exercise as a result of certain subdivisions and
combinations of the common stock. The underwriters' warrants grant to the
holders rights of registration for the securities issuable upon exercise of the
warrants. In addition, the underwriters' warrants may not be sold, transferred,
assigned, hypothecated or otherwise disposed of, in whole or in part, for a
period of one year from the date of the prospectus, except to officers of the
underwriters.
We have also granted to Nutmeg Securities, the right, for a period of five
years from the closing of the offering, to nominate a designee of the
representative for election to our board of directors. Our officers, directors
and principal stockholders have agreed to vote their shares in favor of this
designee.
In connection with this offering, certain underwriters and selling group
members and their respective affiliates may engage in transactions that
stabilize, maintain or otherwise affect the market price of the securities. The
transactions may include stabilization transactions effected in accordance with
Rule 104 of Regulation M, pursuant to which the persons may bid for or purchase
our common stock for the purpose of stabilizing their respective market prices.
The underwriters also may create a short position for the account of the
underwriters by selling more shares of common stock in connection with the
offering than they are committed to purchase from us. In that case they may
purchase shares of common stock in the open market following completion of the
offering to cover all or a portion of the short position. The underwriters may
also cover all or a portion of the short position, up to 300,000 shares of
common stock, by exercising the over-allotment option referred to above however,
in no event shall we sell additional shares of common stock to the underwriters
in connection with this offering. In addition, the representative may impose
"penalty bids" under contractual arrangements with the underwriters whereby it
may reclaim from an underwriter, or dealer participating in the offering, for
the account of other underwriters, the selling concession with respect to the
shares of common stock that are distributed in the offering but subsequently
purchased for the account of the underwriters in the open market. Any of the
transactions described in this paragraph may result in the maintenance of the
prices of the shares of common stock at a level above that 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.
Prior to this offering, there has been no public market for our common
stock. Consequently, the initial public offering price of the common stock has
been determined by negotiation between us and the representative and does not
necessarily bear any relationship to our asset value, net worth or other
established criteria of value. The factors considered in these negotiations, in
addition to prevailing market conditions, included the history of and prospects
for the industry in which we compete, an assessment of our management, our
prospects, our capital structure and other factors as were deemed relevant.
The foregoing is a summary of the material terms of the agreements
described above. Reference is made to a copy of each agreement that is filed as
an exhibit to the registration statement of which this prospectus is a part.
44
<PAGE>
LEGAL MATTERS
The validity of the common stock being offered in this prospectus will be
passed upon for us by Silverman, Collura & Chernis, P.C., New York, New York.
Gersten, Savage & Kaplowitz, LLP, New York, New York is acting as counsel for
the underwriters in connection with this offering.
EXPERTS
The financial statements of Urban Cool as of December 31, 1999 and 1998
and for the year ended December 31, 1999, for the period January 23, 1998
through December 31, 1998 and for the period January 23, 1998 through December
31, 1999 appearing in this prospectus and registration statement have been
audited by Richard A. Eisner & Company, LLP, independent auditors, as set forth
in their report thereon which contains an explanatory paragraph with respect to
the substantial doubt about our ability to continue as a going concern, as
discussed in Note A to the Financial Statements appearing in the registration
statement, and are included in reliance upon such report given upon the
authority of such firm as experts in accounting and auditing.
HOW TO GET MORE INFORMATION
We have filed with the Securities and Exchange Commission a registration
statement on Form S-1 under the Securities Act with respect to the securities
offered by this prospectus. This prospectus, which forms a part of the
registration statement, does not contain all the information set forth in the
registration statement, as permitted by the rules and regulations of the
Commission. For further information with respect to us and the securities
offered by this prospectus, reference is made to the registration statement.
Statements contained in this prospectus as to the contents of any contract or
other document that we have filed as an exhibit to the registration statement
are qualified in their entirety by reference to the to the exhibits for a
complete statement of their terms and conditions. The registration statement and
other information may be read and copied at the Commission's Public Reference
Room at 450 Fifth Street N.W., Washington, D.C. 20549, and at the Commission's
Regional Offices located at 7 World Trade Center, Suite 1300, New York, New York
10048 and 500 West Madison Street, Suite 1400, Chicago, Illinois 60661. The
public may obtain information on the operation of the Public Reference Room by
calling the Commission at 1-800-SEC-0330. The Commission maintains a web site at
http://www.sec.gov that contains reports, proxy and information statements, and
other information regarding issuers that file electronically with the
Commission.
Upon effectiveness of the registration statement, we will be subject to
the reporting and other requirements of the Securities Exchange Act of 1934 and
we intend to furnish our stockholders annual reports containing financial
statements audited by our independent auditors and to make available quarterly
reports containing unaudited financial statements for each of the first three
quarters of each year.
We have applied for the listing of our common stock on The American Stock
Exchange under the symbol "UBN." After this offering is effective, you may
obtain certain information about us on The American Stock Exchange's Internet
site (http://www.Nasdaq-Amex.com).
45
<PAGE>
URBAN COOL NETWORK, INC.
(a development stage company)
Contents
Page
Independent auditors' report F-2
Consolidated balance sheets as of December 31, 1999,
1998 and March 31, 2000 (Unaudited) F-3
Consolidated statements of operations for the year
ended December 31, 1999, for the period from January
23, 1998 (inception) through December 31, 1998, for
the period from January 23, 1998 (inception) through
December 31, 1999, for the three months period ended
March 31, 2000 (Unaudited) and 1999 (Unaudited) and
for the period from January 23, 1998 (inception)
through March 31, 2000 (Unaudited) F-4
Consolidated Statements of changes in stockholders
equity/(capital deficiency) for the year ended
December 31, 1999, for the period from January 23,
1998 (inception) through December 31, 1998 and for
the three months period ended March 31, 2000
(Unaudited) F-5
Consolidated Statements of cash flows for the year
ended December 31, 1999, for the period from January
23, 1998 (inception) through December 31, 1998, for
the period from January 23, 1998 (inception) through
December 31, 1999, for the three months period ended
March 31, 2000 (Unaudited) and 1999 (Unaudited) and
for the period from January 23, 1998 (inception)
through March 31, 2000 (Unaudited) F-6
Notes to financial statements F-7
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Directors and Stockholders
Urban Cool Network, Inc.
Dallas, Texas
We have audited the accompanying balance sheets of Urban Cool Network,
Inc. (the "Company") (a development stage company) as of December 31, 1999 and
1998 and the related statements of operations, changes in stockholders' equity
(capital deficiency) and cash flows for the year ended December 31, 1999, for
the period from January 23, 1998 (inception) through December 31, 1998 and for
the period from January 23, 1998 (inception) through December 31, 1999. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements enumerated above present fairly,
in all material respects, the financial position of Urban Cool Network, Inc. as
of December 31, 1999 and 1998 and the results of its operations and its cash
flows for the year ended December 31, 1999, for the period from January 23, 1998
(inception) through December 31, 1998 and for the period from January 23, 1998
(inception) through December 31, 1999, in conformity with generally accepted
accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note A to the
financial statements, the Company has experienced net losses, has a working
capital deficiency and is past due on a vendor obligation that raises
substantial doubt about the ability of the Company to continue as a going
concern. Management's plans in regard to these matters are also described in
Note A. The financial statements do not include any adjustments that might
result from the outcome of this uncertainty.
/s/ Richard A. Eisner & Company, LLP
New York, New York
April 13, 2000
with respect to the second paragraph of Note H
April 19, 2000
F-2
<PAGE>
URBAN COOL NETWORK, INC.
(a development stage company)
Consolidated Balance Sheets
<TABLE>
<CAPTION>
March 31, December 31,
------------ ----------------------------
2000 1999 1998
------------ ------------ ------------
(Unaudited)
<S> <C> <C> <C>
ASSETS (Note H)
Current assets:
Cash .................................. $ $ 68,000 $ 2,000
Cash held in attorney escrow .......... 80,000
Other current assets .................. 8,000 62,000
------------ ------------ ------------
Total current assets ............... 88,000 130,000 2,000
------------ ------------ ------------
Computer equipment ...................... 226,000 224,000 23,000
Website development costs ............... 63,000 63,000 63,000
------------ ------------ ------------
289,000 287,000 86,000
Less accumulated depreciation
and amortization ...................... (66,000) (42,000)
------------ ------------
223,000 245,000 86,000
------------ ------------ ------------
Trademark ............................... 5,800,000
Software costs, net of
accumulated amortization of
$315,000 and $126,000 at
March 31, 2000 and
December 31, 1999, respectively ....... 1,973,000 2,162,000
Debt issuance costs, net ................ 200,000 481,000
Deferred offering costs ................. 385,000 385,000
Due from unconsolidated subsidiary ...... 50,000
Other assets ............................ 3,000 3,000
------------ ------------ ------------
8,411,000 3,031,000
------------ ------------ ------------
$ 8,722,000 $ 3,406,000 $ 88,000
============ ============ ============
LIABILITIES
Current liabilities:
Bank overdraft ........................ $ 3,000
Note payable-- vendor ................. 400,000 430,000
Note payable -- line of
credit (face value --
$815,000 and $500,000 at
March 31, 2000 and December
31, 1999, respectively, net
of debt discount .................... 0 0
Accounts payable and accrued
expenses ............................ 490,000 370,000 $ 209,000
Accrued payroll ....................... 142,000
Payable to officer/stockholder ........ 183,000 142,000 13,000
------------ ------------ ------------
Total current liabilities ........... $ 1,218,000 972,000 222,000
============ ============ ============
Notes payable (face value --
$1,050,000 at March 31, 2000 and
December 31, 1999), net of debt
discount .............................. 0 0
Commitments and other matters
STOCKHOLDERS' EQUITY (CAPITAL DEFICIENCY)
Preferred stock -- authorized
3,000,000 shares, $.01 par value;
none outstanding
Common stock -- authorized
30,000,000 shares, $.01 par
value; 4,210,000, 3,630,000
and 2,121,475 shares outstanding
at March 31, 2000, December 31,
1999 and 1998, respectively ........... 42,000 36,000 21,000
Additional paid-in capital .............. 28,288,000 22,494,000 173,000
Deficit accumulated during the
development stage ..................... (12,587,000) (6,014,000) (328,000)
Unearned compensation ................... (5,441,000) (6,139,000)
Unamortized debt discount in
excess of notes payable ............... (2,798,000) (7,943,000)
------------ ------------ ------------
7,504,000 2,434,000 (134,000)
------------ ------------ ------------
$ 8,722,000 $ 3,406,000 $ 88,000
============ ============ ============
</TABLE>
See notes to financial statements
F-3
<PAGE>
URBAN COOL NETWORK, INC.
(a development stage company)
Consolidated Statements of Operations
<TABLE>
<CAPTION>
Period From Period From Period From
January 23, January 23, 1998 January 23, 1998
1998 (Inception) (Inception) (Inception)
Three months Year Ended Through Through Through
period ended March 31, December 31, December 31, December 31, March 31,
2000 1999 1999 1998 1999 2000
------------ ------------ ------------ ---------------- ---------------- ----------------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C> <C> <C>
Revenues ...................... -- -- --
------------ ------------ ------------ ------------ ------------ ------------
Costs and expenses:
Content costs for
website .................... $ 8,000 $ 392,000 $ 421,000 $ 130,000 $ 551,000 $ 559,000
General and
administrative ............. 1,206,000 98,000 2,481,000 198,000 2,679,000 3,885,000
Amortization of
software costs ............. 189,000 126,000 126,000 315,000
------------ ------------ ------------ ------------ ------------ ------------
Total costs and
expenses ................... 1,403,000 490,000 3,028,000 328,000 3,356,000 4,759,000
Amortization of
debt discounts ............ 4,830,000 2,482,000 2,482,000 7,312,000
Amortization of
debt issuance costs ........ 281,000 142,000 142,000 423,000
Interest and related
costs ..................... 59,000 34,000 34,000 93,000
------------ ------------ ------------ ------------ ------------ ------------
Loss before income
tax benefit ............... (6,573,000) (490,000) (5,686,000) (328,000) (6,014,000) (12,587,000)
Income tax benefit ............ --
------------ ------------ ------------ ------------ ------------ ------------
Net loss/
comprehensive
loss ...................... (6,573,000) (490,000) $ (5,686,000) $ (328,000) $ (6,014,000) $(12,587,000)
============ ============ ============ ============ ============ ============
Loss per share -- basic
and diluted ............... $ (1.78) $ (0.22) $ (1.99) $ (0.16)
============ ============ ============ ============
Weighted average
number of shares
outstanding -- basic
and diluted ............... 3,693,736 2,276,488 2,858,559 2,066,082
============ ============ ============ ============
</TABLE>
See notes to financial statements
F-4
<PAGE>
URBAN COOL NETWORK, INC.
(a development stage company)
Consolidated Statements of Changes in Stockholders' Equity (Capital Deficiency)
<TABLE>
<CAPTION>
Unamortized
Deficit Debt
Accumulated Discount
Common Stock Additional During the in Excess
----------------- Paid-in Unearned Development of Notes
Shares Amount Capital Compensation Stage Payable Total
------ ------ --------- ------------ ----------- ------------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Shares issued to founder 2,060,885 $20,000 $ (15,000) $ 5,000
Issuance of common stock
for cash ($.23 per share):
November 13,602 3,000 3,000
December 30,501 1,000 6,000 7,000
Issuance of common stock
for consulting services --
November 16,487 4,000 4,000
Value of services contributed by
an officer/stockholder 175,000 175,000
Net loss/comprehensive loss for
the period from January 23,
1998 (inception) through
December 31, 1998 $ (328,000) (328,000)
--------- ------- ----------- ----------- ------------ ------------ ------------
Balance-- December 31, 1998 2,121,475 21,000 173,000 (328,000) (134,000)
Issuance of common stock
for cash ($.24 per share):
March 637,844 6,000 149,000 155,000
June 8,245 2,000 2,000
July 82,436 1,000 19,000 20,000
Issuance of common stock and
warrants in private placements 105,000 1,000 5,396,000 5,397,000
Issuance of common stock
for consulting services --
September 350,000 4,000 3,496,000 $(3,500,000) --
Issuance of common stock
for consulting services --
October/November 325,000 3,000 3,247,000 (3,250,000) --
Value of warrants issued
in connection with
loan agreement -- November 6,942,000 6,942,000
Value of warrants issued re:
e-commerce solutions
Inc. -- November 2,270,000 2,270,000
Compensatory options
granted to employee 800,000 800,000
Amortization of
unearned compensation 611,000 611,000
Unamortized debt discount
in excess of notes payable
and loan $(10,425,000) (10,425,000)
Amortization of debt discount 2,482,000 2,482,000
Net loss/comprehensive loss
for the year ended
December 31, 1999 (5,686,000) (5,686,000)
--------- ------- ----------- ----------- ------------ ------------ ------------
Balance -- December 31, 1999 3,630,000 $36,000 $22,494,000 $(6,139,000) $ (6,014,000) $ (7,943,000) $ 2,434,000
========= ======= =========== =========== ============ ============ ============
Issuance of common stock
for acquisition of Wilhelmina
Urban Cool 580,000 6,000 5,794,000 5,800,000
Amortization of unearned
compensation 698,000 698,000
Amortization of debt
discount--March 4,830,000 4,830,000
Additional borrowings to reduce
debt discount in excess of
notes payable 315,000 315,000
Net loss/comprehensive loss for
the three months ended
March 31, 2000 (6,573,000) (6,573,000)
--------- ------- ----------- ----------- ------------ ------------ ------------
Balance -- March 31, 2000
(Unaudited) 4,210,000 $42,000 $28,288,000 $(5,441,000) $(12,587,000) $ (2,798,000) $ 7,504,000
========= ======= =========== =========== ============ ============ ============
</TABLE>
See notes to financial statements
F-5
<PAGE>
URBAN COOL NETWORK, INC.
(a development stage company)
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
Period From Period From Period From
January 23, January 23, 1998 January 23, 1998
1998 (Inception) (Inception) (Inception)
Three months Year Ended Through Through Through
period ended March 31, December 31, December 31, December 31, March 31,
2000 1999 1999 1998 1999 2000
------------ ------------ ------------ ---------------- ---------------- ----------------
(unaudited) (unaudited) (unaudited)
<S> <C> <C> <C> <C> <C> <C>
Cash flows from operating
activities:
Net loss .................... $(6,573,000) (490,000) $ (5,686,000) $ (328,000) $ (6,014,000) $(12,587,000)
Adjustments to reconcile
net loss to net cash
(used in) provided by
operating activities:
Value of services
contributed by an
officer/ stockholder
charged as
compensation and
treated as additional
paid-in capital ....... 175,000 175,000 175,000
Depreciation and
amortization .......... 24,000 10,000 42,000 42,000 66,000
Issuance of stock for
services rendered ..... 4,000 4,000 4,000
Amortization of
unearned compensation . 698,000 611,000 611,000 1,309,000
Issuance of options for
services rendered ..... 800,000 800,000 800,000
Amortization of
software costs ........ 189,000 126,000 126,000 315,000
Amortization of debt
discount and
issuance costs ........ 5,111,000 2,624,000 2,624,000 7,735,000
Payable to officer/
stockholder ........... 41,000 42,000 129,000 13,000 142,000 183,000
Changes in:
Notes payable --
vendor .............. 400,000 400,000 400,000
Accounts payable and
accrued expenses .... 119,000 369,000 221,000 209,000 430,000 549,000
Accrued payroll ....... 82,000 82,000
Other current assets
and other assets .... 5,000 (5,000) (65,000) (65,000) (60,000)
----------- -------- ------------ ------------ ------------ ------------
Net cash (used in)
provided by
operating
activities ....... (304,000) (74,000) (798,000) 73,000 (725,000) (1,029,000)
----------- -------- ------------ ------------ ------------ ------------
Cash flows from investing
activities:
Purchase of computer
equipment and software .... (2,000) (219,000) (23,000) (242,000) (244,000)
Costs of developing
website and related
software .................. (63,000) (63,000) (63,000)
----------- -------- ------------ ------------ ------------ ------------
Net cash used in
investing
activities ....... (2,000) (219,000) (86,000) (305,000) (307,000)
----------- -------- ------------ ------------ ------------ ------------
Cash flows from financing
activities:
Proceeds from sale of
common stock .............. 155,000 177,000 15,000 192,000 192,000
Proceeds from private
placement, net ............ 791,000 791,000 791,000
Proceeds from line of
credit .................... 235,000 500,000 500,000 735,000
Deferred offering costs ..... (70,000) (385,000) (385,000) (385,000)
Bank overdraft .............. 3,000 3,000
----------- -------- ------------ ------------ ------------ ------------
Net cash provided
by financing
activities ....... 238,000 85,000 1,083,000 15,000 1,098,000 1,336,000
=========== ======== ============ ============ ============ ============
Net (decrease) increase
in cash ..................... (68,000) 11,000 66,000 2,000 68,000 0
Cash at beginning of period ... 68,000 2,000 2,000
----------- -------- ------------ ------------ ------------ ------------
Cash at end of period ......... $ 0 $ 13,000 $ 68,000 $ 2,000 $ 68,000 $ 0
=========== ======== ============ ============ ============ ============
Interest paid ................. $ 15,000 -- -- -- 15,000
Income tax paid ............... -- -- -- --
Supplemental disclosures of
non-cash investing and
financing activity:
Value of common stock for
consulting services ....... $ 6,750,000 $ 6,750,000 $ 6,750,000
Value of common stock and
warrants issued in
private placement ......... $ 5,397,000 $ 5,397,000 $ 5,397,000
Value of warrants issued to
connection with loan
agreement ................... $ 6,942,000 $ 6,942,000 $ 6,942,000
Value of warrants issued
to e-Commerce Solutions,
Inc ....................... $ 2,270,000 $ 2,270,000 $ 2,270,000
Fair value of common stock
issued in connection with
acquisition of Wilhelmina
Urban Cool .................. $ 5,800,000 $ 5,800,000
Proceeds from line of credit
held in attorney escrow ..... $ 80,000 $ 80,000
</TABLE>
See notes to financial statements
F-6
<PAGE>
URBAN COOL NETWORK, INC.
(a development stage company)
Notes to Financial Statements
December 31, 1999 and 1998
(Unaudited with respect to March 31, 2000 and March 31, 1999)
NOTE A -- THE COMPANY AND BASIS OF PRESENTATION
Urban Cool Network, Inc. (the "Company") was incorporated in Delaware in January
1998. The Company operates an online network that became operational in January
1999, and provides a forum for communications, information and electronic
commerce. The online network has 15 channels with original content including a
search engine for users. The Company intends to derive its revenue primarily
from sponsorship and advertising. The Company is in the development stage and
has not yet generated any revenue.
The Company's primary market is residents of inner city or urban areas. The
Company's strategy is to utilize its online network to reach its target market
of urban consumers and businesses that market their products to urban consumers.
The Company intends to utilize NetStands, which are PC-based kiosks, which will
be located in selected inner cities. The Company also intends to license
CyberCenters, which are central meeting areas that will contain between ten and
twenty computers, to urban nonprofit organizations.
As reflected in the accompanying financial statements, the Company has not
generated any revenues, has incurred substantial losses since inception and such
losses are expected to continue in the foreseeable future. As of March 31, 2000
and December 31, 1999, the Company had a working capital deficiency of
$1,130,000 and $842,000, respectively and deficit accumulated during the
development stage of $12,587,000 and $6,014,000, respectively. The Company is
delinquent with regard to notes payable issued to a vendor and repayment of loan
on line of credit. These factors raise substantial doubt about the Company's
ability to continue as a going concern. The financial statements do not include
any adjustments that might result from the outcome of this uncertainty. The
Company's continued existence is dependent on its ability to obtain additional
debt or equity financing.
The Company is attempting to raise additional financing through a proposed
public offering (see Note F). There is no assurance that the proposed financing
can be accomplished or that profitable operations can be achieved.
NOTE B -- SIGNIFICANT ACCOUNTING POLICIES
[1] Principles of consolidation:
The financial statements as at March 31, 2000 and for the three month
period then ended include the accounts of the Company's wholly-owned
subsidiary WilhelminaUrbanCool.com, Inc. ("WilhelminaUrbanCool") (See Note
J). The Company has not consolidated its majority owned subsidiary,
e-commerce solutions, Inc. ("ESI") and its subsidiaries, since the control
is considered temporary. Such control is conditioned on the contribution
of capital to ESI by the Company. In the year 2000, ESI formed and
acquired majority ownership interests in Mastercraft Builders, Inc.,
ModTech Solutions, Inc. and ModTech Solutions, LLC (See Note I).
All significant intercompany transactions and accounts have been
eliminated.
[2] Purchased computer equipment and software:
Computer equipment and software are stated at cost less accumulated
depreciation. Depreciation is computed using the straight-line method over
their estimated useful lives of the assets which range from three to five
years.
[3] Website development costs:
In accordance with Statement of Position 98-1, costs of design, software
configuration, coding, installation to hardware and testing expenses
incurred during application development stage activities are capitalized.
Costs incurred during the preliminary software project stage activities
and post-implementation/operation stage activities are expensed. The
capitalized costs will be amortized using the straight-line method over an
estimated useful life of two years beginning when the website is ready for
its intended use. The Website was launched in January 1999.
F-7
<PAGE>
URBAN COOL NETWORK, INC.
(a development stage company)
Notes to Financial Statements (continued)
December 31, 1999 and 1998
(Unaudited with respect to March 31, 2000 and March 31, 1999)
NOTE B -- SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
[4] Income taxes:
The Company accounts for income taxes using the liability method. Deferred
income taxes are measured by applying enacted statutory rates to net
operating loss carryforwards and to the differences between the financial
reporting and tax bases of assets and liabilities. Deferred tax assets are
reduced, if necessary, by a valuation allowance for any tax benefits which
are not expected to be realized.
[5] 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.
[6] Loss per common share:
Basic loss per share is calculated by dividing net loss by the weighted
average number of outstanding common shares during the period. No effect
has been given to potential issuances of common stock including
outstanding options and warrants in the diluted computation as their
effect would be antidilutive.
The supplemental basic and diluted loss per share for the year ended
December 31, 1999 and for the three months ended March 31, 2000 would have
been ($1.86) and ($1.68), respectively giving effect to 195,000 shares
that would need to be issued to raise the net proceeds to repay the debt
on consummation of the proposed initial public offering.
[7] Stock-based compensation:
The Company has adopted Statement of Financial Accounting Standards No.
123, "Accounting for Stock-Based Compensation" ("SFAS No. 123"). The
provisions of SFAS No. 123 allow companies to either expense the estimated
fair value of stock options or to apply the intrinsic value method set
forth in Accounting Principles Board Opinion No. 25, "Accounting for Stock
Issued to Employees" ("APB 25") but disclose the pro forma effects on net
income (loss) had the fair value of the options been expensed. The Company
has elected to apply APB 25 in accounting for its employee stock options.
[8] Interim financial statements:
The financial statements as of March 31, 2000 and for the three-month
periods ended March 31, 2000 and 1999 and for the period from January 23,
1998 (inception) through March 31, 2000 are unaudited, but in the opinion
of management the financial statements include all adjustments consisting
of normal recurring accruals necessary for a fair presentation of the
Company's financial position and results of operations. Results of
operations for interim periods are not necessarily indicative of those to
be achieved for full fiscal years.
[9] Reclassifications:
Certain reclassifications to the prior periods' financial statements have
been made to conform with classifications used in the current period.
F-8
<PAGE>
URBAN COOL NETWORK, INC.
(a development stage company)
Notes to Financial Statements (continued)
December 31, 1999 and 1998
(Unaudited with respect to March 31, 2000 and March 31, 1999)
NOTE C -- COMMITMENTS AND OTHER MATTERS
[1] Leases:
During 1999, the Company entered into operating lease agreements for its
CyberCenter Facility, and administrative offices expiring in March 2014
and March 2003, respectively. During November 1999, the Company's
unconsolidated subsidiary subleased office space from an affiliate of a
principal stockholder of the Company, through October 2002. Future monthly
minimum rental payments under these leases are as follows:
[1] Leases: (continued)
At At
December 31, March 31,
------------ ---------
2000 .............................. $ 90,000 --
2001 .............................. 90,000 $ 90,000
2002 .............................. 86,000 89,000
2003 .............................. 16,000 69,000
2004 .............................. 12,000 15,000
2005 and thereafter ............... 133,000 12,000
2006 and thereafter ............... $129,000
-------- --------
$427,000 $404,000
======== ========
Rent expense for the year ended December 31, 1999 and for the three month period
ended March 31, 2000 amounted to approximately $20,000 and $7,000, respectively.
[2] Employment agreements:
On July 1, 1999, the Company entered into a three-year employment
agreement with its Chief Executive Officer ("CEO") who is also a principal
stockholder. The agreement is automatically renewed on an annual basis for
an additional year unless terminated. The agreement provides for an annual
base salary of $175,000 and an incentive bonus and stock options to
purchase shares of common stock to be determined by the Board of
Directors.
In November 1999, the Company entered into employment agreements
commencing on the consummation of the proposed public offering with its
President and Chief Operating Officer, Chief Financial Officer ("CFO") and
Vice President of Technology and Internet services ("VP"). The agreements
are for a period of one year. The agreements provide for a total annual
base compensation aggregating $350,000 plus incentive bonuses to be
determined by the Board of Directors. The officers received options to
purchase an aggregate of 30,000 shares of common stock exerciseable at the
proposed public offering price expiring in November 2004. The Company's
financial statements do not reflect any compensation charge for these
conditional options granted. In addition, the VP received options to
purchase 100,000 shares of common stock at an exercise price of $2.00
expiring November 2004. In addition, in January 2000 the Company issued to
these officers, options to purchase 157,500 shares of common stock
exercisable for a period of five years at the proposed public offering
price.
The Company has also entered into a one year employment agreement with
Vice President of Celebrity Relations and Merchandising, contingent upon
consummation of the proposed initial public offering. The agreement
provides for an annual salary of $125,000 plus a signing bonus of $35,000
effective October 1, 1999. For the year ended December 31, 1999 and the
three month period ended March 31, 2000 the Company has accrued $60,000
and $31,000, respectively as compensation expense. The Company has also
agreed to issue 35,000 shares of common stock to the employee upon
obtaining agreements from up to three celebrities to join the Company's
advisory board, on terms to be negotiated.
F-9
<PAGE>
URBAN COOL NETWORK, INC.
(a development stage company)
Notes to Financial Statements (continued)
December 31, 1999 and 1998
(Unaudited with respect to March 31, 2000 and March 31, 1999)
NOTE C -- COMMITMENTS AND OTHER MATTERS (CONTINUED)
[3] Consulting agreements:
In April 1999, the Company entered into an agreement with a marketing firm
whereby the Company has agreed to pay a fee based upon certain benchmarks
and to grant options to purchase 2,060 shares of restricted common stock
with the opening of each CyberCenter and 412 shares with the placement and
live operation of a CyberStation in a single location at an exercise price
of $0.24 per share. The agreement is in effect until terminated by either
party for cause. In connection therewith the Company will record a charge
equal to the fair value of the option on the opening of each CyberCenter
and operation of each CyberStation.
In September 1999, the Company entered into two consulting agreements each
for a period of three years. In connection with these agreements, the
Company issued unconditionally 150,000 and 200,000 shares of common stock
which are valued at $10.00 per share and will be amortized over a period
of three years. The consultants are to provide consulting services with
respect to marketing and mergers and acquisitions.
In October 1999, the Company issued unconditionally 175,000 shares of
common stock to a consultant to provide corporate development consulting
services over a period of two years which the Company valued at $10.00 per
share.
[4] Related party transactions:
The Company's CEO served without pay from inception through December 31,
1998. The Company, based on employment agreement effective July 1, 1999,
valued such services at $175,000 per year. In this connection, the Company
recognized a compensation expense and a credit to paid-in capital.
At December 31, 1999 and March 31, 2000 the Company has accrued salary of
$131,000 and $157,000, respectively, to the CEO/stockholder and the CEO
has agreed to defer the payment of such salaries until the consummation of
a proposed initial public offering which results in a gross proceeds of at
least $10,000,000. In addition from inception through December 31, 1999
and through March 31, 2000, the CEO paid certain operating expenses of
$11,000 and $26,000, respectively, on behalf of the Company. These amounts
have been recorded as noninterest bearing loans with no fixed date of
repayment.
The Company has received from the CEO the right to the domain name "urban
trends.com" for nominal consideration.
[5] Other commitment:
In January 2000, the Company entered into an agreement with a software
provider, for a period of one year. Under the agreement, the Company has
agreed to pay an aggregate of $437,000. The software provider has
developed a proprietary search engine which utilizes a question and answer
format. Pursuant to the agreement, the software provider will customize
its search engine for use by the Company.
NOTE D -- STOCKHOLDERS' EQUITY
[1] Stock split:
The Board of Directors approved a 8.24354 for one stock split effective in
July 1999. All information regarding shares of common stock have been
restated to give retroactive recognition to the stock split for all the
periods presented, including all references to number of shares and per
share amounts.
[2] Stock options:
In November 1999, the Board of Directors and the stockholders of the
Company approved a Stock Option Plan (the "1999 Plan") which provides for
the granting of options to purchase up to 500,000 shares of
F-10
<PAGE>
URBAN COOL NETWORK, INC.
(a development stage company)
Notes to Financial Statements (continued)
December 31, 1999 and 1998
(Unaudited with respect to March 31, 2000 and March 31, 1999)
NOTE D -- STOCKHOLDERS' EQUITY (CONTINUED)
[2] Stock options: (continued)
common stock, pursuant to which key employees, directors and consultants
are eligible to receive incentive and/or nonqualified stock options. The
exercise period and price of options granted under the 1999 Plan are
determined by the Board of Directors. The exercise price for incentive
stock options must not be less than the fair market value of the shares of
common stock on the date of the grant, except that the exercise price of
options granted to a stockholder owning more than 10% of the outstanding
capital stock may not be less than 110% of the fair value of the common
stock at date of grant.
In November 1999, the Board of Directors and stockholders approved the
1999 Executive Stock Option Plan (the "Executive Plan") which provides for
the granting of up to 500,000 options to purchase shares of common stock
to the CEO of the Company. The Company has granted the entire 500,000
options to the CEO of the Company. Of these options, options to purchase
250,000 shares of common stock of the Company are exercisable immediately
for a period of five years at an exercise price equal to the proposed
initial public offering price. The balance of such options are exercisable
for a period of five years at an exercise price equal to 110% of the
proposed public offering price. Options to purchase 125,000 shares of
common stock are exercisable in each of the years 2001 and 2002 upon
achieving gross sales revenue of $17,500,000 and $25,000,000 respectively.
The Company has granted stock options to outside directors to purchase
30,000 shares of common stock, including options to purchase 10,000 shares
of common stock to the spouse of the CEO and principal stockholder,
contingent upon consummation of the proposed public offering. These
options are exercisable commencing 90 days after the consummation of the
proposed public offering at an exercise price equal to the proposed public
offering price expiring five years after the consummation of the proposed
public offering.
The following table summarizes information about stock options outstanding
at December 31, 1999 and March 31, 2000: Number of Weighted
<TABLE>
<CAPTION>
Options Average
Granted Contractual Number of
Exercise and Life Options
Price Outstanding Remaining Exercisable
-------- ------------------------ ----------- ------------------------
December 31, March 31, December 31, March 31,
1999 2000 1999 2000
------------ --------- ------------ ---------
<S> <C> <C> <C> <C> <C>
Note(1) 560,000 797,850 5 years 250,000 250,000
$ 2.00 100,000 100,000 5 years 100,000 100,000
------- ------- ------- -------
660,000 897,850 350,000 350,000
======= ======= ======= =======
</TABLE>
Note(1): The exercise price is equal to the proposed public offering
price. The exercise price of options granted to a stockholder owning more
than 10% of the outstanding capital stock may not be less than 110% of the
fair value of the common stock at date of grant.
At December 31, 1999 and at March 31, 2000, the Company had available
440,000 and 227,150 options under the Company's 1999 plan, respectively.
The Company has elected to continue to account for stock option grants in
accordance with APB 25 and related interpretations. Accordingly, no
compensation cost has been recognized for fixed options because the
exercise prices of the stock options on the date of grant equal the market
values of the Company's common stock.
F-11
<PAGE>
URBAN COOL NETWORK, INC.
(a development stage company)
Notes to Financial Statements (continued)
December 31, 1999 and 1998
(Unaudited with respect to March 31, 2000 and March 31, 1999)
NOTE D -- STOCKHOLDERS' EQUITY (CONTINUED)
Had the compensation costs for the plans been determined based upon the
fair value at the grant date consistent with SFAS No. 123, the Company's
net (loss) and net (loss) per share on a pro forma basis would have been
the amounts indicated below:
Three Months
Year Ended Ended March 31,
December 31, -------------------------
1999 2000 1999
------------ ------------ -----------
Net (loss):
As reported ....................... $(5,686,000) $(6,573,000) $(490,000)
Pro forma As originally
reported ....................... (6,313,000) (6,795,000) (490,000)
Revised -- see Note (1) ........ (7,831,000) --
Net (loss) per share:
As reported
Basic and diluted ............... $(1.99) $(1.78) $(0.22)
Pro forma
Basic and diluted As
originally reported ........... $(2.21) $(1.84) $(0.22)
Revised -- see Note (1) ....... $(2.74)
Note (1) The amounts as originally reported for the year ended
December 31, 1999 did not include a charge for compensation costs
based on the fair value of the 250,000 options granted and
exercisable by the CEO/stockholders.
The Company has not included potential common shares pro forma diluted
loss per share computation, since the result would be antidilutive.
The pro forma amounts may not be representative of future disclosures due
to, among other things: (i) the estimated fair value of stock option is
amortized over the vesting period and (ii) additional options may be
granted in future years.
The weighted average fair value at date of grant for unconditional options
granted during the year 1999 and March 31, 2000, was $6.27 as originally
reported ($6.13 as revised -- see Note (1)) and $6.27, respectively, using
the Black-Scholes option-pricing model with the following assumptions:
1999 2000
---- ----
Dividend yield ............................. 0.00% 0.00%
Expected volatility ........................ .70 .70
Risk-free interest rate .................... 5.76% 6.56%- 6.76%
Expected life in years ..................... 5 5
[3] Warrants:
In connection with certain units sold in a private placement (see Note E)
the Company has issued warrants to purchase 525,000 shares of common
stock.
The above warrants are exercisable commencing January, 2000 at an exercise
price of $2.00 per share expiring five years from the issue date in 1999.
F-12
<PAGE>
URBAN COOL NETWORK, INC.
(a development stage company)
Notes to Financial Statements (continued)
December 31, 1999 and 1998
(Unaudited with respect to March 31, 2000 and March 31, 1999)
NOTE E -- PRIVATE PLACEMENT
In 1999, the Company sold 105 units, aggregating $1,050,000. Each unit consists
of a $10,000 promissory note, 1,000 shares of common stock and a warrant to
purchase 5,000 shares of common stock (see Note D[3]). The promissory notes bear
interest at 10% per annum and are due the earlier of 24 months from date of
issuance or the closing of the proposed initial public offering. The common
stock and warrants have been valued at $10.00 and $8.28, respectively, by using
the proposed public offering price and the application of the Black-Scholes
model and is being accounted for as debt discount which is being amortized over
the life of the loan. The aggregate value of the common stock and warrants is
calculated to be $5,397,000.
The Company incurred costs in connection with obtaining the financing of
approximately $259,000 which is amortized over the life of the loans. The
effective interest rate on the notes is 300% excluding debt issuance costs.
NOTE F -- PROPOSED PUBLIC OFFERING
The Company signed a letter of intent with an underwriter with respect to a
proposed public offering of shares of common stock. There is no assurance that
such offering will be consummated. The Company anticipates incurring substantial
expenses in connection with the proposed public offering which, if the offering
is not consummated, will be charged to expense. Upon consummation of the public
offering outside directors are to receive an aggregate of 15,000 shares of
common stock of the Company, including 5,000 shares of common stock to be issued
to the spouse of the CEO and principal stockholder.
NOTE G -- INCOME TAXES
At December 31, 1999 and March 31, 2000, the Company had available federal net
operating loss carryforward to reduce future taxable income of approximately
$2,327,000 and $3,350,000, respectively. The net operating loss carryforwards
expire 2018 through 2020. The Company's ability to utilize its net operating
loss carryforwards may be subject to annual limitations pursuant to Section 382
of the Internal Revenue Code if future changes in ownership occur.
A reconciliation of income tax expense to amounts computed using federal
statutory rates is as follows:
<TABLE>
<CAPTION>
Three Months Ended
Year Ended December 31, March 31,
-------------------------- --------------------------
1999 1998 2000 1999
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Income tax benefit computed
at federal statutory
rate .................... $ 2,266,000 $ 111,000 $ 2,620,000 $ 196,000
Nondeductible salary to
officer ................. (28,000)
Nondeductible amortization
of discount on debt ..... (833,000) (1,930,000)
Nondeductible amortization
of consulting fees ...... (156,000) (280,000)
Startup costs, ............ 20,000 (83,000) 4,000 4,000
----------- ----------- ----------- -----------
1,297,000 0 414,000 200,000
Valuation allowance ....... (1,297,000) 0 (414,000) (200,000)
----------- ----------- ----------- -----------
0 0 0 0
----------- ----------- ----------- -----------
</TABLE>
F-13
<PAGE>
URBAN COOL NETWORK, INC.
(a development stage company)
Notes to Financial Statements (continued)
December 31, 1999 and 1998
(Unaudited with respect to March 31, 2000 and March 31, 1999)
NOTE G -- INCOME TAXES (continued)
The deferred tax assets are recorded as follows:
At December 31,
------------------------ At March 31,
1999 1998 2000
----------- -------- ----------
Loss carryforwards $ 930,000 1,348,000
Deferred startup costs 78,000 $ 83,000 74,000
Salary to officer/stockholder 52,000 52,000
Options to employee 320,000 320,000
----------- -------- ----------
1,380,000 83,000 1,794,000
Valuation allowance (1,380,000) (83,000) (1,794,000)
----------- -------- ----------
Net deferred tax assets 0 0 0
=========== ======== ==========
The Company has provided a valuation allowance against the full amount of its
net operating loss carryforwards and other temporary differences, since the
likelihood of realization cannot be determined.
NOTE H -- NOTE PAYABLE/LOAN PAYABLE
In November 1999, the Company issued an unsecured note payable for $400,000 to
its website developer for accounts payable. The note bears interest at 18% per
annum, payable in monthly installments of $25,000 beginning December 1, 1999,
with the outstanding balance due at the earlier of a public offering of the
Company's securities resulting in gross proceeds of at least $10,000,000 or June
1, 2000. The Company failed to make monthly payments due on December 1, 1999
through May 1, 2000.
In November 1999, the Company entered into a loan agreement with a lender
pursuant to which the lender has agreed to loan advances up to $1,000,000. The
loan matures on the earlier of consummation of the proposed public offering or
May 18, 2000 (as amended) and bears interest at 10% per annum. In consideration
for the extension of the original due date, the Company has agreed to pay
$75,000 to the lender on the maturity date. In connection with the loan
agreement the Company issued to the lender warrants to purchase 750,000 shares
of common stock at an exercise price of $1.00 per share which has been valued at
$8.77 per warrant by application of the Black-Scholes model and will be treated
as debt discount and amortized over the term of the loan. The warrants are
exercisable by the lender at any time for a period of ten years. The aggregate
value of the warrant is calculated to be $6,578,000. The loan is secured by all
of the assets of the Company, including intangibles, intellectual property and
internet websites. Through December 1999 and March 2000, the Company drew down
$500,000 and $815,000, respectively under the loan agreement. As at May 15,
2000, the Company has $875,000 outstanding under the loan agreement.
Under the loan agreement, the Company had agreed with the lender to use its best
efforts to convert the repayment of the loan balance into shares of common stock
of the Company in the proposed public offering at the proposed initial public
offering price. Subsequently the lender has agreed not to exercise such rights.
In November 1999, the Company entered into a consulting agreement with an
affiliate of the lender to implement its business plans and strategies for a
period of two years with a right to terminate by either party upon written
notice as of the end of the first year. Under the agreement, the Company will
pay a fee of $6,250 per month and the Company issued unconditionally 150,000
shares of common stock valued at $10.00 per share. The consultant will receive
additional shares if the offering price in the contemplated public offering is
$9.00 or less. In April 2000, the Company agreed to pay an additional consulting
fee of $75,000 on completion of the proposed public offering.
In connection with the loan agreement, the Company issued warrants to purchase
40,000 and 20,000 shares of common stock at an exercise price equal to 110% of
the initial public offering price each expiring in 2004 to brokerage firms. The
aggregate value of the warrants is calculated to be $364,000. The amortization
of the value of these warrants is included in the statements of operations,
classified as amortization of debt discounts. In May 2000 the warrants to
purchase 40,000 shares of common stock of the Company was cancelled.
F-14
<PAGE>
URBAN COOL NETWORK, INC.
(a development stage company)
Notes to Financial Statements (continued)
December 31, 1999 and 1998
(Unaudited with respect to March 31, 2000 and March 31, 1999)
NOTE I -- INVESTMENT IN TECHNOLOGY
In November 1999, the Company entered into a shareholders' agreement with ESI, a
corporation formed in November 1999 and Stanley Wolfson ("SW") to acquire 662/3%
of the common stock of ESI. SW contributed partially developed certain
intellectual property in exchange for his ownership in ESI. The intellectual
property represents a computer software platform engine in development that will
attempt to create an ability to mass produce e-commerce websites, manage and
administer said sites. Under the amended agreement, SW has the right to manage
the affairs of ESI subject to the Company's right to vote on certain shareholder
matters. Under the agreements as amended the Company has granted warrants to SW
for purchase of up to 1,050,000 shares of common stock at an exercise price of
$1.00 per share with respect to 1,000,000 shares of common stock and $2.00 per
share with respect to 50,000 shares of common stock, each expiring on the fifth
anniversary of the date of issuance. The warrants to purchase 250,000 shares of
common stock were exercisable immediately and the balance of 800,000 warrants
become exercisable upon ESI achieving certain gross sales within 24 months of a
capital contribution by the Company aggregating $3,000,000. The Company
accounted for this asset purchase at the fair value of the warrants immediately
exercisable equal to $2,270,000. Such fair value is amortized over three years.
The Company will record an additional charge based on the fair value of the
warrants upon achieving the sales targets.
The Company has agreed to contribute $2,950,000 to ESI upon the completion of
the proposed public offering. In the event that the proposed public offering is
consummated and the Company fails to contribute $2,950,000 within three days
after the receipt of the net proceeds of the proposed public offering or if the
proposed public offering is not consummated on or before July 1, 2000, ESI will
have the right to cancel the shares of common stock issued to the Company and
will terminate the shareholders' agreement. This will also result in expensing
of unamortized portion of the capitalized software which at December 31, 1999
and March 31, 2000 was $2,144,000 and $1,955,000, respectively.
ESI also entered into an employment agreement with SW for a period of three
years commencing November 1, 1999 at an annual salary of $175,000 per year and
plus an amount equal to 2% of the gross sales of ESI.
In March, 2000 ESI formed Mastercraft Builders, Inc. ("Mastercraft"), a New York
corporation to perform interior alteration services with a specialty in turnkey
facilities for Internet and Internet related entities. Under the subscription
agreement dated April 7, 2000, ESI owned 90% of the outstanding and issued
shares of common stock with 5% owned by parents of an officer of the Company. SW
is the sole director of Mastercraft. Under the stockholders agreement, ESI has a
purchase option to acquire minority interest. For the period ended March 31,
2000 Mastercraft had no operating activity except it entered into an agreement
to act as a general contractor in connection with a project located in New York
City.
In April 2000, ESI formed ModTech Solutions, Inc. ("ModTech") a New York
corporation to engage in modular construction with a specialty in the
construction of facilities for Internet and Internet related entities. ESI owns
90% of the outstanding and issued shares of common stock with 5% owned by
parents of an officer of the Company. SW is the sole director of ModTech. ESI
has a purchase option to acquire minority interest. In April 2000 ModTech
entered into an asset purchase agreement with a New Jersey corporation
("Seller") to purchase personal property for $25,000. In May 2000 ModTech
entered into a six month consulting agreement with an officer of the seller in
connection with the establishment of a modular construction and manufacturing
business. Under the agreement ModTech will pay a consulting fee of $50,000.
In April 2000, ESI formed ModeTech Solutions, LLC ("LLC"), a New York limited
liability company. Under the operating agreement amongst the members of the LLC,
ESI will control 80% of the entity and has issued a promissory note in the
amount of $150,000, payable on demand without interest. ESI's officer's parents
control 10% of the LLC and has agreed to contribute $25,000 in cash. ESI acts as
manager of the LLC and has purchase option to acquire interests from minority
members.
F-15
<PAGE>
URBAN COOL NETWORK, INC.
(a development stage company)
Notes to Financial Statements (continued)
December 31, 1999 and 1998
(Unaudited with respect to March 31, 2000 and March 31, 1999)
NOTE I -- INVESTMENT IN TECHNOLOGY (continued)
The following financial information summarizes ESI and its majority owned
subsidiaries' financial status and changes therein.
Condensed Balance Sheets Information:
December 31, 1999 March 31, 2000
----------------- --------------
(Unaudited)
Cash ......................................... $ 50,000 $ 13,000
--------- ---------
Total Assets ............................... 50,000 13,000
========= =========
Payable to affiliated entity ................. 50,000 50,000
Accrued Expenses Payable ..................... 39,000 104,000
Minority Interests ........................... -- --
Capital deficiency ........................... (39,000) (141,000)
--------- ---------
Total liabilities and capital
deficiency ............................... $ 50,000 $ 13,000
========= =========
Condensed Statements of Operation Information:
Period from
November 1, 1999
(inception) Three Months
Through Ended
December 31, 1999 March 31, 2000
----------------- --------------
(Unaudited)
Revenue ...................................... -- --
Selling, general and
administrative expense ..................... $ 39,000 $ 109,000
Loss before income taxes and
minority interests ......................... (39,000) (109,000)
Income taxes ................................. -- --
Loss before minority interests ............... (39,000) (109,000)
Minority interests ........................... -- --
--------- ---------
Net loss ..................................... $ (39,000) $(109,000)
========= =========
The Company's business acquisition did not constitute purchases and its majority
owned subsidiaries had no predecessor business and hence there is no financial
information prior to its formation.
NOTE J -- Acquisition of Wilhelmina Urban Cool
In March 2000, the Company acquired all of the issued and outstanding shares of
WilhelminaUrbanCool, a wholly owned subsidiary of Wilhelmina Artist Management
LLC ("LLC") for 580,000 shares of the Company's common stock, which has been
valued at $5,800,000 based on the proposed initial public offering price.
WilhelminaUrbanCool was formed in February 2000 in order to license the
Wilhelmina trademark from the LLC. The license agreement provides for an initial
term of 25 years and successive five-year renewal options. Pursuant to the
license agreement, WilhelminaUrbanCool has been granted the licenses to utilize
the Wilhelmina trademark in connection with a website known as
WilhelminaUrbanCool.com. LLC has agreed to provide all head shots, photographs
and other materials which the subsidiary has the right to utilize for
self-promotion and to provide the Company with content for the
WilhelminaUrbanCool.com website.
Wilhelmina Urban Cool did not engage in any business prior to the Company's
acquisition and there was no predecessor business. Accordingly, there is no
financial information prior to its acquisition.
F-16
<PAGE>
[The inside front cover contains a graphic
showing pages from Urban Cool's website.]
<PAGE>
We have not authorized any dealer, salesperson or other person to give any
information or represent anything not contained in this prospectus. You must not
rely on any unauthorized information. This prospectus does not offer to sell or
buy any shares in any jurisdiction where it is unlawful. The information in this
prospectus is current only as of the date of this prospectus.
Urban Cool Network, Inc.
----------
2,000,000 Shares of Common Stock
----------
, 2000
----------
Kashner Davidson Securities Corp.
Nutmeg Securities, Ltd.
Until , 2000 (25 days after the date of this prospectus), all dealers that
buy, sell or trade 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>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13. Other Expenses of Issuance and Distribution.
The following table sets forth the various expenses (other than
underwriting commissions and discounts payable to the underwriters) payable by
Urban Cool in connection with the issuance and distribution of the securities
being registered. With the exception of the registration fee, the NASD filing
fee and The American Stock Exchange listing fees, all amounts shown are
estimates.
Registration fee ................................................. $ 11,101
The American Stock Exchange listing fees ......................... 32,500
NASD filing fee .................................................. 4,705
Printing and engraving expenses .................................. 125,000
Legal fees and expenses (other than Blue Sky) .................... 450,000
Accounting fees and expenses ..................................... 265,000
Blue Sky fees and expenses (including legal and filing) .......... 25,000
Transfer agent fees and expenses ................................. 5,000
Miscellaneous expenses ........................................... 46,694
--------
Total ........................................................ $965,000
Item 14. Indemnification of Officers and Directors.
Section 145 of the Delaware General Corporation Law ("DGCL") permits, in
general, a Delaware corporation to indemnify any person made, or threatened to
be made, a party to an action or proceeding by reason of the fact that he or she
was a director or officer of the corporation, or served another entity in any
capacity at the request of the corporation, against any judgment, fines, amounts
paid in settlement and expenses, including attorney's fees actually and
reasonably incurred as a result of such action or proceeding, or any appeal
therein, if such person acted in good faith, for a purpose he or she reasonably
believed to be in, or, in the case of service for another entity, not opposed
to, the best interests of the corporation and, in criminal actions or
proceedings, in addition had no reasonable cause to believe that his or her
conduct was unlawful. Section 145(e) of the DGCL permits the corporation to pay
in advance of a final disposition of such action or proceeding the expenses
incurred in defending such action or proceeding upon receipt of an undertaking
by or on behalf of the director or officer to repay such amount as, and to the
extent, required by statute. Section 145(f) of the DGCL provides that the
indemnification and advancement of expense provisions contained in the DGCL
shall not be deemed exclusive of any rights to which a director or officer
seeking indemnification or advancement of expenses may be entitled.
Urban Cool's certificate of incorporation provides, in general, that we
shall indemnify, to the fullest extent permitted by Section 145 of the DGCL, any
and all persons whom it shall have power to indemnify under said section from
and against any and all of the expenses, liabilities or other matters referred
to in, or covered by, said section. The certificate of incorporation also
provides that the indemnification provided for therein shall not be deemed
exclusive of any other rights to which those indemnified may be entitled under
any bylaw, agreement, vote of stockholders or disinterested directors or
otherwise, both as to actions taken in his or her official capacity and as to
acts in another capacity while holding such office.
In accordance with that provision of the certificate of incorporation,
Urban Cool shall indemnify any officer or director (including officers and
directors serving another corporation, partnership, joint venture, trust, or
other enterprise in any capacity at Urban Cool's request) made, or threatened to
be made, a party to an action or proceeding (whether civil, criminal,
administrative or investigative) by reason of the fact that he or she was
serving in any of those capacities against judgments, fines, amounts paid in
settlement and reasonable expenses (including attorney's fees) incurred as a
result of such action or proceeding. Indemnification would not be available if a
judgment or other final adjudication adverse to such director or officer
establishes that (i) his or
II-1
<PAGE>
her acts were committed in bad faith or were the result of active and deliberate
dishonesty or (ii) he or she personally gained in fact a financial profit or
other advantage to which he or she was not legally entitled.
The Form of Underwriting Agreement filed as Exhibit 1.1 hereto also
contains, among other things, provisions whereby the underwriters agree to
indemnify Urban Cool, each officer and director of Urban Cool who has signed the
registration statement, and each person who controls Urban Cool within the
meaning of Section 15 of the Securities Act, against any losses, liabilities,
claims or damages arising out of alleged untrue statements or alleged omissions
of material facts with respect to information furnished to Urban Cool by the
underwriters for use in the registration statement or prospectus.
The Underwriting Agreement also contains provisions whereby Urban Cool
agrees to indemnify the underwriters, each officer and director of the
underwriters, and each person who controls the underwriters within the meaning
of Section 15 of the Securities Act, against any losses, liabilities, claims or
damages arising out of alleged untrue statements or alleged omissions of
material facts contained in the registration statement or prospectus.
Urban Cool has been advised that it is the position of the Commission that
insofar as the indemnification provisions referenced above may be invoked to
disclaim liability for damages arising under the Securities Act, these
provisions are against public policy as expressed in the Securities Act and are,
therefore, unenforceable.
Item 26. Recent Sales of Unregistered Securities.
Unless otherwise noted, the sale of the securities were exempt from
registration under the Securities Act under Section 4(2) and/or Regulation D
promulgated thereunder. All such sales being made to sophisticated investors
and/or accredited investors who had access to information about Urban Cool and
were able to bear the risk of loss of their investment.
(1) On January 23, 1998, Jacob R. Miles was issued 2,040,276 shares of
common stock upon our formation under Section 4(2) of the Securities
Act.
(2) On November 4, 1998, Rosalind Bell was issued 4,122 shares of common
stock for a purchase price of $1,000 under Section 4(2) of the
Securities Act.
(3) On November 4, 1998, Bettye Bell was issued 412 shares of common
stock for an aggregate purchase price of $100 under Section 4(2) of
the Securities Act.
(4) On November 4, 1998 Rosalind Bell was issued 16,487 shares of common
stock for services rendered under Section 4(2) of the Securities
Act.
(5) On November 30, 1998, Omni Source Events was issued 8,244 shares of
common stock for an aggregate purchase price of $2,000 under Section
4(2) of the Securities Act.
(6) On November 30, 1998, Crystal R. Smith was issued 412 shares of
common stock for an aggregate purchase price of $100 under Section
4(2) of the Securities Act.
(7) On November 30, 1998, Jennifer L. Smith was issued 412 shares of
common stock for an aggregate purchase price of $100 under Section
4(2) of the Securities Act.
(8) On December 7, 1998, Robert A. and Jacqueline M. Smith were issued
1,649 shares of common stock for an aggregate purchase price of $400
under Section 4(2) of the Securities Act.
(9) On December 7, 1998, Karen Miles was issued 1,649 shares of common
stock for an aggregate purchase price of $400 under Section 4(2) of
the Securities Act.
(10) On December 7, 1998, Venture Partners was issued 4,122 shares of
common stock for an aggregate purchase price of $1,000 under Section
4(2) of the Securities Act.
(11) On December 7, 1998, James Hurley, Jr. was issued 20,609 shares of
common stock for an aggregate purchase price of $5,000 under Section
4(2) of the Securities Act.
(12) On November 4, 1998 Jacob R. Miles was issued 20,609 shares of
common stock for an aggregate purchase price of $5,000 under Section
4(2) of the Securities Act.
II-2
<PAGE>
(13) On March 3, 1999, James and Gloria Austin were issued 164,871 shares
of common stock for an aggregate purchase price of $40,000 under
Section 4(2) of the Securities Act.
(14) On March 1, 1999, Geraldine Miles was issued 1,649 shares of common
stock for an aggregate purchase price of $400 under Section 4(2) of
the Securities Act.
(15) On December 7, 1998, Eva G. Miles was issued 824 shares of common
stock for an aggregate purchase price of $200 under Section 4(2) of
the Securities Act.
(16) On March 3, 1999, Gary Fargusson was issued 82,435 shares of common
stock for an aggregate purchase price of $20,000 under Section 4(2)
of the Securities Act.
(17) On March 3, 1999, the Brannon-Cottrell Group was issued 61,826
shares of common stock for an aggregate purchase price of $15,000
under Section 4(2) of the Securities Act.
(18) On March 9, 1999, Black Urban Investors of Arlington were issued
163,840 shares of common stock for an aggregate purchase price of
$39,750 under Section 4(2) of the Securities Act.
(19) On March 9, 1999, Teddy Bosey, Jr. was issued 41,218 shares of
common stock for an aggregate purchase price of $10,000 under
Section 4(2) of the Securities Act.
(20) On March 10, 1999, Monte E. Ford was issued 41,218 shares of common
stock for an aggregate purchase price of $10,000 under Section 4(2)
of the Securities Act.
(21) On March 10, 1999, Paul R. Martinez was issued 41,218 shares of
common stock for an aggregate purchase price of $10,000 under
Section 4(2) of the Securities Act.
(22) On March 4, 1999, Larry D. Whiting was issued 41,218 shares of
common stock for an aggregate purchase price of $10,000 under
Section 4(2) of the Securities Act.
(23) On April 3, 1999, Debra Perk Haynes and Frederick D. Haynes were
issued 8,244 shares of common stock for an aggregate purchase price
of $2,000 under Section 4(2) of the Securities Act.
(24) On July 1, 1999, Bertram Denson was issued 41,218 shares of common
stock for an aggregate purchase price of $10,000 under Section 4(2)
of the Securities Act.
(25) On July 1, 1999, H. Ron and Rita White were issued 41,218 shares of
common stock for an aggregate purchase price of $10,000 under
Section 4(2) of the Securities Act.
(26) On September 17, 1999, Upway Enterprises, Inc. was issued an
aggregate of 150,000 shares of common stock for consulting services
under Section 4(2) of the Securities Act.
(27) On September 19, 1999, Surrey Associates, Inc. was issued an
aggregate of 200,000 shares of common stock for consulting services
under Section 4(2) of the Securities Act.
(28) On October 31, 1999, Sea Breeze Associates, Inc. was issued an
aggregate of 175,000 shares of common stock for consulting services
under Section 4(2) of the Securities Act.
(29) As of November 1, 1999, RMH Consulting Corp. was issued an aggregate
of 150,000 shares of common stock for consulting services under
Section 4(2) of the Securities Act.
(30) In November, 1999 and March 2000, Stanley Wolfson was issued
warrants to purchase up to 1,050,000 shares of common stock in
connection with the acquisition of e-commerce Solutions, Inc under
Section 4(2) of the Securities Act.
(31) On November 23, 1999 we issued warrants to purchase 750,000 shares
of common stock to the Elite Funding Group, Inc. in connection with
a loan in the amount up to $1,000,000 under Section 4(2) of the
Securities Act.
(32) From July through November 1999, in connection with a private
financing transaction to accredited investors pursuant to Regulation
D, the Company sold 105 units at a price of $10,000 per unit to the
individuals listed below. Each unit in the private financing
consisted of a promissory note in the amount of $10,000, 1,000
shares of common stock and warrants to purchase 5,000 shares of
common stock. The warrants are exercisable at an exercise price of
$2.00 per share commencing January,
II-3
<PAGE>
2000 through November, 2004. The notes bear interest at the rate of
10% per annum and are payable on the earlier of 24 months from the
date of issuance or upon the closing of this offering.
Security Capital acted as the placement agent for the private
financing. We paid Security Capital a fee of $105,000, which was
equal to 10% of the aggregate purchase price of the units sold, a
portion of which was re-allowed to other registered broker-dealers,
and a non-accountable expense allowance of $31,500 which was equal
to 3% of the aggregate purchase price of the units sold.
Number of
Date of Closing Name Units
- --------------- ---- ---------
July 21, 1999 Jeffrey E. Levine 20
July 21, 1999 Michael Kessler 5
July 21, 1999 Jay Konesey 10
October 12, 1999 Julius Smith Young, Jr. 15
October 12, 1999 Gerald Holland, Kathleen Holland, JTWROS 5
October 29, 1999 Charles P. Atkins 5
October 29, 1999 Bella Figura, LLC 3
October 29, 1999 Tom Hogan 3
October 29, 1999 Arnold Eisenstadt 2
October 29, 1999 Jeffrey George 2
October 29, 1999 Henry Volquardsen 2
October 29, 1999 Morton Mower 2
October 29, 1999 Jeffrey Hrutkay 2
October 29, 1999 John C. Kroening and Sherri L. Kroening 2
October 29, 1999 Keith M. Ganzer 1.5
October 29, 1999 Insurance Planning Consultants Pension Plan 1
October 29, 1999 Kenneth W. Forbes 1
October 29, 1999 International Premium Associates, Inc. 1
October 29, 1999 Fran Bader & Allan Bader 1
October 29, 1999 E.H. Tepe Co., Inc. 1
November 16, 1999 Sigma Services Corp. 2
November 16, 1999 Howard B. Culang 1.5
November 16, 1999 Russell P. Truitt 1
November 16, 1999 Rodney Grebe 1
November 16, 1999 Michael Spindel 2
November 16, 1999 Loni Z. Spurkeland 5
November 16, 1999 Lennart Dahlgren 2.5
November 23, 1999 Greg Tucker 3
November 23, 1999 Phelps Hoyt 2.5
Total 105
(33) In March 2000 we issued 580,000 shares of common stock in connection
with the registration of WilhelminaUrbanCool.com Inc. to Wilhemina
Asset Management llc. under Section 4(2) of the Securities Act.
II-4
<PAGE>
Item 27. Exhibits.
The following documents (unless indicated) are filed herewith and made a
part of this Registration Statement.
Number Description of Exhibit
------ ----------------------
1.1 Form of Underwriting Agreement.
3.1 Certificate of Incorporation.(1)
3.2 By-laws.(1)
4.1 Specimen Certificate of the Common Stock.(1)
4.2 Form of Representative's Warrants.
5.1 Opinion of Silverman, Collura & Chernis, P.C., counsel to Urban
Cool.(1)
10.1 Employment agreement dated November 22, 1999 between Urban Cool
Network, Inc. and Jacob R. Miles, III.(1)
10.2 Employment agreement dated November 22, 1999 between Urban Cool
Network, Inc. and Barry Levine.(1)
10.3 Employment agreement dated November 22, 1999 between Urban Cool
Network, Inc. and Terrence B. Reddy.(1)
10.4 Employment agreement dated November 22, 1999 between Urban Cool
Network, Inc. and Anthony Winston.(1)
10.5 Executive Stock OptionPlan.(1)
10.6 1999 Stock Option Plan.(1)
10.7 Common Stock Purchase Warrant Agreement dated November 21, 1999
between Stanley Wolfson and Urban Cool Network, Inc.(1)
10.8 Shareholders' Agreement, dated November 21, 1999, between Urban Cool
Network, Inc. and StanleyWolfson.(1)
10.9 Sale of Technology Agreement, dated November 21, 1999, between
e-commerce Solutions, Inc. and Stanley Wolfson.(1)
10.10 Employment agreement, dated November 21, 1999, between e-commerce
Solutions, Inc. and Stanley Wolfson.(1)
10.11 Promissory Note, dated November 18, 1999, between Urban Cool
Network, Inc. and Analysts International, Inc.(1)
10.12 Loan Agreement, dated November 23, 1999, between Urban Cool Network,
Inc. and The Elite Funding Group, Inc.(1)
10.13 Subscription Agreement and Investment Representation, dated November
23, 1999, between Urban Cool Network, Inc. and The Elite Funding
Group, Inc.(1)
10.14 Common Stock Purchase Warrant Agreement dated November 23, 1999
between The Elite Funding Group, Inc. and Urban Cool Network,
Inc.(1)
10.15 Security Agreement, dated November 23, 1999, between The Elite
Funding Group, Inc. and Urban Cool Network, Inc.(1)
10.16 Subscription Agreement and Investment Representation, dated as of
November 1, 1999, between Urban Cool Network, Inc. and RMH
Consulting Group.(1)
10.17 Consulting agreement dated as of November 1, 1999 between Urban Cool
Network, Inc. and RMH Consulting Corp.(1)
10.18 Consulting agreement dated September 17, 1999 between Urban Cool
Network, Inc. and Upway Enterprises.(1)
10.19 Consulting agreement dated September 19, 1999 between Urban Cool
Network, Inc. and Surrey Associates, Inc.(1)
II-5
<PAGE>
Number Description of Exhibit
------ ----------------------
10.20 Consulting agreement dated October 31, 1999 between Urban Cool
Network, Inc. and Sea Breeze Associates, Inc.(1)
10.21 Letter Agreement between Urban Cool Network, Inc. and The Elite
Funding Group, Inc.(1)
10.22 Letter of Intent, dated October 12, 1999, by Bloomberg, L.P. to
Urban Cool Network, Inc.(1)
10.23 Network Access Agreement dated August 16, 1998 between Urban Cool
Network, Inc. and ConnectTen LLC.(1)
10.24 Form of Common Stock Purchase Warrant Agreement between Urban Cool
Network, Inc. and the investors in the private financing
transaction.(1)
10.25 Form of Promissory Note between Urban Cool Network, Inc. and the
investors in the private financing transaction.(1)
10.26 Form of Subscription Agreement and Investment Representation between
Urban Cool Network, Inc. and the investors in the private financing
transaction.(1)
10.27 Sublease Agreement, dated August 13, 1999, between Urban Cool
Network, Inc. and Focus Communications, Inc.(1)
10.28 Sublease Agreement and Rider, dated February 8, 1999, between Urban
Cool Network, Inc. and Ecumenical Community Development
Organization.(1)
10.29 Deferred Compensation Agreement dated November 22, 1999 between
Urban Cool Network, Inc. and Jacob R. Miles III.(1)
10.30 Alliance Partnering Agreement, dated as of December 30, 1999,
between Urban Cool Network, Inc. and Akamai Technologies, Inc.(1)
10.31 Letter of Agreement, dated January 6, 2000, between Urban Cool
Network, Inc. and NaviSite, Inc.(1)
10.32 Memorandum of Understanding, dated as of November 29, 1999, between
Urban Cool Network, Inc. and NatioNet Online.(1)
10.33 Amendment dated December 27, 1999, between Urban Cool Network Inc.
and Stanley Wolfson to the Shareholder Agreement, dated November 21,
1999, between Urban Cool Network Inc. and Stanley Wolfson.(1)
10.34 Ask Jeeves Question and Answer Service Agreement, dated January 10,
2000, between Urban Cool Network, Inc. and Ask Jeeves, Inc.(1)
10.35 Employment Agreement, by and between Urban Cool Network, Inc. and
Sheila Creque.(1)
10.36 First Amendment to Employment Agreement, dated April 13, 2000, by
and between Urban Cool Network, Inc. and Sheila Creque.(1)
10.37 Second Amendment to Shareholders' Agreement, dated as of March 16,
2000, by and among Urban Cool Network, Inc., Stanley Wolfson and
e-Commerce Solutions, Inc.(1)
10.38 Amended and Restated Warrant, dated March 30, 2000, between Stanley
Wolfson and Urban Cool Network, Inc.(1)
10.39 Amendment No. 3 to Consulting Agreement, dated April 17, 2000,
between Urban Cool Network, Inc. and RMH Consulting Corp.(1)
10.40 Amendment No. 1 to Subscription Agreement, dated April 17, 2000,
between Urban Cool Network, Inc. and RMH Consulting Corp.(1)
10.41 Amendment No. 1 to Warrant, dated April 17, 2000, between Urban Cool
Network, Inc. and The Elite Funding Group, Inc.(1)
10.42 Sublease Agreement, dated November 1, 1999, by and between
e-Commerce Solutions, Inc. and MEI Associates, Inc.(1)
10.43 Stock Purchase Agreement, dated March 22, 2000, by and among Urban
Cool Network, Inc. and Wilhelmina Artist Management, LLC.(1)
10.44 License Agreement, dated March 22, 2000, by and between Wilhelmina
Artist Management, LLC, and Urban Cool Network, Inc.(1)
10.45 Agreement between Urban Fetch and Master Craft Builders, Inc.
21.1 List of Subsidiaries.
23.1 Consent of Richard A. Eisner & Company, LLP.
23.2 Consent of Silverman, Collura & Chernis, P.C. (contained in Exhibit
5.1).(1)
II-6
<PAGE>
Number Description of Exhibit
------ ----------------------
24.1 Power of Attorney (included on the signature page of this
Registration Statement).(1)
27.1 Financial Data Schedule
99.1 Consent to Identification as Director Nominee of Sir Brian
Wolfson.(1)
- ----------
(1) Previously filed
(2) To be filed by amendment
Item 28. Undertakings.
1. Urban Cool hereby undertakes:
(a) To file, during any period in which offers or sales are being
made, a post-effective amendment(s) to this Registration Statement:
(1) To include any prospectus required by Section 10(a)(3) of
the Securities Act;
(2) To reflect in the prospectus any facts or events arising
after the effective date of the registration statement (or the most
recent post-effective amendment thereof) which, individually or
together, represent a fundamental change in the information in the
Registration Statement. Notwithstanding the foregoing any increase
or decrease in the volume of securities offered (if the total dollar
value of securities offered would not exceed that which was
registered) and any deviation from the low or high end of the
estimated maximum offering range may be reflected in the form of
prospectus filed with the Commission pursuant to Rule 424(b) if, in
the aggregate, the changes in volume and price represent no more
than 20 percent change in the maximum aggregate offering price set
forth in the "Calculation of Registration Fee" table in the
effective registration statement; and
(3) To include any additional or changed material information
with respect to the plan of distribution not previously disclosed in
the Registration Statement or any material change to such
information in the Registration Statement;
(b) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain unsold at
the termination of the offering; and
(c) 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.
(d) That, for the purpose of determining any liability under the
Securities Act, each such post-effective amendment shall be deemed to be a
new registration statement relating to the securities offered therein, and
the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
2. Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of Urban
Cool pursuant to the foregoing provisions, or otherwise, Urban Cool has been
advised that in the opinion of the Commission such indemnification is against
public policy as expressed in the Securities Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by Urban Cool of expenses incurred or paid
by a director, officer or controlling person of Urban Cool 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, Urban
Cool 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.
3. Urban Cool will:
(a) For determining any liability under the Securities Act, treat
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 Urban Cool under Rule 424(b)(1), or (4), or 497(h)
under the Securities Act as part of this Registration Statement as of the
time the Commission declared it effective; and
(b) For purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of prospectus
shall be deemed to be a new registration statement relating to the
II-7
<PAGE>
securities offered therein and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing this Amendment No. 4 to Form S-1 and has
authorized this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Dallas, Texas on May 18,
2000.
URBAN COOL NETWORK, INC.
By: /s/ Jacob R. Miles, III
-------------------------------------
Jacob R. Miles, III
Chairman and Chief Executive Officer
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints JACOB R. MILES, III his true and lawful
attorney-in-fact and agent, with full power of substitution and resubstitution,
for him and in his name, place and stead, in any and all capacities, to sign any
and all amendments (including post-effective amendments) to this Registration
Statement, and to file the same, with all exhibits thereto and other documents
in connection therewith, with the Securities and Exchange Commission, granting
unto said attorney-in-fact and agent, full power and authority to do and perform
each and every act and thing requisite or necessary to be done in and about the
premises, as fully to all intents and purposes as he might or could do in
person, hereby ratifying and confirming all that said attorney-in-fact and agent
or either of them or their or his substitute or substitutes, may lawfully do or
cause to be done by virtue hereof.
In accordance with the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
Signature Title Date
---------- ----- ----
/s/ Jacob R. Miles, III Chairman, Chief Executive May 18, 2000
- ---------------------------- Officer and Director
Jacob R. Miles, III
/s/ Terrence B. Reddy President, Chief Operating May 18, 2000
- ---------------------------- Officer and Director
Terrence B. Reddy
/s/ Barry M. Levine Chief Financial Officer May 18, 2000
- ---------------------------- and Treasurer (principal
Barry M. Levine accounting officer)
/s/ Rosalind Bell Director May 18, 2000
- ----------------------------
Rosalind Bell
/s/ Rex Cumming Director May 18, 2000
- ----------------------------
Rex Cumming
II-8
<PAGE>
Exhibit Index
Number Description of Exhibit
------ ----------------------
1.1 Form of Underwriting Agreement.
3.1 Certificate of Incorporation.(1)
3.2 By-laws.(1)
4.1 Specimen Certificate of the Common Stock.(1)
4.2 Form of Representative's Warrants.(2)
5.1 Opinion of Silverman, Collura & Chernis, P.C., counsel to Urban
Cool.(1)
10.1 Employment agreement dated November 22, 1999 between Urban Cool
Network, Inc. and Jacob R. Miles, III.(1)
10.2 Employment agreement dated November 22, 1999 between Urban Cool
Network, Inc. and Barry Levine.(1)
10.3 Employment agreement dated November 22, 1999 between Urban Cool
Network, Inc. and Terrence B. Reddy.(1)
10.4 Employment agreement dated November 22, 1999 between Urban Cool
Network, Inc. and Anthony Winston.(1)
10.5 Executive Stock OptionPlan.(1)
10.6 1999 Stock Option Plan.(1)
10.7 Common Stock Purchase Warrant Agreement dated November 21, 1999
betweenStanley Wolfson and Urban Cool Network, Inc.(1)
10.8 Shareholders' Agreement, dated November 21, 1999, between Urban Cool
Network, Inc. and StanleyWolfson.(1)
10.9 Sale of Technology Agreement, dated November 21, 1999, between
e-commerce Solutions, Inc. and Stanley Wolfson.(1)
10.10 Employment agreement, dated November 21, 1999, between e-commerce
Solutions, Inc. and Stanley Wolfson.(1)
10.11 Promissory Note, dated November 18, 1999, between Urban Cool
Network, Inc. and Analysts International, Inc.(1)
10.12 Loan Agreement, dated November 23, 1999, between Urban Cool Network,
Inc. and The Elite FundingGroup, Inc.(1)
10.13 Subscription Agreement and Investment Representation, dated November
23, 1999, between UrbanCool Network, Inc. and The Elite Funding
Group, Inc.(1)
10.14 Common Stock Purchase Warrant Agreement dated November 23, 1999
between The Elite Funding Group, Inc. and Urban Cool Network,
Inc.(1)
10.15 Security Agreement, dated November 23, 1999, between The Elite
Funding Group, Inc. and Urban Cool Network, Inc.(1)
10.16 Subscription Agreement and Investment Representation, dated as
ofNovember 1, 1999, between UrbanCool Network, Inc. and
RMHConsulting Group.(1)
10.17 Consulting agreement dated as of November 1, 1999 between Urban Cool
Network,Inc. and RMH Consulting Corp.(1)
10.18 Consulting agreement dated September 17, 1999 between Urban Cool
Network,Inc. and Upway Enterprises.(1)
10.19 Consulting agreement dated September 19, 1999 between Urban Cool
Network,Inc. and Surrey Associates, Inc.(1)
10.20 Consulting agreement dated October 31, 1999 between Urban Cool
Network,Inc. and Sea Breeze Associates, Inc.(1)
10.21 Letter Agreement between Urban Cool Network, Inc. and The Elite
Funding Group, Inc.(1)
10.22 Letter of Intent, dated October 12, 1999, byBloomberg, L.P. to Urban
Cool Network, Inc.(1)
10.23 Network Access Agreement dated August 16, 1998 between Urban Cool
Network, Inc. and ConnectTen LLC.(1)
<PAGE>
Number Description of Exhibit
------ ----------------------
10.24 Form of Common Stock Purchase Warrant Agreement between Urban Cool
Network, Inc. and the investors in the private financing
transaction.(1)
10.25 Form of Promissory Note between Urban Cool Network, Inc. and the
investors in the private financing transaction.(1)
10.26 Form of Subscription Agreement and Investment Representation between
Urban Cool Network, Inc. and the investors in the private financing
transaction.(1)
10.27 Sublease Agreement, dated August 13, 1999, between Urban Cool
Network, Inc. and Focus Communications, Inc.(1)
10.28 Sublease Agreement and Rider, dated February 8, 1999, between Urban
Cool Network, Inc. and Ecumenical Community Development
Organization.(1)
10.29 Deferred Compensation Agreement dated November 22, 1999 between
Urban Cool Network, Inc. and Jacob R. Miles III.(1)
10.30 Alliance Partnering Agreement, dated as of December 30, 1999,
between Urban Cool Network,Inc. and Akamai Technologies, Inc.(1)
10.31 Letter of Agreement, dated January 6, 2000, between Urban Cool
Network, Inc. and NaviSite, Inc.(1)
10.32 Memorandum of Understanding, dated as of November 29, 1999, between
Urban Cool Network, Inc. and NatioNet Online.(1)
10.33 Amendment dated December 27, 1999, between Urban Cool Network Inc.
and Stanley Wolfson to the Shareholder Agreement, dated November 21,
1999, between Urban Cool Network Inc. and Stanley Wolfson.(1)
10.34 Service Agreement dated January 10, 2000, between Urban Cool
Network, Inc. and Ask Jeeves, Inc.(2)
10.35 Employment Agreement, by and between Urban Cool Network, Inc. and
Sheila Creque.(1)
10.36 First Amendment to Employment Agreement, dated April 13, 2000, by
and between Urban Cool Network, Inc. and Sheila Creque.(1)
10.37 Second Amendment to Shareholders' Agreement, dated as of March 16,
2000, by and among Urban Cool Network, Inc., Stanley Wolfson and
e-Commerce Solutions, Inc.(1)
10.38 Amended and Restated Warrant, dated March 30, 2000, between Stanley
Wolfson and Urban Cool Network, Inc.(1)
10.39 Amendment No. 3 to Consulting Agreement, dated April 17, 2000,
between Urban Cool Network, Inc. and RMH Consulting Corp.(1)
10.40 Amendment No. 1 to Subscription Agreement, dated April 17, 2000,
between Urban Cool Network, Inc. and RMH Consulting Corp.(1)
10.41 Amendment No. 1 to Warrant, dated April 17, 2000, between Urban Cool
Network, Inc. and The Elite Funding Group, Inc.(1)
10.42 Sublease Agreement, dated November 1, 1999, by and between
e-Commerce Solutions, Inc. and MEI Associates, Inc.(1)
10.43 Stock Purchase Agreement, dated March 22, 2000, by and among Urban
Cool Network, Inc. and Wilhelmina Artist Management, LLC.(1)
10.44 License Agreement, dated March 22, 2000, by and between Wilhelmina
Artist Management, LLC, and Urban Cool Network, Inc.(1)
10.45 Agreement between Urban Fetch and Master Craft Builders, Inc.
21.1 List of Subsidiaries.
23.1 Consent of Richard A. Eisner & Company, LLP.
23.2 Consent of Silverman, Collura & Chernis, P.C. (contained in Exhibit
5.1).
24.1 Power of Attorney (included on the signature page of this
Registration Statement).(1)
27.1 Financial Data Schedule
99.1 Consent to Identification as Director Nominee of Sir Brian
Wolfson.(1)
- ----------
(1) Previously filed
(2) To be filed by amendment
Exhibit 1.1
URBAN COOL NETWORK, INC.
2,000,000 Shares of Common Stock
UNDERWRITING AGREEMENT
June , 2000
Kashner Davidson Securities Corporation
77 South Palm Avenue
Sarasota, Florida 34326
Gentlemen:
Urban Cool Network, Inc., a corporation organized under the laws of the
State of Delaware (the "Company"), hereby confirms its agreement with Kashner
Davidson Securities Corporation, ("Kashner"), representative of the group of
underwriters set forth on Schedule I hereto, as the Underwriters of its
securities (collectively the "Underwriters"), as set forth below.
The Company proposes to issue and sell to the Underwriters 2,000,000
shares of the Company's common stock, $.01 par value per share (the "Common
Stock"). The shares of Common Stock being sold by the Company are referred to as
the "Firm Shares."
In addition, for the sole purpose of covering over-allotments from the
sale of the Firm Shares. the Company proposes to grant to the Underwriters an
option to purchase an additional 300,000 shares of Common Stock, (the "Firm
Option Shares" or the "Option Shares"), all as provided in Section 2(c) of this
agreement (the "Agreement") and to issue to you the Underwriters' Warrant (as
defined in Section 2 hereof) to purchase certain further additional shares of
Common Stock. The Firm Shares and the Option Shares are collectively referred to
herein as either the "Shares" or the "Securities."
1. Representations and Warranties of the Company. The Company represents
and warrants to, and agrees with, the Underwriters that:
(a) A registration statement on Form S-1 (File No. 333-92223), with
respect to the Securities and the Underwriters' Warrant Securities (as
hereinafter defined), including a prospectus subject to completion, has been
filed by the Company with the Securities and Exchange Commission (the
"Commission") under the Securities Act of 1933, as amended (the "Act "), and one
or more amendments to that registration statement may have been so filed. Copies
of such
<PAGE>
registration statement and of each amendment heretofore filed by the Company
with the Commission have been delivered to the Underwriters. After the execution
of this Agreement, the Company will file with the Commission either (i) if the
registration statement, as it may have been amended, has been declared by the
Commission to be effective under the Act, a prospectus in the form most recently
included in that registration statement (or, if an amendment thereto shall have
been filed, in such amendment), with such changes or insertions as are required
by Rule 430A under the Act or permitted by Rule 424(b) under the Act and as have
been provided to and approved by the Underwriters prior to the execution of this
Agreement, or (ii) if that registration statement, as it may have been amended,
has not been declared by the Commission to be effective under the Act, an
amendment to that registration statement, including a form of prospectus, a copy
of which amendment has been furnished to and approved by the Underwriters prior
to the execution of this Agreement. The Company also may file a related
registration statement with the Commission pursuant to Rule 462(b) under the Act
for purposes of registering certain additional Securities, which registration
statement shall become effective upon filing with the Commission (the "Rule
462(b) Registration Statement"). As used in this Agreement, the term
"Registration Statement" means that registration statement, as amended at the
time it was or is declared effective, and any amendment thereto that was or is
thereafter declared effective, including all financial schedules and exhibits
thereto and any information omitted therefrom pursuant to Rule 430A under the
Act and included in the Prospectus (as hereinafter defined), together with any
Rule 462(b) Registration Statement; the term "Preliminary Prospectus" means each
prospectus subject to completion filed with the Registration Statement
(including the prospectus subject to completion, if any, included in the
Registration Statement at the time it was or is declared effective); and the
term "Prospectus" means the prospectus first filed with the Commission pursuant
to Rule 424(b) under the Act or, if no prospectus is so filed pursuant to Rule
424(b), the prospectus included in the Registration Statement. The Company has
caused to be delivered to the Underwriters copies of each Preliminary Prospectus
and has consented to the use of those copies for the purposes permitted by the
Act. If the Company has elected to rely on Rule 462(b) and the Rule 462(b)
Registration Statement has not been declared effective, then (i) the Company has
filed a Rule 462(b) Registration Statement in compliance with and that is
effective upon filing pursuant to Rule 462(b) and has received confirmation of
its receipt and (ii) the Company has given irrevocable instructions for
transmission of the applicable filing fee in connection with the filing of the
Rule 462(b) Registration Statement, in compliance with Rule 111 promulgated
under the Act or the Commission has received payment of such filing fee.
(b) The Commission has not issued any order preventing or suspending
the use of any Preliminary Prospectus. When each Preliminary Prospectus and each
amendment and each supplement thereto was filed with the Commission it (i)
contained all statements required to be stated therein, in accordance with, and
complied with the requirements of, the Act and the rules and regulations of the
Commission thereunder and (ii) did not include any untrue statement of a
material fact or omit to state any material fact necessary in order to make the
statements therein, in the light of the circumstances under which they were
made, not misleading. When the Registration Statement was or is declared
effective, it (i) contained or will contain all statements required to be stated
therein in accordance with, and complied or will comply with the requirements
of, the Act and the rules and regulations of the Commission thereunder and (ii)
did not or will not include any untrue statement of a material fact or omit to
state any material fact necessary to make the statements therein not
2
<PAGE>
misleading. When the Prospectus and each amendment or supplement thereto is
filed with the Commission pursuant to Rule 424(b) (or, if the Prospectus or such
amendment or supplement is not required so to be filed, when the Registration
Statement containing such Prospectus or amendment or supplement thereto was or
is declared effective) and on the Firm Closing Date and any Option Closing Date
(as each such term is hereinafter defined), the Prospectus, as amended or
supplemented at any such time, (i) contained or will contain all statements
required to be stated therein in accordance with, and complied or will comply
with the requirements of, the Act and the rules and regulations of the
Commission thereunder and (ii) did not or will not include any untrue statement
of a material fact or omit to state any material fact necessary in order to make
the statements therein, in light of the circumstances under which they were
made, not misleading. The foregoing provisions of this paragraph (b) do not
apply to statements or omissions made in any Preliminary Prospectus, the
Registration Statement or the Prospectus or any amendment or supplement thereto
in reliance upon and in conformity with written information furnished to the
Company by the Underwriters specifically for use therein.
(c) The Company is duly incorporated and is validly existing as a
corporation in good standing under the laws of its jurisdictions of
incorporation, and duly qualified or authorized to transact business as a
foreign corporation and is in good standing in each jurisdiction where the
ownership or leasing of its properties or the conduct of its businesses require
such qualification or authorization.
(d) The Company has full corporate power and authority, and all
necessary material authorizations, approvals, orders, licenses, certificates and
permits of and from all governmental regulatory authorities, to own or lease its
property and conduct its business as now being conducted and as proposed to be
conducted as described in the Registration Statement and the Prospectus (and, if
the Prospectus is not in existence, the most recent Preliminary Prospectus).
(e) Other than described in the Prospectus, the Company does not
own, directly or indirectly, an interest in any corporation, partnership,
limited liability company, joint venture, trust or other business entity.
(f) The Company has an authorized, issued and outstanding
capitalization as set forth in the Prospectus (and, if the Prospectus is not in
existence, the most recent Preliminary Prospectus). All of the issued shares of
capital stock of the Company, have been duly authorized and validly issued and
are fully paid, nonassessable and free of preemptive rights. There are no
outstanding options, warrants or other rights granted by the Company to purchase
shares of its Common Stock or other securities, other than as described in the
Prospectus (and, if the Prospectus is not in existence, the most recent
Preliminary Prospectus). The Firm Shares have been duly authorized, by all
necessary corporate action on the part of the Company and, when the Firm Shares
are issued and delivered to and paid for by the Underwriters pursuant to this
Agreement, the Firm Shares will be validly issued, fully paid, nonassessable and
free of preemptive rights and will conform to the description thereof in the
Prospectus (and, if the Prospectus is not in existence, the most recent
Preliminary Prospectus). No holder of outstanding securities of the Company is
entitled as such to any preemptive or other right to subscribe for any of the
Securities, and no person is
3
<PAGE>
entitled to have securities registered by the Company under the Registration
Statement or otherwise under the Act other than as described in the Prospectus
(and, if the Prospectus is not in existence, the most recent Preliminary
Prospectus).
(g) The capital stock of the Company conforms to the description
thereof contained in the Prospectus (and, if the Prospectus is not in existence,
the most recent Preliminary Prospectus).
(h) All issuances of securities of the Company have been effected
pursuant to an exemption from the registration requirements of the Act. No
compensation was paid to or on behalf of any member of the National Association
of Securities Dealers, Inc. ("NASD"), or any affiliate or employee thereof, in
connection with any such issuance.
(i) The financial statements of the Company included in the
Registration Statement and the Prospectus (and, if the Prospectus is not in
existence, the most recent Preliminary Prospectus) fairly present the financial
position of the Company as of the dates indicated and the results of operations
of the Company for the periods specified. Such financial statements have been
prepared in accordance with accounting principles generally accepted in effect
in the United States of America, consistently applied, except to the extent that
certain footnote disclosures regarding unaudited interim periods may have been
omitted in accordance with the applicable rules of the Commission under the
Securities Exchange Act of 1934, as amended (the "1934 Act"). The financial data
set forth under the caption "Summary Financial Information" in the Prospectus
(and, if the Prospectus is not in existence, the most recent Preliminary
Prospectus) fairly present, on the basis stated in the Prospectus (or such
Preliminary Prospectus), the information included therein.
(j) Richard A. Eisner & Company, LLP has audited certain financial
statements of the Company and delivered their report with respect to the
financial statements included in the Registration Statement and the Prospectus
(and, if the Prospectus is not in existence, the most recent Preliminary
Prospectus), and are independent public accountants with respect to the Company
as required by the Act and the applicable rules and regulations thereunder.
(k) Since the respective dates as of which information is given in
the Registration Statement and the Prospectus (and, if the Prospectus is not in
existence, the most recent Preliminary Prospectus), (i) except as otherwise
contemplated therein, there has been no material adverse change in the business,
operations, condition (financial or otherwise), earnings or prospects of the
Company, whether or not arising in the ordinary course of business, (ii) except
as otherwise stated therein, there have been no transactions entered into by the
Company and no commitments made by the Company that, individually or in the
aggregate, are material with respect to the Company, (iii) except as otherwise
stated therein, there has not been any change in the capital stock or
indebtedness of the Company, and (iv) there has been no dividend or distribution
of any kind declared, paid or made by the Company in respect of any class of its
capital stock.
(l) The Company has full corporate power and authority to enter into
and perform
4
<PAGE>
its obligations under this Agreement and the Underwriters' Warrant Agreement (as
hereinafter defined). The execution and delivery of this Agreement and the
Underwriters' Warrant Agreement have been duly authorized by all necessary
corporate action on the part of the Company and this Agreement and the
Underwriters' Warrant Agreement have each been duly executed and delivered by
the Company and each is a valid and binding agreement of the Company,
enforceable against the Company in accordance with its terms, except as the
enforceability thereof may be limited by bankruptcy, insolvency, reorganization,
fraudulent conveyance, moratorium and other similar laws affecting creditors'
rights generally and by general principles of equity (regardless of whether
enforcement is considered in a proceeding in equity or at law), and except as
rights to indemnity and contribution under this Agreement may be limited by
applicable law. The issuance, offering and sale by the Company to the
Underwriters of the Securities pursuant to this Agreement or the Underwriters'
Securities pursuant to the Underwriters' Warrant Agreement, the compliance by
the Company with the provisions of this Agreement and the Underwriters' Warrant
Agreement, and the consummation of the other transactions contemplated by this
Agreement and the Underwriters' Warrant Agreement do not (i) require the
consent, approval, authorization, registration or qualification of or with any
court or governmental or regulatory authority, except such as have been obtained
or may be required under state securities or blue sky laws and, if the
registration statement filed with respect to the Securities (as amended) is not
effective under the Act as of the time of execution hereof, such as may be
required (and shall be obtained as provided in this Agreement) under the Act, or
(ii) conflict with or result in a breach or violation of, or constitute a
default under, any material contract, indenture, mortgage, deed of trust, loan
agreement, note, lease or other material agreement or instrument to which the
Company is a party or by which the Company or any of its property is bound or
subject, or the certificate of incorporation or by-laws of the Company, or any
statute or any rule, regulation, judgment, decree or order of any court or other
governmental or regulatory authority or any arbitrator applicable to the
Company.
(m) No legal or governmental proceedings are pending to which the
Company is a party or to which the property of the Company is subject, and no
such proceedings have been threatened against the Company or with respect to any
of its property, except such as are described in the Prospectus (and, if the
Prospectus is not in existence, the most recent Preliminary Prospectus). No
contract or other document is required to be described in the Registration
Statement or the Prospectus or to be filed as an exhibit to the Registration
Statement that is not described therein (and, if the Prospectus is not in
existence, in the most recent Preliminary Prospectus) or filed as required.
(n) The Company is not in (i) violation of its certificate of
incorporation, by-laws or other governing documents, (ii) violation in any
material respect of any law, statute, regulation, ordinance, rule, order,
judgment or decree of any court or any governmental or regulatory authority
applicable to it, or (iii) other than as described in the Prospectus, default in
any material respect in the performance or observance of any obligation,
agreement, covenant or condition contained in any material contract, indenture,
mortgage, deed of trust, loan agreement, note, lease or other material agreement
or instrument to which it is a party or by which it or any of its property may
be bound or subject, and no event has occurred which with notice or lapse of
time or both would constitute such a default.
5
<PAGE>
(o) The Company currently owns or possesses adequate rights to use
all intellectual property, including all trademarks, service marks, trade names,
copyrights, inventions, know-how, trade secrets, proprietary technologies,
processes and substances, or applications or licenses therefor, that are
described in the Prospectus (and if the Prospectus is not in existence, the most
recent Preliminary Prospectus), and any other rights or interests in items of
intellectual property as are necessary for the conduct of the business now
conducted or proposed to be conducted by them as described in the Prospectus
(or, such Preliminary Prospectus), and, except as disclosed in the Prospectus
(and such Preliminary Prospectus), the Company is not aware of the granting of
any patent rights to, or the filing of applications therefor by, others, nor is
the Company aware of, nor has the Company received notice of, infringement of or
conflict with asserted rights of others with respect to any of the foregoing.
All such intellectual property rights and interests are (i) valid and
enforceable and (ii) to the best knowledge of the Company, not being infringed
by any third parties.
(p) The Company possesses adequate licenses, orders, authorizations,
approvals, certificates or permits issued by the appropriate federal, state or
foreign regulatory agencies or bodies necessary to conduct its business as
described in the Registration Statement and the Prospectus (and, if the
Prospectus is not in existence, the most recent Preliminary Prospectus), and,
except as disclosed in the Prospectus (and, if the Prospectus is not in
existence, the most recent Preliminary Prospectus), there are no pending or, to
the best knowledge of the Company, threatened, proceedings relating to the
revocation or modification of any such license, order, authorization, approval,
certificate or permit.
(q) The Company has good and marketable title to all of the
properties and assets reflected in the Company's financial statements or as
described in the Registration Statement and the Prospectus (and, if the
Prospectus is not in existence, the most recent Preliminary Prospectus), subject
to no lien, mortgage, pledge, charge or encumbrance of any kind, except those
reflected in such financial statements or as described in the Registration
Statement and the Prospectus (and such Preliminary Prospectus). Except as
disclosed in the Prospectus, the Company occupies its leased properties under
valid and enforceable leases conforming to the description thereof set forth in
the Registration Statement and the Prospectus (and such Preliminary Prospectus).
(r) The Company is not and does not intend to conduct its business
in a manner in which it would be an "investment company" as defined in Section
3(a) of the Investment Company Act of 1940 (the "Investment Company Act").
(s) The Company has obtained and delivered to the Underwriters the
agreements (the "Lock-up Agreements") with the officers, directors and
substantially all of the shareholders of the Company substantially to the effect
that, among other things, each such person will not, commencing on the date that
the Registration Statement is declared effective by the SEC (the "Effective
Date") and continuing for a period of twelve (12) months thereafter, without the
prior written consent of Nutmeg Securities Ltd., one of the underwriters of the
offering, directly or indirectly, publicly sell, offer or contract to sell or
grant any option to purchase, transfer, assign or pledge, or otherwise encumber,
or dispose of any shares of Common Stock now or hereafter owned by such person.
6
<PAGE>
(t) No labor dispute with the employees of the Company exists, is
threatened or, to the best of the Company's knowledge, is imminent that could
result in a material adverse change in the condition (financial or otherwise),
business, prospects, net worth or results of operations of the Company, except
as described in or contemplated by the Prospectus (and, if the Prospectus is not
in existence, the most recent Preliminary Prospectus).
(u) The Company is insured by insurers of recognized financial
responsibility against such losses and risks and in such amounts as are prudent
and customary in the businesses in which it is engaged; the Company has not been
refused any insurance coverage sought or applied for; and the Company has no
reason to believe that it will not be able to renew its existing insurance
coverage as and when such coverage expires or to obtain similar coverage from
similar insurers as may be necessary to continue its business at a cost that
would not materially and adversely affect the condition (financial or
otherwise), business, prospects, net worth or results of operations of the
Company, except as described in or contemplated by the Prospectus (and, if the
Prospectus is not in existence, the most recent Preliminary Prospectus).
(v) The Underwriters' Warrant (as hereinafter defined) will conform
to the description thereof in the Registration Statement and in the Prospectus
(and, if the Prospectus is not in existence, the most recent Preliminary
Prospectus) and, when sold to and paid for by the Underwriters' in accordance
with the Underwriters' Warrant Agreement, will have been duly authorized and
validly issued and will constitute valid and binding obligations of the Company
entitled to the benefits of the Underwriters' Warrant Agreement. The shares of
Common Stock issuable upon exercise of the Underwriters' Warrant (the
"Underwriters' Warrant Shares") have been duly authorized and reserved for
issuance upon exercise of the Underwriters' Warrant by all necessary corporate
action on the part of the Company and, when issued and delivered and paid for
upon such exercise in accordance with the terms of the Underwriters' Warrant
Agreement and the Underwriters' Warrant, respectively, will be validly issued,
fully paid, nonassessable and free of preemptive rights and will conform to the
description thereof in the Prospectus (and, if the Prospectus is not in
existence, the most recent Preliminary Prospectus).
(w) No person has acted as a finder in connection with, or is
entitled to any commission, fee or other compensation or payment for services as
a finder for or for originating, or introducing the parties to, the transactions
contemplated herein and the Company will indemnify the Underwriters with respect
to any claim for finder's fees in connection herewith. Except as set forth in
the Registration Statement and the Prospectus (and, if the Prospectus is not in
existence, the most recent Preliminary Prospectus), the Company has no
management or financial consulting agreement with anyone. No promoter, officer,
director or stockholder of the Company is, directly or indirectly, affiliated or
associated with an NASD member and no securities of the Company have been
acquired by an NASD member, except as previously disclosed in writing to the
Underwriters.
(x) The Company has filed all federal, state, local and foreign tax
returns which are required to be filed through the date hereof, or has received
extensions thereof, and has paid all taxes shown on such returns and all
assessments received by it to the extent that the same are material and have
become due.
7
<PAGE>
(y) Neither the Company nor any director, officer, agent, employee
or other person associated with or acting on behalf of the Company has, directly
or indirectly: used any corporate funds for unlawful contributions, gifts,
entertainment, or other unlawful expenses relating to political activity; made
any unlawful payment to foreign or domestic government officials or employees or
to foreign or domestic political parties or campaigns from corporate funds;
violated any provision of the Foreign Corrupt Practices Act of 1977, as amended;
or made any bribe, rebate, payoff, influence payment, kickback, or other
unlawful payment. No transaction has occurred between or among the Company and
any of its officers or directors or any affiliates of any such officer or
director, that is required to be described in and is not described in the
Registration Statement and the Prospectus.
(z) Neither the Company nor any of its officers, directors or
affiliates (as defined in the Regulations), has taken or will take, directly or
indirectly, prior to the completion of the Offering, any action designed to
stabilize or manipulate the price of any security of the Company, or which has
caused or resulted in, or which might in the future reasonably be expected to
cause or result in, stabilization or manipulation of the price of any security
of the Company, to facilitate the sale or resale of any of the Securities or the
Option Securities.
(aa) Except as disclosed, the Company does not owe its corporate
counsel any shares of Common Stock as a result of their services in connection
with this offering.
2. Purchase, Sale and Delivery of the Securities and the Underwriters'
Warrants.
(a) On the basis of the representations, warranties, agreements and
covenants herein contained and subject to the terms and conditions herein set
forth, the Company agrees to issue and sell to the Underwriters, and the
Underwriters agree, to purchase from the Company, the number of Firm Shares as
set forth opposite its name on Schedule 1 annexed hereto, at a purchase price of
between $10.00 and $12.00, less a 7% discount for commissions.
(b) Certificates in definitive form for the Firm Securities that the
Underwriters have agreed to purchase hereunder, and in such denomination or
denominations and registered in such name or names as the Underwriters request
upon notice to the Company at least 48 hours prior to the Firm Closing Date, as
hereinafter defined, shall be delivered by or on behalf of the Company to the
Underwriters, against payment by or on behalf of the Underwriters of the
purchase prices therefor by wire transfer of immediately available funds to a
bank account specified by the Company. Such delivery of the Firm Securities
shall be made at the offices of counsel for the Underwriters, 101 East 52nd
Street, New York, New York at 9:30 A.M., New York City time on June 1999, within
ten (10) business days from the Effective Date, or at such other place, time or
date as the Underwriters and the Company may agree upon, such time and date of
delivery against payment being herein referred to as the "Firm Closing Date."
The Company will make such certificates for the Firm Securities available for
checking and packaging by the Underwriters, at such offices as may be designated
by the Underwriters, at least 24 hours prior to the Firm Closing Date. In lieu
of physical delivery, the closing may occur by "DTC" delivery.
8
<PAGE>
(c) For the purpose of covering any over-allotments in connection
with the distribution and sale of the Firm Securities as contemplated by the
Prospectus, the Company hereby grants to the Underwriters an option to purchase
any or all of the Option Shares, which options are exercisable by the
Underwriters on behalf of and for the account of the Underwriters. The purchase
price to be paid for any of the Option Shares shall be the same price per share
for the Firm Securities set forth above in paragraph (a) of this Section 2. The
option granted hereby may be exercised as to all or any part of the Option
Shares from time to time within 45 calendar days after the Firm Closing Date.
The Underwriters shall not be under any obligation to purchase any of the Option
Shares prior to the exercise of such option. The Underwriters may, from time to
time, exercise the option granted hereby by giving notice in writing or by
telephone (confirmed in writing), to the Company setting forth the aggregate
number of Option Shares as to which the Underwriters are then exercising the
option and the date and time for delivery of and payment for such Option Shares.
Any such date of delivery shall be determined by the Underwriters but shall not
be earlier than two business days or later than three business days after such
exercise of the option and, in any event, shall not be earlier than the Firm
Closing Date. The time and date set forth in such notice, or such other time on
such other date as the Underwriters and the Company may agree upon, is herein
called the "Option Closing Date" with respect to such Option Shares. Upon
exercise of the option as provided herein, the Company shall become obligated to
sell to the Underwriters, and, subject to the terms and conditions herein set
forth, the Underwriters shall become obligated to purchase from the Company, the
Option Shares as to which the Underwriters are then exercising its option. If
the option is exercised as to all or any portion of the Option Shares,
certificates in definitive form for such Option Shares, and payment therefor,
shall be delivered on the related Option Closing Date in the manner, and upon
the terms and conditions, set forth in paragraph (b) of this Section 2, except
that reference therein to the Firm Securities and the Firm Closing Date shall be
deemed, for purposes of this paragraph (c), to refer to such Option Shares and
Option Closing Date, respectively.
(d) On the Firm Closing Date, the Company will further issue and
sell to the Underwriters or, at the direction of the Underwriters, to bona fide
officers of the Underwriters, for an aggregate purchase price of $10, warrants
to purchase Common Stock (the "Underwriters' Warrant") entitling the holders
thereof to purchase an aggregate of 200,000 shares of Common Stock for a period
of four years, such period to commence on the first anniversary of the Effective
Date. The Underwriters' Warrant shall be exercisable at a price equal to 150% of
the public offering price of the Common Stock, and shall contain terms and
provisions more fully described herein below and as set forth more particularly
in the warrant agreement relating to the Underwriters' Warrant to be executed by
the Company on the Effective Date (the "Underwriters' Warrant Agreement"),
including, but not limited to, (i) customary anti-dilution provisions in the
event of stock dividends, split mergers, sales of all or substantially all of
the Company's assets, sales of stock below then prevailing market or exercise
prices and other events, and (ii) prohibitions of mergers, consolidations or
other reorganizations of or by the Company or the taking by the Company of other
action during the five-year period following the Effective Date unless adequate
provision is made to preserve, in substance, the rights and powers incidental to
the Underwriters' Warrant. As provided in the Underwriters' Warrant Agreement,
the Underwriters may designate that the Underwriters' Warrant be issued in
varying amounts directly to bona fide officers of the Underwriters. As further
provided, no sale, transfer, assignment, pledge or hypothecation of the
Underwriters' Warrant shall be made
9
<PAGE>
for a period of 12 months from the Effective Date, except (i) by operation of
law or reorganization of the Company, or (ii) to the Underwriters and bona fide
partners, officers of the Underwriters and selling group members.
3. Offering by the Underwriters. The Underwriters propose to offer the
Firm Securities for sale to the public upon the terms set forth in the
Prospectus (the "Offering").
4. Covenants of the Company. The Company covenants and agrees with the
Underwriters that:
(a) The Company will use its best efforts to cause the Registration
Statement, if not effective at the time of execution of this Agreement, to
become effective as promptly as possible. If required, the Company will file the
Prospectus and any amendment or supplement thereto with the Commission in the
manner and within the time period required by Rule 424(b) under the Act. During
any time when a prospectus relating to the Securities is required to be
delivered under the Act, the Company (i) will comply with all requirements
imposed upon it by the Act and the rules and regulations of the Commission
thereunder to the extent necessary to permit the continuance of sales of or
dealings in the Securities in accordance with the provisions hereof and of the
Prospectus, as then amended or supplemented, and (ii) will not file with the
Commission any prospectus or amendment referred to in the first sentence of
section (a) (i) hereof, any amendment or supplement to such prospectus or any
amendment to the Registration Statement as to which the Underwriters shall not
previously have been advised and furnished with a copy for a reasonable period
of time prior to the proposed filing and as to which filing the Underwriters
shall not have given their consent. The Company will prepare and file with the
Commission, in accordance with the rules and regulations of the Commission,
promptly upon request by the Underwriters or counsel to the Underwriters, any
amendments to the Registration Statement or amendments or supplements to the
Prospectus that may be necessary or advisable in connection with the
distribution of the Securities by the Underwriters, and will use its best
efforts to cause any such amendment to the Registration Statement to be declared
effective by the Commission as promptly as possible. The Company will advise the
Underwriters, promptly after receiving notice thereof, of the time when the
Registration Statement or any amendment thereto has been filed or declared
effective or the Prospectus or any amendment or supplement thereto has been
filed and will provide evidence satisfactory to the Underwriters of each such
filing or effectiveness.
(b) The Company will advise the Underwriters, promptly after
receiving notice or obtaining knowledge thereof, of (i) the issuance by the
Commission of any stop order suspending the effectiveness of the Registration
Statement or any order preventing or suspending the use of any Preliminary
Prospectus or the Prospectus or any amendment or supplement thereto, (ii) the
suspension of the qualification of any Securities for offering or sale in any
jurisdiction, (iii) the institution, threat or contemplation of any proceeding
for any such purpose, or (iv) any request made by the Commission for amending
the Registration Statement, for amending or supplementing the Prospectus or for
additional information. The Company will use its best efforts to prevent the
issuance of any such stop order and, if any such stop order is issued, to obtain
the withdrawal thereof as promptly as possible.
10
<PAGE>
(c) The Company will, in cooperation with counsel to the
Underwriters, arrange for the qualification of the Securities for offering and
sale under the blue sky or securities laws of such jurisdictions as the
Underwriters may designate and will continue such qualifications in effect for
as long as may be necessary to complete the distribution of the Securities.
(d) If, at any time when a prospectus relating to the Securities is
required to be delivered under the Act, any event occurs as a result of which
the Prospectus, as then amended or supplemented, would include any untrue
statement of a material fact or omit to state a material fact necessary in order
to make the statements therein, in the light of the circumstances under which
they were made, not misleading, or if for any other reason it is necessary at
any time to amend or supplement the Prospectus to comply with the Act or the
rules or regulations of the Commission thereunder, the Company will promptly
notify the Underwriters thereof and, subject to Section 4(a) hereof, will
prepare and file with the Commission, at the Company's expense, an amendment to
the Registration Statement or an amendment or supplement to the Prospectus that
corrects such statement or omission or effects such compliance.
(e) Intentionally left blank.
(f) The Company will, without charge, provide to the Underwriters
and to counsel for the Underwriters (i) as many signed copies of the
registration statement originally filed with respect to the Securities and each
amendment thereto (in each case including exhibits thereto) as the Underwriters
may reasonably request, (ii) as many conformed copies of such registration
statement and each amendment thereto (in each case without exhibits thereto) as
the Underwriters may reasonably request, and (iii) so long as a prospectus
relating to the Securities is required to be delivered under the Act, as many
copies of each Preliminary Prospectus or the Prospectus or any amendment or
supplement thereto as the Underwriters may reasonably request.
(g) The Company, as soon as practicable, will make generally
available to its security holders and to the Underwriters an earnings statement
of the Company that satisfies the provisions of Section 11 (a) of the Act and
Rule 158 thereunder.
(h) The Company will reserve and keep available for issuance that
maximum number of authorized but unissued shares of Common Stock which are
issuable upon exercise of any outstanding warrants and the Underwriters' Warrant
(including the underlying securities) outstanding from time to time.
(i) The Company will apply the net proceeds from the sale of the
Securities being sold by it as set forth under "Use of Proceeds" in the
Prospectus.
(j) Intentionally left blank.
(k) Prior to the Closing Date or the Option Closing Date (if any),
the Company will not, directly or indirectly, without prior written consent of
the Underwriters, issue any press release or other public announcement or hold
any press conference with respect to the Company or
11
<PAGE>
its activities with respect to the Offering (other than trade releases issued in
the ordinary course of the Company's business consistent with past practices
with respect to the Company's operations).
(l) If, at the time that the Registration Statement becomes
effective, any information shall have been omitted therefrom in reliance upon
Rule 430A under the Act, then immediately following the execution of this
Agreement, the Company will prepare, and file or transmit for filing with the
Commission in accordance with Rule 430A and Rule 424(b) under the Act, copies of
the Prospectus including the information omitted in reliance on Rule 430A, or,
if required by such Rule 430A, a post-effective amendment to the Registration
Statement (including an amended Prospectus), containing all information so
omitted.
(m) The Company will assist the Underwriters in causing the
Securities to be listed on the American Stock Exchange on the Effective Date and
to maintain such listing thereafter.
(n) During the period of five years from the Firm Closing Date, the
Company will, as promptly as possible, not to exceed 135 days, after each annual
fiscal period render and distribute reports to its stockholders which will
include audited statements of its operations and changes of financial position
during such period and its audited balance sheet as of the end of such period,
as to which statements the Company's independent certified public accountants
shall have rendered an opinion and shall timely file all reports required to be
filed under the securities laws.
(o) During a period of five years commencing with the Firm Closing
Date, the Company will furnish to the Underwriters, at the Company's expense,
copies of all periodic and special reports furnished to stockholders of the
Company and of all information, documents and reports filed with the Commission.
(p) The Company has appointed Continental Stock Transfer & Trust
Company as transfer agent for the Common Stock, subject to the Closing. The
Company will not change or terminate such appointment for a period of three
years from the Firm Closing Date without first obtaining the written consent of
the Underwriters. For a period of three years after the Effective Date, the
Company shall cause the transfer agent to deliver promptly to the Underwriters a
duplicate copy of the daily transfer sheets relating to trading of the
Securities. The Company shall also provide to the Underwriters, on a weekly
basis, copies of the DTC special securities positions listing report.
(q) During the period of 180 days after the date of this Agreement,
the Company will not at any time, directly or indirectly, take any action
designed to or that will constitute, or that might reasonably be expected to
cause or result in, the stabilization of the price of the Common Stock to
facilitate the sale or resale of any of the Securities.
(r) The Company will not take any action to facilitate the sale of
any shares of Common Stock pursuant to Rule 144 under the Act if any such sale
would violate any of the terms of the Lock-up Agreements.
(s) Prior to the 120th day after the Firm Closing Date, the Company
will provide
12
<PAGE>
the Underwriters and their designees with four bound volumes of the transaction
documents relating to the Registration Statement and the closing(s) hereunder,
in form and substance reasonably satisfactory to the Underwriters, as well as 14
traditional locite cubes and four plaques to commemorate the offering.
(t) The Company shall consult with the Underwriters prior to the
distribution to third parties of any financial information news releases or
other publicity regarding the Company, its business, or any terms of this
offering and the Underwriters will consult with the Company prior to the
issuance of any research report or recommendation concerning the Company's
securities. Copies of all documents that the Company or its public relations
firm intend to distribute will be provided to the Underwriters for review prior
to such distribution.
(u) The Company and the Underwriters will advise each other
immediately in writing as to any investigation, proceeding, order, event or
other circumstance, or any threat thereof, by or relating to the Commission or
any other governmental authority, that could impair or prevent the Offering.
Except as required by law or as otherwise mutually agreed in writing, neither
the Company nor the Underwriters will acquiesce in such circumstances and each
will actively defend any proceedings or orders in that connection.
(v) The Company shall first submit to the Underwriters certificates
representing the Securities for approval prior to printing, and shall, as
promptly as possible, after filing the Registration Statement with the
Commission, obtain CUSIP numbers for the Securities.
(w) The Company will prepare and file a registration statement with
the Commission pursuant to section 12 of the 1934 Act, and will use its best
efforts to have such registration statement declared effective by the Commission
on an accelerated basis on the day after the Effective Date. For this purpose
the Company shall prepare and file with the Commission a General Form of
Registration of Securities (Form 8-A or Form 10).
(x) For so long as the Securities are registered under the 1934 Act,
the Company will hold an annual meeting of stockholders for the election of
directors within 180 days after the end of each of the Company's fiscal years
and within 135 days after the end of each of the Company's fiscal years will
provide the Company's stockholders with the audited financial statements of the
Company as of the end of the fiscal year just completed prior thereto. Such
financial statements shall be those required by Rule 14a-3 under the 1934 Act
and shall be included in an annual report pursuant to the requirements of such
Rule.
(y) The Company will take all necessary and appropriate actions to
be included in Standard and Poor's Corporation Descriptions or other equivalent
manual and to maintain its listing therein for a period of five (5) years from
the Effective Date. Such application shall be made on an accelerated basis no
more than two days following the Effective Date.
(z) On or prior to the Effective Date, the Company will give written
instructions to the transfer agent for the Common Stock directing said transfer
agent to place stop-order
13
<PAGE>
restrictions against, and appropriate legends advising of the Lock-Up Agreements
on, the certificates representing the securities of the Company owned by the
persons who have entered into the Lock-up Agreements.
(aa) For a period of two years following the Effective Date, the
Company will not issue any shares of Common Stock or Securities convertible into
Common Stock without the prior written consent of the Underwriters, except that
the Company may issue (i) option to purchase Common Stock under the Company's
Stock Option Plan and the shares underlying such options; and (ii) the Company
may issue securities for acquisitions where such acquisitions would not have a
materially adverse effect on the financial condition of the Company.
4. Expenses
(a) The Company shall pay all costs and expenses incident to the
performance of its obligations under this Agreement, whether or not the
transactions contemplated hereby are consummated or this Agreement is terminated
pursuant to Section 10 hereof, including all costs and expenses incident to (i)
the preparation, printing and filing or other production of documents with
respect to the transactions, including any costs of printing the Registration
Statement originally filed with respect to the Securities and any amendment
thereto, any Preliminary Prospectus and the Prospectus and any amendment or
supplement thereto, this Agreement, the selected dealer agreement and the other
agreements and documents governing the underwriting arrangements and any blue
sky memoranda, (ii) all reasonable and necessary arrangements relating to the
delivery to the Underwriters of copies of the foregoing documents, and the costs
and expenses of the Underwriters in mailing or otherwise distributing the same
including telephone charges, duplications and other accountable expenses, (iii)
the fees and disbursements of the counsel, the accountants and any other experts
or advisors retained by the Company, (iv) the preparation, issuance and delivery
to the Underwriters of any certificates evidencing the Securities, including
transfer agent's, warrant agent's and registrar's fees or any transfer or other
taxes payable thereon, (v) the qualification of the Securities under state blue
sky or securities laws, including filing fees and fees and disbursements of
counsel relating thereto and any fees and disbursements of local counsel, if
any, retained for such purpose, (vi) the filing fees of the Commission and the
NASD relating to the Securities, (vii) the inclusion of the Securities on The
American Stock Exchange and in the Standard and Poor's Corporation Descriptions
Manual, (viii) any "road shows" or other meetings with prospective investors in
the Securities, including transportation, accommodation, meal, conference room,
audio-visual presentation and similar expenses, but not including such expenses
for the Underwriters or their Underwriters or designees in excess of $15,000 and
(ix) the publication of "tombstone advertisements" in newspapers or other
publications selected by the Underwriters, and the manufacture of prospectus
memorabilia. In addition to the foregoing, the Company, shall reimburse the
Underwriters for its expenses on the basis of a non-accountable expense
allowance in the amount of 3.00% of the gross offering proceeds to be received
by the Company. The non-accountable expense allowance, based on the gross
proceeds from the sale of the Firm Securities, shall be deducted from the funds
to be paid by the Underwriters in payment for the Firm Securities, pursuant to
Section 2 of this Agreement, on the Firm Closing Date. To the extent any Option
Shares are sold, any remaining non-accountable expense allowance based on the
gross proceeds from the sale of the
14
<PAGE>
Option Shares shall be deducted from the funds to be paid by the Underwriters in
payment for the Option Shares, pursuant to Section 2 of this Agreement, on the
Option Closing Date. The Company warrants, represents and agrees that all such
payments and reimbursements will be promptly and fully made. The Underwriters
acknowledged that $70,000 of such non-accountable expense allowance has been
previously paid to one of the underwriters, Security Capital Trading, Inc.,
which amount will be offset against the 3%.
(b) Notwithstanding any other provision of this Agreement, if the
Offering is terminated in accordance with the provisions of Section 6 or Section
10, the Company agrees that, in addition to the Company paying its own expenses
as described in subparagraph (a) above, the Company shall reimburse the
Underwriters for its actual accountable out-of-pocket expenses (in addition to
blue sky legal fees and expenses referred to in subparagraph (a) above) net of
the $70,000 which has previously been advanced to the Underwriters, up to a
maximum of $70,000. Such expenses shall include, but are not to be limited to,
fees for the services and time of counsel for the Underwriters to the extent not
covered by clause (a) above, plus any additional expenses and fees, including,
but not limited to, travel expenses, postage expenses, duplication expenses,
long-distance telephone expenses, and other expenses incurred by the
Underwriters in connection with the proposed offering.
5. Intentionally left blank.
6. Conditions of the Underwriters' Obligations. The obligations of the
Underwriters to purchase and pay for the Firm Shares shall be subject, in the
Underwriters' sole discretion, to the accuracy of the representations and
warranties of the Company contained herein as of the date hereof and as of the
Firm Closing Date as if made on and as of the Firm Closing Date, to the accuracy
of the statements of the Company's officers made pursuant to the provisions
hereof, to the performance by the Company of its covenants and agreements
hereunder and to the following additional conditions:
(a) If the Registration Statement, as heretofore amended, has not
been declared effective as of the time of execution hereof, the Registration
Statement, as heretofore amended or as amended by an amendment thereto to be
filed prior to the Firm Closing Date, shall have been declared effective not
later than 5:30 P.M., New York City time, on the date on which the amendment to
such Registration Statement containing information regarding the initial public
offering price of the Securities has been filed with the Commission, or such
later time and date as shall have been consented to by the Underwriters; if
required, the Prospectus and any amendment or supplement thereto shall have been
filed with the Commission in the manner and within the time period required by
Rule 424(b) under the Act, no stop order suspending the effectiveness of the
Registration Statement shall have been issued, and no proceedings for that
purpose shall have been instituted or threatened or, to the knowledge of the
Company or the Underwriters, shall be contemplated by the Commission; and the
Company shall have complied with any request of the Commission for additional
information (to be included in the Registration Statement or the Prospectus or
otherwise).
15
<PAGE>
(b) The Underwriters shall have received an opinion, dated the Firm
Closing Date, of Silverman, Collura & Chernis, P.C. counsel to the Company,
substantially to the effect that:
(1) the Company has been duly incorporated and is validly
existing as a corporation in good standing under the laws of the jurisdiction of
its organization and is duly qualified to transact business as a foreign
corporation and is in good standing under the laws of each other jurisdiction in
which its ownership or leasing of any properties or the conduct of its business
requires such qualification, except where the failure to be in good standing or
so qualify would not have a materially adverse effect upon the Company;
(2) the Company has full corporate power and authority to own
or lease its property and conduct its business as it is now being conducted and
as it is proposed to be conducted, as described in the Registration Statement
and the Prospectus, and the Company has full corporate power and authority to
enter into this Agreement and the Underwriters' Warrant Agreement and to carry
out all the terms and provisions hereof and thereof to be carried out by it;
(3) to the knowledge of such counsel, there are no outstanding
options, warrants or other rights granted by the Company to purchase shares of
its Common Stock, preferred stock or other securities other than as described in
the Prospectus; the Shares have been duly authorized and the Underwriters'
Warrant Shares have been duly reserved for issuance by all necessary corporate
action on the part of the Company and the Shares when issued and delivered to
and paid for by the Underwriters, pursuant to this Agreement, the Underwriters'
Warrant when issued and delivered and paid for in accordance with this Agreement
and the Underwriters' Warrant Agreement by the Underwriters, and the
Underwriters' Warrant Shares when issued upon payment of the exercise price
specified in the Underwriters' Warrant, will be validly issued, fully paid,
nonassessable and free of preemptive rights and will conform to the description
thereof in the Prospectus; to the knowledge of such counsel, no holder of
outstanding securities of the Company is entitled as such to any preemptive or
other right to subscribe for any of the Shares or the Underwriters' Warrant
Shares; and to the knowledge of such counsel, no person is entitled to have
securities registered by the Company under the Registration Statement or
otherwise under the Act other than as described in the Prospectus;
(4) the execution and delivery of this Agreement and the
Underwriters' Warrant Agreement have been duly authorized by all necessary
corporate action on the part of the Company and this Agreement and the
Underwriters' Warrant Agreement have been duly executed and delivered by the
Company, and each is a valid and binding agreement of the Company, enforceable
against the Company in accordance with its terms, except as enforceability may
be limited by bankruptcy, insolvency, reorganization, fraudulent conveyance,
moratorium and other similar laws affecting creditors' rights generally and by
general principles of equity (regardless of whether enforcement is considered in
a proceeding in equity or at law) and except as rights to indemnity and
contribution under this Agreement and the Underwriters' Warrant Agreement may be
limited by applicable securities laws and the public policy underlying such
laws;
(5) the Underwriters' Warrant is duly authorized and upon
payment of the
16
<PAGE>
purchase price therefore specified in Section 2(d) of this Agreement will be
validly issued and constitute valid and binding obligations of the Company; and
the certificates representing the Securities are in due and proper form under
law;
(6) the statements set forth in the Prospectus under the
caption "Description of Securities" insofar as those statements purport to
summarize the terms of the capital stock and warrants of the Company, provide a
fair summary of such terms; to the knowledge of such counsel, the statements set
forth in the Prospectus describing statutes and regulations and the descriptions
of the consequences to the Company under such statutes and regulations are fair
summaries of the information set forth therein and are accurate in all material
respects; to the knowledge of such counsel, the statements in the Prospectus,
insofar as those statements constitute summaries of the contracts, instruments,
leases or licenses referred to therein, constitute a fair summary in all
material respects of those contracts, instruments, leases or licenses and
include all material terms thereof, as applicable;
(7) none of (A) the execution and delivery of this Agreement
and the Underwriters' Warrant Agreement, (B) the issuance, offering and sale by
the Company to the Underwriters of the Securities pursuant to this Agreement and
the Underwriters' Warrant Shares pursuant to the Underwriters' Warrant
Agreement, or (C) the compliance by the Company with the other provisions of
this Agreement and the Underwriters' Warrant Agreement and the consummation of
the transactions contemplated hereby and thereby, to the knowledge of such
counsel (1) requires the consent, approval, authorization, registration or
qualification of or with any court or governmental authority known to us, except
such as have been obtained and such as may be required under state blue sky or
securities laws as to which we express no opinion, or (2) conflicts with or
results in a breach or violation of, or constitutes a default under, any
material contract, indenture, mortgage, deed of trust, loan agreement, note,
lease or other material agreement or instrument known to such counsel to which
the Company is a party or by which the Company or any of its property is bound
or subject, or the certificate of incorporation or by-laws of the Company, or
any material statute or any judgment, decree, order, rule or regulation of any
court or other governmental or regulatory authority known to us applicable to
the Company;
(8) to the knowledge of such counsel, (A) no legal or
governmental proceedings are pending to which the Company is a party or to which
the property of the Company is subject except those arising in the ordinary
course of business and fully covered by insurance and (B) no contract or other
document is required to be described in the Registration Statement or the
Prospectus or to be filed as an exhibit to the Registration Statement that is
not described therein or filed as required;
(9) to the knowledge of such counsel, the Company possesses
adequate licenses, orders, authorizations, approvals, certificates or permits
issued by the appropriate federal, state or local regulatory agencies or bodies
necessary to conduct its business as described in the Registration Statement and
the Prospectus, and, there are no pending or threatened proceedings relating to
the revocation or modification of any such license, order, authorization,
approval, certificate or permit, except as disclosed in the Registration
Statement and the Prospectus, which
17
<PAGE>
would have a material adverse effect on the Company;
(10) the Company is not in violation or breach of, or in
default with respect to, any term of its certificate of incorporation or
by-laws, and to the knowledge of such counsel, the Company is not in (i)
violation in any material respect of any law, statute, regulation, ordinance,
rule, order, judgment or decree of any court or any governmental or regulatory
authority applicable to it, or (ii) default in any material respect in the
performance or observance of any obligation, agreement, covenant or condition
contained in any material contract, indenture, mortgage, deed of trust, loan
agreement, note, lease or other material agreement or instrument to which it is
a party or by which it or any of its property may be bound or subject, and no
event has occurred which with notice, lapse of time or both would constitute
such a default;
(11) the Shares have been approved for inclusion on the
American Stock Exchange;
(12) the Registration Statement is effective under the Act;
any required filing of the Prospectus pursuant to Rule 424(b) has been made in
the manner and within the time period required by Rule 424(b); and to our
knowledge, no stop order suspending the effectiveness of the Registration
Statement or any amendment thereto has been issued, and no proceedings for that
purpose have been instituted or threatened or, to the best knowledge of such
counsel, are contemplated by the Commission;
(13) the Registration Statement originally filed with respect
to the Securities and each amendment thereto and the Prospectus (in each case,
other than the financial statements, the notes, schedules and other financial
and statistical information contained therein, as to which such counsel need
express no opinion) comply as to form in all material respects with the
applicable requirements of the Act and the rules and regulations of the
Commission thereunder; and
(14) the Company is not an "investment company" as defined in
Section 3(a) of the Investment Company Act of 1940 and, if the Company conducts
its business as set forth in the Prospectus, it will not become an "investment
company" and will not be required to register under the Investment Company.
Such counsel also shall state in its opinion that it has
participated in the preparation of the Registration Statement and the Prospectus
and that nothing has come to its attention that has caused it to believe that
the Registration Statement, at the time it became effective (including the
information deemed to be a part of the Registration Statement at the time of
effectiveness pursuant to Rule 430A(b), if applicable), contained an untrue
statement of a material fact or omitted to state a material fact required to be
stated therein or necessary to make the statements therein not misleading or
that the Prospectus, as of its date or as of the Firm Closing Date, contained an
untrue statement of material fact or omitted to state a material fact necessary
in order to make the statements therein, in the light of the circumstances under
which they were made, not misleading.
In rendering any such opinion, such counsel may rely, as to matters
of fact, to the extent such
18
<PAGE>
counsel deems proper, on certificates of responsible officers of the Company and
public officials, copies of which certificates will be provided to the
Underwriters, and, as to matters of the laws of certain jurisdictions, on the
opinions of other counsel to the Company, which opinions shall also be delivered
to the Underwriters, in form and substance acceptable to the Underwriters, if
such other counsel expressly authorize such reliance and counsel to the Company
expressly states in their opinion that such counsel's and the Underwriters'
reliance upon such opinion is justified.
(c). 1. At the time this Agreement is executed, the Underwriters
shall have received a letter, dated such date, addressed to the Underwriters in
form and substance satisfactory (including the non-material nature of the
changes or decreases, if any, referred to in clause (iii) below) in all respects
to the Underwriters and Underwriters' counsel, from Richard A. Eisner & Company,
LLP:
a. confirming that it is a independent certified public
accountant with respect to the Company within the meaning of the Act and the
applicable Rules and Regulations;
b. stating that it is their opinion that the financial
statements of the Company included in the Registration Statement comply as to
form in all material respects with the applicable accounting requirements of the
Act and the Rules and Regulations thereunder and that the Underwriters may rely
upon the opinion of Richard A. Eisnor & Company, LLP with respect to the
financial statements included in the Registration Statement;
c. stating that, on the basis of a limited review which
included a reading of the latest available unaudited interim financial
statements of the Company, a reading of the latest available minutes of the
stockholders and board of directors and the various committees of the boards of
directors of the Company, consultations with officers and other employees of the
Company responsible for financial and accounting matters and other specified
procedures and inquiries (which, as to the interim financial statements included
in the Registration Statement, shall constitute a review as described in SAS No.
71, Interim Financial Statements), nothing has come to Richard A. Eisnor &
Company, LLP attention which would lead them to believe that (i) the unaudited
financial statements of the Company included in the Registration Statement do
not comply as to form in all material respects with the applicable accounting
requirements of the Act and the Rules and Regulations or are not fairly
presented in conformity with generally accepted accounting principles applied on
a basis substantially consistent with that of the audited financial statements
of the Company included in the Registration Statement, or (ii) at a specified
date not more than five (5) days prior to the Effective Date, there has been any
change in the capital stock or long-term debt of the Company, or any decrease in
the stockholders' equity or net current assets or net assets of the Company as
compared with amounts shown in the December 31, 1999 balance sheet included in
the Registration Statement, other than as set forth in or contemplated by the
Registration Statement, or, if there was any change or decrease, setting forth
the amount of such change or decrease, and (iii) during the period from December
31, 1999 to a specified date not more than five (5) days prior to the Effective
Date, there was any decrease (increase) in net revenues, net income (loss) or in
net earnings (loss) per common share of the Company, in each case as compared
with the corresponding period December 31, 1999 beginning, other than as set
forth in or contemplated by the Registration
19
<PAGE>
Statement, or, if there was any such decrease, setting forth the amount of such
decrease (increase);
d. setting forth, at a date not later than five (5) days prior
to the Effective Date, the amount of liabilities of the Company;
e. stating that they have compared specific dollar amounts,
numbers of shares, percentages of revenues and earnings, statements and other
financial information pertaining to the Company set forth in the Prospectus in
each case to the extent that such amounts, numbers, percentages, statements and
information may be derived from the general accounting records, including work
sheets, of the Company and excluding any questions requiring an interpretation
by legal counsel, with the results obtained from the application of specified
readings, inquiries and other appropriate procedures (which procedures do not
constitute an examination in accordance with generally accepted auditing
standards) set forth in the letter and found them to be in agreement; and
f. statements as to such other matters incident to the
transaction contemplated hereby as the Underwriters may request.
2. At the Firm Closing Date and the Option Closing Date, if
any, the Underwriters shall have received from Richard A. Eisner & Company, LLP,
a letter, dated as of the Firm Closing Date or the Option Closing Date, as the
case may be, to the effect that it reaffirms that statements made in the letter
furnished pursuant to subsection A of this Section 6(c), except that the
specified date referred to shall be a date not more than five (5) days prior to
the Firm Closing Date or the Option Closing Date, as the case may be, and, if
the Company has elected to rely on Rule 430A of the Rules and Regulations, to
the further effect that they have carried out procedures as specified in clause
(e) of subsection (1) of this Section 6(c) with respect to certain amounts,
percentages and financial information as specified by the Underwriters and
deemed to be a part of the Registration Statement pursuant to Rule 430A(b) and
have found such amounts, percentages and financial information to be in
agreement with the records specified in such clause (e).
(d) The representations and warranties of the Company contained in
this Agreement shall be true and correct as if made on and as of the Firm
Closing Date; the Registration Statement shall not include any untrue statement
of a material fact or omit to state any material fact required to be stated
therein in order to make the statements therein not misleading, and the
Prospectus, as amended or supplemented as of the Firm Closing Date, shall not
include any untrue statement of a material fact or omit to state any material
fact necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading; and the Company shall
have performed all covenants and agreements and satisfied all conditions on its
part to be performed or satisfied at or prior to the Firm Closing Date.
(e) No stop order suspending the effectiveness of the Registration
Statement or any amendment thereto shall have been issued, and no proceedings
for that purpose shall have been instituted or threatened or contemplated by the
Commission.
(f) Subsequent to the respective dates as of which information is
given in the
20
<PAGE>
Registration Statement and the Prospectus, there shall not have been any
material adverse change, or any development involving a prospective material
adverse change, in the business, operations, condition (financial or otherwise),
earnings or prospects of the Company, except in each case as described in or
contemplated by the Prospectus (exclusive of any amendment or supplement
thereto).
(g) The Underwriters shall have received a certificate, dated the
Firm Closing Date, of the Chief Executive Officer and the Secretary of the
Company to the effect set forth in subparagraphs (d) through (f) above.
(h) The Common Stock shall be qualified in such jurisdictions as the
Underwriters may reasonably request pursuant to Section 4(c), and each such
qualification shall be in effect and not subject to any stop order or other
proceeding on the Firm Closing Date.
(i) The Company shall have executed and delivered to the
Underwriters the Underwriters' Warrant Agreement and a certificate or
certificates evidencing the Underwriters' Warrant, in each case in a form
acceptable to the Underwriters.
(j) The Underwriters shall have received Lock-up Agreements executed
by primarily all of the company's stockholders.
(K) On or before the Firm Closing Date, the Underwriters and counsel
for the Underwriters shall have received such further certificates, documents,
letters or other information as they may have reasonably requested from the
Company and other security holders of the Company.
All opinions, certificates, letters and documents delivered pursuant to
this Agreement will comply with the provisions hereof only if they are
reasonably satisfactory in all material respects to the Underwriters and counsel
for the Underwriters. The Company shall furnish to the Underwriters such
conformed copies of such opinions, certificates, letters and documents in such
quantities as the Underwriters and counsel for the Underwriters shall reasonably
request.
The obligation of the Underwriters to purchase and pay for any Option
Shares shall be subject, in its discretion, to each of the foregoing conditions,
except that all references to the Firm Securities and the Firm Closing Date
shall be deemed to refer to such Option Shares and the related Option Closing
Date, respectively.
7. Indemnification and Contribution.
(a) The Company agrees to indemnify and hold harmless the
Underwriters and each person, if any, who controls the Underwriters within the
meaning of Section 15 of the Act or Section 20 of the 1934 Act against any
losses, claims, damages, or liabilities, joint or several, to which the
Underwriters, or such controlling person may become subject under the Act or
otherwise, insofar as such losses, claims, damages or liabilities (or actions in
respect thereof) arise out of or are based upon:
21
<PAGE>
(1) any untrue statement or alleged untrue statement of any
material fact contained in (A) the Registration Statement or any amendment
thereto, any Preliminary Prospectus or the Prospectus or any amendment or
supplement thereto, or (B) any application or other document, or any amendment
or supplement thereto, executed by the Company or based upon written information
furnished by or on behalf of the Company filed in any jurisdiction in order to
qualify the Securities under the Blue Sky or securities laws thereof or filed
with the Commission or any securities association or securities exchange (each
an "Application"), or
(2) the omission or alleged omission to state in such
Registration Statement or any amendment thereto, any Preliminary Prospectus or
the Prospectus or any amendment or supplement thereto, or any Application a
material fact required to be stated therein or necessary to make the statements
therein not misleading, and will reimburse, as incurred, the Underwriters and
such controlling person for any legal or other expenses reasonably incurred by
the Underwriters or such controlling person in connection with investigating or
defending against any loss, claim, damage, liability, action, investigation,
litigation or proceeding; provided, however, that the Company will not be liable
in any such case to the extent that any such loss, claim, damage or liability
arises out of or is based upon any untrue statement or alleged untrue statement
or omission or alleged omission made in such Registration Statement or any
amendment thereto, any Preliminary Prospectus, the Prospectus or any amendment
or supplement thereto, or any Application in reliance upon and in conformity
with written information furnished to the Company by the Underwriters,
specifically for use therein. This indemnity agreement will be in addition to
any liability which the Company may otherwise have. The Company will not,
without the prior written consent of the Underwriters, or controlling person,
settle or compromise or consent to the entry of any judgment in any pending or
threatened claim, action, suit or proceeding in respect of which indemnification
may be sought hereunder (whether or not the Underwriters or any person who
controls the Underwriters or within the meaning of Section 15 of the Act or
Section 20 of the 1934 Act is a party to such claim, action, suit or
proceeding), unless such settlement, compromise or consent includes an
unconditional release of the Underwriters and each such controlling person from
all liability arising out of such claim, action, suit or proceeding.
(b) The Underwriters will indemnify and hold harmless the Company,
each of its directors, each of its officers who signed 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 1934 Act against, any losses,
claims, damages or liabilities to which the Company or any such director,
officer, or controlling person may become subject under the Act or otherwise,
but only insofar as such losses, claims, damages or liabilities (or actions in
respect thereof) arise out of or are based upon (i) any untrue statement or
alleged untrue statement of any material fact contained in the Registration
Statement or any amendment thereto, any Preliminary Prospectus or the Prospectus
or any amendment or supplement thereto, or any Application, or (ii) the omission
or the alleged omission to state therein a material fact required to be stated
in the Registration Statement or any amendment thereto, any Preliminary
Prospectus or the Prospectus or any amendment or supplement thereto, or any
Application, or necessary to make the statements therein not misleading, in each
case to the extent, but only to the extent, that such untrue statement or
alleged untrue statement or omission or alleged omission was made in reliance
upon and in conformity with written information furnished
22
<PAGE>
to the Company by the Underwriters specifically for use therein; and, subject to
the limitation set forth immediately preceding this clause, will reimburse, as
incurred, any legal or other expenses reasonably incurred by the Company or any
such director, officer, or controlling person in connection with investigating
or defending against any such loss, claim, damage, liability, action
investigation, litigation or proceedings, in respect thereof. This indemnity
agreement will be in addition to any liability which the Underwriters may
otherwise have.
(c) Promptly after receipt by an indemnified party under this
Section 7 of notice of the commencement of any action, such indemnified party
will, if a claim in respect thereof is to be made against the indemnifying party
under this Section 7, notify the indemnifying party of the commencement thereof;
but the omission so to notify the indemnifying party will not relieve it from
any liability which it may have to any indemnified party otherwise than under
this Section 7. In case any such action is brought against any indemnified
party, and it notifies the indemnifying party of the commencement thereof, the
indemnifying party will be entitled to participate therein and, to the extent
that it may wish, jointly with any other indemnifying party similarly notified,
to assume the defense thereof, with counsel satisfactory to such indemnified
party; provided, however, that if the defendants in any such action include both
the indemnified party and the indemnifying party and the indemnified party shall
have reasonably concluded that there may be one or more legal defenses available
to it and/or other indemnified parties which are different from or additional to
those available to the indemnifying party, the indemnifying party shall not have
the right to direct the defense of such action on behalf of such indemnified
party or parties and such indemnified party or parties shall have the right to
select separate counsel to defend such action on behalf of such indemnified
party or parties. After notice from the indemnifying party to such indemnified
party of its election so to assume the defense thereof and approval by such
indemnified party of counsel appointed to defend such action, the indemnifying
party will not be liable to such indemnified party under this Section 7 for any
legal or other expenses, other than reasonable costs of investigation,
subsequently incurred by such indemnified party in connection with the defense
thereof, unless (i) the indemnified party shall have employed separate counsel
in accordance with the proviso to the next preceding sentence or (ii) the
indemnifying party has authorized the employment of counsel for the indemnified
party at the expense of the indemnifying party. After such notice from the
indemnifying party to such indemnified party, the indemnifying party will not be
liable for the costs and expenses of any settlement of such action effected by
such indemnified party without the consent of the indemnifying party.
(d) In circumstances in which the indemnity obligation provided for
in the preceding paragraphs of this Section 7 is unavailable or insufficient to
hold harmless an indemnified party in respect of any losses, claims, damages or
liabilities (or actions in respect thereof), each indemnifying party, in order
to provide for just and equitable contribution, shall contribute to the amount
paid or payable by such indemnified party as a result of such losses, claims,
damages or liabilities (or actions in respect thereof) in such proportion as is
appropriate to reflect (i) the relative benefits received by the indemnifying
party or parties on the one hand and the indemnified party on the other from the
offering of the Securities, or (ii) if the allocation provided by the foregoing
clause (i) is not permitted by applicable law, not only such relative benefits
but also the relative fault of the indemnifying party or parties on the one hand
and the indemnified party on the other in connection
23
<PAGE>
with the statements or omissions or alleged statements or omissions that
resulted in such losses, claims, damages or liabilities (or actions in respect
thereof). The relative benefits received by the Company on the one hand and the
Underwriters on the other shall be deemed to be in the same proportion as the
total proceeds from the Offering (net of underwriting discounts and commissions
but before deducting expenses) received by the Company bear to the total
underwriting discounts and commissions received by the Underwriters. The
relative fault of the parties shall be determined by reference to, among other
things, whether the untrue or alleged untrue statement of a material fact or the
omission or alleged omission to state a material fact relates to information
supplied by the Company or the Underwriters, the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent such
statement or omission, and the other equitable considerations appropriate in the
circumstances. The Company and the Underwriters agree that it would not be
equitable if the amount of such contribution were determined by pro rata or per
capita allocation or by any other method of allocation that does not take into
account the equitable considerations referred to in the first sentence of this
paragraph (d). Notwithstanding any other provision of this paragraph (d), the
Underwriters shall not be obligated to make contributions hereunder that in the
aggregate exceed the total public offering price of the Securities purchased by
the Underwriters under this Agreement, less the aggregate amount of any damages
that the Underwriters has otherwise been required to pay in respect of the same
or any substantially similar claim, and no person guilty of fraudulent
misrepresentation (within the meaning of Section 11 (f) of the Act) shall be
entitled to contribution from any person who is not guilty of such fraudulent
misrepresentation. For purposes of this paragraph (d), each person, if any, who
controls an Underwriters within the meaning of Section 15 of the Act or Section
20 of the 1934 Act shall have the same rights to contribution as the
Underwriters, and each director of the Company, each officer of the Company who
signed 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 1934
Act, shall have the same rights to contribution as the Company.
8. Substitution of Underwriters.
If any Underwriters shall for any reason not permitted hereunder cancel
its obligations to purchase the Firm Securities hereunder, or shall fail to take
up and pay for the number of Firm Securities set forth opposite names in
Schedule 1 hereto upon tender of such Firm Securities in accordance with the
terms hereof, then:
(a) If the aggregate number of Firm Securities which such
Underwriters or Underwriters agreed but failed to purchase does not exceed 10%
of the total number of Firm Securities, the other Underwriters shall be
obligated to purchase the Firm Securities which such defaulting Underwriters
agreed but failed to purchase.
(b) If any Underwriters so defaults and the agreed number of Firm
Securities with respect to which such default or defaults occurs is more than
10% of the total number of Firm Securities, the remaining Underwriters shall
have the right to take up and pay for the Firm Securities which the defaulting
Underwriters agreed but failed to purchase. If such remaining Underwriters do
not, at the Firm Closing Date, take up and pay for the Firm Securities which the
defaulting
24
<PAGE>
Underwriters agreed but failed to purchase, the time for delivery of the Firm
Securities shall be extended to the next business day to allow the remaining
Underwriters the privilege of substituting within twenty-four hours (including
nonbusiness hours) another Underwriters or Underwriters satisfactory to the
Company. If no such Underwriters or Underwriters shall have been substituted as
aforesaid, within such twenty-four hour period, the time of delivery of the Firm
Securities may, at the option of the Company, be again extended to the next
following business day, if necessary, to allow the Company the privilege of
finding within twenty-four hours (including nonbusiness hours) another
Underwriters or Underwriters to purchase the Firm Securities which the
defaulting Underwriters or Underwriters agreed but failed to purchase. If it
shall be arranged for the remaining Underwriters or substituted Underwriters to
take up the Firm Securities of the defaulting Underwriters as provided in this
section, (i) the Company or the Underwriters shall have the right to postpone
the time of delivery for a period of not more than seven business days, in order
to effect whatever changes may thereby be made necessary in the Registration
Statement or the Prospectus, or in any other document or arrangements, and the
Company agrees promptly to file any amendments to the Registration Statement or
supplements to the Prospectus which may thereby be made necessary, and (ii) the
respective numbers of Firm Securities to be purchased by the remaining
Underwriters or substituted Underwriters shall be taken as the basis of the
underwriting obligation for all purposes of this agreement.
If in the event of a default by any Underwriters and the remaining
Underwriters shall not take up and pay for all the Firm Securities agreed to be
purchased by the defaulting Underwriters or substitute another Underwriters or
Underwriters as aforesaid, the Company shall not find or shall not elect to seek
another Underwriters or Underwriters for such Firm Securities as aforesaid, then
this Agreement shall terminate.
If, following exercise of the option provided in Section 2(c) hereof, any
Underwriters or Underwriters shall for any reason not permitted hereunder cancel
their obligations to purchase Option Shares at the Option Closing Date, or shall
fail to take up and pay for the number of Option Shares, which it became
obligated to purchase at the Option Closing Date upon tender of such Option
Shares in accordance with the terms hereof, then the remaining Underwriters or
substituted Underwriters may take up and pay for the Option Shares of the
defaulting Underwriters in the manner provided in Section 8(b) hereof. If the
remaining Underwriters or substituted Underwriters shall not take up and pay for
all such Option Shares, the Underwriters shall be entitled to purchase the
number of Option Shares for which there is no default or, at their election, the
option shall terminate, the exercise thereof shall be of no effect.
As used in this Agreement, the term "Underwriters" includes any person
substituted for an Underwriters under this Section. In the event of termination,
there shall be no liability on the part of any non-defaulting Underwriters to
the Company, provided that the provisions of this Section 8 shall not in any
event affect the liability of any defaulting Underwriters to the Company arising
out of such default.
9. Survival. The respective representations, warranties, agreements,
covenants, indemnities and other statements of the Company, any of its officers
or directors and the
25
<PAGE>
Underwriters set forth in this Agreement or made by or on behalf of them,
respectively, pursuant to this Agreement shall remain in full force and effect,
regardless of (i) any investigation made by or on behalf of the Company, any of
its officers or directors, the Underwriters or any controlling person referred
to in Section 7 hereof, and (ii) delivery of and payment for the Securities. The
respective agreements, covenants, indemnities and other statements set forth in
Sections 4 and 7 hereof shall remain in full force and effect, regardless of any
termination or cancellation of this Agreement.
10. Termination.
(a) This Agreement may be terminated with respect to the Firm
Securities or any Option Shares in the sole discretion of the Underwriters by
notice to the Company given prior to the Firm Closing Date or the related Option
Closing Date, respectively, in the event that the Company shall have failed,
refused or been unable to perform all obligations and satisfy all conditions on
its part to be performed or satisfied under Section 6 hereunder at or prior
thereto or if at or prior to the Firm Closing Date or such Option Closing Date,
respectively:
(1) the Company sustains a loss by reason of explosion, fire,
flood, accident or other calamity, which, in the opinion of the Underwriters,
substantially affects the value of the properties of the Company or which
materially interferes with the operation of the business of the Company
regardless of whether such loss shall have been insured;
(2) any action, suit or proceeding shall be threatened,
instituted or pending, at law or in equity, against the Company, by any person
or by any federal, state, foreign or other governmental or regulatory
commission, board or agency wherein any unfavorable result or decision could
materially adversely affect the business, operations, condition (financial or
otherwise), earnings or prospects of the Company;
(3) trading in the Common Stock shall have been suspended by
the Commission, the NASD or on Nasdaq, or trading in securities generally on the
New York Stock Exchange shall have been suspended or minimum or maximum prices
shall have been established on either such exchange or quotation system;
(4) there shall have been (A) an outbreak of hostilities
between the United States and any foreign power (or, in the case of any ongoing
hostilities, a material escalation thereof), (B) an outbreak of any other
insurrection or armed conflict involving the United States or (C) any other
calamity or crisis or material change in financial, political or economic
conditions, having an effect on the financial markets that, in any case referred
to in this clause (5), in the sole judgment of the Underwriters makes it
impracticable or inadvisable to proceed with the public offering or the delivery
of the Securities as contemplated by the Registration Statement; and
(5) termination of this Agreement pursuant to this Section 10
shall be without liability of any party to any other party, except as provided
in Section 5(b) and Section 7 hereof.
26
<PAGE>
11. Information Supplied by the Underwriters. The statements set forth in
the Underwriting section constitute the only information furnished by the
Underwriters to the Company for the purposes of Section 7(b) hereof. The
Underwriters confirms that such statements (to such extent) are correct.
12. Notices. All notice hereunder to or upon either party hereto shall be
deemed to have been duly given for all purposes if in writing and (i) delivered
in person or by messenger or an overnight courier service against receipt, or
(ii) sent by certified or registered mail, postage paid, return receipt
requested, or (iii) sent by telegram, facsimile, telex or similar means,
provided that a written copy thereof is sent on the same day by postage paid
first-class mail, to such party at the following address:
To the Company: Urban Cool Network, Inc.
1401 Elm Street, Suite 1995
Dallas, Texas 75202
Attn: Jacob R. Miles, III
and a copy to:
Silverman, Collura & Chernis, P.C.
381 Park Avenue South
New York, New York 10016
Attn: Martin C. Licht
To the Underwriters: c/o Kashner Davidson Securities Corporation
77 South Palm Avenue
Sarasota, Florida 34326
or such other address as either party hereto may at any time, or from time to
time, direct by notice given to the other party in accordance with this section.
The date of giving of any such notice shall be, in the case of clause (i), the
date of the receipt; in the case of clause (ii), five business days after such
notice or demand is sent; and, in the case of clause (iii), the business day
next following the date such notice is sent.
13. Amendment. Except as otherwise provided herein, no amendment of this
Agreement shall be valid or effective, unless in writing and signed by or on
behalf of the parties hereto.
14. Waiver. No course of dealing or omission or delay on the part of
either party hereto in asserting or exercising any right hereunder shall
constitute or operate as a waiver of any such right. No waiver of any provision
hereof shall be effective, unless in writing and signed by or on behalf of the
party to be charged therewith. No waiver shall be deemed a continuing waiver or
waiver in respect of any other or subsequent breach or default, unless expressly
so stated in writing.
27
<PAGE>
15. Applicable Law. This agreement shall be governed by, and interpreted
and enforced in accordance with, the laws of the State of New York without
regard to principles of choice of law or conflict of laws.
16. Jurisdiction. Each of the parties hereto hereby irrevocably consents
and submits to the exclusive jurisdiction of the Supreme Court of the State of
New York and the United States District Court for the Southern District of New
York in connection with any suit, action or other proceeding arising out of or
relating to this Agreement or the transactions contemplated hereby, waives any
objection to venue in the County of New York, State of New York, or such
District and agrees that service of any summons, complaint, notice or other
process relating to such suit, action or other proceeding may be effected in the
manner provided by clause (ii) of Section 12.
17. Remedies. In the event of any actual or prospective breach or default
by either party hereto, the other party shall be entitled to equitable relief,
including remedies in the nature of rescission, injunction and specific
performance. All remedies hereunder are cumulative and not exclusive, and
nothing herein shall be deemed to prohibit or limit either party from pursuing
any other remedy or relief available at law or in equity for such actual or
prospective breach or default, including the recovery of damages.
18. Attorneys' Fees. The prevailing party in any suit, action or other
proceeding arising out of or relating to this Agreement or the transactions
contemplated hereby, shall be entitled to recover its costs and reasonable
attorneys' fees.
19. Severability. The provisions hereof are severable and in the event
that any provision of this Agreement shall be determined to be invalid or
unenforceable in any respect by a court of competent jurisdiction, the remaining
provisions hereof shall not be affected, but shall, subject to the discretion of
such court, remain in full force and effect, and any invalid or unenforceable
provision shall be deemed, without further action on the part of the parties
hereto, amended and limited to the extent necessary to render the same valid and
enforceable.
20. Counterparts. This Agreement may be executed in counterparts, each of
which shall be deemed an original and which together shall constitute one and
the same agreement.
21. Successors. This Agreement shall inure to the benefit of and be
binding upon the Underwriters, the Company and their respective successors and
assigns. Nothing expressed or mentioned in this Agreement is intended or shall
be construed to give any other person any legal or equitable right, remedy or
claim under or in respect of this Agreement or any provisions herein contained,
this Agreement and all conditions and provisions hereof being intended to be and
being for the sole and exclusive benefit of such persons and for the benefit of
no other person except that (i) the indemnities of the Company contained in
Section 7 of this Agreement shall also be for the benefit of any person or
persons who control any Underwriters within the meaning of Section 15 of the Act
or Section 20 of the 1934 Act, and (ii) the indemnities of the Underwriters
contained in Section 7 of this Agreement shall also be for the benefit of the
directors of the Company, the officers of the Company who have signed the
Registration Statement and any person or persons who control
28
<PAGE>
the Company within the meaning of Section 15 of the Act or Section 20 of the
1934 Act. No purchaser of Securities from the Underwriters shall be deemed a
successor because of such purchase.
22. Titles and Captions. The titles and captions of the articles and
sections of this Agreement are for convenience of reference only and do not in
any way define or interpret the intent of the parties or modify or otherwise
affect any of the provisions hereof.
23. Grammatical Conventions. Whenever the context so requires, each
pronoun or verb used herein shall be construed in the singular or the plural
sense and each capitalized term defined herein and each pronoun used herein
shall be construed in the masculine, feminine or neuter sense.
24. References. The terms "herein," "hereto," "hereof," "hereby," and
"hereafter," and other terms of similar import, refer to this Agreement as a
whole, and not to any Article, Section or other part hereof.
25. Entire Agreement. This Agreement embodies the entire agreement of the
parties hereto with respect to the subject matter hereof and supersedes any
prior agreement, commitment or arrangement relating thereto.
[Signatures on following page]
29
<PAGE>
If the foregoing correctly sets forth our understanding, please indicate
your acceptance thereof in the space provided below for that purpose, whereupon
this letter shall constitute an agreement binding the Company, and the
Underwriters.
Very truly yours,
URBAN COOL NETWORK, INC.
By: _____________________________________
Name: Jacob R. Miles, III
Title: CEO
The foregoing agreement is hereby confirmed and accepted as of the date first
above written.
KASHNER DAVIDSON SECURITIES CORPORATION
Individually and on behalf of
Nutmeg Securities, Ltd. and Security Capital Trading, Inc.
By:______________________________________
Name:
Title:
30
<PAGE>
Schedule I
Kashner Davidson Securities Corporation
Nutmeg Securities, Ltd.
Security Capital Trading, Inc.
31
URBAN COOL NETWORK, INC.
KASHNER DAVIDSON SECURITIES CORPORATION
(on behalf of the underwriters of the offering)
UNDERWRITERS'
WARRANT AGREEMENT
UNDERWRITER'S WARRANT AGREEMENT dated as of June , 2000 by and among
URBAN COOL NETWORK, INC. (the "Company") and KASHNER DAVIDSON SECURITIES
CORPORATION ("Underwriter" or "Kashner") (Kashner and the other Underwriters for
whom Kashner is acting as representative are collectively referred to as the
("Underwriters").
W I T N E S S E T H:
WHEREAS, the Company proposes to issue to the Underwriters 200,000
warrants (each a "Underwriters' Warrant") each to purchase a share of the
Company's common stock, par value $.01 per share (the "Common Stock").
WHEREAS, the Underwriter have agreed, pursuant to the underwriting
agreement (the "Underwriting Agreement") dated June , 2000, by and between the
Underwriter and the Company, to act as the Underwriters in connection with the
Company's proposed public offering (the "Public Offering") of 2,000,000 shares
of Common Stock (the "Offering Securities"); and
WHEREAS, the Underwriters' Warrants to be issued pursuant to this
Agreement will be issued on Closing Date I (as such term is defined in the
Underwriting Agreement) by the Company to the Underwriters in consideration for,
and as part of, the Underwriters' compensation in connection with the
Underwriters' acting as the Underwriters pursuant to the Underwriting Agreement;
NOW, THEREFORE, in consideration of the premises, the payment by the
Underwriter to the Company of Ten Dollars ($10.00), the agreements herein set
forth and other good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, the parties hereto agree as follows:
1. Grant. The Holder (as defined in Section 3 below) is hereby granted the
right to purchase, at any time from June , 2001 until 5:00 p.m., New York time,
June , 2005, up to 200,000 shares of Common Stock, at an initial purchase price
(subject to adjustment as provided in Section 8 hereof) of $ per share of Common
Stock (150% of the per share public offering price), subject to the terms and
conditions of this Agreement. The securities issuable, upon exercise of the
Underwriters' Warrant are sometimes referred to herein as the "Underwriters'
Securities."
2. Warrant Certificates. The warrant certificate (the "Underwriters'
Warrant Certificate") to be delivered pursuant to this Agreement shall be in the
form set forth in Exhibit A attached hereto and made a part hereof, with such
appropriate insertions, omissions, substitutions, and other variations as
required or permitted by this Agreement.
3. Exercise of Underwriters' Warrant.
<PAGE>
(a) The Underwriters' Warrant is exercisable during the term set
forth in Section 1 hereof payable by certified or cashier's check or money order
in lawful money of the United States. Upon surrender of Underwriters' Warrant
Certificate with the annexed Form of Election to Purchase duly executed,
together with payment of the Purchase Price (as hereinafter defined) for the
Underwriters' Securities (and such other amounts, if any, arising pursuant to
Section 4 hereof) at the Company's principal office currently located at 1401
Elm 344 Route 46, Rockaway, New Jersey 07866 the registered holder of a
Underwriters' Warrant Certificate ("Holder" or "Holders") shall be entitled to
receive a certificate or certificates for the Underwriters' Securities so
purchased. The purchase rights represented by each Underwriters' Warrant
Certificate are exercisable at the option of the Holder or Holders thereof, in
whole or in part as to Underwriters' Securities. The Underwriters' Warrant may
be exercised to purchase all or any part of the Underwriters' Securities
represented thereby. In the case of the purchase of less than all the
Underwriters' Securities purchasable on the exercise of the Underwriters'
Warrant represented by a Underwriters' Warrant Certificate, the Company shall
cancel the Underwriters' Warrant Certificate represented thereby upon the
surrender thereof and shall execute and deliver a new Underwriters' Warrant
Certificate of like tenor for the balance of the Underwriters' Securities
purchasable thereunder.
(b) In lieu of the payment of cash upon exercise of the
Underwriters' Warrant as provided in Section 3(a), the Holder may exercise the
Underwriters' Warrant by surrendering the Underwriters' Warrant Certificate at
the principal office of the Company, accompanied by a notice stating (i) the
Holder's intent to effect such exercise by an exchange, (ii) Common Stock to be
issued upon the exchange, (iii) whether Underwriters' Warrants are to be
surrendered in connection with the exchange, and (iv) the date on which the
Holder requests that such exchange is to occur. The Purchase Price for the
Underwriters' Securities to be acquired in the exchange shall be paid by the
surrender as indicated in the notice, of Underwriters' Warrants, having a
"Value", as defined below, equal to the Purchase Price. "Value" as to each
Underwriters' Warrant shall mean the difference between the "Market Price", as
hereinafter defined, of a share of Common Stock and the then Purchase Price for
a share of Common Stock.
By way of example of the application of the formula, assume that the
Market Price of the Common Stock is $8.00, the Purchase Price of the
Underwriters' Warrant is $6.00. On such assumptions, the Value of a
Underwriters' Warrant is $2.00 ($8.00-$6.00) and therefore for each three
Underwriters' Warrants surrendered, the Holder could acquire one share of Common
Stock in the exchange. Notwithstanding the example, the Holder shall not be
limited to exchanging Underwriters' Warrants for Common Stock.
The Warrant Exchange shall take place on the date specified in the notice
or if the date the notice is received by the Company is later than the date
specified in the notice, on the date the notice is received by the Company.
4. Issuance of Certificates. Upon the exercise of the Underwriters'
Warrant and payment of the Purchase Price therefor, the issuance of certificates
representing the Underwriters' Securities or other securities, properties or
rights underlying such Underwriters' Warrant, shall be made forthwith (and in
any event within five (5) business days thereafter) without further charge to
2
<PAGE>
the Holder thereof, and such certificates shall (subject to the provisions of
Sections 5 and 7 hereof) be issued in the name of, or in such names as may be
directed by, the Holder thereof; provided, however, that the Company shall not
be required to pay any tax which may be payable in respect of any transfer
involved in the issuance and delivery of any such certificates in a name other
than that of the Holder, and the Company shall not be required to issue or
deliver such certificates unless or until the person or persons requesting the
issuance thereof shall have paid to the Company the amount of such tax or shall
have established to the satisfaction of the Company that such tax has been paid.
The Underwriters' Warrant Certificates and the certificates representing the
Underwriters' Securities or other securities, property or rights (if such
property or rights are represented by certificates) shall be executed on behalf
of the Company by the manual or facsimile signature of the then present Chairman
or Vice Chairman of the Board of Directors or President or Vice President of the
Company, attested to by the manual or facsimile signature of the then present
Secretary or Assistant Secretary or Treasurer or Assistant Treasurer of the
Company. The Underwriters' Warrant Certificates shall be dated the date of
issuance thereof by the Company upon initial issuance, transfer or exchange.
5. Restriction On Transfer of Underwriters' Warrant. The Holder of an
Underwriters' Warrant Certificate (and its Permitted Transferee, as defined
below), by its acceptance thereof, covenants and agrees that the Underwriters'
Warrant may be sold, transferred, assigned, hypothecated or otherwise disposed
of, in whole or in part, until June 21, 2000 (one year following the effective
date of the Public Offering), only to officers and partners of the Underwriters,
or any Public Offering selling group member and their respective officers and
partners, ("Permitted Transferees"). Thereafter the Underwriters' Warrant may be
transferred, assigned, hypothecated or otherwise disposed of in compliance with
applicable law.
6. Purchase Price.
(a) Initial and Adjusted Purchase Price. Except as otherwise
provided in Section 8 hereof, the initial purchase price of the Underwriters'
Securities shall be $11.55 per share of Common Stock (165% of the per share
public offering price). The adjusted purchase price shall be the price which
shall result from time to time from any and all adjustments of the initial
purchase price in accordance with the provisions of Section 8 hereof.
(b) Purchase Price. The term "Purchase Price" herein shall
mean the initial purchase price or the adjusted purchase price, depending upon
the context.
7. Registration Rights.
(a) Registration Under the Securities Act of 1933 as amended
("Act"). The Underwriters' Warrant may have not been registered under the Act.
The Underwriters' Warrant Certificates may bear the following legend:
"The securities represented by this certificate have not been
registered under the Securities Act of 1933 (the "Act"), and may not be offered
for sale or sold except pursuant to (i) an effective registration statement
under the Act, or (ii) an opinion of counsel, if such opinion and
3
<PAGE>
counsel shall be reasonably satisfactory to counsel to the issuer, that an
exemption from registration under the Act is available".
(b) Demand Registration. (1) At any time commencing on the
first anniversary of and expiring on the fifth anniversary of the effective date
of the Company's Registration Statement relating to the Public Offering (the
"Effective Date"), the Holders of a Majority (as hereinafter defined) in
interest of the Underwriters' Warrant, or the Majority in interest of the
Underwriters' Securities (assuming the exercise of all of the Underwriters'
Warrant) shall have the right, exercisable by written notice to the Company, to
have the Company prepare and file with the U.S. Securities and Exchange
Commission (the "Commission"), on one (1) occasion, a registration statement on
Form SB-2, S-1 or other appropriate form, and such other documents, including a
prospectus, as may be necessary in the opinion of both counsel for the Company
and counsel for the Holders, in order to comply with the provisions of the Act,
so as to permit a public offering and sale, of the Underwriters' Securities by
such Holders and any other Holders of the Underwriters' Warrant and/or the
Underwriters' Securities who notify the Company within fifteen (15) business
days after receipt of the notice described in Section 7(b)(2). The Holders of
the Underwriters' Warrant may demand registration prior to exercising the
Underwriters' Warrant, and may pay such exercise price from the proceeds of such
public offering.
(2) The Company covenants and agrees to give written notice of any
registration request under this Section 7(b) by any Holders to all other
registered Holders of the Underwriters' Warrant and the Underwriters' Securities
within ten (10) calendar days from the date of the receipt of any such
registration request.
(3) For purposes of this Agreement, the term "Majority" in reference to
the Holders of the Underwriters' Warrant or Underwriters' Securities, shall mean
in excess of fifty percent (50%) of the then outstanding Underwriters' Warrant
or Underwriters' Securities that (i) are not held by the Company, an affiliate,
officer, creditor, employee or agent thereof or any of their respective
affiliates, members of their family, persons acting as nominees or in
conjunction therewith, or (ii) have not been resold to the public pursuant to a
registration statement filed with the Commission under the Act.
(c) Piggyback Registration. (1) If, at any time within the period
commencing on the first anniversary and expiring on the sixth anniversary of the
Effective Date, the Company should file a registration statement with the
Commission under the Act (other than in connection with a merger or other
business combination transaction or pursuant to Form S-8), it will give written
notice at least twenty (20) calendar days prior to the filing of each such
registration statement to the Underwriter and to all other Holders of the
Underwriters' Warrant and/or the Underwriters' Securities of its intention to do
so. If an Underwriter or other Holders of the Underwriters' Warrant and/or the
Underwriters' Securities notify the Company within fifteen (15) calendar days
after receipt of any such notice of its or their desire to include any
Underwriters' Securities in such proposed registration statement, the Company
shall afford the Underwriter and such Holders of the Underwriters' Warrant
and/or Underwriters' Securities the opportunity to have any such Underwriters'
Securities registered under such registration statement. Notwithstanding the
provisions of this Section 7(c)(1) and the provisions of Section 7(d), the
Company shall have the
4
<PAGE>
right at any time after it shall have given written notice pursuant to this
Section 7(c)(1) (irrespective of whether a written request for inclusion of any
such securities shall have been made) to elect not to file any such proposed
registration statement, or to withdraw the same after the filing but prior to
the effective date thereof.
(2) If the managing underwriter of an offering to which the
above piggyback rights apply, in good faith and for valid business reasons,
objects to such rights, such objection shall preclude such inclusion.
(d) Covenants of the Company With Respect to Registration. In
connection with any registrations under Sections 7(b) and 7(c) hereof, the
Company covenants and agrees as follows:
(1) The Company shall use its best efforts to file a
registration statement within thirty (30) calendar days of receipt of any demand
therefor pursuant to Section 7(b); provided, however, that the Company shall not
be required to produce audited or unaudited financial statements for any period
prior to the date such financial statements are required to be filed in a report
on Form 10-KSB or Form 10-QSB, as the case may be. The Company shall use its
best efforts to have any registration statement declared effective at the
earliest possible time, and shall furnish each Holder desiring to sell
Underwriters' Securities such number of prospectuses as shall reasonably be
requested.
(2) The Company shall pay all costs (excluding fees and
expenses of Holders' counsel and any underwriting discounts or selling fees,
expenses or commissions), fees and expenses in connection with any registration
statement filed pursuant to Sections 7(b) and 7(c) hereof including, without
limitation, the Company's legal and accounting fees, printing expenses, blue sky
fees and expenses.
(3) The Company will use its best efforts to qualify or
register the Underwriters' Securities included in a registration statement for
offering and sale under the securities or blue sky laws of such states as
reasonably are requested by the Holders, provided that the Company shall not be
obligated to execute or file any general consent to service of process or to
qualify as a foreign corporation to do business under the laws of any such
jurisdiction.
(4) The Company shall indemnify the Holders of the
Underwriters' Securities to be sold pursuant to any registration statement and
each person, if any, who controls such Holders within the meaning of Section 15
of the Act or Section 20(a) of the Securities Exchange Act of 1934 (the
"Exchange Act"), against all loss, claim, damage, expense or liability
(including all expenses reasonably incurred in investigating, preparing or
defending against any claim whatsoever) to which any of them may become subject
under the Act, the Exchange Act or otherwise, arising from such registration
statement, but only to the same extent and with the same effect as the
provisions pursuant to which the Company has agreed to indemnify the Underwriter
contained in Section 8 of the Underwriting Agreement.
(5) The Holders of the Underwriters' Securities to be
sold pursuant
5
<PAGE>
to a registration statement, and their successors and assigns, shall indemnify
the Company, its officers and directors and each person, if any, who controls
the Company within the meaning of Section 15 of the Act or Section 20(a) of the
Exchange Act, against all loss, claim, damage or expense or liability to which
they may become subject under the Act, the Exchange Act or otherwise, arising
from information furnished by or on behalf of such Holders, or their successors
or assigns, for specific inclusion in such registration statement to the same
extent and with the same effect as the provisions contained in Section 8 of the
Underwriting Agreement pursuant to which the Underwriter has agreed to indemnify
the Company.
(6) Nothing contained in this Agreement shall be
construed as requiring the Holders to exercise their Underwriters' Warrant prior
to the initial filing of any registration statement or the effectiveness
thereof, provided that such Holders have made arrangements reasonably
satisfactory to the Company to pay the exercise price from the proceeds of such
offering.
(7) The Company shall furnish to each Underwriter for
the offering, if any, such documents as such Underwriter may reasonably require.
(8) The Company shall as soon as practicable after the
effective date of the registration statement, and in any event within 15 months
thereafter, make "generally available to its security holders" (within the
meaning of Rule 158 under the Act) an earnings statement (which need not be
audited) complying with Section 11(a) of the Act and covering a period of at
least 12 consecutive months beginning after the effective date of the
registration statement.
(9) The Company shall deliver promptly to each Holder
participating in the offering requesting the correspondence described below and
any managing Underwriter copies of all correspondence between the Commission and
the Company, its counsel or auditors with respect to the registration statement
and permit each Holder and Underwriter to do such investigation, upon reasonable
advance notice, with respect to information contained in or omitted from the
registration statement as it deems reasonably necessary to comply with
applicable securities laws or rules of the National Association of Securities
Dealers, Inc. ("NASD"). Such investigation shall include access to books,
records and properties and opportunities to discuss the business of the Company
with its officers and independent auditors, all to such reasonable extent and at
such reasonable times and as often as any such Holder shall reasonably request.
(10) The Company shall enter into an underwriting
agreement with the managing underwriter selected for such underwriting by
Holders holding a Majority of the Underwriters' Securities requested to be
included in such underwriting, provided, however that such managing underwriter
shall be reasonably acceptable to the Company, except that in connection with an
offering for which the Holders have piggyback rights, the Company shall have the
sole right to select the managing underwriter or underwriters. Such underwriting
agreement shall be satisfactory in form and substance to the Company, a Majority
of such Holders (in respect of a registration under Section 7(b) only) and such
managing underwriter, and shall contain such representations, warranties and
covenants by the Company and such other terms as are customarily contained in
agreements of that type. The Holders shall be parties to any underwriting
agreement relating to an underwritten
6
<PAGE>
sale of their Underwriters' Securities. Such Holders shall not be required to
make any representations or warranties to or agreements with the Company or the
underwriters except as they may relate to such Holders and their intended
methods of distribution.
8. Adjustments to Purchase Price and Number of Securities.
(a) Computation of Adjusted Purchase Price. Except as
hereinafter provided, in case the Company shall at any time after the date
hereof issue or sell any shares of Common Stock (other than the issuances
referred to in Section 8(g) hereof), including shares held in the Company's
treasury, for a consideration per share less than the "Market Price" (as defined
in Section 8(a)(6) hereof) per share of Common Stock on the date immediately
prior to the issuance or sale of such shares, or without consideration, then
forthwith upon any such issuance or sale, the Purchase Price of the Common Stock
shall (until another such issuance or sale) be reduced to the price (calculated
to the nearest full cent) determined by dividing (1) the product of (a) the
Purchase Price in effect immediately before such issuance or sale and (b) the
sum of (i) the total number of shares of Common Stock outstanding immediately
prior to such issuance or sale, and (ii) the number of shares determined by
dividing (A) the aggregate consideration, if any, received by the Company upon
such sale or issuance, by (B) the Market Price, and by (2) the total number of
shares of Common Stock outstanding immediately after such issuance or sale
provided, however, that in no event shall the Purchase Price be adjusted
pursuant to this computation to an amount in excess of the Purchase Price in
effect immediately prior to such computation, except in the case of a
combination of outstanding shares of Common Stock, as provided by Section 8(c)
hereof.
For the purposes of this Section 8, the term "Purchase Price" shall
mean the Purchase Price of the Common Stock forming a part of the Underwriters'
Securities set forth in Section 6 hereof, as adjusted from time to time pursuant
to the provisions of this Section 8.
For the purposes of any computation to be made in accordance with
this Section 8(a), the following provisions shall be applicable:
(1) In case of the issuance or sale of shares of Common Stock (or of other
securities deemed hereunder to involve the issuance or sale of shares of Common
Stock) for a consideration part or all of which shall be cash, the amount of the
cash consideration therefor shall be deemed to be the amount of cash received by
the Company for such shares (or, if shares of Common Stock are offered by the
Company for subscription, the subscription price, or, if such securities shall
be sold to Underwriters or dealers for public offering without a subscription
offering, the initial public offering price) before deducting therefrom any
compensation paid or discount allowed in the sale, underwriting or purchase
thereof by Underwriters or dealers or others performing similar services, or any
expenses incurred in connection therewith.
(2) In case of the issuance or sale (otherwise than as a dividend or other
distribution on any stock of the Company, and otherwise than on the exercise of
options, rights or warrants or the conversion or exchange of convertible or
exchangeable securities) of shares of Common Stock (or of other securities
deemed hereunder to involve the issuance or sale of shares of Common Stock) for
7
<PAGE>
a consideration part or all of which shall be other than cash, the amount of the
consideration therefor other than cash shall be deemed to be the value of such
consideration as determined in good faith by the Board of Directors of the
Company.
(3) Shares of Common Stock issuable by way of dividend or other
distribution on any stock of the Company shall be deemed to have been issued
immediately after the opening of business on the day following the record date
for the determination of stockholders entitled to receive such dividend or other
distribution and shall be deemed to have been issued without consideration.
(4) The reclassification of securities of the Company other than shares of
Common Stock into securities including shares of Common Stock shall be deemed to
involve the issuance of such shares of Common Stock for a consideration other
than cash immediately prior to the close of business on the date fixed for the
determination of security holders entitled to receive such shares, and the value
of the consideration allocable to such shares of Common Stock shall be
determined as provided in Section 8(a)(2).
(5) The number of shares of Common Stock at any one time outstanding shall
include the aggregate number of shares of Common Stock issued or issuable
(subject to readjustment upon the actual issuance thereof) upon the exercise of
options, rights or warrants and upon the conversion or exchange of convertible
or exchangeable securities.
(6) As used herein in the phrase "Market Price" at any date shall be
deemed to be the last reported sale price, or, in the case no such reported sale
takes place on such day, the average of the last reported sales prices for the
last three (3) trading days, in either case as officially reported by the
principal securities exchange on which the Common Stock is listed or admitted to
trading, or, if the Common Stock is not listed or admitted to trading on any
national securities exchange, the average closing bid price as furnished by the
NASD through the NASD Automated Quotation System ("NASDAQ") or similar
organization if NASDAQ is no longer reporting such information, or if the Common
Stock is not quoted on NASDAQ, as determined in good faith by resolution of the
Board of Directors of the Company, based on the best information available to
it.
(b) Options, Rights, Warrant and Convertible and Exchangeable
Securities. Except in the case of the Company issuing rights to subscribe for
shares of Common Stock distributed to all the stockholders of the Company and
Holders of Underwriters' Warrant pursuant to Section 8(i) hereof, if the Company
shall at any time after the date hereof issue options, rights or warrants to
purchase shares of Common Stock, or issue any securities convertible into or
exchangeable for shares of Common Stock (other than the issuances referred to in
Section 8(g) hereof), (i) for a consideration per share less than the Market
Price (including the issuance thereof without consideration such as by way of
dividend or other distribution), or (ii) without consideration, the Purchase
Price in effect immediately prior to the issuance of such options, rights or
warrants, or such convertible or exchangeable securities, as the case may be,
shall be reduced to a price determined by making a computation in accordance
with the provisions of Section 8(a) hereof, provided that:
8
<PAGE>
(1) The aggregate maximum number of shares of Common
Stock issuable or that may become issuable under such options, rights or
warrants (assuming exercise in full even if not then currently exercisable or
currently exercisable in full) shall be deemed to be issued and outstanding at
the time such options, rights or warrants were issued, and for a consideration
equal to the minimum purchase price per share provided for in such options,
rights or warrants at the time of issuance, plus the consideration (determined
in the same manner as consideration received on the issue or sale of shares in
accordance with the terms of the Underwriters' Warrant), if any, received by the
Company for such options, rights or warrants; provided, however, that upon the
expiration or other termination of such options, rights or warrants, if any
thereof shall not have been exercised, the number of shares of Common Stock
deemed to be issued and outstanding pursuant to this Section 8(b)(1) (and for
the purposes of Section 8(a)(5) hereof) shall be reduced by such number of
shares as to which options, warrants and/or rights shall have expired or
terminated unexercised, and such number of shares shall no longer be deemed to
be issued and outstanding, and the Purchase Price then in effect shall forthwith
be readjusted and thereafter be the price which it would have been had
adjustment been made on the basis of the issuance only of shares actually issued
or issuable upon the exercise of those options, rights or warrants as to which
the exercise rights shall not be expired or terminated unexercised.
(2) The aggregate maximum number of shares of Common
Stock issuable upon conversion or exchange of any convertible or exchangeable
securities (assuming conversion or exchange in full even if not then currently
convertible or exchangeable in full) shall be deemed to be issued and
outstanding at the time of issuance of such securities, and for a consideration
equal to the consideration (determined in the same manner as consideration
received on the issue or sale of shares of Common Stock in accordance with the
terms of the Underwriters' Warrant) received by the Company for such securities,
plus the minimum consideration, if any, receivable by the Company upon the
conversion or exchange thereof; provided, however, that upon the expiration or
other termination of the right to convert or exchange such convertible or
exchangeable securities (whether by reason or redemption or otherwise), the
number of shares deemed to be issued and outstanding pursuant to this Section
8(b)(2) (and for the purpose of Section 8(a)(5) hereof) shall be reduced by such
number of shares as to which the conversion or exchange rights shall have
expired or terminated unexercised, and such number of shares shall no longer be
deemed to be issued and outstanding and the Purchase Price then in effect shall
forthwith be readjusted and thereafter be the price which it would have been had
adjustment been made on the basis of the issuance only of the shares actually
issued or issuable upon the conversion or exchange of those convertible or
exchangeable securities as to which the conversion or exchange rights shall not
have expired or terminated unexercised.
(3) If any change shall occur in the price per share
provided for in any of the options, rights or warrants referred to in Section
8(b)(1), or in the price per share at which the securities referred to in
Section 8(b)(2) are convertible or exchangeable, and if a change in the Purchase
Price has not occurred by reason of the event giving rise to the change in the
price per share of such other options, rights, warrants, or convertible or
exchangeable securities, such options, rights or warrants or conversion or
exchange rights, as the case may be, to the extent not theretofore exercised,
the shall be deemed to have expired or terminated on the date when such price
change became effective in respect of shares not theretofore issued pursuant to
the exercise or
9
<PAGE>
conversion or exchange thereof, and the Company shall be deemed to have issued
upon such date new options, rights or warrants or convertible or exchangeable
securities at the new price in respect of the number of shares issuable upon the
exercise of such options, rights or warrants or the conversion or exchange of
such convertible or exchangeable securities.
(c) Subdivision and Combination. In case the Company shall at
any time issue any shares of Common Stock in connection with a stock dividend in
shares of Common Stock or subdivide or combine the outstanding shares of Common
Stock, the Purchase Price shall forthwith be proportionately decreased in the
case of a stock dividend or a subdivision or increased in the case of
combination.
(d) Adjustment in Number of Securities. Upon each adjustment
of the Purchase Price pursuant to the provisions of this Section 8, the number
of Underwriters' Securities issuable upon the exercise of the Underwriters'
Warrant shall be adjusted to the nearest whole share by multiplying a number
equal to the Purchase Price in effect immediately prior to such adjustment by
the number of Underwriters' Securities issuable upon exercise of the
Underwriters' Warrant immediately prior to such adjustment and dividing the
product so obtained by the adjusted Purchase Price.
(e) Definition of Common Stock. For the purpose of this
Agreement, the term "Common Stock" shall mean the class of stock designated as
Common Stock in the Certificate of Incorporation, of the Company as it may be
amended as of the date hereof.
(f) Reclassification, Merger or Consolidation. The Company
will not merge, reorganize or take any other action which would terminate the
Underwriters' Warrant without first making adequate provision for the
Underwriters' Warrant. In case of any reclassification or change of the
outstanding shares of Common Stock issuable upon exercise of the outstanding
warrants (other than a change in par value to no par value, or from nor par
value to par value, or as a result of a subdivision or combination), or in case
of any consolidation of the Company with, or merger of the Company with, or
merger of the Company into, another corporation (other than a consolidation or
merger in which the Company is the continuing corporation and which does not
result in any reclassification or change of the outstanding Common Stock except
a change as a result of a subdivision or combination of such shares or a change
in par value, as aforesaid), or in the case of a sale or conveyance to another
corporation or other entity of the property of the Company as an entirety or
substantially as an entirety, the Holders of each Underwriters' Warrant then
outstanding or to be outstanding shall have the right thereafter (until the
expiration of such Underwriters' Warrant) to purchase, upon exercise of such
Underwriters' Warrant, the kind and number of shares of stock and other
securities and property receivable upon such reclassification, change,
consolidation, merger, sale or conveyance as if the Holders were the owner of
the shares of Common Stock underlying the Underwriters' Warrant immediately
prior to any such events at a price equal to the product of (x) the number of
shares issuable upon exercise of the Underwriters' Warrant and (y) the Purchase
Price in effect immediately prior to the record date for such reclassification,
change, consolidation, merger, sale or conveyance, as if such Holders had
exercised the Underwriters' Warrant. In the event of a consolidation, merger,
sale or conveyance of property, the corporation formed by such consolidation or
merger, or acquiring such property, shall execute and deliver to the
10
<PAGE>
Holders a supplemental Underwriters' warrant agreement to such effect. Such
supplemental Underwriters' warrant agreement shall provide for adjustments which
shall be identical to the adjustment provided for in this Section 8. The
provisions of this Section 8(f) shall similarly apply to successive
consolidations or mergers.
(g) No Adjustment of Purchase Price in Certain Cases. No
adjustment of the Purchase Price shall be made:
(1) Upon the issuance or sale of (i) the Underwriters'
Warrant or the securities underlying the Underwriters' Warrant, (ii) the
securities sold pursuant to the Public Offering (including those sold upon
exercise of the Underwriters' over-allotment option), or (iii) the shares
issuable pursuant to the options, warrants, rights, stock purchase agreements or
convertible or exchangeable securities outstanding or in effect on the date
hereof as described in the prospectus relating to the Public Offering.
(2) If the amount of said adjustments shall aggregate
less than two ($.02) cents for one (1) share of Common Stock; provided, however,
that in such case any adjustment that would otherwise be required then to be
made shall be carried forward and shall be made at the time of and together with
the next subsequent adjustment which, together with any adjustment so carried
forward, shall aggregate at least two ($.02) cents for one (1) share of Common
Stock. In addition, Registered Holders shall not be entitled to cash dividends
paid by the Company prior to the exercise of any warrant or warrants held by
them.
9. Exchange and Replacement of Warrant Certificates. Each
Underwriters' Warrant Certificate is exchangeable without expense, upon the
surrender thereof by the registered Holders at the principal executive office of
the Company, for a new Underwriters' Warrant Certificate of like tenor and date
representing in the aggregate the right to purchase the same number of
Underwriters' Securities in such denominations as shall be designated by the
Holders thereof at the time of such surrender.
10. Loss, Theft etc. of Certificates Upon receipt by the Company of
evidence reasonably satisfactory to it of the loss, theft, destruction or
mutilation of any Underwriters' Warrant Certificate, and, in case of loss, theft
or destruction, of indemnity or security reasonably satisfactory to it, and
reimbursement to the Company of all reasonable expenses incidental thereto, and
upon surrender and cancellation of the Underwriters' Warrant Certificates, if
mutilated, the Company will make and deliver a new Underwriters' Warrant
Certificate of like tenor, in lieu thereof.
11. Elimination of Fractional Interests. The Company shall not be
required to issue certificates representing fractions of shares of Common Stock
upon the exercise of the Underwriters' Warrant, nor shall it be required to
issue scrip or pay cash in lieu of fractional interests; provided, however, that
if a Holder exercises all Underwriters' Warrant held of record by such Holder
the fractional interests shall be eliminated by rounding any fraction to the
nearest whole number of shares of Common Stock or other securities, properties
or rights.
12. Reservation and Listing of Securities. The Company shall at all
times reserve
11
<PAGE>
and keep available out of its authorized shares of Common Stock, solely for the
purpose of issuance upon the exercise of the Underwriters' Warrant, such number
of shares of Common Stock or other securities and properties or rights as shall
be issuable upon the exercise thereof. The Company covenants and agrees that,
upon exercise of Underwriters' Warrant and payment of the Purchase Price
therefor, all the shares of Common Stock issuable upon such exercise shall be
duly and validly issued, fully paid, non-assessable and not subject to the
preemptive rights of any stockholder. As long as the Underwriters' Warrant shall
be outstanding, the Company shall use its best efforts to cause the Common Stock
to be listed (subject to official notice of issuance) on all securities
exchanges on which the Common Stock issued to the public in connection herewith
may then be listed or quoted.
13. Notices to Underwriters' Warrant Holders. Nothing contained in
this Agreement shall be construed as conferring upon the Holders the right to
vote or to consent or to receive notice as a stockholder in respect of any
meetings of stockholders for the election of directors or any other matter, or
as having any rights whatsoever as a stockholder of the Company. If, however, at
any time prior to the expiration of the Underwriters' Warrant and their
exercise, any of the following events shall occur:
(a) the Company shall take a record of the holders of its
shares of Common Stock for the purpose of entitling them to receive a dividend
or distribution payable otherwise than in cash, or a cash dividend or
distribution payable otherwise than out of current or retained earnings, as
indicated by the accounting treatment of such dividend or distribution on the
books of the Company; or
(b) the Company shall offer to all the holders of its Common
Stock any additional shares of capital stock of the Company or securities
convertible into or exchangeable for shares of capital stock of the Company, or
any option, right or warrant to subscribe therefor; or
(c) a dissolution, liquidation or winding up of the Company
(other than in connection with a consolidation or merger) or a sale of all or
substantially all of its property, assets and business as an entirety shall be
proposed; then, in any one or more of said events, the Company shall give
written notice of such event at least fifteen (15) calendar days prior to the
date fixed as a record date or the date of closing the transfer books for the
determination of the stockholders entitled to such dividend, distribution,
convertible or exchangeable securities or subscription rights, or entitled to
vote on such proposed dissolution, liquidation, winding up or sale. Such notice
shall specify such record date or the date of closing the transfer books, as the
case may be. Failure to give such notice or any defect therein shall not affect
the validity of any action taken in connection with the declaration or payment
of any such dividend, or the issuance of any convertible or exchangeable
securities, or subscription rights, options or warrants, or any proposed
dissolution, liquidation, winding up or sale.
14. Notices. All notices, requests, consents and other
communications hereunder shall be in writing and shall be deemed to have been
duly made when delivered, or five days after being mailed by registered or
certified mail, return receipt requested:
If to the registered Holders of the Underwriters' Warrant, to the address of
such Holders as shown
12
<PAGE>
on the books of the Company; or
(a) If to the Company to 344 Route 46, Rockaway, New Jersey
07866 or to such other address as the Company may designate by notice to the
Holders, with a courtesy copy to Sichenzia, Ross & Freidman, LLP
15. Supplements and Amendments. The Company and the Underwriter may
from time to time supplement or amend this Agreement without the approval of any
Holders of Underwriters' Warrant Certificates (other than the Underwriters) in
order to cure any ambiguity, to correct or supplement any provision contained
herein which may be defective or inconsistent with any provisions herein, or to
make any other provision in regard to matters or questions arising hereunder
which the Company and the Underwriters may deem necessary or desirable and which
the Company and the Underwriters deem shall not adversely affect the interests
of the Holders of Underwriters' Warrant Certificates.
16. Successors. All the covenants and provisions of this Agreement
shall be binding upon and inure to the benefit of the Company, the Underwriter,
the Holders and their respective successors and assigns hereunder.
17. Termination. This Agreement shall terminate at the close of
business on June 20, 2004. Notwithstanding the foregoing, the indemnification
provisions of Section 7 shall survive such termination until the close of
business on the expiration of any applicable statue of limitations.
18. Governing Law; Submission to Jurisdiction. This Agreement and
each Underwriters' Warrant Certificate issued hereunder shall be deemed to be a
contract made under the laws of the State of New York and for all purposes shall
be construed in accordance with the laws of said state without giving effect to
the rules of said state governing the conflicts of laws.
19. Entire Agreement; Modification. This Agreement (including the
Underwriting Agreement, to the extent portions thereof are referred to herein)
contains the entire understanding between the parties hereto with respect to the
subject matter hereof and thereof. This Agreement may not be modified or amended
except by a writing duly signed by the Company and the Holders of a Majority in
Interest of the Underwriters' Securities (for this purpose, treating all then
outstanding Underwriters' Warrants as if they had been exercised).
20. Severability. If any provision of this Agreement shall be held
to be invalid or unenforceable, such invalidity or unenforceability shall not
affect any other provision of this Agreement.
21. Captions. The caption headings of the Sections of this Agreement
are for convenience of reference only and are not intended, nor should they be
construed as, a part of this Agreement and shall be given no substantive effect.
22. Benefits of this Agreement. Nothing in this Agreement shall be
construed to give to any person or corporation other than the Company and the
Underwriter and any other
13
<PAGE>
registered Holders of the Underwriters' Warrant Certificates or Underwriters'
Securities any legal or equitable right, remedy or claim under this Agreement;
and this Agreement shall be for the sole and exclusive benefit of the Company
and the Underwriter and any other Holders of the Underwriters' Warrant
Certificates or Underwriters' Securities.
23. Counterparts. This Agreement may be executed in any number of
counterparts and each of such counterparts shall for all purposes be deemed to
be an original, and such counterparts shall together constitute but one and the
same instrument.
24. Binding Effect. This Agreement shall be binding upon and inure
to the benefit of the Company, the Underwriters and their respective successors
and assigns and the Holders from time to time of the Underwriters' Warrant
Certificates or any of them.
[Signature on following page]
14
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed, as of the day and year first above written.
ABLE ENERGY, INC.
By:______________________________________
Name: Timothy Harrington
KASHNER DAVIDSON SECURITIES CORP.,
By:______________________________________
Name: Matthew Miester
Title: CEO
ANDREW, ALEXANDER, WISE
& COMPANY INCORPORATED
By:______________________________________
Name:
Title:
15
<PAGE>
Schedule A
to
Underwriters' Warrant Agreement
Between
ABLE ENERGY, INC.
KASHNER DAVIDSON SECURITIES CORPORATION
AND
ANDREW, ALEXANDER, WISE & COMPANY, INCORPORATED
Underwriter
Kashner Davidson Securities Corp.
Andrew, Alexander, Wise & Company, Incorporated
16
<PAGE>
URBAN COOL NETWORK, INC.
WARRANT CERTIFICATE
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933 (THE "ACT"), AND MAY NOT BE OFFERED FOR SALE OR SOLD
EXCEPT PURSUANT TO (i) AN EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT, OR
(ii) AN OPINION OF COUNSEL, IF SUCH OPINION AND COUNSEL SHALL BE REASONABLY
SATISFACTORY TO COUNSEL TO THE ISSUER, THAT AN EXEMPTION FROM REGISTRATION UNDER
THE ACT IS AVAILABLE.
THE TRANSFER OR EXCHANGE OF THE WARRANTS REPRESENTED BY THIS CERTIFICATE IS
RESTRICTED IN ACCORDANCE WITH THE WARRANT AGREEMENT REFERRED TO HEREIN.
EXERCISABLE COMMENCING JUNE 2000 THROUGH
5:00 P.M., NEW YORK TIME ON JUNE , 2005
Warrant covering 40,000 shares
of Common Stock
No. UW-1
This Warrant Certificate certifies that Andrew, Kashner Davidson
Securities Corp. or registered assigns, is the registered holder of this Warrant
to purchase initially, at any time from June , 2001, until 5:00 p.m., New York
time on June , 2005 (the "Expiration Date"), up to 40,000 shares of Common
Stock, $.01 par value (the "Common Stock") of Urban Cool Network, Inc.
("Company") exercisable to purchase one share of Common Stock at a purchase
price of $ per share (150% of the per share public offering price) (the
"Purchase Price"), upon the surrender of this Warrant Certificate and payment of
the applicable Purchase Price at an office or agency of the Company, but subject
to the conditions set forth herein and in the Underwriters' Warrant Agreement,
dated as of June , 2000, by and among the Company, Kashner Davidson Securities
Corp., Nutmeg Securities Ltd. and Security Capital Trading, Inc. (the "Warrant
Agreement"). Payment of the Purchase Price shall be made by certified or
cashier's check or money order payable to the order of the Company.
No Warrant may be exercised after 5:00 p.m., New York time, on the
Expiration Date, at which time all Warrant evidenced hereby, unless exercised
prior thereto, shall thereafter be void.
The Warrant evidenced by this Warrant Certificate is part of a duly
authorized issue of Warrants issued pursuant to the Warrant Agreement between
the Company and the Underwriter, which Warrant Agreement is hereby incorporated
by reference in and made a part of this instrument and is hereby referred to for
a description of the rights, limitation of rights, obligations, duties and
17
<PAGE>
immunities thereunder of the Company and the holders (the words "holders" or
"holder" meaning the registered holders or registered holder) of the Warrant.
The Warrant Agreement provides that upon the occurrence of certain
events the Purchase Price and the type and/or number of the Company's securities
issuable upon the exercise of this Warrant, may, subject to certain conditions,
be adjusted. In such event, the Company will, at the request of the holder,
issue a new Warrant Certificate evidencing the adjustment in the Purchase Price
and the number and/or type of securities issuable upon the exercise of the
Warrant; provided, however, that the failure of the Company to issue such new
Warrant Certificates shall not in any way change, alter, or otherwise impair,
the rights of the holder as set forth in the Warrant Agreement.
Upon due presentment for registration of transfer of this Warrant
Certificate at an office or agency of the Company, a new Warrant Certificate or
Warrant Certificates of like tenor and evidencing in the aggregate a like number
of Warrant shall be issued to the transferee(s) in exchange as provided herein,
without any charge except for any tax or other governmental charge imposed in
connection with such transfer.
Upon the exercise of less than all of the Warrants evidenced by this
Certificate, the Company shall forthwith issue to the holder hereof a new
Warrant Certificate representing such number of unexercised Warrants.
The Company may deem and treat the registered holder(s) hereof as
the absolute owner(s) of this Warrant Certificate (notwithstanding any notation
of ownership or other writing hereon made by anyone), for the purpose of any
exercise hereof, and of any distribution to the holder(s) hereof, and for all
other purposes, and the Company shall not be affected by any notice to the
contrary.
All terms used in this Warrant Certificate which are defined in the
Warrant Agreement shall have the meanings assigned to them in the Warrant
Agreement.
IN WITNESS WHEREOF, the undersigned has executed this certificate
this day of June, 2000.
URBAN COOL NETWORK, INC.
By:______________________________________
President
ATTEST:
By:__________________________________
FORM OF ASSIGNMENT
18
<PAGE>
(To be executed by the registered holder if such holder
desires to transfer the Warrant Certificate.)
FOR VALUE RECEIVED___________________________
hereby sells, assigns and transfers unto _____________________
(Please print name and address of transferee)
this Warrant Certificate, together with all right, title and interest therein,
and does hereby irrevocably constitute and appoint _____________________
Attorney, to transfer the within Warrant Certificate on the books of URBAN COOL
NETWORK, INC. with full power of substitution.
Dated: _______________
Signature_________________________
(Signature must conform in all respects
to the name of holder as specified on the face of the Warrant Certificate.)
[Signature guarantee] _________________________________________
(Insert Social Security or Other
Identifying Number of Holders)
19
<PAGE>
FORM OF ELECTION TO PURCHASE
The undersigned hereby irrevocably elects to exercise the right, represented by
this Warrant Certificate, to purchase ______ shares of Common Stock and herewith
tenders in payment for such securities a certified or cashier's check or money
order payable to the order of Urban Cool Network, Inc. in the amount of $______,
all in accordance with the terms hereof. The undersigned requests that
certificates for such securities be registered in the name of
___________________________ whose address is _____________________ and that such
certificates be delivered to ___________________________________ whose address
is _____________________________________________________.
Dated: ________________
Signature_______________________
(Signature must conform in all respects to the name of holder as specified on
the face of the Warrant Certificate.)
____________________________
(Insert Social Security or Other
Identifying Number of Holders)
[Signature guarantee]
20
Exhibit 10.45
Standard Form of Agreement Between Owner and
Contractor where the basis for payment is the COST OF THE
WORK PLUS A FEE with a negotiated Guaranteed Maximum Price
AIA Document A111 - 1997
1997 Edition - Electronic Format
AGREEMENT made as of the 31 day of March in the year 2000.
(In words, indicate day, month and year)
BETWEEN the Owner: Urban Fetch
(Name, address and other information) 536 Broadway
New York, NY
and the Contractor: Mastercraft Builders, Inc.
(Name, address and other information) 600 West 57th Street
New York, NY 10019
The Project is: Urban Fetch
(Name and location) 380 11th Ave
New York, NY
The Architect is: Tuller-McNealus Feld
(Name, address and other information) 596 Broadway
New York, NY 10012
<PAGE>
The Owner and Contractor agree as follows.
ARTICLE 1 THE CONTRACT DOCUMENTS
The Contractor Documents consist of this Agreement, Conditions of the
Contract (General, Supplementary and other Conditions), Drawings,
Specifications, Addenda issued prior to execution of this Agreement, other
documents listed in this Agreement and Modifications issued after
execution of this Agreement; these form the Contract, and are as fully a
part of the Contract as if attached to this Agreement or repeated herein.
The contract represents the entire and integrated agreement between the
parties hereto and supersedes prior negotiations, representations or
agreements, either written or oral. An enumeration of the Contract
Documents, other than Modifications, appears in Article 15. If anything in
the other Contract Documents is inconsistent with this Agreement, this
Agreement shall govern.
ARTICLE 2 THE WORK OF THIS CONTRACT
The Contractor shall fully execute the Work described in the Contract
Documents, except to the extent specifically indicated in the Contract
Documents to be the responsibility of others.
ARTICLE 3 RELATIONSHIP OF THE PARTIES
The Contractor accepts the relationship of trust and confidence
established by this Agreement and covenants with the Owner to cooperate
with the Architect and exercise the Contractor's skill and judgment in
furthering the interests of the Owner; to furnish efficient business
administration and supervision; to furnish at all times an adequate supply
of workers and materials; and to perform the Work in an expeditious and
economical manner consistent with the Owner's interests. The Owner agrees
to furnish and approve, in a timely manner, information required by the
Contractor and to make payments to the Contractor in accordance with the
requirements of the Contract Documents.
ARTICLE 4 DATE OF COMMENCEMENT AND SUBSTANTIAL COMPLETION
4.1 The date of commencement of the Work shall be the date of this
Agreement unless a different date is stated below or provision is made for
the date to be fixed in a notice to proceed issued by the Owner.
(Insert the date of commencement, if it differs from the date of this
Agreement or, if applicable, note that the date will be fixed in a notice
to proceed.)
- Preliminary Pricing and review is to commence immediately.
- Upon client written approval the base building work will commence.
- All designed systems and interiors shall await architect's approved
drawings and Building Department permits.
4.2 The Contract Time shall be measured from the date of commencement.
- Commencement shall mean submittal of client approved architectural/
engineering drawings and permits.
4.3 The Contractor shall achieve Substantial Completion of the entire Work
not later than __ days from the date of commencement, or as follows:
Time is of the essence.
, subject to adjustments of this Contract Time as provided in the Contract
Documents.
<PAGE>
ARTICLE 5 BASIS FOR PAYMENT
5.1 CONTRACT SUM
5.1.1 The Owner shall pay the Contractor the Contract Sum in current funds
for the Contractor's performance of the Contract. The Contract Sum is the
Cost of the Work as defined in Article 7 plus the Contractor's Fee.
5.1.2 The Contractor's Fee is: 8% General Conditions; 2% insurance and
7.5% overhead and fee.
These percentages are based upon the sum of the subcontracts under the
general contractor.
<PAGE>
ARTICLE 7 COSTS TO BE REIMBURSED
7.1 COST OF THE WORK
The term Cost of the Work shall mean costs necessarily incurred by the
Contractor in the proper performance of the Work. Such costs shall be at
rates not higher than the standard paid at the place of the Project except
with prior consent of the Owner. The Cost of the Work shall include only
the items set forth in this Article 7.
7.2 LABOR COSTS - All of this section is included in General Conditions of
Article 5, (paragraph) 5.1.2.
7.2.1 Wages of construction workers directly employed by the Contractor to
perform the construction of the Work at the site or, with the Owner's
approval, at off-site workshops.
7.2.2 Wages or salaries of the Contractor's supervisory and administrative
personnel when stationed at the site with the Owner's approval.
(If it is intended that the wages or salaries of certain personnel
stationed at the Constructor's principal or other offices shall be
included in the Cost of the Work, identify in Article 14 the personnel to
be included and whether for all or only part of their time, and the rates
at which their time will be charged to the Work.)
7.2.4 Costs paid or incurred by the Contractor for taxes, insurance,
contributions, assessments and benefits required by law and, for personnel
not covered by such agreements, customary benefits such as sick leave,
medical and health benefits, holidays, vacations and pensions, provided
such costs are based on wages and salaries included in the Cost of the
Work under Subparagraphs 7.2.1 through 7.2.3.
7.3 SUBCONTRACT COSTS
7.3.1 Payments made by the Contractor to Subcontractors in accordance with
the requirements of the subcontracts.
7.4 COSTS OF MATERIALS AND EQUIPMENT INCORPORATED IN THE COMPLETED
CONSTRUCTION
7.4.1 Costs, including transportation and storage, of materials and
equipment incorporated or to be incorporated in the completed
construction.
7.4.2 Costs of materials described in the preceding Subparagraph 7.4.1 in
excess of those actually installed to allow for reasonable waste and
spoilage. Unused excess materials, if any, shall become the Owner's
property at the completion of the Work.
<PAGE>
7.5 COSTS OF OTHER MATERIALS AND EQUIPMENT, TEMPORARY FACILITIES AND
RELATED ITEMS
7.5.1 Costs, including transportation and storage, installation,
maintenance, dismantling and removal of materials, supplies, temporary
facilities, machinery, equipment and hand tools not customarily owned by
construction workers, that are provided by the Contractor at the site and
fully consumed in the performance of the Work; and cost (less salvage
value) of such items if not fully consumed, whether sold to others or
retained by the Contractor. Cost for items previously used by the
Contractor shall mean fair market value. These costs are included in
General Conditions unless designated above normal scope of work.
7.5.3 Costs of removal of debris from the site.
7.5.4 Costs of document reproductions, facsimile transmissions and
long-distance telephone calls, postage and parcel delivery charges,
telephone service at the site, will be billed as direct cost.
7.5.5 That portion of the reasonable expenses of the Contractor's
personnel incurred while traveling in discharge of duties connected with
the Work. If required to inspect manufacturers facilities to verify
scheduling production subject to the owner's prior approval.
7.5.6 Costs of materials and equipment suitably stored off the site at a
mutually acceptable location, if approved in advance by the Owner.
7.6 MISCELLANEOUS COSTS
7.6.1 That portion of insurance and bond premiums that can be directly
attributed to this Contract:
included under insurance per Article 5 subparagraph 5.1.2
7.6.2 Sales, use or similar taxes imposed by a governmental authority that
are related to Work.
Client must submit Certificate of Capital Improvement or be subject to
applicable taxes.
7.6.3 Fees and assessments for the building permit and for other permits,
licenses and inspections for which the Contractor is required by the
Contract Documents to pay.
This is a specific line item to be paid by client to contractor.
7.6.4 Fees of laboratories for tests required by the Contract Documents,
except those related to defective or nonconforming Work for which
reimbursement is excluded by Subparagraph 13.5.3 of AIA Document A201-1997
or other provisions of the Contract Documents, and which do not fall
within the scope of Subparagraph 7.7.3.
7.6.5 Royalties and license fees paid for the use of a particular design,
process or product required by the Contract Documents; the cost of
defending suits or claims for infringement of patent rights arising from
such requirement of the Contract Documents; and payments made in
accordance with legal judgments against the Contractor resulting from such
suits or claims and payments of settlements made with the Owner's consent.
However, such costs of legal defenses, judgments and settlements shall not
be included in the calculation of the Contractor's Fee. If such royalties,
fees and costs are excluded by the last sentence of Subparagraph 3.17.1 of
AIA Document A201-1997 or other provisions of the Contract Documents, then
they shall not be included in the Cost of the Work.
7.6.7 Deposits lost for causes other than the Contractor's negligence or
failure to fulfill a specific responsibility to the Owner as set forth in
the Contract Documents.
7.6.8 Legal, mediation and arbitration costs, including attorneys' fees,
other than those arising from disputes between the Owner and Contractor,
reasonably incurred by the Contractor in the performance of the Work and
with the Owner's prior written approval; which approval shall not be
unreasonably withheld.
<PAGE>
7.7 OTHER COSTS AND EMERGENCIES
7.7.1 Other costs incurred in the performance of the Work if and to the
extent approved in advance in writing by the Owner.
7.7.2 Costs due to emergencies incurred in taking action to prevent
threatened damage, injury or loss in case of an emergency affecting the
safety of persons and property, as provided in Paragraph 10.6 of AIA
Document A201-1997.
7.7.3 Costs of repairing or correcting damaged or nonconforming Work
executed by the Contractor, Subcontractors or suppliers, provided that
such damage or nonconforming Work was not caused by negligence or failure
to fulfill a specific responsibility of the Contractor and only to the
extent that the cost of repair or correction is not recoverable by the
Contractor from insurance, sureties, Subcontractors or suppliers.
ARTICLE 8 COSTS NOT TO BE REIMBURSED
8.1 The Cost of the Work shall not include:
8.1.3 Overhead and general expenses, except as may be expressly included
in Article 7.
8.1.6 Except as provided in Subparagraph 7.7.3 of this Agreement, costs
due to the negligence or failure to fulfill a specific responsibility of
the Contractor, Subcontractors and suppliers or anyone directly or
indirectly employed by any of them or for whose acts any of them may be
liable.
8.1.7 Any cost not specifically and expressly described in Article 7.
8.1.8 Costs, other than costs included in Change Orders approved by the
Owner.
ARTICLE 10 SUBCONTRACTS AND OTHER AGREEMENTS
<PAGE>
10.1 Those portions of the Work that the Contractor does not customarily
perform with the Contractor's own personnel shall be performed under
subcontracts or by other appropriate agreements with the Contractor. The
Owner may designate specific persons or entities from whom the Contractor
shall obtain bids. The Contractor shall obtain bids from Subcontractors
and from suppliers of materials or equipment fabricated especially for the
Work and shall deliver such bids to the Architect. The Owner shall then
determine, with the advice of the contractor and the Architect, which bids
will be accepted. The Contractor shall not be required to contract with
anyone to whom the Contractor has reasonable objection.
10.2 If a specific bidder among those whose bids are delivered by the
Contractor to the Architect (1) is recommended to the Owner by the
Contractor; (2) is qualified to perform that portion of the Work; and (3)
has submitted a bid that conforms to the requirements of the Contract
Documents without reservations or exceptions, but the Owner requires that
another bid be accepted, then the Contractor may require that a Change
Order be issued to adjust the Guaranteed Maximum Price by the difference
between the bid of the person or entity recommended to the Owner by the
Contractor and the amount of the subcontract or other agreement actually
signed with the person or entity designated by the Owner.
10.3 Subcontracts or other agreements shall conform to the applicable
payment provisions of this Agreement, and shall not be awarded on the
basis of cost plus a fee without the prior consent of the Owner.
ARTICLE 11 ACCOUNTING RECORDS
The Contractor shall keep full and detailed accounts and exercise such
controls as may be necessary for proper financial management under this
Contract.
ARTICLE 12 PAYMENTS
12.1 PROGRESS PAYMENTS
12.1.1 Based upon Applications for Payment submitted to the Architect by
the Contractor and Certificates for payment issued by the Architect, the
Owner shall make progress payments on account of the Contract Sum to the
Contractor as provided below and elsewhere in the Contract Documents.
12.1.2 The period covered by each Application for Payment shall be one
calendar month ending on the last day of the month, or as follows:
12.1.4 With each Application for Payment, the Contractor shall submit
payrolls, petty cash accounts, receipted invoices or invoices with check
vouchers attached, and any other evidence required by the Owner or
Architect to demonstrate that cash disbursements already made by the
Contractor on account of the Cost of the Work equal or exceed (1) progress
payments already received by the Contractor; less (2) that portion of
those payments attributable to the Contractor's Fee; plus (3) payrolls for
the period covered by the present Application for Payment.
12.1.5 Each Application for payment shall be based on the most recent
schedule of values submitted by the Contractor in accordance with the
Contract Documents. The schedule of values shall allocate the entire
Guaranteed Maximum Price among the various portions of the Work, except
that the Contractor's Fee shall be shown as a single separate item. The
schedule of values shall be prepared in such form and supported by such
data to substantiate its accuracy as the Architect may require. This
schedule, unless objected to by the Architect, shall be used as a basis
for reviewing the Contractor's Applications for Payment.
<PAGE>
12.1.6 Applications for Payment shall show the percentage of completion of
each portion of the Work as of the end of the period covered by the
Application for Payment.
12.1.8 Except with the Owner's prior approval, payments to Subcontractors
shall be subject to retainage of not less than percent (10%). The Owner
and the Contractor shall agree upon a mutually acceptable procedure for
review and approval of payments and retention for Subcontractors.
12.1.9 In taking action on the Contractor's Applications for Payment, the
Architect shall be entitled to rely on the accuracy and completeness of
the information furnished by the Contractor and shall not be deemed to
represent that the Architect has made a detailed examination, audit or
arithmetic verification of the documentation submitted in accordance with
Subparagraph 12.1.4 or other supporting data; that the Architect has made
exhaustive or continuous on-site inspections or that the Architect has
made examinations to ascertain how or for what purposes the Contractor has
used amounts previously paid on account of the Contract.
12.2 FINAL PAYMENT
12.2.1 Final payment, constituting the entire unpaid balance of the
Contract Sum, shall be made by the Owner to the Contractor when:
.1 the Contractor has fully performed the Contract except for the
Contractor's responsibility to correct Work as
<PAGE>
provided in Subparagraph 12.2.2 of AIA Document A201-1997, and to
satisfy other requirements, if any, which extend beyond final
payment; and
.2 a final Certificate for Payment has been issued by the Architect.
12.2.2 The Owner's final payment to the Contractor shall be made no later
than 10 days after the issuance of the Architect's final Certificate for
Payment, or as follows:
12.2.5 If, subsequent to final payment and at the Owner's request, the
Contractor incurs costs described in Article 7 and not excluded by Article
8 to correct defective or nonconforming Work, above and beyond the
architectural drawings and specifications, the Owner shall reimburse the
Contractor such costs and the Contractor's Fee applicable thereto on the
same basis as if such costs had been incurred prior to final payment.
ARTICLE 13 TERMINATION OR SUSPENSION
13.1 The Contract may be terminated by the Contractor, or by the Owner for
convenience, as provided in Article 14 of AIA Document A201-1997. However,
the amount to be paid to the Contractor under Subparagraph 14.1.3 of AIA
Document A201-1997 shall not exceed the amount the Contractor would be
entitled to receive under Paragraph 13.2 below, except that the
Contractor's Fee shall be calculated as if the Work had been fully
completed by the Contractor, including a reasonable estimate of the Cost
of the Work for Work not actually completed.
13.2 The Contract may be terminated by the Owner for cause as provided in
Article 14 of AIA Document A201-1997.
<PAGE>
13.3 The Owner shall also pay the Contractor fair compensation, either by
purchase or rental at the election of the Owner, for any equipment owned
by the Contractor that the Owner elects to retain and that is not
otherwise included in the Cost of the Work under Subparagraph 13.2.1. To
the extent that the Owner elects to take legal assignment of subcontracts
and purchase orders (including rental agreements), the Contractor shall,
as a condition of receiving the payments referred to in this Article 13,
execute and deliver all such papers and take all such steps, including the
legal assignment of such subcontracts and other contractual rights of the
Contractor, as the Owner may require for the purpose of fully vesting in
the Owner the rights and benefits of the Contractor under such
subcontracts or purchase orders.
13.4 The Work may be suspended by the Owner as provided in Article 14 of
AIA Document A201-1997; in such case, the Guaranteed Maximum Price and
Contract Time shall be increased as provided in Subparagraph 14.3.2 of AIA
Document A201-1997 except that the term "profit" shall be understood to
mean the Contractor's Fee as described in Subparagraph 5.1.2 and Paragraph
6.4 of this Agreement.
ARTICLE 14 MISCELLANEOUS PROVISIONS
14.1 Where reference is made in this Agreement to a provision AIA Document
A201-1997 or another Contract Document, the reference refers to that
provision as amended or supplemented by other provisions of the Contract
Documents.
14.2 Payments due and unpaid under the Contract shall bear interest from
the date payment is due at the rate stated below, or in the absence
thereof, at the legal rate prevailing from time to time at the place where
the Project is located.
(Insert rate of interest agreed upon, if any.)
9%
14.3 The Owner's representative is: JEFFREY Binstock
(Name, address and other information) c/o Urban Fetch
536 Broadway, N.Y., N.Y.
14.4 The Contractor's representative is: Jeffrey Levitt
(Name, address and other information) c/o Mastercraft Builders, Inc.
600 West 57th Street, N.Y., N.Y.
14.5 Neither the Owner's nor the Contractor's representative shall be
changed without ten days' written notice to the other party.
14.6 Other provisions: A deposit is required in the amount of 25% of the
project cost or the total of sub-contractor required deposits + 15%, which
ever is the less.
ARTICLE 15 ENUMERATION OF CONTRACT DOCUMENTS
15.1 The Contract Documents, except for Modifications issued after
execution of this Agreement, are enumerated as follows:
15.1.1 The Agreement is this executed 1997 edition of the Standard Form of
Agreement Between Owner and Contractor, AIA Document A111-1997.
15.1.2 The General Conditions are the 1997 edition of the General
Conditions of the Contract for Construction AIA Document A201-1997.
15.1.3 The Supplementary and other Conditions of the Contract are those
contained in the Project Manual dated ___, and are as follows:
Document Title Pages
<PAGE>
ARTICLE 16 INSURANCE AND BONDS
5 million Liability, Workmen compensation (statutory), Disability
(statutory).
This Agreement is entered into as of the day and year first written above and is
executed in at least three original copies, of which one is to be delivered to
the Contractor, one to the Architect for use in the administration of the
Contract, and the remainder to the Owner.
/s/ L.J.S. SVOBODA
- --------------------------------------------------
OWNER (Signature) Urban Fetch
L.J.S. SVOBODA, CFO
- --------------------------------------------------
(Printed name and title)
/s/ Jeffrey Levitt
- --------------------------------------------------
CONTRACTOR (Signature) Mastercraft Builders, Inc.
Jeffrey Levitt - Director of Construction
- --------------------------------------------------
(Printed name and title)
<PAGE>
Rider "A"
SUPPLEMENTARY CONDITIONS
The following Supplementary Conditions modify, change, delete from or add
to the "General Conditions of the Contract for Construction" AIA Document A201 -
1997 ("General Conditions"). Where any article, paragraph, subparagraph or
clause of the General Conditions is modified or deleted by these Supplementary
Conditions, the unaltered provisions of that article, paragraph, subparagraph or
clause shall remain in effect. Where apparent conflicts occur between these
Supplementary Conditions and the provisions of the General Conditions, the
documents shall be interpreted to impose the highest standards and most
stringent obligations upon the Contractor so that the Owner is provided the
broadest possible protection.
1. The following is added as Paragraph 1.2.4:
In case of discrepancies between or among the Contract Documents,
the Contractor shall secure instructions from the Owner or Architect
before proceeding with the Work affected by such discrepancies. The
Contractor shall assume full responsibility for proceeding with such
Work without approval.
2 The following is added as Paragraph 3.2.4:
The Contractor represents that it has had adequate access to the job
site and building area in which the Work is to be performed, it has
satisfied itself as to the nature and location of the Work,
including any possible obstructions, the equipment and facilities
needed for the execution of the Work, and all other matters which
can in any way affect the Work or cost thereof, and that it has
studied the Contract Documents and all other documents relating to,
or which may influence, the Work.
3. The following is added as Paragraph 3.4.4:
The Contractor shall insure that manufactured articles, materials
and equipment are applied, installed, connected, erected, used,
cleaned and conditioned as directed by the respective manufacturers,
unless otherwise specified.
4. The following is added as Paragraph 3.4.5:
In the event that it is necessary for Contractor to stockpile or to
store quantities of materials or equipment on the job site,
Contractor shall inform Owner of such necessity and Owner shall
offer reasonable available space, if any, for storage of such
materials or equipment and Contractor shall be
<PAGE>
provided with keys to said storage area. Contractor shall use said
space only for such purpose. Owner shall not be responsible to
Contractor for loss of or damage to said material or equipment for
any cause whatsoever, except where such loss or damage is caused
solely by gross negligence or willful act of Owner, its agents,
servants and/or employees. Combustible materials shall be seared,
kept, and watched over in strict compliance with all Federal, State
and City laws, rules, ordinances and regulations, and the directions
and requirements of any insurance body or insurance carrier covering
Contractor, Owner, the Premises or any part of the contents thereof.
All permits, licenses and certificates required by law in connection
with materials stored on the Premises shall be kept on the Premises
and shall be open to inspection by Owner at all times. Contractor
will not, without the prior consent of the Owner, store or maintain
any explosive, dangerous, or hazardous materials (including
environmentally hazardous materials) on the premises.
5. The following is added as Paragraph 3.4.6:
Notwithstanding anything contained herein to the contrary, all
material delivered to the job site shall be unconditionally owned by
Contractor at the time of delivery and shall be free of the lien or
claim of any third party, for which Owner has made payment to the
Contractor.
6. The following is added as Paragraph 3.5.2:
Notwithstanding anything contained herein to the contrary,
Contractor does hereby warrant all Work and material to be in full
and complete accordance with the contract and all Work and materials
to be free from any and all defects and imperfections and fully
suitable for the use and purposes for which each and every part is
intended. Contractor further agrees that should any defect develop
or appear, Contractor shall promptly, upon demand, fully correct,
substitute and make good any such defective material or workmanship
without any cost to Owner and will save Owner harmless against any
claim, demand, loss or damage arising from any breach of the
warranty contained herein. The foregoing warranty shall commence on
the date the Architect certifies the Work is fully completed and
shall terminate one (1) year thereafter unless otherwise extended by
applicable law. Where Owner has terminated this contact pursuant to
the terms and conditions provided for herein, the period of warranty
for the Work performed by Contractor shall commence on the effective
date of termination.
If any warranty shall be given by any manufacturer, installer,
supplier, subcontractor, or by any other person involved in any
manner or performing any work in relation to this project to the
Contractor or to any Subcontractor, whether such warranty is
required by this contract or otherwise, the Contractor or such
Subcontractor hereby agrees unconditionally to assign all
2
<PAGE>
rights under such warranty to Owner. The Contractor or Subcontractor
agrees to deliver a written assignment of such warranty and all
other evidence of such warranty to Owner. Notwithstanding anything
to the contrary, any warranty which shall be longer than the one (1)
year warranty granted by a Contractor to Owner as provided in this
Paragraph 3.5.2 shall remain in full force and effect and shall not
be shortened by this paragraph or any other clause in this contract.
Any warranties by manufacturers will supercede Contractor's
warranty.
7. The following is added to Paragraph 3,7.1;
No portion of the Work shall be performed unless and until:
(x) all permits required for the performance of the construction
Work will have been obtained and will be in full force and
effect; and
(y) any prior portion of the Work, which must be or customarily is
inspected by a governmental or insurance representative and
the inspection of which would be made impossible or
impractical by the performance of the portion of the Work to
be performed, shall have been inspected.
The following is added to Paragraph 3.7.4:
In the event any violations are placed upon the premises by any
public authority as a result of or in connection with the Work, to
be reflected on drawings and specifications to be agreed upon by
owner and contractor or as otherwise agreed upon as in the case of
demolition work by the Contractor, the Contractor shall be solely
responsible therefor and shall bear all costs attributable thereto.
Final payment, in an amount at least sufficient to correct such
violations as determined by the Architect, shall be withheld until
all such violations are cured of record. In addition, Contractor
shall indemnify Owner for all damage, cost and expense arising from
such violations including but not limited to reasonable attorneys
fees. In the event Contractor fails to cure such violations of
record within a reasonable time, Owner may cause such violations to
be cured and upon demand Contractor shall pay Owner the costs
incurred in such cure including reasonable attorneys fees. The above
is exclusive of C of O, previous violations or errors and omissions
by Architect and/or engineer.
9. The following is added as Paragraph 3.15.1.1:
Contractor shall obtain all applicable approvals and permits
required for the placement of a dumpster on the Premises. The
location of the dumpster shall be Subject to Owner's approval.
3
<PAGE>
10. The following is added as Paragraph 3.18.3.
If any claim or demand is made against Owner or Architect arising
out of or caused by any act or omission of Contractor, its
subcontractors, agents and/or employees during the progress of the
Work, Owner may, in its sole discretion, withhold payments to
Contractor up to the amount of the claim or demand being asserted
plus estimated costs and legal fees. Notwithstanding the preceding
sentence, to the extent any such claims are covered by insurance and
the insurance carrier acknowledges without reservation that it will
defend such claims and pay any judgements or settlements arising in
connection therewith, Owner shall not withheld payments. Any
payments that are withheld in accordance with this paragraph will
not effect Contractors obligations to complete performance under
this agreement. To the extent that Owner has not withheld payments,
Contractor shall refund to Owner and Architect all monies that Owner
or Architect may be compelled to pay in satisfying such claims
and/or liabilities including all costs and reasonable legal fees.
Contractor shall exercise proper care and caution so as to avoid
accident or injury to persons and property and shall adopt and carry
out any reasonable suggestions of Owner or Architect in an effort to
ensure safety.
11. The following is added to Paragraph 4.2.4:
Notwithstanding the above, direct communications between and among
Owner and Contractor, which is not conducted through the Architect,
shall nevertheless be fully valid and effective and must be in
writing.
12. The following is added to Paragraph 6.24:
Should the Contractor cause damage to the Work or property of any
separate owners contractor, the Contractor shall upon due notice
promptly attempt to settle with such other contractor by agreement,
or otherwise to resolve the dispute. If such separate contractor
sues or initiates an arbitration proceeding against the Owner on
account of any damage alleged to have been caused by the Contractor,
the Owner shall notify the Contractor who shall defend such
proceedings at the Contractors expense, and if any judgment or award
against the Owner arises therefrom the Contractor shall pay or
satisfy it and shall reimburse the Owner for all attorneys' fees and
court or arbitration costs Which the Owner has incurred.
13. The following is added to Paragraph 9.3.1.
Each Application for Payment shall be in the form of AIA Document
G702 "Application and Certificate for Payment," supported by
Contractor's completed payment schedule form.
4
<PAGE>
The submission of an Application for Payment shall constitute
representations by Contractor to the Owner, that (1) the Work has
progressed to the point indicated; (2) the quality of the Work is in
accordance with the Contract documents; (3) Contractor is entitled
to payment in the amount certified; (4) Contractor has supervised
the Work in accordance with the terms of the Contract Documents; (5)
all documents and other data submitted by Contractor in order to
substantiate Contractor's right to payment are true and correct; (6)
all monies previously paid on account of the Contract Sum have been
applied in accordance with the Contract Documents and in full
compliance with any applicable law, including the New York Lien Law.
14. The following is added to Paragraph 9.3.3:
In the event that, at any time, there shall be evidence of any lien
or claim for Work or material furnished in the performance of the
Work which, if established, could be an encumbrance upon the
property upon which said Work is to be performed or for which Owner
is or may become liable, for which Owner has previously paid, Owner
shall have the right to retain out of any payment then due or to
become due to Contractor the full amount of the lien or claim. If
any such claim or lien is asserted after all payments hereunder have
been made, or should the amount owed to Contractor be insufficient
to completely indemnify and defend Owner from and against any such
claim or lien, Contractor shall refund to Owner the sums that Owner
was compelled to pay in discharging such lien or satisfying such
claim, including but not limited to reasonable legal, accounting and
engineering fees, or Contractor shall bond such liens or claims. In
the event that any lien shall be filed during the course of the
Work, Contractor shall discharge same by bonding or in any other
manner provided by law, within five (5) days from the date of filing
thereof. In the event that Contractor shall fail or refuse to so
discharge such lien, Owner shall have the right to cause the same to
be removed by bonding or by payment, and the entire cost incurred by
Owner in so doing, including reasonable legal and accounting fees,
shall be deducted from the Contract Price.
15. The following is added as Paragraph 9.4.3:
If Architect requests additional documentation or information in
connection with any Application for Payment and said additional
documentation or information shall only be with respect to a portion
of the Work for which payment is sought by the Contractor, then
Architect shall issue a Certificate of Payment for that portion of
the Work not in question and contemporaneously make its request to
Contractor for the additional
5
<PAGE>
documentation or information needed to issue a Certificate of
Payment for the balance of the amount applied for. The Architect's
Certificate of Payment for such balance shall await its receipt of
such additional documentation or information.
16. The following is added as Paragraph 9.5.3:
Before each progress payment other than the final payment, shall be
deemed earned or payable, Contractor and each Subcontractor and
supplier shall execute and deliver to Owner a waiver of lien in form
reasonably acceptable to Owner with respect to the payments made by
Owner pursuant to the previous Certificate for Payment. Before the
final payment shall be deemed earned and payable. Contractor and
each Subcontractor and supplier shall execute and deliver to Owner a
waiver of lien in form reasonably acceptable to Owner.
17. The following is added as Paragraph 11.1.1.1:
All coverages required under subsection 11.1.1 shall be written on
an occurrence basis, by companies licensed to do business in the
State of New York and otherwise acceptable to Owner for not less
than the limits of liability set forth below:
A. Worker's Compensation and Statutory Employers Liability:
Statutory Limits
B. Commercial General Public Liability: Including, but not
limited to, Premises Operation, bodily injury, personal
injury, death, independent contractors, products and completed
operations, contractual liability and broad form property
damage coverage in a combined single limit amount of not less
than $10,000,000.
C. Automobile Liability: Per Person/Per Occurrence: Bodily
Injury: $1,000,000/$1,000,000
D. Products and Completed Operations Insurance shall be
maintained for a minimum period of two (2) years after final
payment and Contractor shall continue to provide evidence of
such coverage to Owner on an annual basis during the
aforementioned period.
18. The following is added as Paragraph 11.1.4:
Certificates of Insurance or duplicate original policies of
insurance acceptable to the Owner which specifically set forth
evidence of all coverage required
6
<PAGE>
hereunder, and copies of all endorsements that are subsequently
issued, shall be delivered by Contractor to the Owner prior to the
commencement of the Work. Contractor shall not, by its actions or
inactions, cause any insurance policies to be canceled or permit
them to lapse prior to the issuance of the Final Certificate of
Completion for the Work and all insurance policies shall include
clauses to the effect that (i) the policy shall not be canceled,
changed & non-renewed or coverage thereunder reduced until at least
forty-five (45) days after Owner, Architect and any mortgagee whose
name and address has been provided to the insurer have received
written notice thereof; (ii) the act or omission of the named
insured or any additional insured will not invalidate the policy as
to the other additional insureds; and (iii) such insurance shall be
primary and noncontributory.
19. The following is added as Paragraph 11.1.5:
All insurance required hereunder shall be written, unless specified
otherwise herein, without the inclusion of any defense costs within
the limits of liability per job, and shall name Owner, Architect,
and each of the aforesaid parties' agents, officers and employees
and, upon notice from Owner, any mortgagee, as an additional insured
thereunder.
In the event of the failure of Contractor to furnish and maintain
any of the insurance required pursuant to this Contract, Owner shall
have the right at its option to terminate this Contract for cause,
as provided for in Paragraph 14.2.1 or to take out and maintain such
insurance for and in the name of Contractor and Contractor agrees to
pay the cost thereof and to furnish all necessary information to
permit Owner to take out and maintain such insurance for the account
of Contractor. Compliance by Contractor with the foregoing
requirements to carry insurance and furnish certificates shall not
relieve Contractor from liability assumed under any provision of
this Contract.
20. The following is added as Paragraph 11.1.6:
The insurance required by this Paragraph 11, at the option of
Contractor, may be effected by blanket and/or umbrella policies
issued to Contractor covering the Premises, provide that the
policies otherwise comply with the provisions of this Paragraph 11
and allocate to the Premises the coverage specified herein, without
possibility of reduction or coinsurance by reason of, or damage to,
any other premises named therein.
21. Notwithstanding the provisions of Paragraph 13.3.1, all notices
hereunder shall be given by personal messenger or courier delivery,
by facsimile transmission, by overnight or express mail service or
by mailing certified, return receipt requested, addressed to
Contractor, Architect or to Owner at
7
<PAGE>
the addresses set forth on the first page of the Standard Form
Agreement. Any notice given by Contractor to Owner which relates to
(i) a claim of default by Owner, (ii) a demand for payment, or (iii)
an attempted termination of this Contract or of the Work, and any
other correspondence in connection therewith, shall also be sent by
Contractor to:
Ruskin, Moscou, Evans & Faltischek, P.C.
170 Old Country Road
Mineola, New York 11501
Attention: Irvin Brum, Esq.
22. The following is added as Paragraph 13.8:
Contractor warrants and represents it shall employ sufficient
workers at the site to complete work in a timely manner.
23. The following is added as Paragraph 13.9:
For all work done by Contractor in connection with this Contract,
Contractor warrants and represents that any and all materials used
in this project shall be equal to or superior in quality, in all
respects, to (a) the material being removed and replaced and (b) the
same or similar type of material existing elsewhere in the building.
In no event, however, shall any materials used in this Project be
inferior to the materials and standards required by the drawings and
specifications.
8
Exhibit 21.1
List of Subsidiaries
Name of Subsidiary Jurisdiction of Incorporation
- ------------------ -----------------------------
e-commerce Solutions, Inc. New York
WilhelminaUrbanCool.com, Inc Delaware
Mastercraft Builders, Inc. New York
Modtech Solutions, Inc. New York
Modtech, LLC Delaware
EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT
We consent to the inclusion in this Amendment No. 4 to the Registration
Statement on Form S-1 of our report dated April 13, 2000 (with respect to the
second paragraph, Note (H) April 19, 2000), on our audits of the consolidated
financial statements of Urban Cool Network, Inc. and subsidiary as of December
31, 1999 and 1998, for year ended December 31, 1999, for the period from January
23, 1998 (inception) through December 31, 1998 and for the period from January
23, 1998 (inception) through December 31, 1999 and to the reference of our firm
under the caption "Experts".
Richard A. Eisner & Company, LLP
New York, New York
May 19, 2000
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C> <C>
<PERIOD-TYPE> 12-MOS 3-MOS
<FISCAL-YEAR-END> DEC-31-1999 DEC-31-1999
<PERIOD-START> JAN-01-1999 JAN-01-2000
<PERIOD-END> DEC-31-1999 MAR-31-2000
<CASH> 68,000 0
<SECURITIES> 0 0
<RECEIVABLES> 0 0
<ALLOWANCES> 0 0
<INVENTORY> 0 0
<CURRENT-ASSETS> 130,000 88,000
<PP&E> 287,000 289,000
<DEPRECIATION> (42,000) (66,000)
<TOTAL-ASSETS> 3,406,000 8,722,000
<CURRENT-LIABILITIES> 972,000 1,218,000
<BONDS> 0 0
0 0
0 0
<COMMON> 36,000 42,000
<OTHER-SE> 2,398,000 7,462,000
<TOTAL-LIABILITY-AND-EQUITY> 3,406,000 8,722,000
<SALES> 0 0
<TOTAL-REVENUES> 0 0
<CGS> 0 0
<TOTAL-COSTS> 0 0
<OTHER-EXPENSES> (5,652,000) (6,514,000)
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> (84,000) (59,000)
<INCOME-PRETAX> (5,686,000) (6,573,000)
<INCOME-TAX> 0 0
<INCOME-CONTINUING> (5,686,000) (6,573,000)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (5,686,000) (6,573,000)
<EPS-BASIC> (1.99) (1.78)
<EPS-DILUTED> (1.99) (1.78)
</TABLE>
