As filed with the Securities and Exchange Commission on January 21, 2000
Registration No. 333-92223
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------------
Amendment No. 1 to
FORM S-1
REGISTRATION STATEMENT
Under
THE SECURITIES ACT OF 1933
----------------------
Urban Cool Network, Inc.
(Name of Registrant in its charter)
<TABLE>
<S> <C> <C>
Delaware 7375 75-2753953
(State or other jurisdiction of Primary Standard Industrial Classification (I.R.S. Employer
incorporation or organization) Code Number) Identification No.)
</TABLE>
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. Lawrence B. Fisher, Esq.
Silverman, Collura & Chernis, P.C. Orrick, Herrington & Sutcliffe, LLP
381 Park Avenue South 666 Fifth Avenue, 18th Floor
New York, New York 10016 New York, New York 10103
Telephone: (212) 779-8600 Telephone: (212) 506-5000
Facsimile: (212) 779-8858 Facsimile: (212) 506-5151
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. [X]
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>
Explanatory Note
This registration statement contains two prospectuses: one relating to
this offering of 2,000,000 shares of common stock of Urban Cool, plus 300,000
shares of common stock to cover over-allotments, if any, and one relating to the
offering of 1,665,000 shares of common stock by some of the stockholders of
Urban Cool. Following the prospectus are certain substitute pages of the selling
stockholder prospectus, including alternate front outside and back outside cover
pages, an alternate "The Offering" section of the "Summary" and sections titled
"Private Financings," "Selling Stockholders and Plan of Distribution" and "Legal
Matters." Each of the alternate pages for the selling stockholder prospectus is
labeled "Alternate Page for Selling Stockholder Prospectus." All other sections
of the prospectus other than "Use of Proceeds," "Dilution," and "Underwriting"
are to be used for the selling stockholder prospectus.
<PAGE>
Preliminary Prospectus Dated January 21, 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. We have applied for listing of
our common stock on The American Stock Exchange under the symbol "UBN."
Selling stockholders are also offering 1,665,000 shares of common stock
through an alternate prospectus dated ________, 2000.
<TABLE>
<CAPTION>
Per Share Total
--------- -----
<S> <C> <C>
Initial public offering price ......................... $ $
Underwriting discount ................................. $ $
Proceeds, before expenses, to us ...................... $ $
</TABLE>
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.
Security Capital Trading, Inc.
Prospectus dated ____________________, 2000
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.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
PROSPECTUS SUMMARY ......................................................... 3
RISK FACTORS ............................................................... 6
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS ....................... 11
USE OF PROCEEDS ............................................................ 12
DIVIDEND POLICY ............................................................ 13
DILUTION ................................................................... 14
PRIVATE FINANCINGS ......................................................... 15
CAPITALIZATION ............................................................. 17
SELECTED FINANCIAL DATA .................................................... 19
PLAN OF OPERATION .......................................................... 20
BUSINESS ................................................................... 25
MANAGEMENT ................................................................. 35
PRINCIPAL STOCKHOLDERS ..................................................... 40
CERTAIN TRANSACTIONS ....................................................... 41
DESCRIPTION OF SECURITIES .................................................. 42
SHARES ELIGIBLE FOR FUTURE SALE ............................................ 45
PLAN OF DISTRIBUTION ....................................................... 46
LEGAL MATTERS .............................................................. 48
EXPERTS .................................................................... 48
HOW TO GET MORE INFORMATION ................................................ 48
FINANCIAL STATEMENTS ....................................................... F-1
</TABLE>
--------------------
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>
[The inside front cover contains a graphic
showing pages from Urban Cool's website.]
<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, and urbantrends.com, a
business-to-business 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 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
marketing electronic commerce capable web sites to urban-based small businesses
through our subsidiary e-commerce Solutions, Inc.
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 urbancool.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 .......................... 5,645,000 shares of common stock.
This number excludes:
o an aggregate of 2,435,000 shares
of common stock reserved for
issuance upon the exercise of
outstanding options and
warrants, excluding options to
purchase 755,750 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 255,750 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 representative of the
several 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;
o development and licensing of
content and procurement of
traffic;
o repayment of debt; 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,
1998 1998 1998
Nine Months (Inception) (Inception) (Inception)
Ended Through Through Through
September 30, September 30, December 31, September 30,
1999 1998 1998 1999
------------ ------------ ------------ ------------
(unaudited) (unaudited) (unaudited)
Statement of operations data:
<S> <C> <C> <C> <C>
Revenues ...................................... -- -- -- --
Costs and expenses:
Content costs for website ..................... $ 409,000 $ $ 130,000 $ 539,000
General and administrative .................... 492,000 153,000 198,000 690,000
----------- ---------- ---------- -----------
Operating loss ............................... (901,000) (153,000) (328,000) (1,229,000)
Interest and related costs ................... 186,000 186,000
----------- ---------- ---------- -----------
Loss before income tax benefit ............... (1,087,000) (153,000) (328,000) (1,415,000)
Income tax benefit -- -- -- --
----------- ---------- ---------- -----------
Net loss/comprehensive loss ................... $(1,087,000) $ (153,000) $ (328,000) $(1,415,000)
=========== ========== ========== ===========
Loss per share -- basic and diluted .......... $ (0.41) $ (0.07) $ (0.16)
=========== ========== ==========
Weighted average number of shares
outstanding -- basic and diluted ........... 2,659,082 2,060,885 2,066,082
=========== ========== ==========
</TABLE>
The following table provides a summary of our balance sheet at September
30, 1999:
o on an actual basis;
o on a pro forma basis to reflect:
o the issuance of 175,000 shares of common stock to Sea Breeze
Associates, a consultant in October 1999;
o the issuance of promissory notes in the aggregate amount of $700,000,
70,000 shares of common stock and warrants to purchase 350,000 shares
of common stock in October and November 1999, in connection with a
private financing transaction;
o the borrowing of $500,000, pursuant to a loan of up to $1,000,000 with
The Elite Funding Group, Inc., and the issuance of warrants to
purchase 750,000 shares of common stock to the lender in the fourth
quarter of 1999;
o the issuance of 150,000 shares to RMH Consulting Corp., a consultant
who is an affiliate of The Elite Funding Group who has agreed to loan
to us up to $1,000,000, in November 1999, as compensation for
consulting services with respect to the implementation of our business
plan and strategies and our right to repurchase 45,000 shares of
common stock;
o the issuance of warrants to purchase 40,000 shares of common stock to
Security Capital and warrants to purchase 20,000 shares of common
stock to May Davis Group in connection with assisting the company in
procuring a loan of up to $1,000,000 with The Elite Funding Group;
o the issuance of options to purchase 100,000 shares of common stock to
an employee in November 1999; and
o the issuance of options to purchase 200,000 shares of common stock
which are immediately exercisable to Stanley Wolfson in connection
with the acquisition of a 66 2/3% interest in e-commerce Solutions,
Inc.
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, 1998 At September 30, 1999
----------------------------------------------------------------
(unaudited)
Actual Actual Pro Forma Pro Forma as Adjusted
---------- ---------- ----------- ---------------------
<S> <C> <C> <C> <C>
Cash ...................................... $ 2,000 -- $ 973,000 $16,263,000
Working capital (deficit) ................. (220,000) $(776,000) $ 197,000 $16,018,000
Total assets .............................. 88,000 $ 251,000 $3,251,000 $18,126,000
Total long-term debt ...................... -- $ -- $ -- --
Total liabilities ......................... 222,000 $ 778,000 $ 778,000 $ 247,000
Minority interest ......................... -- -- -- $ 983,000
Shares subject to repurchase .............. -- -- $ 450,000 --
Total stockholder's equity (deficiency) ... (134,000) $(527,000) $2,023,000 $16,895,000
</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.
We commenced our business in 1998 and have a limited operating history.
Our ability to achieve profitability will be dependent upon the success of our
efforts to:
o attract a larger audience to our online network;
o increase awareness of our brand;
o strengthen user loyalty;
o offer compelling content;
o maintain current and develop new strategic relationships;
o attract a large number of advertisers from a variety of industries;
o manage growth and respond effectively to competitive pressures;
o continue to develop and upgrade our technology; and
o attract, retain and motivate qualified personnel.
See "Plan of Operation" for detailed information on our limited operating
history.
The independent auditor's report contains explanatory language that
substantial doubt exists about our ability to continue as a going concern.
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 and a 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.
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 September 30, 1999, our accumulated deficit was $1,415,000 and our working
capital deficit was $776,000. 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.
We require substantial funds and may need to raise additional capital in
the future to implement our plan to become a leading online destination for
urban consumers.
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. We have no current
arrangements with respect to sources of additional financing. Other additional
financing 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 or issue debt securities, we will be subject
to various risks, including the risk that interest rates may fluctuate and the
possibility that we may not be able to pay principal or interest.
6
<PAGE>
The market for Internet advertising is uncertain and we may not be able to
derive the revenues we expect from sponsorship and advertising.
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 reevaluate our
business strategy.
We must manage our plan of rapid expansion effectively or 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
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.
We may be unable to respond to rapid technological changes in our
industry, which could materially harm our ability 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. We could also incur
substantial costs if we need to modify our services or infrastructure to adapt
to these changes.
We face intense competition in our efforts to establish our online network
as a leading destination of urban consumers and businesses.
The number of web sites competing for the attention and spending of users
and advertisers has increased. We expect that online competition will further
intensify since a competitor can launch a new site at a relatively low cost.
7
<PAGE>
In addition, because of our broad market focus, we compete for users and
advertisers with many types of companies, including:
o online services or web sites targeted at urban consumers such as
bet.com, starmedia.com and quepasa.com;
o web search and retrieval and other online service companies, commonly
referred to as portals, such as AOL, Excite, Inc., Infoseek Corporation,
Lycos, Inc. and Yahoo! Inc.;
o electronic commerce companies such as AOL, Yahoo Store and Amazon.com;
and
o publishers and distributors of traditional media, such as television,
radio and print.
Increased competition could result in price reductions, reduced margins or
loss of market share.
Many of our competitors have longer operating histories, larger customer
bases, greater brand recognition and significantly greater financial, marketing
and other resources than we have.
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.
We may be unable to complete the development of our proprietary software
to construct electronic commerce capable web sites.
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.
We are unsure whether a viable market exists for low-cost electronic
commerce capable web sites.
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.
Our success in selling electronic commerce capable web sites depends on
developing a substantial sales force, which we currently do not have.
We currently do not have a sales force to market electronic commerce
capable web sites 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 have no experience in web site design services and we will compete
against many proven, well-established companies for web site design services.
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. Many of these competitors have well established, large and
experienced marketing and sales capabilities and greater name recognition than
we have. 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.
8
<PAGE>
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. In addition, if we are unable to
obtain content at an acceptable cost, it could materially harm our ability to
compete and operate profitably.
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 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.
Our reliance on third parties to provide NetStand kiosks and other
computer hardware may affect our ability to operate as intended.
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 affect our ability
to operate as intended and our growth could be impaired.
We may be sued for information retrieved from the Internet through our
online network.
We may be subject to claims for defamation, negligence, copyright or
trademark infringement, personal injury or other legal theories relating to the
information we publish on our web sites. We could also be subjected to claims
based upon the content that is accessible from our web sites through links to
other web sites or through content and materials that may be posted by users in
chat rooms or bulletin boards. We also offer e-mail services, which may subject
us to potential risks, such as liabilities or claims resulting from unsolicited
e-mail, lost or misdirected messages, illegal or fraudulent use of e-mail or
interruptions or delays in e-mail service. Our insurance may not adequately
protect us against these types of claims.
We may incur potential product liability for products we sell over the
Internet.
Consumers may sue us if any of the products that we sell online are
defective, fail to perform properly or injure the user. Liability claims could
require us to spend significant time and money in litigation or to pay
significant damages. As a result, any such claims, whether or not successful,
could seriously damage our reputation and our business.
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 could be subject to possible infringement actions based upon content
licensed from others.
We have established a network of links with numerous small online sites.
Many of the sites may not have licenses for the use of the intellectual property
that they display. The copyright holders of this intellectual
9
<PAGE>
property or their licensees may assert infringement claims against our affiliate
partner sites and us because of our relationships with these sites. In addition,
it is possible that we could become subject to infringement actions based upon
content we may license from third parties. Any of these claims, with or without
merit, could subject us to costly litigation and the diversion of our financial
resources and technical and management personnel. Further, if such claims are
successful, we may be required to change our trademarks, alter the content on
our online network, pay financial damages or obtain licenses from others.
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.
The loss of any key personnel would disrupt our operations and hurt our
profitability.
Our future success depends to a significant extent on the continued
services of our senior management and other key personnel, particularly, Jacob
R. Miles, III, Chairman and Chief Executive Officer, Terrence B. Reddy,
President and Chief Operating Officer, and Stanley Wolfson, the President of
e-commerce Solutions. The loss of the services of Mr. Miles, Mr. Reddy, Mr.
Wolfson or other key employees would likely have a significantly detrimental
effect on our business. We maintain "key person" life insurance in the amount of
$1,000,000 for Mr. Miles. We currently have employment agreements with each of
Mr. Miles and Mr. Reddy, and Mr. Wolfson has entered into an employment
agreement with e-commerce Solutions. Although, if Mr. Miles, Mr. Reddy or Mr.
Wolfson becomes unable or unwilling to continue in their current positions, it
would be significantly more difficult to operate our business, which would hurt
our financial condition and results of operations.
Management will control approximately 40% 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 40% 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 71% of total capital contributed to Urban Cool, but will receive
only 36% of the shares of common stock. In addition, you will suffer immediate
and substantial dilution of $7.33 per share, or approximately 73.3% 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.
10
<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. In addition, 1,665,000 shares of common stock
are being offered by selling stockholders under an alternate prospectus. Our
officers, directors and some 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
Security Capital on behalf of the underwriters. 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
propsectus or to reflect the occurrence of unanticipated events.
11
<PAGE>
USE OF PROCEEDS
We will receive net proceeds from the sale of the shares of common stock
in this offering of approximately $17,250,000, or $19,950,000 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 ............................................ $ 5,250,000 30.4%
Capital expenditures ........................................................ 4,000,000 23.2%
Development and marketing of electronic commerce capable web sites .......... 2,950,000 17.1%
Development and licensing of content and procurement of traffic ............. 2,200,000 12.8%
Repayment of debt ........................................................... 2,136,000 12.4%
Working capital and general corporate purposes .............................. 714,000 4.1%
------------ --------
Total ..................................................................... $ 17,250,000 100.0%
============ ========
</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. 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.
Development and licensing of content and procurement of traffic. We intend
to develop original content, 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 a loan in the amount of up to $1,000,000 from The Elite Funding Group,
of which $500,000 has been drawn as of the date of this prospectus plus
accrued interest at the rate of 10% per annum and
o accrued salary in the amount of $131,000 payable to Jacob R. Miles,
III, our Chairman, Chief Executive Officer and majority stockholder.
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. We
will not receive any of the proceeds from the sale of shares by the selling
stockholders.
12
<PAGE>
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.
13
<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 September 30, 1999, after giving
effect to:
o the issuance of 175,000 shares of common stock to Sea Breeze
Associates, a consultant in October 1999;
o the issuance of promissory notes in the aggregate amount of
$700,000, 70,000 shares of common stock and warrants to purchase
350,000 shares of common stock in October and November 1999, in
connection with a private financing transaction;
o the borrowing of $500,000, pursuant to a loan of up to $1,000,000,
and the issuance of warrants to purchase 750,000 shares of common
stock to the lender, The Elite Funding Group, Inc., in the fourth
quarter of 1999;
o the issuance of 150,000 shares to RMH Consulting Corp., a
consultant who is an affiliate of The Elite Funding Group who has
agreed to loan us up to $1,000,000, in November 1999, as
compensation for consulting services with respect to the
implementation of our business plan and strategies, including our
right to repurchase 45,000 shares of common stock;
o the issuance of warrants to purchase 40,000 shares of common stock
to Security Capital and warrants to purchase 20,000 shares of
common stock to May Davis Group in connection with assisting the
company in procuring a loan of up to $1,000,000 with The Elite
Funding Group;
o the issuance of options to purchase 100,000 shares of common stock
to an employee in November 1999; and
o the issuance of options to purchase 200,000 shares of common stock
which are immediately exercisable to Stanley Wolfson in connection
with the acquisition of a 66 2/3% interest in e-commerce Solutions,
Inc.
As of September 30, 1999, we had a pro forma net tangible negative book
value of $(192,000), $(.05) 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 September 30,
1999 would have been $15,095,000 or $2.67 per share. This represents an
immediate increase in the net tangible book value of approximately $2.72 per
share to existing stockholders and an immediate and substantial dilution of
$7.33 per share to new investors. The following table illustrates this per share
dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share ..................................... $10.00
Pro forma net tangible book value per share as of September 30, 1999 ................ $(.05)
Increase per share attributable to new investors .................................... $2.72
-----
Pro forma as adjusted net tangible book value per share after this offering ......... $ 2.67
------
Dilution per share to new investors ................................................. $ 7.33
======
</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
September 30, 1999 would have been $2.99 per share. This represents an immediate
increase in the net tangible book value of approximately $3.04 per share to
existing stockholders and an immediate and substantial dilution of $7.01 per
share to new investors.
14
<PAGE>
The following table summarizes, on a pro forma basis, as of September 30,
1999, 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 ............................ 3,630,000 64% $ 7,996,000 29% $ 2.20
New investors .................................... 2,000,000 36% $20,000,000 71% $ 10.00
---------- ---- ----------- ---- -------
Total ............................................ 5,630,000 100% $27,996,000 100%
========== ==== =========== ====
</TABLE>
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. We have agreed to
register the shares of common stock and the shares of common stock underlying
the warrants issued in the private financing. These shares are included in this
registration statement of which this prospectus forms a part and are being
offered by the selling stockholders under an alternate prospectus.
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 13 months from the date of this prospectus without the prior written
consent of Security Capital Trading, Inc. However, Security Capital has agreed
to release the lock-up after six months if Security Capital has not agreed
otherwise with The American Stock Exchange or any other national securities
exchange.
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 received an initial advance of $350,000 and we issued to
the lender common stock purchase warrants for the purchase of up to 750,000
shares of common stock with an exercise price of $2.00 per share. In December
1999, we received an additional advance of $150,000. 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 April 14,
2000 or the closing of this offering. We may draw down up to $150,000 against
the balance of the loan every 30 days.
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. The shares of common stock
underlying the lender's warrant are included in this registration statement of
which this prospectus forms a part, are being offered under an alternate
prospectus and are not subject to a lock-up agreement. In addition, we have
agreed to utilize our best efforts to enable the lender or its designee to
purchase the number of shares of
15
<PAGE>
common stock in this offering in an amount equal to $1,000,000 divided by the
initial public offering price by requesting that Security Capital sell a portion
of the shares in this offering to the lender or its designee.
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. 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 may repurchase an
aggregate of 45,000 shares of common stock in three monthly installments of
15,000 shares of common stock from the consultant at a cash price of $2,000 for
each installment commencing in January 2000 through March 2000. In the event
that we do not repurchase the shares of common stock in a given month, then such
repurchase right expires. However, upon the completion of the offering our right
to repurchase any shares of common stock for which our repurchase right is still
outstanding will be accelerated. 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. The shares of common stock issued to RMH
Consulting are included in this registration statement of which this prospectus
forms a part, are being offered under an alternate prospectus and are not
subject to a lock-up agreement. See "Management--Consulting Agreements" and
"Certain Transactions."
Security Capital and May Davis 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.
16
<PAGE>
CAPITALIZATION
The following table sets forth our capitalization as of September 30,
1999:
o on an actual basis;
o on a pro forma basis to reflect:
o the issuance of 175,000 shares of common stock to Sea Breeze
Associates, a consultant in October 1999;
o the issuance of promissory notes in the aggregate amount of $700,000,
70,000 shares of common stock and warrants to purchase 350,000 shares
of common stock in October and November 1999, in connection with a
private financing transaction;
o the borrowing of $500,000, pursuant to a loan of up to $1,000,000,
and the issuance of warrants to purchase 750,000 shares of common
stock to the lender, The Elite Funding Group, Inc., in November and
December 1999;
o the issuance of 150,000 shares to RMH Consulting Corp., a consultant
who is an affiliate of The Elite Funding Group, who has agreed to
loan us up to $1,000,000, in the fourth quarter of 1999, as
compensation for consulting services with respect to the
implementation of our business plan and strategies and our right to
repurchase 45,000 shares of common stock;
o the issuance of warrants to purchase 40,000 shares of common stock to
Security Capital and warrants to purchase 20,000 shares of common
stock to May Davis Group in connection with assisting the company in
procuring a loan of up to $1,000,000 from The Elite Funding Group;
o the issuance of options to purchase 100,000 shares of common stock to
an employee in November 1999; and
o the issuance of options to purchase 200,000 shares of common stock
which are immediately exercisable to Stanley Wolfson in connection
with the acquisition of a 66 2/3% interest in e-commerce Solutions,
Inc.
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 representative of 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 255,750 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.
17
<PAGE>
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 September 30, 1999
------------------------
Pro Forma
Actual Pro Forma as adjusted
----------- ----------- -------------
<S> <C> <C> <C>
Notes payable (face value--$350,000, actual,
$1,050,000, pro forma) .............................. $ -- $ -- $ --
----------- ----------- -------------
Minority interest ..................................... 983,000
-------------
Shares subject to repurchase .......................... 450,000
-----------
Stockholders equity (deficiency):
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: 3,235,000 outstanding (actual),
3,630,000 outstanding (pro forma), 5,645,000
outstanding (pro forma as adjusted) ................. 32,000 36,000 56,000
Additional paid-in capital ............................ 5,638,000 22,274,000 40,104,000
Unearned compensation ................................. (3,500,000) (7,550,000) (7,550,000)
Deficit accumulated during the development stage ...... (1,415,000) (1,415,000) (15,715,000)
Unamortized debt discount in excess of
notes payable ....................................... (1,282,000) (11,322,000) --
----------- ----------- ------------
Total stockholders equity (deficiency) ................ $ (527,000) $ 2,023,000 $ 16,895,000
----------- ----------- ------------
Total capitalization .................................. $ (527,000) $ 2,473,000 $ 17,878,000
=========== =========== ============
</TABLE>
18
<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
the period January 23, 1998 through December 31, 1998 and the balance sheet data
as of December 31, 1998 from our audited financial statements included elsewhere
in this prospectus. The statement of operations data presented for the nine
month period ended September 30, 1999 and the periods from January 23, 1998
through September 30, 1998 and 1999, and the balance sheet data at September 30,
1999, 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 therein. 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,
1998 1998 1998
Nine Months (Inception) (Inception) (Inception)
Ended Through Through Through
September 30, September 30, December 31, September 30,
1999 1998 1998 1999
------------ ------------ ------------ ------------
(unaudited) (unaudited) (unaudited)
<S> <C> <C> <C> <C>
Statement of operations data:
Revenues ....................................... -- -- -- --
Costs and expenses:
Content costs for website ...................... $ 409,000 $ $ 130,000 $ 539,000
General and administrative ..................... 492,000 153,000 198,000 690,000
----------- ---------- ---------- ------------
Operating loss ................................ (901,000) (153,000) (328,000) (1,229,000)
Interest and related costs .................... 186,000 186,000
----------- ---------- ---------- ------------
Loss before income tax benefit ................ (1,087,000) (153,000) (328,000) (1,415,000)
Income tax benefit -- -- -- --
----------- ---------- ---------- ------------
Net loss/comprehensive loss .................... $(1,087,000) $ (153,000) $ (328,000) $ (1,415,000)
=========== ========== ========== ============
Loss per share -- basic and diluted ........... $ (0.41) $ (0.07) $ (0.16)
=========== ========== ==========
Weighted average number of shares
outstanding -- basic and diluted ............ 2,659,082 2,060,885 2,066,082
=========== ========== ==========
</TABLE>
<TABLE>
<CAPTION>
Balance sheet data: December 31, 1998 September 30, 1999
----------------- ------------------
(unaudited)
<S> <C> <C>
Cash ............................................................. $ 2,000 --
Working capital (deficit) ........................................ (220,000) $(776,000)
Total assets ..................................................... 88,000 $ 251,000
Total long-term debt ............................................. -- $ --
Total liabilities ................................................ 222,000 $ 778,000
Capital deficiency ............................................... (134,000) $(527,000)
</TABLE>
19
<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 December 31, 1998 and the nine months
ended September 30, 1999.
We believe that the minority segment of the urban population has not been
meaningfully targeted for Internet access. 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 and businesses 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 is critical to attract urban
consumers to our web sites, NetStand kiosks and CyberCenters. We intend to
utilize approximately $5,250,000 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 $5,000. We intend to locate the
NetStand kiosks in high-traffic locations such as shopping malls, 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 second 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. Our 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.
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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 corporate sponsorship of our NetStand kiosks, including billboard treatment
of the NetStand kiosks. We initially plan to charge an annual sponsorship fee of
$10,000 per sponsored 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. We are uncertain as to whether we will be able to generate revenue
from the corporate sponsorship of 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.
In November 1999, we acquired a 66 2/3% 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. 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, and for the nine
month period ended September 30, 1999. We incurred expenses of $328,000 and
$1,087,000, respectively, for those periods, in connection with web site
development costs and other general and administrative expenses. The increase in
expenses in 1999 was primarily attributable to our increase in activity and
costs incurred in connection with our anticipated expansion plans.
As of September 30, 1999 we had net operating loss carryforwards for
federal income tax purposes of approximately $944,000. 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 2019. We have established
a valuation allowance with respect to these federal net operating loss
carryforward.
For the period commencing on September 30, 1999 through the completion of
the offering, we will incur charges in the aggregate amount of approximately
$13,317,000 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 $7,550,000 of equity instrument 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 66 2/3% 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. Based upon an assumed fair
value of $10 per share and utilizing the Black-Scholes model, we will record a
charge of approximately $1,800,000 as each of the performance criteria is
achieved.
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 obtaining licenses of third-party content;
o consumers' acceptance of electronic commerce;
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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 September 30, 1999, we had a working capital deficit of ($776,000) and a
capital deficiency of ($527,000).
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 and a 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 $60,000, which was primarily attributable to increases in
accounts payable and accrued expenses of $209,000, offset by our net loss of
$328,000 and increased by non-cash expenses in the amount of $179,000. For the
nine month period ended September 30, 1999 and the comparable 1998 period, cash
used in operating activities was $376,000 and $4,000, respectively. The cash
used by operating activities for the nine month period ended September 30, 1999
was attributable to a net loss of $1,087,000 and offset by non-cash expenses in
the amount of $207,000 and an increase in accounts payable, accrued expenses and
net of an increase in other assets in the amount of $509,000.
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 nine month period ended
September 30, 1999, there was no net cash used in investing activities. In the
comparable 1998 period, $5,000 was used in investing activities, which was
attributable to web site development.
For the period ended December 31, 1998, net cash provided by financing
activities was $28,000, which was attributable to the sale of common stock and
an advance from a stockholder. For the nine month period ended September 30,
1999 and the comparable 1998 period, net cash provided by financing activities
was $374,000 and $9,000, respectively. The increase in net cash provided by
financing activities was primarily attributable to proceeds from the sale of our
common stock and proceeds from a private financing transaction.
In November 1999, we delivered a 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
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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 and January 2000.
In January 2000, we contributed $50,000 to e-commerce Solutions, Inc. in
connection with our acquisition of a 66 2/3% 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 received an initial advance of $350,000 and 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 $2.00 per share, exercisable at any time
for a period of ten years. In December 1999, we received an additional advance
of $150,000. 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 April 14, 2000 or the
closing of this offering. We may draw down up to $150,000 against the balance of
the loan every 30 days. 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 September 30,
1999 we owed Mr. Miles approximately $11,000 for expenses he paid on our behalf
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. 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 for use 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.
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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 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.
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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 urbantrends.com, a
business-to-business 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 our web sites and operations, negotiating agreements with 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 access to the urban marketplace for additional sales
and customer service opportunities, while providing exposure in the
urban marketplace for their brands.
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.
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
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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. The key elements of our strategy are described
below.
Create brand recognition
We believe creating brand recognition is critical to attracting urban
consumers to our web sites, NetStand kiosks and CyberCenters. 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, 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 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
$5,000. The NetStand kiosks will be networked, designed and 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.
Based on our discussions with potential corporate sponsors, we believe
that we will commence generating revenue from the sale of corporate sponsorships
of the NetStand kiosks in the first six months of 2000. However, no definitive
agreements have been executed for the sale of corporate sponsorships of the
NetStand kiosks and there can be no assurance as to if, or when, corporate
sponsorships of the NetStand kiosks will be sold.
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Build CyberCenters
We intend to open a model CyberCenter at 439 West 125th Street in Harlem,
New York in the second 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. Our 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 and advertising revenues
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 corporate sponsorship of our NetStand kiosks, including billboard treatment
of the NetStand kiosks. We initially plan to charge an annual sponsorship fee of
$10,000 per sponsored 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 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, 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.
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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 an 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 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 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.
Create web site design services
We have recently acquired a 66 2/3% interest in e-commerce Solutions -- in
exchange for warrants to purchase up to 1,000,000 shares of common stock --
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, we intend to sell electronic
commerce web sites. 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 urbancoolnet.com and to our other web sites.
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.
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.
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Urban Cool Online Network
Our online network is organized around 15 content specific channels and
three 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.
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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 homepage and contains a link to urbancoolnet.com
Urbancoolnet.com
The urbancoolnet.com site is our main web site which contains links to our
15 content specific channels and our other web sites.
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.
Future web sites
We intend to develop Urban Cool Magazine, a print and online technology
lifestyle magazine focused on the urban consumer. We intend to develop
urbanjobs.com, an employment and career development focused web site, and
urbancities.com, a collection of web pages focused on local urban communities.
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 salespersons 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 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.
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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.
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.
Web site design services
In November 1999, we acquired 66 2/3% of the capital stock of e-commerce
Solutions, Inc. from Stanley Wolfson in exchange for warrants to purchase up to
1,000,000 shares of common stock at an exercise price of $1.00 per share for a
period of five years, exercisable as follows:
o warrants to purchase 200,000 shares of common stock are exerciseable
immediately;
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;
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;
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; 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.
In addition, 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
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Solutions upon the completion of the offering. 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.
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. 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.
Revenue sharing agreements
We have entered into revenue sharing agreements with Music Boulevard/CD
Now, car prices.com, electronics.net, Yahoo store, and buydirect.com. We intend
to enter 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 initially designed our 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 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.
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.
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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 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.
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Employees
We have nine full-time employees, four of which are 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. We are in the process of locating additional space for our
expanded operations. However, no definitive agreements have been executed.
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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.
<TABLE>
<CAPTION>
Name Age Position
----- ---- --------
<S> <C> <C>
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
</TABLE>
- ----------------------
* 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 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.
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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., Autotote Corporation, Inc., and Natural Health
Trends Corp. for which he presently serves as Chairman.
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 Security Capital the right, for a period of five years
from the closing of this offering, to nominate a designee of Security Capital
for election to our board of directors. Security Capital has not indicated who
they intend to designate to our board. If Security Capital 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 Security Capital elects not
to exercise this right, then Security Capital 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 $10,000. Employee directors will not receive
additional compensation for serving on the board of directors. All directors
will be reimbursed for out-of-pocket expenses incurred in attending meetings of
the board of directors and committee meetings.
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Executive compensation
Summary Compensation Table
The following table provides a summary of cash and non-cash compensation
for the year ended December 31, 1998 with respect to the following officer of
Urban Cool:
<TABLE>
<CAPTION>
Annual Compensation Long-Term Compensation
--------------------- ----------------------
Awards
---------
Securities
Restricted Underlying
Other Annual Stock Options LTIP All Other
Name and Principal Positions Year Salary($) Bonus($) Compensation Award(s)($) SARs(#) Payouts($) Compensation
- ---------------------------- ---- ------------- ---------- ------------ ------------ ------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Jacob R. Miles, III 1998 0 0 0 0 0 0 0
</TABLE>
There were no option grants during 1998 for the officer listed in the Summary
Compensation Table. No options were exercised in 1998.
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.
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. 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
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<PAGE>
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.
The shares of common stock issued to the consultant are not subject to a lock-up
agreement. We may repurchase an aggregate of 45,000 shares of common stock in
three monthly installments of 15,000 shares of common stock from the consultant
at a cash price of $2,000 for each installment commencing in January 2000
through March 2000. In the event that we do not repurchase the shares of common
stock in any given month, then such repurchase right expires. However, upon the
completion of the offering our right to repurchase any shares of common stock
for which our repurchase right is still outstanding will be accelerated.
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, 255,750 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 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
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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.
39
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth as of January 1, 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 January 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
- ------------------- ------------- ---------------- --------------
<S> <C> <C> <C>
(Before Offering) (After Offering)
Jacob R. Miles, III 2,336,493(1) 60.2% 39.7%
Terrence B. Reddy -- * *
Rosalind Bell 2,336,493(2)(3) 60.2% 39.7%
Rex Cumming 5,000(3) * *
Sir Brian Wolfson 5,000(3) * *
The Elite Funding Group, Inc. 876,250(4) 20.1% 13.8%
Stanley Wolfson 200,000(5) 5.2% 3.4%
All executive officers and directors as a group
(7 persons) 2,446,493 61.5% 40.8%
</TABLE>
- --------------
(1) Includes (a) 20,608 shares of common stock owned by Rosalind Bell, Mr.
Miles' wife, at an exercise price equal to the initial public offering
price, (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 726,250 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) Includes warrants to purchase 200,000 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.
40
<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 September 30,
1999 we owed Mr. Miles approximately $11,000 for expenses he paid on our behalf
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."
41
<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 January 1, 2000, 3,630,000 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 and warrants
As of the date of this prospectus, up to 3,190,750 shares of common stock
are issuable pursuant to outstanding options and warrants. Of such options and
warrants, excluding the 200,000 shares of common stock reserved for issuance
upon the exercise of warrants granted to the representative:
o 1,375,000 shares of common stock are issuable at an exercise price
of $2.00 per share;
o 1,000,000 shares of common stock are issuable at an exercise price
of $1.00 per share;
o 310,000 shares of common stock are issuable at an exercise price of
equal to 110% of the initial public offering price; and
o 505,750 shares of common stock are issuable at an exercise price equal
to the initial public offering price per share.
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
42
<PAGE>
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.
Representative's warrants
We have agreed to issue to Security Capital, the representative of 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 120% of the initial public offering
price of the shares of common stock. The representative's 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 representative's warrants upon the occurrence of
some events, including stock dividends, stock splits, mergers, acquisitions and
recapitalizations.
The representative's warrants contain demand and piggyback registration
rights relating to the issuance of 200,000 shares of common stock. For the life
of the representative's warrants, the representative 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 representative's 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 representative's 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.
These shares are included in this registration statement of which this
prospectus forms a part and are being offered by the selling stockholders under
an alternate prospectus. 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 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 exercise price of $2.00 per share. We have granted
registration rights to the lender for the registration of the shares of common
stock underlying the warrants in this offering, including demand registration
rights, and certain additional "piggy-back" registration rights. The shares of
common stock underlying the lender's warrant are included in this registration
statement of which this prospectus forms a part and offered under an alternate
prospectus. 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. The shares of common stock issued to RMH Consulting and the shares
of common stock underlying the warrant issued to The Elite Funding Group are not
subject to a lock-up agreement.
Security Capital and May Davis Group assisted us in procuring the
$1,000,000 loan from The Elite Funding Group and received warrants to purchase
40,000 shares of common stock and warrants to purchase 20,000 shares of common
stock, respectively. The shares of common stock underlying the these warrants
are included in this registration statement of which this prospectus forms a
part and are being offered under an alternate prospectus.
We have also agreed to register 75,000 shares of common stock in this
registration statement held by Sea Breeze Associates, a consultant. These shares
of common stock are included in this registration statement of which this
prospectus forms a part and offered under an alternate prospectus.
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<PAGE>
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:
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.
44
<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 5,645,000 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. The 1,665,000
shares of common stock which are being offered by selling stockholders pursuant
to an alternate prospectus will be freely transferable subject to the lock-up
agreements described below.
We issued the remaining 3,645,000 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 2,121,475 shares have been held for more than one
year as of the date of this prospectus. Therefore, 2,121,475 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
Except for RMH Consulting Corp., a consultant and an affiliate of The
Elite Funding Group, and The Elite Funding Group, our lender and a principal
stockholder of ours, and their assignees, who will hold up to 150,000 shares of
common stock and warrants to purchase up to 750,000 shares of common stock,
respectively, 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 13 months after the offering without the prior written
consent of Security Capital. However, Security Capital has agreed to release the
lock-up after six months with respect to 105,000 shares of common stock and
525,000 shares of common stock underlying certain warrants issued in connection
with a private financing transaction in July through November, 1999, if Security
Capital has not agreed otherwise with The American Stock Exchange or any other
national securities exchange.
45
<PAGE>
PLAN OF DISTRIBUTION
The underwriters named below, for whom Security Capital Trading, Inc. 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
---------- --------
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.
Except for RMH Consulting Corp., a consultant and an affiliate of The
Elite Funding Group, and The Elite Funding Group, our lender and a principal
stockholder of ours, and their assignees, who will hold up to 150,000 shares of
common stock and warrants to purchase up to 750,000 shares of common stock,
respectively, 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 13 months after the offering without the prior written
consent of Security Capital. However, Security Capital has agreed to release the
lock-up after six months with respect to 105,000 shares of common stock and
525,000 shares of common stock underlying certain warrants issued in connection
with a private financing transaction in July through November, 1999, if Security
Capital has not agreed otherwise with The American Stock Exchange or any other
national securities exchange. An appropriate legend shall be placed on the
certificates representing the securities. Except for the release of the lock-up
after six months with respect to 105,000 shares of common stock and 525,000
shares of common stock issued in a private financing transaction, 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.
46
<PAGE>
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.
Security Capital and May Davis Group also assisted us in procuring the
$1,000,000 loan with The Elite Funding Group, Inc. and received warrants to
purchase 40,000 shares of common stock and warrants to purchase 20,000 shares of
common stock at an exercise price equal to 110% of the initial public offering
price, respectively.
In connection with this offering, we have agreed to sell to the
representative, and/or its designees, for nominal consideration, five-year
representative's warrants to purchase up to 200,000 shares of our common stock.
The representative's 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 120% 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 representative's 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 representative's warrants grant to the
holders rights of registration for the securities issuable upon exercise of the
warrants. In addition, the representative's 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 representative.
We have also granted to the representative, 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. 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 principal 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.
47
<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.
Orrick, Herrington & Sutcliffe 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, 1998 and for the
period January 23, 1998 through December 31, 1998, 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).
48
<PAGE>
URBAN COOL NETWORK, INC.
(a development stage company)
Contents
Page
Financial Statements
Independent auditor's report F-2
Balance sheets as of December 31, 1998 and September 30, 1999 (unaudited) F-3
Statements of operations for the period from January 23, 1998 (inception)
through December 31, 1998 and the nine month period ended September 30,
1999 (unaudited) and for the periods from January 23, 1998 (inception)
through September 30, 1998 and 1999 (unaudited) F-4
Statements of changes in capital deficiency for the period from January 23,
1998 (inception) through December 31, 1998 and the nine month period ended
September 30, 1999 (unaudited) F-5
Statements of cash flows for the period from January 23, 1998 (inception)
through December 31, 1998, the nine month period ended September 30, 1999
(unaudited) and for the periods from January 23, 1998 (inception) through
September 30, 1998 and 1999 (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 sheet of Urban Cool Network, Inc.
(a development stage company) as of December 31, 1998 and the related statements
of operations, changes in capital deficiency and cash flows for the period from
January 23, 1998 (inception) through December 31, 1998. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements enumerated above present fairly,
in all material respects, the financial position of Urban Cool Network, Inc. as
of December 31, 1998 and the results of its operations and its cash flows for
the period from January 23, 1998 (inception) through December 31, 1998, in
conformity with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note A to the
financial statements, the Company has experienced net losses, has a working
capital deficiency, and a capital deficiency 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.
Richard A. Eisner & Company, LLP
New York, New York
November 23, 1999
F-2
<PAGE>
URBAN COOL NETWORK, INC.
(a development stage company)
Balance Sheets
<TABLE>
<CAPTION>
September 30, December 31,
1999 1998
------------- -------------
(unaudited)
<S> <C> <C>
ASSETS (NOTE I)
Current assets:
Cash ................................................................... $ 2,000
Other current assets ................................................... $ 2,000
----------- -----------
Total current assets ................................................. 2,000 2,000
----------- -----------
Computer equipment and software ........................................... 23,000 23,000
Website development costs ................................................. 63,000 63,000
----------- -----------
86,000 86,000
Less accumulated depreciation ............................................. (28,000)
----------- -----------
58,000 86,000
----------- -----------
Debt issuance costs, net .................................................. 118,000
Deferred offering costs ................................................... 70,000
Other assets .............................................................. 3,000
----------- -----------
$ 251,000 $ 88,000
=========== ===========
Current liabilities:
Bank overdraft ......................................................... $ 49,000
Note Payable ........................................................... 400,000
Accounts payable and accrued expenses .................................. 187,000 $ 209,000
Payable to officer/stockholder ......................................... 142,000 13,000
----------- -----------
Total current liabilities ............................................ 778,000 222,000
Notes payable (face value-- $350,000 in 1999)
----------- -----------
778,000 222,000
----------- -----------
Commitments and other matters
CAPITAL DEFICIENCY
Preferred stock -- authorized 3,000,000 shares, $.01 par value;
none outstanding
Common stock -- authorized 30,000,000 shares, $.01 par value; 3,235,000 and
2,121,475 shares outstanding at September 30, 1999
and December 31, 1998, respectively .................................... 32,000 21,000
Additional paid-in capital ................................................ 5,638,000 173,000
Unearned compensation ..................................................... (3,500,000)
Deficit accumulated during the development stage .......................... (1,415,000) (328,000)
Unamortized debt discount in excess of notes payable ...................... (1,282,000)
----------- -----------
(527,000) (134,000)
----------- -----------
$ 251,000 $ 88,000
=========== ===========
</TABLE>
See notes to financial statements
F-3
<PAGE>
URBAN COOL NETWORK, INC.
(a development stage company)
Statements of Operations
<TABLE>
<CAPTION>
Period From Period From Period From
January 23, January 23, January 23,
1998 1998 1998
Nine Months (Inception) (Inception) (Inception)
Ended Through Through Through
September 30, September 30, December 31, September 30,
1999 1998 1998 1999
------------ ------------ ------------ ------------
(unaudited) (unaudited) (unaudited)
Revenues -- -- -- --
---------- ----------- ----------- ------------
<S> <C> <C> <C> <C>
Costs and expenses:
Content costs for website .......................... $ 409,000 $ $ 130,000 $ 539,000
General and administrative ......................... 492,000 153,000 198,000 690,000
----------- ----------- ----------- -----------
Operating loss ..................................... (901,000) (153,000) (328,000) (1,229,000)
Interest and related costs ......................... 186,000 186,000
----------- ----------- ----------- -----------
Loss before income tax benefit ..................... (1,087,000) (153,000) (328,000) (1,415,000)
Income tax benefit ................................. -- -- -- --
----------- ----------- ----------- -----------
Net loss/comprehensive loss ........................ $(1,087,000) $ (153,000) $ (328,000) $(1,415,000)
=========== =========== =========== ===========
Loss per share-- basic and diluted ................. $ (0.41) (0.07) $ (0.16)
=========== =========== ===========
Weighted average number of shares
outstanding-- basic and diluted .................. 2,659,082 2,060,885 2,066,082
=========== =========== ===========
</TABLE>
See notes to financial statements
F-4
<PAGE>
URBAN COOL NETWORK, INC.
(a development stage company)
Statements of Changes in 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> <C> <C>
Shares issued to
founder ........................... 2,060,885 $20,00 $ (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 placement .............. 35,000 1,799,000 1,799,000
Issuance of common
stock for consulting
services -- September ............. 350,000 4,000 3,496,000 $(3,500,000) --
Unamortized debt
discount in excess
of notes payable .................. (1,449,000) (1,449,000)
Amortization of debt discount ....... 167,000 167,000
Net loss/comprehensive
loss for the nine
month period ended
September 30, 1999 ................ (1,087,000) (1,087,000)
Balance --
September 30, 1999
--------- ------ ----------- ----------- ----------- ----------- ----------
(unaudited) ....................... 3,235,000 $32,00 $ 5,638,000 $(3,500,000) $(1,415,000) $(1,282,000) $ (527,000)
========= ====== =========== =========== =========== =========== ==========
</TABLE>
See notes to financial statements
F-5
<PAGE>
URBAN COOL NETWORK, INC.
(a development stage company)
Statements of Cash Flows
<TABLE>
<CAPTION>
Period From Period From Period From
January 23, January 23, January 23,
1998 1998 1998
Nine Months (Inception) (Inception) (Inception)
Ended Through Through Through
September 30, September 30, December 31, September 30,
1999 1998 1998 1999
------------ ------------- ------------- -------------
(unaudited) (unaudited) (unaudited)
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net loss ................................................. $(1,087,000) $ (153,000) $ (328,000) $(1,415,000)
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 .............. 131,000 175,000 175,000
Depreciation and amortization ........................ 28,000 28,000
Issuance of stock for services rendered .............. 4,000 4,000
Amortization of debt discount and
issuance costs .................................. 179,000 179,000
Accrued interest ..................................... 7,000 7,000
Accrued salary to officer/stockholder ................ 131,000 131,000
Changes in:
Accounts payable and accrued
expenses ......................................... 371,000 18,000 209,000 580,000
Other assets ......................................... (5,000) (5,000)
----------- ----------- ----------- -----------
Net cash (used in) provided by
operating activities ........................... (376,000) (4,000) 60,000 (316,000)
----------- ----------- ----------- -----------
Cash flows from investing activities:
Purchase of computer equipment and
software ............................................... (23,000) (23,000)
Costs of developing website and related
software ............................................... (5,000) (63,000) (63,000)
----------- ----------- ----------- -----------
Net cash used in investing
activities ..................................... (5,000) (86,000) (86,000)
----------- ----------- ----------- -----------
Cash flows from financing activities:
Bank overdraft ........................................... 49,000 49,000
Proceeds from sale of common stock ....................... 177,000 15,000 192,000
Loan proceeds from officer/stockholder ................... (2,000) 9,000 13,000 11,000
Proceeds from private placement, net ..................... 220,000 220,000
Financing costs .......................................... (70,000) (70,000)
----------- ----------- ----------- -----------
Net cash provided by financing
activities ..................................... 374,000 9,000 28,000 402,000
----------- ----------- ----------- -----------
Net (decrease) increase in cash ............................ (2,000) -- 2,000 --
Cash at beginning of period ................................ 2,000 --
----------- ----------- ----------- -----------
Cash at end of period ...................................... $ -- $ -- $ 2,000 $ --
=========== =========== =========== ===========
Supplemental disclosures of cash investing
and financing activity:
Note payable issued to vendor for accounts
payable ................................................ $ 400,000 $ 400,000
Value of common stock and warrants issued
in private placement ................................... $ 1,799,000 $ 1,799,000
Value of common stock for consulting
services ............................................... $ 3,500,000 $ 3,500,000
</TABLE>
See notes to financial statements
F-6
<PAGE>
URBAN COOL NETWORK, INC.
(a development stage company)
Notes to Financial Statements
December 31, 1998
(Unaudited with respect to September 30, 1999 and September 30, 1998)
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
and includes a search engine for users. The Company intends to derive its
revenue primarily from sponsorship and advertising. The Company has not yet
generated any revenue. Through September 30, 1999, the Company is in the
development stage.
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 throughout selected inner cities. The Company also intends
to license Cyber Centers 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 near future. As of December 31, 1998, the
Company had a working capital deficiency of $220,000 and a capital deficiency of
$134,000. These factors raise substantial doubt about the Company's ability to
continue as a going concern. 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. The financial statements do not
include any adjustments that might result from the outcome of this uncertainty.
NOTE B - SIGNIFICANT ACCOUNTING POLICIES
[1] 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.
[2] WEB SITE DEVELOPMENT COSTS:
In accordance with Statement of Position 98-1, costs of designing,
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 web site is ready for its intended use.
[3] 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.
F-7
<PAGE>
URBAN COOL NETWORK, INC.
(a development stage company)
Notes to Financial Statements
December 31, 1998
(Unaudited with respect to September 30, 1999 and September 30, 1998)
NOTE B - SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
[4] 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.
[5] 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 nine months
ended September 30, 1999 would have been $(.40) giving effect to 40,500 shares
that would need to be issued to raise the net proceeds to repay the debt on
consummation of the proposed initial public offering.
[6] INTERIM FINANCIAL STATEMENTS:
The financial statements as of September 30, 1999 and for the nine-month
period ended September 30, 1999 and for the period from January 23, 1998
(inception) through September 30, 1998 and 1999 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.
[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 option incentive plans.
NOTE C - COMMITMENTS AND OTHER MATTERS
[1] LEASES:
During 1999, the Company entered into operating lease agreements for a
Cyber Center Facility, and administrative offices expiring in March 2014 and
March 2003, respectively. As of September 30, 1999, future monthly minimum
rental payments under these leases are as follows:
Year
Ending
September 30,
------------
2000 $ 34,000
2001 39,000
2002 42,000
2003 27,000
2004 12,000
2005 and Thereafter 136,000
--------
$290,000
========
Rent expense amounted to approximately $4,000 for the nine month period
ended September 30, 1999.
F-8
<PAGE>
URBAN COOL NETWORK, INC.
(a development stage company)
Notes to Financial Statements
December 31, 1998
(Unaudited with respect to September 30, 1999 and September 30, 1998)
NOTE C - COMMITMENTS AND OTHER MATTERS (CONTINUED)
[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 renewable 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
187,500 shares of common stock exerciseable at the proposed public offering
price expiring in November 2004. In addition, the VP received options to
purchase 100,000 shares of common stock at an exercise price of $2.00
expiring November 2004.
[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 cyber station 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 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.
[4] Related party transactions:
The Company's CEO served without pay from inception through December 31,
1998. The Company, based on the 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 September 30, 1999 the Company has accrued salary of $131,000 to the
CEO/stockholder and the CEO has agreed to defer the payment of such
salaries until the consummation of a proposed public offering which
results in a gross proceeds of at least $10,000,000. In addition from
inception through September 30, 1999, the CEO paid certain expenses on
behalf of the Company. These amounts have been recorded as noninterest
bearing loans with no fixed date of repayment.
Subsequent to September 30, 1999, the Company received from the CEO the
right to the domain name "urban trends.com" for a nominal consideration.
NOTE D - CAPITAL DEFICIENCY
[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.
F-9
<PAGE>
URBAN COOL NETWORK, INC.
(a development stage company)
Notes to Financial Statements
December 31, 1998
(Unaudited with respect to September 30, 1999 and September 30, 1998)
NOTE D - CAPITAL DEFICIENCY (CONTINUED)
[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 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 and January 2000 the Company had granted 187,500 options
to purchase common shares to officers. (See Note C[2]). In December 1999
and January 2000, the Company granted 68,250 options to purchase common
shares to various employees exercisable at the proposed public offering
price.
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 shares of the Company are exercisable immediately at an
exercise price equal to the proposed 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. Such options are
exercisable 125,000 options each, provided that in the year 2001 and 2002
gross sales revenue in each year reach $17,500,000 and $25,000,000,
respectively.
[3] WARRANTS:
In connection with certain units sold in a private placement (see Note E)
the Company has the following warrants outstanding at September 30, 1999:
Number
of Exercise Expiration
Shares Price Date
---------- ----------- -------------
162,500 $2.00 July, 2004
12,500 2.00 August, 2004
---------
175,000
=========
The above warrants are exercisable commencing January, 2000. In connection
with additional proceeds of bridge financing received in October and
November 1999, the Company issued additional warrants to purchase 350,000
shares of common stock at an exercise price of $2.00 per share expiring
five years from the issue date.
NOTE E - PRIVATE PLACEMENT
In July and September 1999, the Company sold 32.5 and 2.5 units,
respectively aggregating $350,000. 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 will be accounted for
as debt discount which will be amortized over the life of the loan.
In October and November 1999, the Company sold an aggregate of 70 units on
the same terms as the units sold in July and September. These shares of common
stock and warrants have been valued at $10.00 and $8.28, respectively. Through
November 23, 1999 the Company incurred costs in connection with obtaining the
financing of approximately $232,000 which will be amortized over the life of the
loans. The effective interest rate on the notes is 300% excluding debt issuance
costs.
F-10
<PAGE>
URBAN COOL NETWORK, INC.
(a development stage company)
Notes to Financial Statements
December 31, 1998
(Unaudited with respect to September 30, 1999 and September 30, 1998)
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 independent directors are to receive an aggregate of 15,000 shares of
common stock of the Company and five-year options to purchase an aggregate of
30,000 shares of common stock at the proposed public offering price.
NOTE G - INCOME TAXES
At September 30, 1999, the Company had available federal net operating loss
carryforward to reduce future taxable income of approximately $944,000. The net
operating loss carryforwards expire in 2019. 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.
At December 31, 1998 and September 30, 1999, the Company has a deferred tax
asset of approximately $83,000 and $391,000, respectively, representing the
benefits of its net operating loss carryforwards and certain start up costs
capitalized for tax purposes. The Company has not recorded a benefit from its
net operating loss carryforward because realization of the benefit is uncertain
and therefore a valuation allowance has been fully provided against the deferred
tax asset. The difference between the statutory rate of 34% and the Company's
effective tax rate of 0% is due to an increase in the valuation allowance of
$83,000 and $308,000 in 1998 and 1999, respectively.
NOTE H - NOTE PAYABLE
In
November 1999, the Company issued a 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 and January
1, 2000.
NOTE I - SUBSEQUENT EVENTS
In October 1999, the Company issued 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.
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
April 14, 2000 and bears interest at 10% per annum. 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 $2.00 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 loan is
secured by all of the assets of the Company, including intangibles, intellectual
property and internet websites. Through December 1999, the Company drew down
$500,000 under the loan agreement.
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 consultant is to receive 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. Except for the breach of this agreement, beginning December 27, 1999 and
each of the following three months the Company has a noncumulative right to
repurchase an aggregate of 60,000 shares in four equal monthly installments of
15,000 shares of common stock for an aggregate purchase price of $8,000.
F-11
<PAGE>
URBAN COOL NETWORK, INC.
(a development stage company)
Notes to Financial Statements
December 31, 1998
(Unaudited with respect to September 30, 1999 and September 30, 1998)
NOTE I - SUBSEQUENT EVENTS (continued)
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.
In November 1999, the Company entered into a shareholders' agreement with
e-commerce Solutions, Inc., ("ESI"), a corporation formed in November 1999 and
Stanley Wolfson ("SW") to acquire 66 2/3% of the common stock of ESI. SW
contributed certain intellectual property in exchange for his ownership in ESI.
ESI had no material operating activities and has had no other assets and
liabilities since inception. 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
agreements the Company has granted warrants to SW for purchase of up to
1,000,000 shares of common stock at an exercise price of $1.00 per share
expiring on the fifth anniversary of the date of issuance. The warrants to
purchase 200,000 shares of common stock were exerciseable 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 exerciseable equal to $1,800,000. Such fair value is to
be 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.
ESI also entered into an employment agreement with SW for a period of three
years commencing November 1, 1999 an annual salary of $175,000 per year and plus
an amount equal to 2% of the gross sales of ESI.
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.
F-12
<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
-----------------------
Security Capital Trading, Inc.
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>
ALTERNATE PAGE OF SELLING STOCKHOLDER PROSPECTUS
SUBJECT TO COMPLETION, DATED JANUARY 21, 2000
Urban Cool Network, Inc.
-----------------------
1,665,000 Shares of Common Stock
Selling stockholders may sell the shares of common stock using this
prospectus.
Using an alternate prospectus, Urban Cool is also offering 2,000,000
shares of common stock plus up to an additional 300,000 shares of common stock
to cover over-allotments, if any, in an underwritten public offering.
No public market currently exists for the common stock. We anticipate that
the initial public offering price of the underwritten public offering will be
between $9.00 and $11.00 per share. We have applied to list the common stock on
The American Stock Exchange under the symbol "UBN."
Before buying the Shares, carefully read this prospectus, especially the
risk factors beginning on page _. The purchase of our securities involves a high
degree of risk.
-----------------------
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved these securities or passed upon the
adequacy or accuracy of this prospectus. Any representation to the contrary is a
criminal offense.
The date of this prospectus is , 2000.
<PAGE>
ALTERNATE PAGE OF SELLING STOCKHOLDER PROSPECTUS
TABLE OF CONTENTS
PROSPECTUS SUMMARY ....................................................
RISK FACTORS ..........................................................
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS ..................
USE OF PROCEEDS .......................................................
DIVIDEND POLICY .......................................................
DILUTION ..............................................................
PRIVATE FINANCINGS ....................................................
CAPITALIZATION ........................................................
SELECTED FINANCIAL DATA ...............................................
PLAN OF OPERATION .....................................................
BUSINESS ..............................................................
MANAGEMENT ............................................................
PRINCIPAL STOCKHOLDERS ................................................
CERTAIN TRANSACTIONS ..................................................
DESCRIPTION OF SECURITIES .............................................
SHARES ELIGIBLE FOR FUTURE SALE .......................................
PLAN OF DISTRIBUTION ..................................................
LEGAL MATTERS .........................................................
EXPERTS ...............................................................
HOW TO GET MORE INFORMATION ...........................................
Financial Statements .................................................. F-1
2
<PAGE>
ALTERNATE PAGE OF SELLING STOCKHOLDER PROSPECTUS
The Offering
Securities ............................... offered This prospectus relates to
the offering of 1,665,000 shares of
common stock which are being offered
for sale by selling stockholders
including 1,335,000 shares of common
stock which we will issue to them if
they exercise the warrants currently
held by them. See "Description of
Securities" and "Selling
Stockholders and Plan of
Distribution."
Common stock outstanding
after .................................... the offering 5,645,000 shares;
assumes that the shares of common
stock registered under the
concurrent underwritten public
offering have been sold by Urban
Cool; excludes outstanding options
and warrants, and the underwriters'
over-allotment option.
Proceeds ................................. We will not receive any of the
proceeds from the sale of shares by
the selling stockholders.
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. We have agreed to
register the shares of common stock and the shares of common stock underlying
the warrants issued in the private financing. These shares are included in this
registration statement of which this prospectus forms a part and are being
offered by the selling stockholders under this prospectus.
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 13 months from the date of this prospectus without the prior written
consent of Security Capital Trading, Inc. However, Security Capital has agreed
to release the lock-up after six months if Security Capital has not agreed
otherwise with The American Stock Exchange or any other national securities
exchange.
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 received an initial advance of $350,000 and we issued to
the lender common stock purchase warrants for the purchase of up to 750,000
shares of common stock with an exercise price of $2.00 per share. In December
1999, we received an additional advance of $150,000. 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 April 14,
2000 or the closing of this offering. We may draw down up to $150,000 against
the balance of the loan every 30 days.
3
<PAGE>
ALTERNATE PAGE OF SELLING STOCKHOLDER PROSPECTUS
We have also granted certain registration rights to the lender for the
registration of the shares of common stock underlying the warrants, including
demand and "piggy-back" registration rights. The shares of common stock
underlying the lender's warrant are included in this registration statement of
which this prospectus forms a part, are being offered under an alternate
prospectus and are not subject to a lock-up agreement. In addition, we have
agreed to utilize our best efforts to enable the lender, or its designee, to
purchase the number of shares of common stock in this offering in an amount
equal to $1,000,000 divided by the initial public offering price.
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. 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 may repurchase an
aggregate of 45,000 shares of common stock in four monthly installments of
15,000 shares of common stock from the consultant at a cash price of $2,000 for
each installment commencing in January 2000 through March 2000. In the event
that we do not repurchase the shares of common stock in a given month, then such
repurchase right expires. However, upon the completion of the offering our right
to repurchase any shares of common stock for which our repurchase right is still
outstanding will be accelerated. We have also granted certain registration
rights to the consultant for the registration of the shares of common stock,
including demand and "piggy-back" registration rights. The shares of common
stock issued to RMH Consulting are included in this registration statement of
which this prospectus forms a part are being offered under this prospectus and
are not subject to a lock-up agreement. See "Management--Consulting Agreements"
and "Certain Transactions."
Security Capital and May Davis 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.
SELLING STOCKHOLDERS AND PLAN OF DISTRIBUTION
The registration statement, of which this prospectus forms a part, also
relates to our registration, for the account of the selling stockholders, of:
o an aggregate of 105,000 shares of common stock and 525,000 shares of
common stock underlying warrants issued in a private placement
between July and November 1999;
o 150,000 shares of common stock issued to RMH Consulting Group, an
affiliate of The Elite Funding Group, in November 1999;
o 750,000 shares of common stock underlying warrants issued in
connection with a loan from The Elite Funding Group of an amount up
to $1,000,000 in November, 1999;
o 75,000 shares of common stock issued to a consultant in November
1999; and
o an aggregate of 60,000 shares of common stock underlying warrants
issued for assisting the company in placing the $1,000,000 loan from
The Elite Funding Group to Security Capital and May Davis Group in
November 1999. The representative is not underwriting the selling
stockholders' shares. Urban Cool will not receive any of the proceeds
from the sale of these shares.
Except for The Elite Funding Group, Inc., with respect to 750,000 shares
of common stock underlying warrants, and RMH Consulting Corp., an affiliate of
The Elite Funding Group, and their assignees, with respect to 150,000 shares of
common stock, the selling stockholders have agreed not to directly or indirectly
offer, sell, transfer or otherwise encumber or dispose of any of their common
stock for a period of 13 months after the date of this prospectus without the
prior written consent of Security Capital. However, Security Capital has agreed
to release the lock-up after six months, with respect to 105,000 shares of
common stock and 525,000 shares of common stock underlying warrants issued in a
private financing transaction in July through November 1999, if Security Capital
4
<PAGE>
ALTERNATE PAGE OF SELLING STOCKHOLDER PROSPECTUS
has not agreed otherwise with the American Stock Exchange or other national
securities exchange. See "Shares Eligible for Future Sale".
The sale of the selling stockholders' shares by the selling stockholders
may be effected from time to time in transactions, which may include block
transactions by or for the account of the selling stockholders on The American
Stock Exchange, in the over-the-counter market or in negotiated transactions, or
through the writing of options on the selling stockholders' shares, a
combination of these methods of sale, or otherwise. Sales may be made at fixed
prices which may be changed, at a market prices prevailing at the time of sale,
or at negotiated prices.
The selling stockholders may effect the transactions by selling their
shares directly to purchasers, through broker\dealers acting as agents for the
selling stockholders, or to broker\dealers who may purchase shares as principals
and thereafter sell the selling stockholders' shares from time to time in the
over-the-counter market, in negotiated transactions, or otherwise. These
broker\dealers, if any, may receive compensation in the form of discounts,
concessions or commissions from the selling stockholders and/or the purchaser
for whom which broker-dealers may act as agents or to whom they may sell as
principals or both, which compensation as to a particular broker-dealer may be
in excess of customary commissions.
The selling stockholders and broker-dealers, if any, acting in connection
with these sales might be deemed to be "underwriters" within the meaning of
Section 2(11) of the Securities Act. Any commission they receive and any profit
upon the resale of the securities might be deemed to be underwriting discounts
and commissions under the Securities Act.
Sales of any shares of common stock by the selling stockholders may
depress the price of the common stock in any market that may develop for the
common stock.
At the time a particular offer of the shares is made by or on behalf of a
selling stockholder, to the extent required, a prospectus supplement will be
distributed which will set forth the number of shares being offered and the
terms of the offering, including the name or names of any underwriters, dealers,
or agents, the purchase price paid by any underwriter for shares purchased from
the selling stockholder and any discounts commissions, or concessions allowed or
reallowed or paid to dealers, and the proposed selling price to the public.
Under the Exchange Act and its regulations, any person engaged in the
distribution of shares of common stock, or securities convertible into common
stock, offered by this prospectus may not simultaneously engage in market-making
activities with respect to the common stock during the applicable "cooling off"
period prior to the commencement of this distribution. In addition, and without
limiting the foregoing, the selling stockholders will be subject to applicable
provisions of the Exchange Act and its rules and regulations, including without
limitation Regulation M promulgated under the Exchange Act, in connection with
transactions in the shares, which provisions may limit the timing of purchases
and sales of shares of common stock by the selling stockholders.
The following table sets forth information known to us regarding ownership
of our common stock by each of the selling stockholders as of January 1, 2000
and as adjusted to reflect the sale of shares offered by this prospectus. Other
than the following persons, none of the selling stockholders has had any
position with, held any office of, or had any other material relationship with
us during the past three years.
o The Elite Funding Group has agreed to advance us up to $1,000,000
pursuant to a loan agreement.
o RMH Consulting Corp., an affiliate of The Elite Funding Group, has
agreed to provide us with consulting services.
o Sea Breeze Associates is a consultant to the Company.
o Security Capital is the representative of the underwriters.
o May Davis Group assisted Security Capital in placing the private
financing in July through November 1999 and The Elite Funding Group
loan.
5
<PAGE>
ALTERNATE PAGE OF SELLING STOCKHOLDER PROSPECTUS
We believe, based on information supplied by the following persons, that
the persons named in this table have sole voting and investment power with
respect to all shares of common stock which they beneficially own. The last
column in this table assumes the sale of all of our shares offered in this
prospectus.
<TABLE>
<CAPTION>
Common Stock
Names of Shares Owned Offered by Shares Owned After Offering
Selling Prior to Beneficial ---------------------------
Stockholders Offering Owner Number Percent
------------ ------------- ------------- ------- -------
<S> <C> <C> <C> <C>
Jeffrey Levine 120,000(1) 120,000 0 0
Michael Kessler 30,000(2) 30,000 0 0
Jay Konesey 60,000(3) 60,000 0 0
Julius Smith Young, Jr. 90,000(4) 90,000 0 0
Gerald and Kathleen Holland 30,000(5) 30,000 0 0
Charles P. Atkins 30,000(6) 30,000 0 0
Bella Figura, LLC 18,000(7) 18,000 0 0
Tom Hogan 18,000(8) 18,000 0 0
Arnold Eisenstadt 12,000(9) 12,000 0 0
Jeffrey George 12,000(10) 12,000 0 0
Henry Volquardsen 12,000(11) 12,000 0 0
Morton Mower 12,000(12) 12,000 0 0
Jeffret Hrutkay 12,000(13) 12,000 0 0
John and Sherri Kroening 12,000(14) 12,000 0 0
Keith Ganzer 9,000(15) 9,000 0 0
Insurance Planing Consultants Pension Plan 6,000(16) 6,000 0 0
Kenneth W. Forbes 6,000(17) 6,000 0 0
International Premium Associates, Inc. 6,000(18) 6,000 0 0
Fran and Alan Bader 6,000(19) 6,000 0 0
E.H. Tepe Co., Inc. 6,000(20) 6,000 0 0
Sigma Services Corp. 12,000(21) 12,000 0 0
Howard B. Culang 9,000(22) 9,000 0 0
Russell P. Truitt 6,000(23) 6,000 0 0
Rodney Grebe 6,000(24) 6,000 0 0
Michael Spindel 12,000(25) 12,000 0 0
Loni Spurkeland 30,000(26) 30,000 0 0
Lennart Dahlgren 15,000(27) 15,000 0 0
Gregory Tucker 18,000(28) 18,000 0 0
Phelps Hoyt 15,000(29) 15,000 0 0
RMH Consulting Corp. 876,250(30) 876,250 0 0
The Elite Funding Group, Inc, 876,250(31) 876,250 0 0
Sea Breeze Associates, Inc. 175,000 75,000 100,000 *
Security Capital Trading, Inc. 40,000(32) 40,000 0 0
May Davis Group 20,000(33) 20,000 0 0
Fink &Platz 1,875(34) 1,875 0 0
Colel Chabad 9,375(35) 9,375 0 0
Joseph Guttman 9,375(36) 9,375 0 0
Jay Matthews 3,125(37) 3,125 0 0
</TABLE>
- ---------------
(1) Includes 100,000 shares of common stock underlying a warrant exercisable
during the period January, 2000 through July, 2004.
(2) Includes 25,000 shares of common stock underlying a warrant exercisable
during the period January, 2000 through July, 2004.
(3) Includes 50,000 shares of common stock underlying a warrant exercisable
during the period March, 2000 through September, 2004.
(4) Includes 75,000 shares of common stock underlying a warrant exercisable
during the period April, 2000 through October, 2004.
(5) Includes 25,000 shares of common stock underlying a warrant exercisable
during the period April, 2000 through October, 2004.
(6) Includes 25,000 shares of common stock underlying a warrant exercisable
during the period April, 2000 through October, 2004.
6
<PAGE>
ALTERNATE PAGE OF SELLING STOCKHOLDER PROSPECTUS
(7) Includes 15,000 shares of common stock underlying a warrant exercisable
during the period April, 2000 through October, 2004.
(8) Includes 15,000 shares of common stock underlying a warrant exercisable
during the period April, 2000 through October, 2004.
(9) Includes 10,000 shares of common stock underlying a warrant exercisable
during the period April, 2000 through October, 2004.
(10) Includes 10,000 shares of common stock underlying a warrant exercisable
during the period April, 2000 through October, 2004.
(11) Includes 10,000 shares of common stock underlying a warrant exercisable
during the period April, 2000 through October, 2004.
(12) Includes 10,000 shares of common stock underlying a warrant exercisable
during the period April, 2000 through October, 2004.
(13) Includes 10,000 shares of common stock underlying a warrant exercisable
during the period April, 2000 through October, 2004.
(14) Includes 10,000 shares of common stock underlying a warrant exercisable
during the period April, 2000 through October, 2004.
(15) Includes 7,500 shares of common stock underlying a warrant exercisable
during the period April, 2000 through October, 2004.
(16) Includes 5,000 shares of common stock underlying a warrant exercisable
during the period April, 2000 through October, 2004.
(17) Includes 5,000 shares of common stock underlying a warrant exercisable
during the period April, 2000 through October, 2004.
(18) Includes 5,000 shares of common stock underlying a warrant exercisable
during the period April, 2000 through October, 2004.
(19) Includes 5,000 shares of common stock underlying a warrant exercisable
during the period April, 2000 through October, 2004.
(20) Includes 5,000 shares of common stock underlying a warrant exercisable
during the period April, 2000 through October, 2004.
(21) Includes 10,000 shares of common stock underlying a warrant exercisable
during the period April, 2000 through October, 2004.
(22) Includes 7,500 shares of common stock underlying a warrant exercisable
during the period April, 2000 through October, 2004.
(23) Includes 5,000 shares of common stock underlying a warrant exercisable
during the period April, 2000 through October, 2004.
(24) Includes 5,000 shares of common stock underlying a warrant exercisable
during the period April, 2000 through October, 2004.
(25) Includes 10,000 shares of common stock underlying a warrant exercisable
during the period April, 2000 through October, 2004.
(26) Includes 25,000 shares of common stock underlying a warrant exercisable
during the period April, 2000 through October, 2004.
(27) Includes 12,500 shares of common stock underlying a warrant exercisable
during the period May, 2000 through November, 2004.
(28) Includes 15,000 shares of common stock underlying a warrant exercisable
during the period May, 2000 through November, 2004.
(29) Includes 12,500 shares of common stock underlying a warrant exercisable
during the period April, 2000 through October, 2004.
(30) Includes 726,250 shares of common stock underlying a warrant owned by The
Elite Funding Group, Inc., an affiliate of RMH Consulting Group.
(31) Includes (i) 150,000 shares of common stock owned by RMH Consulting Corp.,
an affiliate of The Elite Funding Group and (ii) 726,250 shares of common
stock underlying a warrant exercisable commencing November 1999 through
November 2009.
(32) Represents 40,000 shares of common stock underlying warrants exercisable
during the period November, 2000 through November, 2004.
(33) Represents 20,000 shares of common stock underlying warrants exercisable
during the period November, 2000 through November, 2004.
(34) Includes 1,875 shares of common stock underlying a warrant.
(35) Includes 9,375 shares of common stock underlying a warrant.
(36) Includes 9,375 shares of common stock underlying a warrant.
(37) Includes 3,125 shares of common stock underlying a warrant.
* less than one percent.
7
<PAGE>
ALTERNATE PAGE OF SELLING STOCKHOLDER PROSPECTUS
LEGAL MATTERS
The validity of the securities being offered hereby will be passed upon
for Urban Cool by Silverman, Collura & Chernis, P.C., 381 Park Avenue South, New
York, New York 10016.
8
<PAGE>
ALTERNATE PAGE OF SELLING STOCKHOLDER PROSPECTUS
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 currently only as of the date of this prospectus.
Urban Cool Network, Inc.
-----------------------
1,665,000 Shares of Common Stock
-----------------------
, 2000
-----------------------
Security Capital Trading, Inc.
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) ..................... 300,000
Accounting fees and expenses ...................................... 175,000
Blue Sky fees and expenses (including legal and filing) ........... 25,000
Transfer agent fees and expenses .................................. 5,000
Miscellaneous expenses ............................................ 71,694
--------
Total ......................................................... $750,000
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
II-1
<PAGE>
available if a judgment or other final adjudication adverse to such director or
officer establishes that (i) his or 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.
II-2
<PAGE>
(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.
(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, Stanley Wolfson was issued warrants to purchase up
to 1,000,000 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
II-3
<PAGE>
stock. The warrants are exercisable at an exercise price of $2.00 per
share commencing January, 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.
<TABLE>
<CAPTION>
Number of
Date of Closing Name Units
- ------------- ------ ---------
<S> <C> <C>
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
</TABLE>
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.(2)
4.2 Form of Representative's Warrants.(2)
5.1 Opinion of Silverman, Collura & Chernis, P.C., counsel to Urban
Cool.(2)
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 Option Plan.(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 Stanley Wolfson.(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>
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.
10.31 Letter of Agreement, dated January 6, 2000, between Urban Cool
Network, Inc. and NaviSite, Inc.
10.32 Memorandum of Understanding, dated as of November 29, 1999, between
Urban Cool Network, Inc. and NatioNet Online.
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.
10.34 Service Agreement, between Urban Cool Network, Inc. and Ask Jeeves,
Inc. (2)
21.1 List of Subsidiaries.(1)
23.1 Consent of Richard A. Eisner & Company, LLP.
23.2 Consent of Silverman, Collura & Chernis, P.C. (contained in Exhibit
5.1).(2)
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; 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
II-6
<PAGE>
(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. If Urban Cool relies on Rule 430A under the Securities Act, 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
securities offered therein and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
II-7
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing this Amendment No. 1 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 January
21, 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.
<TABLE>
<CAPTION>
Signature Title Date
---------- ------ -------
<S> <C> <C>
/s/ Jacob R. Miles, III
- ------------------ Chairman, Chief Executive Officer and Director January 21, 2000
Jacob R. Miles, III
/s/ Terrence B. Reddy
- --------------------- President, Chief Operating Officer and Director January 21, 2000
Terrence B. Reddy
/s/ Barry M. Levine
- ----------------------- Chief Financial Officer and Treasurer January 21, 2000
Barry M. Levine (principal accounting officer)
/s/ Rosalind Bell
- ----------------------- Director January 21, 2000
Rosalind Bell
/s/ Rex Cumming
- ----------------------- Director January 21, 2000
Rex Cumming
</TABLE>
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.(2)
4.2 Form of Representative's Warrants.(2)
5.1 Opinion of Silverman, Collura & Chernis, P.C., counsel to Urban
Cool.(2)
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 Option Plan.(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 Stanley Wolfson.(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)
10.20 Consulting agreement dated October 31, 1999 between Urban Cool
Network, Inc. and Sea Breeze Associates, Inc.(1)
<PAGE>
Number Description of Exhibit
- -------- ----------------------
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.
10.31 Letter of Agreement, dated January 6, 2000, between Urban Cool
Network, Inc. and NaviSite, Inc.
10.32 Memorandum of Understanding, dated as of November 29, 1999, between
Urban Cool Network, Inc. and NatioNet Online.
10.33 Amendment, dated December 27, 1999, between Urban Cool Network Inc.
and Stanley Wolfson to the Shareholder Agreements, dated November
21, 1999, between Urban Cool Network Inc. and Stanley Wolfson.
10.34 Service Agreement, between Urban Cool Network, Inc. and Ask Jeeves,
Inc. (2)
21.1 List of Subsidiaries.(1)
23.1 Consent of Richard A. Eisner & Company, LLP.
23.2 Consent of Silverman, Collura & Chernis, P.C. (contained in Exhibit
5.1).(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
[Form of Underwriting Agreement - Subject to Additional Review]
2,000,000 Shares of Common Stock
URBAN COOL NETWORK, INC.
UNDERWRITING AGREEMENT
----------------------
New York, New York
, 2000
SECURITY CAPITAL TRADING, INC.
As Representative of the
several Underwriters named
in Schedule A to Exhibit A
annexed hereto
520 Madison Avenue
10th Floor
New York, New York 10022
Ladies and Gentlemen:
Urban Cool Network, Inc., a Delaware corporation (the "Company"), confirms
its agreement with Security Capital Trading, Inc. ("Security Capital") and each
of the underwriters named in Schedule A hereto (collectively, the
"Underwriters," which term shall also include any underwriter substituted as
hereinafter provided in Section 11), for whom Security Capital is acting as
Representative (in such capacity, Security Capital shall hereinafter be referred
to as "you" or the "Representative"), with respect to the sale by the Company
and the purchase by the Underwriters, acting severally and not jointly, of the
respective number of shares ("Shares") of the Company's common stock, $0.01 par
value per share ("Common Stock"). The aggregate 2,000,000 shares of Common Stock
are hereinafter referred to as the "Firm Securities."
Upon your request, as provided in Section 2(b) of this Agreement, the
Company shall also issue and sell to the Underwriters, acting severally and not
jointly, up to an additional 300,000 shares of Common Stock for the purpose of
covering over-allotments, if any. Such 300,000 shares of Common Stock are
hereinafter collectively referred to as the "Option Securities." The Company
also proposes to issue and sell to you warrants (the "Representative's
Warrants") pursuant to the Representative's Warrant Agreement (the
"Representative's Warrant Agreement") for the purchase of an additional 200,000
shares of Common Stock. The shares of Common Stock issuable upon exercise of the
Representative's Warrants are hereinafter referred to as the "Representative's
Securities." The Firm Securities, the Option Securities, the
<PAGE>
Representative's Warrants and the Representative's Securities (collectively,
hereinafter referred to as the "Securities") are more fully described in the
Registration Statement and the Prospectus referred to below.
1. Representations and Warranties of the Company. The Company represents
and warrants to, and agrees with, each of the Underwriters as of the date
hereof, and as of the Closing Date (as hereinafter defined) and each Option
Closing Date (as hereinafter defined), if any, as follows:
(a) The Company has prepared and filed with the Securities and Exchange
Commission (the "Commission") a registration statement, and an amendment or
amendments thereto, on Form S-1 (No. 333-_____), including any related
preliminary prospectus ("Preliminary Prospectus"), for the registration of the
Firm Securities, the Option Securities and the Representative's Securities under
the Securities Act of 1933, as amended (the "Act"), which registration statement
and amendment or amendments have been prepared by the Company in conformity with
the requirements of the Act, and the rules and regulations (the "Regulations")
of the Commission under the Act. The Company will promptly file a further
amendment to said registration statement in the form heretofore delivered to the
Underwriters and will not file any other amendment thereto to which the
Underwriters shall have objected in writing after having been furnished with a
copy thereof. Except as the context may otherwise require, such registration
statement, as amended, on file with the Commission at the time the registration
statement becomes effective (including the prospectus, financial statements,
schedules, exhibits and all other documents filed as a part thereof or
incorporated therein (including, but not limited to those documents or
information incorporated by reference therein) and all information deemed to be
a part thereof as of such time pursuant to paragraph (b) of Rule 430(A) of the
Regulations), is hereinafter called the "Registration Statement", and the form
of prospectus in the form first filed with the Commission pursuant to Rule
424(b) of the Regulations, is hereinafter called the "Prospectus." For purposes
hereof, "Rules and Regulations" mean the rules and regulations adopted by the
Commission under either the Act or the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), as applicable.
(b) Neither the Commission nor any state regulatory authority has issued
any order preventing or suspending the use of any Preliminary Prospectus, the
Registration Statement or Prospectus or any part of any thereof and no
proceedings for a stop order suspending the effectiveness of the Registration
Statement or any of the Company's securities have been instituted or are pending
or threatened. Each of the Preliminary Prospectus, the Registration Statement
and Prospectus at the time of filing thereof conformed with the requirements of
the Act and the Rules and Regulations, and none of the Preliminary Prospectus,
the Registration Statement or Prospectus at the time of filing thereof contained
an untrue statement of a material fact or omitted to state a material fact
required to be stated therein or necessary to make the statements therein, in
light of the circumstances under which they were made, not misleading, except
that this representation and warranty does not apply to statements made in
reliance upon and in conformity with written information furnished to the
Company with respect to the Underwriters by or on behalf of the Underwriters
expressly for use in such Preliminary Prospectus, Registration Statement or
Prospectus or any amendment thereof or supplement thereto. The Company has filed
all reports, forms or other documents required to be filed under the Act or the
Exchange Act and the respective Rules and Regulations thereunder, and all such
2
<PAGE>
reports, forms or other documents, when so filed or as subsequently amended,
complied in all material respects with the Act and the Exchange Act and the
respective risks and regulations thereunder or any amendment thereof or
supplement thereto.
(c) When the Registration Statement becomes effective and at all times
subsequent thereto up to the Closing Date (as defined herein) and each Option
Closing Date (as defined herein), if any, and during such longer period as the
Prospectus may be required to be delivered in connection with sales by the
Underwriters or a dealer, the Registration Statement and the Prospectus will
contain all statements which are required to be stated therein in accordance
with the Act and the Rules and Regulations, and will conform to the requirements
of the Act and the Rules and Regulations; neither the Registration Statement nor
the Prospectus, nor any amendment or supplement thereto, will contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading, provided, however,
that this representation and warranty does not apply to statements made or
statements omitted in reliance upon and in strict conformity with information
furnished to the Company in writing by or on behalf of any Underwriter expressly
for use in the Preliminary Prospectus, Registration Statement or Prospectus or
any amendment thereof or supplement thereto.
(d) Each of the Company, a Delaware corporation, and the Company's
majority-owned subsidiary, e-commerce Solutions, Inc., a Delaware corporation
(such subsidiary is hereinafter referred to as the "Subsidiary"), has been duly
organized and is validly existing as a corporation in good standing under the
laws of the jurisdiction of its organization. Except as set forth in the
Prospectus, neither the Company nor the Subsidiary owns an interest in any
corporation, partnership, trust, joint venture or other business entity. Each of
the Company and the Subsidiary is duly qualified and licensed and in good
standing as a foreign corporation in each jurisdiction in which its ownership or
leasing of any properties or the character of its operations requires such
qualification or licensing. The Company owns, directly or indirectly, sixty six
and two-thirds percent (66 2/3%) of the outstanding capital stock or other
ownership interests of the Subsidiary, and all of such shares or other ownership
interests have been validly issued, are fully paid and non-assessable, were not
issued in violation of any preemptive rights and are owned free and clear of any
liens, charges, claims, encumbrances, pledges, security interests, defects or
other restrictions or equities of any kind whatsoever. Each of the Company and
the Subsidiary has all requisite power and authority (corporate and other), and
has obtained any and all necessary authorizations, approvals, orders, licenses,
certificates, franchises and permits of and from all governmental or regulatory
officials and bodies (including, without limitation, those having jurisdiction
over environmental or similar matters), to own or lease its properties and
conduct its business as described in the Prospectus; each of the Company and the
Subsidiary is and has been doing business in compliance with all such
authorizations, approvals, orders, licenses, certificates, franchises and
permits and all applicable federal, state, local and foreign laws, rules and
regulations; and neither the Company nor the Subsidiary has received any notice
of proceedings relating to the revocation or modification of any such
authorization, approval, order, license, certificate, franchise, or permit
which, singly or in the aggregate, if the subject of an unfavorable decision,
ruling or finding, would materially and adversely affect the condition,
financial or otherwise, or the earnings, position, prospects, value, operation,
properties, business or results of operations of the Company or the Subsidiary.
The disclosures in the Registration Statement concerning the effects of federal,
state, local and foreign laws, rules
3
<PAGE>
and regulations on the Company's and the Subsidiary's business as currently
conducted and as contemplated are correct in all material respects and do not
omit to state a material fact required to be stated therein or necessary to make
the statements contained therein not misleading in light of the circumstances
under which they were made.
(e) The Company has a duly authorized, issued and outstanding
capitalization as set forth in the Prospectus under "CAPITALIZATION" and
"DESCRIPTION OF SECURITIES" and will have the adjusted capitalization set forth
therein on the Closing Date and each Option Closing Date, if any, based upon the
assumptions set forth therein, and neither the Company nor the Subsidiary is a
party to or bound by any instrument, agreement or other arrangement providing
for it to issue any capital stock, rights, warrants, options or other
securities, except for this Agreement, the Representative's Warrant Agreement
and as described in the Prospectus. The Securities and all other securities
issued or issuable by the Company conform or, when issued and paid for, will
conform, in all respects to all statements with respect thereto contained in the
Registration Statement and the Prospectus. All issued and outstanding securities
of the Company and the Subsidiary have been duly authorized and validly issued
and are fully paid and non-assessable and the holders thereof have no rights of
rescission with respect thereto, and are not subject to personal liability by
reason of being such holders; and none of such securities were issued in
violation of the preemptive rights of any holders of any security of the Company
or Subsidiary or similar contractual rights granted by the Company or
Subsidiary. The Securities are not and will not be subject to any preemptive or
other similar rights of any stockholder, have been duly authorized and, when
issued, paid for and delivered in accordance with the terms hereof, will be
validly issued, fully paid and non-assessable and will conform to the
description thereof contained in the Prospectus; the holders thereof will not be
subject to any liability solely as such holders; all corporate action required
to be taken for the authorization, issue and sale of the Securities has been
duly and validly taken; and the certificates representing the Securities will be
in due and proper form. Upon the issuance and delivery pursuant to the terms
hereof and the Representative's Warrant Agreement of the Securities to be sold
by the Company hereunder, the Underwriters or the Representative, as the case
may be, will acquire good and marketable title to such Securities free and clear
of any lien, charge, claim, encumbrance, pledge, security interest, defect or
other restriction or equity of any kind whatsoever.
(f) The financial statements of the Company and the Subsidiary, together
with the related notes and schedules thereto, included in the Registration
Statement, each Preliminary Prospectus and the Prospectus fairly present the
financial position, income, changes in cash flow, changes in stockholders'
equity and the results of operations of the Company and the Subsidiary at the
respective dates and for the respective periods to which they apply and the pro
forma and the as adjusted financial information included in the Registration
Statement and Prospectus presents fairly on a basis consistent with that of the
audited financial statements included therein, what the Company's pro forma and
as adjusted capitalization would have been for the respective periods and as of
the respective dates to which they apply after giving effect to the adjustments
described therein. Such financial statements have been prepared in conformity
with generally accepted accounting principles and the Rules and Regulations,
consistently applied throughout the periods involved and such financial
statements as are audited have been examined by Richard A. Eisner & Co., LLP,
who are independent certified public accountants within the meaning of the Act
and the Rules and Regulations, as indicated in their respective reports filed
therewith. There has been no adverse change or development involving a
prospective change in the
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condition, financial or otherwise, or in the earnings, position, prospects,
value, operation, properties, business, or results of operations of the Company
or the Subsidiary, whether or not arising in the ordinary course of business,
since the date of the financial statements included in the Registration
Statement and the Prospectus and the outstanding debt, the property, both
tangible and intangible, and the business of the Company and the Subsidiary,
conform in all material respects to the descriptions thereof contained in the
Registration Statement and the Prospectus. Financial information (including,
without limitation, any pro forma financial information) set forth in the
Prospectus under the headings "Summary Financial Data," "Selected Financial
Data," "Capitalization," and "Management's Discussion and Analysis of Financial
Condition and Plan of Operation," fairly present, on the basis stated in the
Prospectus, the information set forth therein, and have been derived from or
compiled on a basis consistent with that of the audited financial statements
included in the Prospectus; and, in the case of pro forma financial information,
if any, the assumptions used in the preparation thereof are reasonable and the
adjustments used therein are appropriate to give effect to the transactions and
circumstances referred to therein. The amounts shown as accrued for current and
deferred income and other taxes in such financial statements are sufficient for
the payment of all accrued and unpaid domestic and foreign income taxes,
interest, penalties, assessments or deficiencies applicable to the Company and
the Subsidiary, whether disputed or not, for the applicable period then ended
and periods prior thereto; adequate allowance for doubtful accounts has been
provided for unindemnified losses due to the operations of the Company and the
Subsidiary; and the statements of income do not contain any items of special or
nonrecurring income not earned in the ordinary course of business, except as
specified in the notes thereto.
(g) Each of the Company and the Subsidiary (i) has paid all federal,
state, local and foreign taxes for which it is liable, including, but not
limited to, withholding taxes and amounts payable under Chapter 21 through 24 of
the Internal Revenue Code of 1986, as amended (the "Code"), and has furnished
all information returns it is required to furnish pursuant to the Code, (ii) has
established adequate reserves for such taxes which are not due and payable, and
(iii) does not have any tax deficiency or claims outstanding, proposed or
assessed against it.
(h) No transfer tax, stamp duty or other similar tax is payable by or on
behalf of the Underwriters in connection with (i) the issuance by the Company of
the Securities, (ii) the purchase by the Underwriters of the Firm Securities and
the Option Securities from the Company and the purchase by the Representative of
the Representative's Warrants from the Company, (iii) the consummation by the
Company of any of its obligations under this Agreement or the Representative's
Warrant Agreement, or (iv) resales of the Firm Securities and the Option
Securities in connection with the distribution contemplated hereby.
(i) Each of the Company and the Subsidiary maintains insurance policies,
including, but not limited to, general liability, and property insurance, which
insures each of the Company, the Subsidiary and their respective employees,
against such losses and risks generally insured against by comparable
businesses. Neither the Company nor the Subsidiary (A) has failed to give notice
or present any insurance claim with respect to any matter, including but not
limited to the Company's or Subsidiary's business, property or employees, under
any insurance policy or surety bond in a due and timely manner, (B) has any
disputes or claims against any underwriter of such insurance policies or surety
bonds or has failed to pay any premiums due and payable thereunder, or (C) has
failed to comply with all conditions contained in such insurance
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policies and surety bonds. There are no facts or circumstances under any such
insurance policy or surety bond which would relieve any insurer of its
obligation to satisfy in full any valid claim of the Company or the Subsidiary.
(j) There is no action, suit, proceeding, inquiry, arbitration,
investigation, litigation or governmental proceeding (including, without
limitation, those having jurisdiction over environmental or similar matters),
domestic or foreign, pending or threatened against (or circumstances that may
give rise to the same), or involving the properties or business of, the Company
or the Subsidiary which (i) questions the validity of the capital stock of the
Company, this Agreement or the Representative's Warrant Agreement, or of any
action taken or to be taken by the Company pursuant to or in connection with
this Agreement or the Representative's Warrant Agreement, (ii) is required to be
disclosed in the Registration Statement which is not so disclosed (and such
proceedings as are summarized in the Registration Statement are accurately
summarized in all material respects), or (iii) might materially and adversely
affect the condition, financial or otherwise, or the earnings, position,
prospects, stockholders' equity, value, operation, properties, business or
results of operations of the Company or the Subsidiary.
(k) The Company has full legal right, power and authority to authorize,
issue, deliver and sell the Securities, enter into this Agreement and the
Representative's Warrant Agreement and to consummate the transactions provided
for in this Agreement and the Representative's Warrant Agreement; and this
Agreement and the Representative's Warrant Agreement have each been duly and
properly authorized, executed and delivered by the Company. Each of this
Agreement and the Representative's Warrant Agreement constitutes a legal, valid
and binding agreement of the Company enforceable against the Company in
accordance with its terms, and none of the Company's issue and sale of the
Securities, execution or delivery of this Agreement or the Representative's
Warrant Agreement, its performance hereunder and thereunder, its consummation of
the transactions contemplated herein and therein, or the conduct of its business
as described in the Registration Statement, the Prospectus, and any amendments
or supplements thereto, conflicts with or will conflict with or results or will
result in any breach or violation of any of the terms or provisions of, or
constitutes or will constitute a default under, or result in the creation or
imposition of any lien, charge, claim, encumbrance, pledge, security interest,
defect or other restriction or equity of any kind whatsoever upon, any property
or assets (tangible or intangible) of the Company or the Subsidiary pursuant to
the terms of (i) the Certificate of Incorporation or Bylaws of the Company or
the Certificate of Incorporation or Bylaws of the Subsidiary, (ii) any license,
contract, collective bargaining agreement, indenture, mortgage, deed of trust,
lease, voting trust agreement, stockholders agreement, note, loan or credit
agreement or other instrument evidencing an obligation for borrowed money, or
any other agreement or instrument to which the Company or the Subsidiary is a
party or by which the Company or the Subsidiary is or may be bound or to which
any of its or their properties or assets (tangible or intangible) is or may be
subject, or any indebtedness, or (iii) any statute, judgment, decree, order,
rule or regulation applicable to the Company or the Subsidiary of any
arbitrator, court, regulatory body or administrative agency or other
governmental agency or body (including, without limitation, those having
jurisdiction over environmental or similar matters), domestic or foreign, having
jurisdiction over the Company or the Subsidiary or any of its or their
respective activities or properties.
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(l) No consent, approval, authorization or order of, and no filing with,
any arbitrator, court, regulatory body, administrative agency, government agency
or other body, domestic or foreign, is required for the issuance of the
Securities pursuant to the Prospectus and the Registration Statement, this
Agreement and the Representative's Warrant Agreement, the performance of this
Agreement and the Representative's Warrant Agreement and the transactions
contemplated hereby and thereby, including without limitation, any waiver of any
preemptive, first refusal or other rights that any entity or person may have for
the issue and/or sale of any of the Securities, except such as have been or may
be obtained under the Act or may be required under state securities or Blue Sky
laws and the rules of the National Association of Securities Dealers, Inc. (the
"NASD") in connection with the Underwriters' purchase and distribution of the
Firm Securities and the Option Securities, and the Representative's Warrants to
be sold by the Company hereunder.
(m) All executed agreements, contracts or other documents or copies of
executed agreements, contracts or other documents filed as exhibits to the
Registration Statement to which the Company or the Subsidiary is a party or by
which it or they may be bound or to which its or their respective assets,
properties or business may be subject have been duly and validly authorized,
executed and delivered by the Company or the Subsidiary, as the case may be, and
constitute the legal, valid and binding agreements of the Company or the
Subsidiary, as the case may be, enforceable against it in accordance with its
terms. The descriptions in the Registration Statement of agreements, contracts
and other documents are accurate and fairly present the information required to
be shown with respect thereto by Form S-1, and there are no agreements,
contracts or other documents which are required by the Act to be described in
the Registration Statement or filed as exhibits to the Registration Statement
which are not described or filed as required, and the exhibits which have been
filed are complete and correct copies of the documents of which they purport to
be copies.
(n) Subsequent to the respective dates as of which information is set
forth in the Registration Statement and Prospectus, and except as may otherwise
be indicated or contemplated herein or therein, neither the Company nor the
Subsidiary has (i) issued any securities or incurred any liability or
obligation, direct or contingent, for borrowed money, (ii) entered into any
transaction other than in the ordinary course of business, or (iii) declared or
paid any dividend or made any other distribution on or in respect of its capital
stock of any class, and there has not been any change in the capital stock, or
any change in the debt (long or short term) or liabilities or material adverse
change in or affecting the condition, financial or otherwise, earnings,
prospects, stockholders' equity, value, operations, properties, business or
results of operations of the Company or the Subsidiary.
(o) No default exists in the due performance and observance of any term,
covenant or condition of any license, contract, collective bargaining agreement,
indenture, mortgage, installment sale agreement, lease, deed of trust, voting
trust agreement, stockholders agreement, partnership agreement, note, loan or
credit agreement, purchase order, or any other agreement or instrument
evidencing an obligation for borrowed money, or any other material agreement or
instrument to which the Company or the Subsidiary is a party or by which the
Company or the Subsidiary may be bound or to which the property or assets
(tangible or intangible) of the Company or the Subsidiary is subject or
affected.
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<PAGE>
(p) Each of the Company and the Subsidiary has generally enjoyed a
satisfactory employer-employee relationship with its employees and is in
compliance with all federal, state, local and foreign laws and regulations
respecting employment and employment practices, terms and conditions of
employment and wages and hours. There are no pending investigations involving
the Company or the Subsidiary by the U.S. Department of Labor, or any other
governmental agency responsible for the enforcement of such federal, state,
local or foreign laws and regulations. There is no unfair labor practice charge
or complaint against the Company or the Subsidiary or any lockout, strike,
picketing, boycott, dispute, slowdown or stoppage pending or threatened against
or involving the Company or the Subsidiary, or any predecessor entity, and none
has ever occurred. No representation question exists respecting the employees of
the Company or the Subsidiary, and no collective bargaining agreement or
modification thereof is currently being negotiated by the Company or the
Subsidiary. No grievance or arbitration proceeding is pending under any expired
or existing collective bargaining agreements of the Company or the Subsidiary.
No labor dispute with the employees of the Company or the Subsidiary exists, or,
is imminent.
(q) Neither the Company nor the Subsidiary maintains, sponsors or
contributes to any program or arrangement that is an "employee pension benefit
plan," an "employee welfare benefit plan," or a "multiemployer plan" as such
terms are defined in Sections 3(2), 3(1) and 3(37), respectively, of the
Employee Retirement Income Security Act of 1974, as amended ("ERISA") ("ERISA
Plans"). Neither the Company nor the Subsidiary maintains or contributes, now or
at any time previously, to a defined benefit plan, as defined in Section 3(35)
of ERISA. No ERISA Plan (or any trust created thereunder) has engaged in a
"prohibited transaction" within the meaning of Section 406 of ERISA or Section
4975 of the Code, which could subject the Company or the Subsidiary to any tax
penalty on prohibited transactions and which has not adequately been corrected.
Neither the Company nor the Subsidiary has ever completely or partially
withdrawn from a "multiemployer plan."
(r) Neither the Company, the Subsidiary nor any of its or their respective
employees, directors, stockholders, partners, or affiliates (within the meaning
of the Rules and Regulations) of any of the foregoing has taken or will take,
directly or indirectly, any action designed to or which has constituted or which
might be expected to cause or result in, under the Exchange Act, or otherwise,
stabilization or manipulation of the price of any security of the Company to
facilitate the sale or resale of the Securities or otherwise.
(s) Except as otherwise disclosed in the Prospectus, none of the patents,
patent applications, trademarks, service marks, trade names and copyrights, and
licenses and rights to the foregoing presently owned or held by the Company or
the Subsidiary, are in dispute or are in any conflict with the right of any
other person or entity. Each of the Company and the Subsidiary (i) owns or has
the right to use, free and clear of all liens, charges, claims, encumbrances,
pledges, security interests, defects or other restrictions or equities of any
kind whatsoever, all patents, patent applications, trademarks, service marks,
service names, trade names and copyrights, technology and licenses and rights
with respect to the foregoing, used in the conduct of its business as now
conducted or proposed to be conducted without infringing upon or otherwise
acting adversely to the right or claimed right of any person, corporation or
other entity under or with respect to any of the foregoing and (ii) is not
obligated or under any liability whatsoever to make any payment by way of
royalties, fees or otherwise to any owner or
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licensee of, or other claimant to, any patent, patent application, trademark,
service mark, service names, trade name, copyright, know-how, technology or
other intangible asset, with respect to the use thereof or in connection with
the conduct of its business or otherwise.
There is no action, suit, proceeding, inquiry, arbitration, investigation,
litigation or governmental or other proceeding, domestic or foreign, pending or
threatened (or circumstances that may give rise to the same) which challenges
the exclusive rights of the Company or the Subsidiary with respect to any
trademarks, trade names, service marks, service names, copyrights, patents,
patent applications or licenses or rights to the foregoing used in the conduct
of its business, or which challenges the right of the Company or the Subsidiary
to use any technology presently used or contemplated to be used in the conduct
of business.
(t) Each of the Company and the Subsidiary owns and has the unrestricted
right to use all trade secrets, know-how (including all other unpatented and/or
unpatentable proprietary or confidential information, systems or procedures),
inventions, designs, processes, works of authorship, computer programs and
technical data and information (collectively herein "intellectual property")
that are material to the development, manufacture, operation and sale of all
products and services sold or proposed to be sold by the Company or the
Subsidiary, free and clear of and without violating any right, lien, or claim of
others, including without limitation, former employers of its employees.
(u) Each of the Company and the Subsidiary has good and marketable title
to, or valid and enforceable leasehold estates in, all items of real and
personal property stated in the Prospectus to be owned or leased by it, free and
clear of all liens, charges, claims, encumbrances, pledges, security interests,
defects, or other restrictions or equities of any kind whatsoever, other than
those referred to in the Prospectus and liens for taxes not yet due and payable.
(v) Richard A. Eisner & Company, LLP., whose report is filed with the
Commission as a part of the Registration Statement, are independent certified
public accountants as required by the Act and the Rules and Regulations.
(w) The Company has caused to be duly executed legally binding and
enforceable agreements pursuant to which each of the Company's officers,
directors, stockholders and holders of securities exchangeable or exercisable
for or convertible into shares of Common Stock has agreed not to, directly or
indirectly, issue, offer, offer to sell, sell, grant any option for the sale or
purchase of, assign, transfer, pledge, hypothecate or otherwise encumber or
dispose of any shares of Common Stock or securities convertible into,
exercisable or exchangeable for or evidencing any right to purchase or subscribe
for any shares of Common Stock (either pursuant to Rule 144 of the Rules and
Regulations or otherwise) or dispose of any beneficial interest therein for a
period of not less than thirteen (13) months following the effective date of the
Registration Statement (the "Lock-Up Period") without the prior written consent
of the Representative and the Company. During the thirteen (13) month period
commencing on the effective date of the Registration Statement, the Company
shall not, without the prior written consent of the Representative, sell,
contract or offer to sell, issue, transfer, assign, pledge, distribute, or
otherwise dispose of, directly or indirectly, any securities or any options,
rights or warrants with respect to any securities. The Company will cause the
Transfer Agent (as
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hereinafter defined) to mark an appropriate legend on the face of stock
certificates representing all of such securities and to place "stop transfer"
orders on the Company's stock ledgers.
(x) There are no claims, payments, issuances, arrangements or
understandings, whether oral or written, for services in the nature of a
finder's or origination fee with respect to the sale of the Securities hereunder
or any other arrangements, agreements, understandings, payments or issuance with
respect to the Company, or any of its officers, directors, stockholders,
partners, employees or affiliates, that may affect the Underwriters'
compensation, as determined by the NASD.
(y) The Common Stock has been approved for listing on the American Stock
Exchange ("AMEX").
(z) Neither the Company, the Subsidiary nor any of its or their respective
officers, employees, agents or any other person acting on behalf of the Company
or the Subsidiary has, directly or indirectly, given or agreed to give any
money, gift or similar benefit (other than legal price concessions to customers
in the ordinary course of business) to any customer, supplier, employee or agent
of a customer or supplier, or official or employee of any governmental agency
(domestic or foreign) or instrumentality of any government (domestic or foreign)
or any political party or candidate for office (domestic or foreign) or other
person who was, is, or may be in a position to help or hinder the business of
the Company or the Subsidiary (or assist the Company or the Subsidiary in
connection with any actual or proposed transaction) which (a) might subject the
Company or the Subsidiary, or any other such person to any damage or penalty in
any civil, criminal or governmental litigation or proceeding (domestic or
foreign), (b) if not given in the past, might have had a material adverse effect
on the assets, business or operations of the Company or the Subsidiary, or (c)
if not continued in the future, might adversely affect the assets, business,
condition, financial or otherwise, earnings, position, properties, value,
operations or prospects of the Company or the Subsidiary. The Company's internal
accounting controls are sufficient to cause the Company to comply with the
Foreign Corrupt Practices Act of 1977, as amended.
(aa) Except as set forth in the Prospectus, no officer, director,
stockholder or partner of the Company, or any "affiliate" or "associate" (as
these terms are defined in Rule 405 promulgated under the Rules and Regulations)
of any of the foregoing persons or entities has or has had, either directly or
indirectly, (i) an interest in any person or entity which (A) furnishes or sells
services or products which are furnished or sold or are proposed to be furnished
or sold by the Company or the Subsidiary, or (B) purchases from or sells or
furnishes to the Company or the Subsidiary any goods or services, or (ii) a
beneficial interest in any contract or agreement to which the Company or the
Subsidiary is a party or by which it may be bound or affected. Except as set
forth in the Prospectus under "Certain Transactions," there are no existing
agreements, arrangements, understandings or transactions, or proposed
agreements, arrangements, understandings or transactions, between or among the
Company or the Subsidiary, and any officer, director, or 5% or greater
securityholder of the Company, or any partner, affiliate or associate of any of
the foregoing persons or entities.
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(bb) Any certificate signed by any officer of the Company, and delivered
to the Underwriters or to Underwriters' Counsel (as defined herein) shall be
deemed a representation and warranty by the Company to the Underwriters as to
the matters covered thereby.
(cc) The minute books of each of the Company and the Subsidiary have been
made available to the Underwriters and contain a complete summary of all
meetings and actions of the directors (including committees thereof) and
stockholders of the Company and the Subsidiary, since the time of their
respective incorporation, and reflect all transactions referred to in such
minutes accurately in all material respects.
(dd) Except and to the extent described in the Prospectus, no holders of
any securities of the Company or of any options, warrants or other convertible
or exchangeable securities of the Company have the right to include any
securities issued by the Company in the Registration Statement or any
registration statement to be filed by the Company or to require the Company to
file a registration statement under the Act and no person or entity holds any
anti-dilution rights with respect to any securities of the Company.
(ee) The Company has as of the effective date of the Registration
Statement entered into an employment agreement with each of Jacob R. Miles, III,
Barry Levine, Terrence B. Reddy and Anthony Winston in the form filed as
Exhibits 10.1, 10.2, 10.3 and 10.4, respectively, to the Registration Statement.
(ff) The Company confirms as of the date hereof that it is in compliance
with all provisions of Section 1 of Laws of Florida, Chapter 92-198, An Act
Relating to Disclosure of Doing Business with Cuba, and the Company further
agrees that if it or any affiliate commences engaging in business with the
government of Cuba or with any person or affiliate located in Cuba after the
date the Registration Statement becomes or has become effective with the
Commission or with the Florida Department of Banking and Finance (the
"Department"), whichever date is later, or if the information reported or
incorporated by reference in the Prospectus, if any, concerning the Company's,
or any affiliate's, business with Cuba or with any person or affiliate located
in Cuba changes in any material way, the Company will provide the Department
notice of such business or change, as appropriate, in a form acceptable to the
Department.
(gg) Neither the Company nor the Subsidiary is, and upon the issuance and
sale of the Securities as herein contemplated and the application of the net
proceeds therefrom as described in the Prospectus under the caption "Use of
Proceeds" will be, an "investment company" or an entity "controlled" by an
"investment company" as such terms are defined in the Investment Company Act of
1940, as amended (the "1940 Act").
(hh) Each of the Company and the Subsidiary maintains a system of internal
accounting controls sufficient to provide reasonable assurance that (i)
transactions are executed in accordance with management's general or specific
authorizations; (ii) transactions are recorded as necessary to permit
preparations of financial statements in conformity with generally accepted
accounting principles and to maintain accountability for assets; (iii) access to
assets is permitted only in accordance with management's general or specific
authorizations; and (iv) the recorded accountability for assets is compared with
the existing assets at reasonable intervals and appropriate action is taken with
respect to any differences.
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(ii) The computer systems, technology, products and software owned or
licensed by each of the Company and the Subsidiary, and which each of the
Company and the Subsidiary proposes to acquire or license, in order to conduct
its business can accurately (i) process, record, store, calculate and present
calendrical data including, but not limited to, calculating, comparing and
sequencing from, into and between dates in the twentieth century (through the
year 1999), the year 2000 and the twenty-first century, including leap year
calculations, (ii) create, calculate, recognize, accept display, store,
retrieve, access, compare, sort, manipulate, or process any information
dependent on or relating to dates on or after December 31, 1999 or otherwise
provide use of dates or date dependent or date related data, including, but not
limited to, century recognition, day-of-the-week recognition, leap years, date
values and interfaces of date funtionalities, without loss of accuracy,
functionality, data integrity and performance and (iii) respond to two-digit
input in a way that resolves ambiguity as to century in a disclosed, defined and
pre-determined manner (collectively, "Year 2000 Compliant"). Each of the Company
and the Subsidiary has taken all reasonable steps to ensure that its products
and services will lose no funtionality with respect to the introduction of
records containing dates falling on or after January 1, 2000. Neither the
Company nor the Subsidiary has specific information that would cause it to
believe that any of its material vendors, suppliers, licensors or collaborators
is not similarly situated. The year disclosure in the Registration Statement is
accurate and complies in all material respects with the rules and regulations of
the Act.
2. Purchase, Sale and Delivery of the Securities.
(a) On the basis of the representations, warranties, covenants and
agreements herein contained, but subject to the terms and conditions herein set
forth, the Company agrees to sell to each Underwriter, and each Underwriter,
severally and not jointly, agrees to purchase from the Company at a price of
$_______ [93% of the initial public offering price per share of Common Stock]
per share of Common Stock, that number of Firm Securities set forth in Schedule
A opposite the name of such Underwriter, subject to such adjustment as the
Representative in its sole discretion shall make to eliminate any sales or
purchases of fractional shares, plus any additional number of Firm Securities
which such Underwriter may become obligated to purchase pursuant to the
provisions of Section 11 hereof.
(b) In addition, on the basis of the representations, warranties,
covenants and agreements herein contained, but subject to the terms and
conditions herein set forth, the Company hereby grants an option to the
Underwriters, severally and not jointly, to purchase all or any part of an
additional 300,000 shares of Common Stock at a price of $_________ per share of
Common Stock [93% of the initial public offering price per share of Common
Stock]. The option granted hereby will expire forty-five (45) days after (i) the
date the Registration Statement becomes effective, if the Company has elected
not to rely on Rule 430A under the Rules and Regulations, or (ii) the date of
this Agreement if the Company has elected to rely upon Rule 430A under the Rules
and Regulations, and may be exercised in whole or in part from time to time only
for the purpose of covering over-allotments which may be made in connection with
the offering and distribution of the Firm Securities upon notice by the
Representative to the Company setting forth the number of Option Securities as
to which the several Underwriters are then exercising the option and the time
and date of payment and delivery for any such Option Securities. Any such time
and date of delivery (an "Option Closing Date") shall be determined
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<PAGE>
by the Representative, but shall not be later than three (3) full business days
after the exercise of said option, nor in any event prior to the Closing Date,
as hereinafter defined, unless otherwise agreed upon by the Representative and
the Company. Nothing herein contained shall obligate the Underwriters to make
any over-allotments. No Option Securities shall be delivered unless the Firm
Securities shall be simultaneously delivered or shall theretofore have been
delivered as herein provided.
(c) Payment of the purchase price for, and delivery of certificates for,
the Firm Securities shall be made at the offices of the Representative at 520
Madison Avenue, 10th Floor, New York, New York 10022, or at such other place as
shall be agreed upon by the Representative and the Company. Such delivery and
payment shall be made at 10:00 a.m. (New York City time) on ________, 2000 or at
such other time and date as shall be agreed upon by the Representative and the
Company, but not less than three (3) nor more than five (5) full business days
after the effective date of the Registration Statement (such time and date of
payment and delivery being herein called the "Closing Date"). In addition, in
the event that any or all of the Option Securities are purchased by the
Underwriters, payment of the purchase price for, and delivery of certificates
for, such Option Securities shall be made at the above-mentioned office of the
Representative or at such other place as shall be agreed upon by the
Representative and the Company on each Option Closing Date as specified in the
notice from the Representative to the Company. Delivery of the certificates for
the Firm Securities and the Option Securities, if any, shall be made to the
Underwriters against payment by the Underwriters, severally and not jointly, of
the purchase price for the Firm Securities and the Option Securities, if any, to
the order of the Company for the Firm Securities and the Option Securities, if
any, by New York Clearing House funds. In the event such option is exercised,
each of the Underwriters, acting severally and not jointly, shall purchase that
proportion of the total number of Option Securities then being purchased which
the number of Firm Securities set forth in Schedule A hereto opposite the name
of such Underwriter bears to the total number of Firm Securities, subject in
each case to such adjustments as the Representative in its discretion shall make
to eliminate any sales or purchases of fractional shares. Certificates for the
Firm Securities and the Option Securities, if any, shall be in definitive, fully
registered form, shall bear no restrictive legends and shall be in such
denominations and registered in such names as the Underwriters may request in
writing at least two (2) business days prior to the Closing Date or the relevant
Option Closing Date, as the case may be. The certificates for the Firm
Securities and the Option Securities, if any, shall be made available to the
Representative at such office or such other place as the Representative may
designate for inspection, checking and packaging no later than 9:30 a.m. on the
last business day prior to the Closing Date or the relevant Option Closing Date,
as the case may be.
(d) On the Closing Date, the Company shall issue and sell to the
Representative Representative's Warrants at a purchase price of $.0001 per
warrant, which Representative's Warrants shall entitle the holders thereof to
purchase an aggregate of 200,000 shares of Common Stock. The Representative's
Warrants shall be exercisable for a period of four (4) years commencing one (1)
year from the effective date of the Registration Statement at a price equaling
one hundred twenty percent (120%) of the respective initial public offering
price of the Shares. The Representative's Warrant Agreement and form of Warrant
Certificate shall be substantially in the form filed as Exhibit ___ to the
Registration Statement. Payment for the Representative's Warrants shall be made
on the Closing Date.
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3. Public Offering of the Shares. As soon after the Registration Statement
becomes effective as the Representative deems advisable, the Underwriters shall
make a public offering of the Firm Securities and such Option Securities as the
Representative may determine (other than to residents of or in any jurisdiction
in which qualification of the Securities is required and has not become
effective) at the price and upon the other terms set forth in the Prospectus.
The Representative may from time to time increase or decrease the public
offering price after distribution of the Securities has been completed to such
extent as the Representative, in its sole discretion deems advisable. The
Underwriters may enter into one of more agreements as the Underwriters, in each
of their sole discretion, deem advisable with one or more broker-dealers who
shall act as dealers in connection with such public offering.
4. Covenants and Agreements of the Company. The Company covenants and
agrees with each of the Underwriters as follows:
(a) The Company shall use its best efforts to cause the Registration
Statement and any amendments thereto to become effective as promptly as
practicable and will not at any time, whether before or after the effective date
of the Registration Statement, file any amendment to the Registration Statement
or supplement to the Prospectus or file any document under the Act or Exchange
Act before termination of the offering of the Securities by the Underwriters of
which the Representative shall not previously have been advised and furnished
with a copy, or to which the Representative shall have objected or which is not
in compliance with the Act, the Exchange Act or the Rules and Regulations.
(b) As soon as the Company is advised or obtains knowledge thereof, the
Company will advise the Representative and confirm the notice in writing (i)
when the Registration Statement, as amended, becomes effective, if the
provisions of Rule 430A promulgated under the Act will be relied upon, when the
Prospectus has been filed in accordance with said Rule 430A and when any
post-effective amendment to the Registration Statement becomes effective; (ii)
of the issuance by the Commission of any stop order or of the initiation, or the
threatening, of any proceeding suspending the effectiveness of the Registration
Statement or any order preventing or suspending the use of the Preliminary
Prospectus or the Prospectus, or any amendment or supplement thereto, or the
institution of proceedings for that purpose; (iii) of the issuance by the
Commission or by any state securities commission of any proceedings for the
suspension of the qualification of any of the Securities for offering or sale in
any jurisdiction or of the initiation, or the threatening, of any proceeding for
that purpose; (iv) of the receipt of any comments from the Commission; and (v)
of any request by the Commission for any amendment to the Registration Statement
or any amendment or supplement to the Prospectus or for additional information.
If the Commission or any state securities commission shall enter a stop order or
suspend such qualification at any time, the Company will make every effort to
obtain promptly the lifting of such order.
(c) The Company shall file the Prospectus (in form and substance
satisfactory to the Representative) or transmit the Prospectus by a means
reasonably calculated to result in filing with the Commission pursuant to Rule
424(b)(1) (or, if applicable and if consented to by the Representative, pursuant
to Rule 424(b)(4)) not later than the Commission's close of business on the
earlier of (i) the second business day following the execution and delivery of
this Agreement and (ii) the fifth business day after the effective date of the
Registration Statement.
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(d) The Company will give the Representative notice of its intention to
file or prepare any amendment to the Registration Statement (including any
post-effective amendment) or any amendment or supplement to the Prospectus
(including any revised prospectus which the Company proposes for use by the
Underwriters in connection with the offering of the Securities which differs
from the corresponding prospectus on file at the Commission at the time the
Registration Statement becomes effective, whether or not such revised prospectus
is required to be filed pursuant to Rule 424(b) of the Rules and Regulations),
and will furnish the Representative with copies of any such amendment or
supplement a reasonable amount of time prior to such proposed filing or use, as
the case may be, and will not file any such prospectus to which the
Representative or Orrick, Herrington & Sutcliffe LLP ("Underwriters' Counsel")
shall object.
(e) The Company shall endeavor in good faith, in cooperation with the
Representative, at or prior to the time the Registration Statement becomes
effective, to qualify the Securities for offering and sale under the securities
laws of such jurisdictions as the Representative may designate to permit the
continuance of sales and dealings therein for as long as may be necessary to
complete the distribution, and shall make such applications, file such documents
and furnish such information as may be required for such purpose; provided,
however, the Company shall not be required to qualify as a foreign corporation
or file a general or limited consent to service of process in any such
jurisdiction. In each jurisdiction where such qualification shall be effected,
the Company will, unless the Representative agrees that such action is not at
the time necessary or advisable, use all reasonable efforts to file and make
such statements or reports at such times as are or may reasonably be required by
the laws of such jurisdiction to continue such qualification.
(f) During the time when a prospectus is required to be delivered under
the Act, the Company shall use all reasonable efforts to comply with all
requirements imposed upon it by the Act and the Exchange Act, as now and
hereafter amended and by the Rules and Regulations, as from time to time in
force, so far as necessary to permit the continuance of sales of or dealings in
the Securities in accordance with the provisions hereof and the Prospectus, or
any amendments or supplements thereto. If at any time when a prospectus relating
to the Securities is required to be delivered under the Act, any event shall
have occurred as a result of which, in the opinion of counsel for the Company or
Underwriters' Counsel, the Prospectus, as then amended or supplemented, includes
an untrue statement of a material fact or omits to state any material fact
required to be stated therein or necessary to make the statements therein, in
the light of the circumstances under which they were made, not misleading, or if
it is necessary at any time to amend the Prospectus to comply with the Act, the
Company will notify the Representative promptly and prepare and file with the
Commission an appropriate amendment or supplement in accordance with Section 10
of the Act, each such amendment or supplement to be satisfactory to
Underwriters' Counsel, and the Company will furnish to the Underwriters copies
of such amendment or supplement as soon as available and in such quantities as
the Underwriters may request.
(g) As soon as practicable, but in any event not later than forty-five
(45) days after the end of the 12-month period beginning on the day after the
end of the fiscal quarter of the Company during which the effective date of the
Registration Statement occurs (ninety (90) days in the event that the end of
such fiscal quarter is the end of the Company's fiscal year), the
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Company shall make generally available to its security holders, in the manner
specified in Rule 158(b) of the Rules and Regulations, and to the
Representative, an earnings statement which will be in the detail required by,
and will otherwise comply with, the provisions of Section 11(a) of the Act and
Rule 158(a) of the Rules and Regulations, which statement need not be audited
unless required by the Act, covering a period of at least twelve (12)
consecutive months after the effective date of the Registration Statement.
(h) During a period of five (5) years after the date hereof, the Company
will furnish to its stockholders, as soon as practicable, annual reports
(including financial statements audited by independent public accountants) and
unaudited quarterly reports of earnings, and will deliver to the Representative:
(i) concurrently with furnishing such quarterly reports to its
stockholders, statements of income of the Company for each quarter in the
form furnished to the Company's stockholders and certified by the
Company's principal financial or accounting officer;
(ii) concurrently with furnishing such annual reports to its
stockholders, a balance sheet of the Company as at the end of the
preceding fiscal year, together with statements of operations,
stockholders' equity, and cash flows of the Company for such fiscal year,
accompanied by a copy of the certificate thereon of independent certified
public accountants;
(iii) as soon as they are available, copies of all reports
(financial or other) mailed to stockholders;
(iv) as soon as they are available, copies of all reports and
financial statements furnished to or filed with the Commission, the NASD
or any securities exchange;
(v) every press release and every material news item or article of
interest to the financial community in respect of the Company, or its
affairs, which was released or prepared by or on behalf of the Company;
and
(vi) any additional information of a public nature concerning the
Company, its subsidiaries (and any future subsidiary) or its businesses
which the Representative may request.
During such seven-year period, if the Company has an active subsidiary,
the foregoing financial statements will be on a consolidated basis to the extent
that the accounts of the Company and its subsidiary(ies) are consolidated, and
will be accompanied by similar financial statements for any significant
subsidiary which is not so consolidated.
(i) The Company will maintain a transfer agent ("Transfer Agent") and, if
necessary under the jurisdiction of incorporation of the Company, a Registrar
(which may be the same entity as the Transfer Agent) for its Common Stock.
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(j) The Company will furnish to the Representative or on the
Representative's order, without charge, at such place as the Representative may
designate, copies of each Preliminary Prospectus, the Registration Statement and
any pre-effective or post-effective amendments thereto (two of which copies will
be signed and will include all financial statements and exhibits), the
Prospectus, and all amendments and supplements thereto, including any prospectus
prepared after the effective date of the Registration Statement, in each case as
soon as available and in such quantities as the Representative may request.
(k) On or before the effective date of the Registration Statement, the
Company shall provide the Representative with true original copies of duly
executed, legally binding and enforceable agreements pursuant to which, for a
period of thirteen (13) months from the effective date of the Registration
Statement, each of the Company's officers, directors, stockholders and holders
of securities exchangeable or exercisable for or convertible into shares of
Common Stock agrees that it or he or she will not, directly or indirectly,
issue, offer to sell, sell, grant an option for the sale or purchase of, assign,
transfer, pledge, hypothecate or otherwise encumber or dispose of any shares of
Common Stock or securities convertible into, exercisable or exchangeable for or
evidencing any right to purchase or subscribe for any shares of Common Stock
(either pursuant to Rule 144 of the Rules and Regulations or otherwise) or
dispose of any beneficial interest therein without the prior consent of the
Representatives (collectively, the "Lock-up Agreements"). During the 13 month
period commencing on the effective date of the Registration Statement, the
Company shall not, without the prior written consent of the Representative,
sell, contract or offer to sell, issue, transfer, assign, pledge, distribute, or
otherwise dispose of, directly or indirectly, any securities or any options,
rights or warrants with respect to any securities. On or before the Closing
Date, the Company shall deliver instructions to the Transfer Agent authorizing
it to place appropriate legends on the certificates representing the securities
subject to the Lock-up Agreements and to place appropriate stop transfer orders
on the Company's ledgers.
(l) Neither the Company, the Subsidiary, nor any of its or their
respective officers, directors, stockholders, nor any of its or their respective
affiliates (within the meaning of the Rules and Regulations) will take, directly
or indirectly, any action designed to, or which might in the future reasonably
be expected to cause or result in, stabilization or manipulation of the price of
any securities of the Company.
(m) Each of the Company and the Subsidiary shall apply the net proceeds
from the sale of the Securities in the manner, and subject to the conditions,
set forth under "Use of Proceeds" in the Prospectus. No portion of the net
proceeds will be used, directly or indirectly, to acquire any securities issued
by the Company.
(n) Each of the Company and the Subsidiary shall timely file all such
reports, forms or other documents as may be required (including, but not limited
to, a Form SR as may be required pursuant to Rule 463 under the Act) from time
to time, under the Act, the Exchange Act, and the Rules and Regulations, and all
such reports, forms and documents filed will comply as to form and substance
with the applicable requirements under the Act, the Exchange Act, and the Rules
and Regulations.
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(o) The Company shall furnish to the Representative as early as
practicable prior to each of the date hereof, the Closing Date and each Option
Closing Date, if any, but no later than two (2) full business days prior
thereto, a copy of the latest available unaudited interim financial statements
of the Company and the Subsidiary (which in no event shall be as of a date more
than thirty (30) days prior to the date of the Registration Statement) which
have been read by the Company's independent public accountants, as stated in
their letters to be furnished pursuant to Sections 6(j) hereof.
(p) The Company shall cause the Common Stock to be quoted on AMEX and, for
a period of seven (7) years from the date hereof, use its best efforts to
maintain the AMEX quotation of the Common Stock to the extent outstanding.
(q) For a period of five (5) years from the Closing Date, the Company
shall furnish to the Representative at the Company's sole expense, (i) daily
consolidated transfer sheets relating to the Common Stock, (ii) the list of
holders of all of the Company's securities and (iii) a Blue Sky "Trading Survey"
for secondary sales of the Company's securities prepared by counsel to the
Company.
(r) As soon as practicable, (i) but in no event more than five (5)
business days before the effective date of the Registration Statement, file a
Form 8-A with the Commission providing for the registration under the Exchange
Act of the Securities and (ii) but in no event more than thirty (30) days after
the effective date of the Registration Statement, take all necessary and
appropriate actions to be included in Standard and Poor's Corporation
Descriptions and Moody's OTC Manual and to continue such inclusion for a period
of not less than five (5) years.
(s) The Company hereby agrees that it will not, for a period of twelve
(12) months from the effective date of the Registration Statement, adopt,
propose to adopt or otherwise permit to exist any employee, officer, director,
consultant or compensation plan or similar arrangement permitting (i) the grant,
issue, sale or entry into any agreement to grant, issue or sell any option,
warrant or other contract right (x) at an exercise price that is less than the
greater of the public offering price of the Shares set forth herein and the fair
market value on the date of grant or sale or (y) to any of its executive
officers or directors or to any holder of 5% or more the Common Stock; (ii) the
payment for such securities with any form of consideration other than cash; or
(iii) the existence of stock appreciation rights, phantom options or similar
arrangements.
(t) Until the completion of the distribution of the Securities, the
Company shall not, without the prior written consent of the Representative and
Underwriters' Counsel, issue, directly or indirectly, any press release or other
communication or hold any press conference with respect to the Company or its
activities or the offering contemplated hereby, 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.
(u) For a period of twenty-four (24) months after the effective date of
the Registration Statement, the Company shall not restate, amend or alter any
term of any written employment, consulting or similar agreement entered into
between the Company and any officer,
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<PAGE>
director or key employee as of the effective date of the Registration Statement
in a manner which is more favorable to such officer, director or key employee,
without the prior written consent of the Representative.
(v) For a period equal to the lesser of (i) five (5) years from the date
hereof, and (ii) the sale to the public of the Representative's Securities, the
Company will not take any action or actions which may prevent or disqualify the
Company's use of Form S-1 (or other appropriate form) for the registration under
the Act of the Representative's Securities.
5. Payment of Expenses.
(a) The Company hereby agrees to pay on each of the Closing Date and the
Option Closing Date (to the extent not paid at the Closing Date) all expenses
and fees (other than fees of Underwriters' Counsel, except as provided in (iv)
below) incident to the performance of the obligations of the Company under this
Agreement and the Representative's Warrant Agreement, including, without
limitation, (i) the fees and expenses of accountants and counsel for the
Company, (ii) all costs and expenses incurred in connection with the
preparation, duplication, printing (including mailing and handling charges),
filing, delivery and mailing (including the payment of postage, overnight
delivery or courier charges with respect thereto) of the Registration Statement
and the Prospectus and any amendments and supplements thereto and the printing,
mailing (including the payment of postage with respect thereto) and delivery of
this Agreement, the Representative's Warrant Agreement, the Agreement Among
Underwriters, the Selected Dealer Agreements, and related documents, including
the cost of all copies thereof and of the Preliminary Prospectuses and of the
Prospectus and any amendments thereof or supplements thereto supplied to the
Underwriters and such dealers as the Underwriters may request, in quantities as
hereinabove stated, (iii) the printing, engraving, issuance and delivery of the
Securities including, but not limited to, (x) the purchase by the Underwriters
of the Firm Securities and the Option Securities and the purchase by the
Representative of the Representative's Warrants from the Company, (y) the
consummation by the Company of any of its obligations under this Agreement and
the Representative's Warrant Agreement, and (z) resale of the Firm Securities
and the Option Securities by the Underwriters in connection with the
distribution contemplated hereby, (iv) the qualification of the Securities under
state or foreign securities or "Blue Sky" laws and determination of the status
of such securities under legal investment laws, including the costs of printing
and mailing the "Preliminary Blue Sky Memorandum", the "Supplemental Blue Sky
Memorandum" and "Legal Investments Survey," if any, and disbursements and fees
of counsel in connection therewith, (v) advertising costs and expenses,
including but not limited to costs and expenses in connection with the "road
show," information meetings and presentations, bound volumes, and prospectus
memorabilia and "tombstone" advertisement expenses, (vi) costs and expenses in
connection with due diligence investigations, including but not limited to the
fees of any independent counsel or consultant retained, (vii) fees and expenses
of the Transfer Agent and registrar and all issue and transfer taxes, if any,
(viii) applications for assignment of a rating of the Securities by qualified
rating agencies, (ix) the fees payable to the Commission and the NASD, and (ix)
the fees and expenses incurred in connection with the quotation of the
Securities on ____ and any other exchange.
(b) If this Agreement is terminated by the Underwriters in accordance with
the provisions of Section 6 or Section 12, the Company shall reimburse and
indemnify the
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Underwriters for all of their actual out-of-pocket expenses, including the fees
and disbursements of Underwriters' Counsel, less any amounts already paid
pursuant to Section 5(c) hereof.
(c) The Company further agrees that, in addition to the expenses payable
pursuant to subsection (a) of this Section 5, it will pay to the Representative
on the Closing Date, by certified or bank cashier's check or, at the election of
the Representative, by deduction from the proceeds of the offering of the Firm
Securities, a non-accountable expense allowance equal to 3% of the gross
proceeds received by the Company from the sale of the Firm Securities. In the
event the Representative elects to exercise the overallotment option described
in Section 2(b) hereof, the Company agrees to pay the Representative on the
Option Closing Date, by certified or bank cashier's check or, at the election of
the Representative, by deduction from the proceeds of the Option Securities) a
non-accountable expense allowance equal to 3% of the gross proceeds received by
the Company from the sale of the Option Securities.
6. Conditions of the Underwriters' Obligations. The obligations of the
Underwriters hereunder shall be subject to the continuing accuracy of the
representations and warranties of the Company herein as of the date hereof and
as of the Closing Date and each Option Closing Date, if any, as if they had been
made on and as of the Closing Date or each Option Closing Date, as the case may
be; the accuracy on and as of the Closing Date or Option Closing Date, if any,
of the statements of the officers of the Company made pursuant to the provisions
hereof; and the performance by the Company on and as of the Closing Date and
each Option Closing Date, if any, of its covenants and obligations hereunder and
to the following further conditions:
(a) The Registration Statement shall have become effective not later than
12:00 P.M., New York time, on the date of this Agreement or such later date and
time as shall be consented to in writing by the Representative, and, at the
Closing Date and each Option Closing Date, if any, 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 shall be pending or
contemplated by the Commission and any request on the part of the Commission for
additional information shall have been complied with to the reasonable
satisfaction of Underwriters' Counsel. If the Company has elected to rely upon
Rule 430A of the Rules and Regulations, the price of the Shares and any
price-related information previously omitted from the effective Registration
Statement pursuant to such Rule 430A shall have been transmitted to the
Commission for filing pursuant to Rule 424(b) of the Rules and Regulations
within the prescribed time period and, prior to the Closing Date, the Company
shall have provided evidence satisfactory to the Representative of such timely
filing, or a post-effective amendment providing such information shall have been
promptly filed and declared effective in accordance with the requirements of
Rule 430A of the Rules and Regulations.
(b) The Representative shall not have advised the Company that the
Registration Statement, or any amendment thereto, contains an untrue statement
of fact which, in the Representative's opinion, is material, or omits to state a
fact which, in the Representative's opinion, is material and is required to be
stated therein or is necessary to make the statements therein not misleading, or
that the Prospectus, or any supplement thereto, contains an untrue statement of
fact which, in the Representative's opinion, is material, or omits to state a
fact which, in the Representative's opinion, is material and is required to be
stated therein or is
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necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading.
(c) On or prior to each of the Closing Date and each Option Closing Date,
if any, the Representative shall have received from Underwriters' Counsel, such
opinion or opinions with respect to the organization of the Company, the
validity of the Securities, the Registration Statement, the Prospectus and other
related matters as the Representative may request and Underwriters' Counsel
shall have received such papers and information as they request to enable them
to pass upon such matters.
(d) At the Closing Date, the Underwriters shall have received the
favorable opinion of Silverman, Collura, & Chernis, P.C., counsel to the
Company, dated the Closing Date, addressed to the Underwriters and in form and
substance satisfactory to Underwriters' Counsel, to the effect that:
(i) each of the Company and the Subsidiary (A) has been duly
organized and is validly existing as a corporation in good standing under
the laws of its jurisdiction of incorporation, (B) is duly qualified and
licensed and in good standing as a foreign corporation in each
jurisdiction in which its ownership or leasing of any properties or the
character of its operations requires such qualification or licensing, and
(C) has all requisite corporate power and authority, and has obtained any
and all necessary authorizations, approvals, orders, licenses,
certificates, franchises and permits of and from all governmental or
regulatory officials and bodies (including, without limitation, those
having jurisdiction over environmental or similar matters), to own or
lease its properties and conduct its business as described in the
Prospectus; each of the Company and the Subsidiary is and has been doing
business in compliance with all such authorizations, approvals, orders,
licenses, certificates, franchises and permits obtained by it from
governmental or regulatory officials and agencies, and all federal, state,
local and foreign laws, rules and regulations; and, neither the Company
nor the Subsidiary has received any notice of proceedings relating to the
revocation or modification of any such authorization, approval, order,
license, certificate, franchise, or permit which, singly or in the
aggregate, if the subject of an unfavorable decision, ruling or finding,
would materially adversely affect the business, operations, condition,
financial or otherwise, or the earnings, business affairs, position,
prospects, value, operation, properties, business or results of operations
of the Company or the Subsidiary. The disclosures in the Registration
Statement concerning the effects of federal, state, local and foreign
laws, rules and regulations on each of the Company's and the Subsidiary's
business as currently conducted and as contemplated are correct in all
material respects and do not omit to state a fact required to be stated
therein or necessary to make the statements contained therein not
misleading in light of the circumstances in which they were made.
(ii) the Company owns, directly or indirectly, sixty six and
two-thirds percent (66 2/3%) of the outstanding capital stock or other
ownership interests of the Subsidiary, and all such shares or other
ownership interests have been validly issued, are fully paid and
non-assessable, were not issued in violation of any preemptive rights and
are owned free and clear of any liens, charges, claims, encumbrances,
pledges, security interests, defects or other restrictions or equities of
any kind whatsoever.
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(iii) except as described in the Prospectus, none of the Company nor
the Subsidiary owns an interest in any other corporation, partnership,
joint venture, trust or other business entity;
(iv) the Company has a duly authorized, issued and outstanding
capitalization as set forth in the Prospectus, and any amendment or
supplement thereto, under "CAPITALIZATION" and "DESCRIPTION OF SECURITIES"
and neither the Company nor the Subsidiary is a party to or bound by any
instrument, agreement or other arrangement providing for it to issue,
sell, transfer, purchase or redeem any capital stock, rights, warrants,
options or other securities, except for this Agreement and the
Representative's Warrant Agreement and as described in the Prospectus. The
Securities and all other securities issued or issuable by the Company
conform, or when issued and paid for will conform, in all material
respects to all statements with respect thereto contained in the
Registration Statement and the Prospectus. All issued and outstanding
securities of the Company and the Subsidiary have been duly authorized and
validly issued and are fully paid and non-assessable; the holders thereof
have no rights of rescission with respect thereto, and are not subject to
personal liability by reason of being such holders; and none of such
securities were issued in violation of the preemptive rights of any
holders of any security of the Company or the Subsidiary or any similar
rights granted by the Company or the Subsidiary. The Securities to be sold
by the Company hereunder and under the Representative's Warrant Agreement
are not and will not be subject to any preemptive or other similar rights
of any stockholder, have been duly authorized and, when issued, paid for
and delivered in accordance with the terms hereof and thereof, will be
validly issued, fully paid and non-assessable and conform to the
description thereof contained in the Prospectus; the holders thereof will
not be subject to any liability solely as such holders; all corporate
action required to be taken for the authorization, issue and sale of the
Securities has been duly and validly taken; and the certificates
representing the Securities are in due and proper form. The
Representative's Warrants constitute valid and binding obligations of the
Company to issue and sell, upon exercise thereof and payment therefor, the
number and type of securities of the Company called for thereby. Upon the
issuance and delivery pursuant to this Agreement and the Representative's
Warrant Agreement of the Firm Securities and the Option Securities and the
Representative's Warrants to be sold by the Company, the Underwriters and
the Representative, respectively, will acquire good and marketable title
to the Firm Securities and the Option Securities and the Representative's
Warrants free and clear of any pledge, lien, charge, claim, encumbrance,
pledge, security interest, defect or other restriction or equity of any
kind whatsoever. No transfer tax is payable by or on behalf of the
Underwriters in connection with (A) the issuance by the Company of the
Securities, (B) the purchase by the Underwriters of the Firm Securities
and the Option Securities from the Company, and the purchase by the
Representative of the Representative's Warrants from the Company (C) the
consummation by the Company of any of its obligations under this Agreement
or the Representative's Warrant Agreement, or (D) resales of the Firm
Securities and the Option Securities in connection with the distribution
contemplated hereby.
(v) the Registration Statement is effective under the Act, and, if
applicable, filing of all pricing information has been timely made in the
appropriate form
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under Rule 430A, and no stop order suspending the use of the Preliminary
Prospectus, the Registration Statement or Prospectus or any part of any
thereof or suspending the effectiveness of the Registration Statement has
been issued and no proceedings for that purpose have been instituted or
are pending or, to the best of such counsel's knowledge, threatened or
contemplated under the Act;
(vi) each of the Preliminary Prospectus, the Registration Statement,
and the Prospectus and any amendments or supplements thereto (other than
the financial statements and other financial and statistical data included
therein, as to which no opinion need be rendered) comply as to form in all
material respects with the requirements of the Act and the Rules and
Regulations.
(vii) (A) there are no agreements, contracts or other documents
required by the Act to be described in the Registration Statement (or
required to be filed under the Exchange Act if upon such filing they would
be incorporated, in whole or in part, by reference therein) and the
Prospectus and filed as exhibits thereto, and the exhibits which have been
filed are correct copies of the documents of which they purport to be
copies; (B) the descriptions in the Registration Statement and the
Prospectus and any supplement or amendment thereto of contracts and other
documents to which the Company or the Subsidiary is a party or by which it
is bound, including any document to which the Company or the Subsidiary is
a party or by which it is bound, incorporated by reference into the
Prospectus and any supplement or amendment thereto, are accurate and
fairly represent the information required to be shown by Form S-1; (C)
there is not pending or threatened against the Company or the Subsidiary
any action, arbitration, suit, proceeding, inquiry, investigation,
litigation, governmental or other proceeding (including, without
limitation, those having jurisdiction over environmental or similar
matters), domestic or foreign, pending or threatened against (or
circumstances that may give rise to the same), or involving the properties
or business of the Company or the Subsidiary which (x) is required to be
disclosed in the Registration Statement which is not so disclosed (and
such proceedings as are summarized in the Registration Statement are
accurately summarized in all respects), (y) questions the validity of the
capital stock of the Company or the Subsidiary or this Agreement or the
Representative's Warrant Agreement, or of any action taken or to be taken
by the Company or the Subsidiary pursuant to or in connection with any of
the foregoing; (D) no statute or regulation or legal or governmental
proceeding required to be described in the Prospectus is not described as
required; and (E) there is no action, suit or proceeding pending, or
threatened, against or affecting the Company or the Subsidiary before any
court or arbitrator or governmental body, agency or official (or any basis
thereof known to such counsel) in which there is a reasonable possibility
of a decision which may result in a material adverse change in the
condition, financial or otherwise, or the earnings, position, prospects,
stockholders' equity, value, operation, properties, business or results of
operations of the Company or the Subsidiary, which could adversely affect
the present or prospective ability of the Company to perform its
obligations under this Agreement or the Representative's Warrant Agreement
or which in any manner draws into question the validity or enforceability
of this Agreement or the Representative's Warrant Agreement;
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(viii) the Company has full legal right, power and authority to
enter into each of this Agreement and the Representative's Warrant
Agreement, and to consummate the transactions provided for herein and
therein; and each of this Agreement and the Representative's Warrant
Agreement has been duly authorized, executed and delivered by the Company.
Each of this Agreement and the Representative's Warrant Agreement,
assuming due authorization, execution and delivery by each other party
thereto constitutes a legal, valid and binding agreement of the Company
enforceable against the Company in accordance with its terms (except as
such enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or other laws of general application relating
to or affecting enforcement of creditors' rights and the application of
equitable principles in any action, legal or equitable, and except as
rights to indemnity or contribution may be limited by applicable law), and
none of the Company's execution or delivery of this Agreement and the
Representative's Warrant Agreement, its performance hereunder or
thereunder, its consummation of the transactions contemplated herein or
therein, or the conduct of its business as described in the Registration
Statement, the Prospectus, and any amendments or supplements thereto,
conflicts with or will conflict with or results or will result in any
breach or violation of any of the terms or provisions of, or constitutes
or will constitute a default under, or result in the creation or
imposition of any lien, charge, claim, encumbrance, pledge, security
interest, defect or other restriction or equity of any kind whatsoever
upon, any property or assets (tangible or intangible) of the Company or
the Subsidiary pursuant to the terms of, (A) the Certificate of
Incorporation or Bylaws of the Company or the Certificate of Incorporation
or Bylaws of the Subsidiary, (B) any license, contract, collective
bargaining agreement, indenture, mortgage, deed of trust, lease, voting
trust agreement, stockholders agreement, note, loan or credit agreement or
any other agreement or instrument evidencing an obligation for borrowed
money, or any other agreement or instrument to which the Company or the
Subsidiary is a party or by which it is or they are or may be bound or to
which any of its or their respective properties or assets (tangible or
intangible) is or may be subject, or any indebtedness, or (C) any statute,
judgment, decree, order, rule or regulation applicable to the Company or
the Subsidiary of any arbitrator, court, regulatory body or administrative
agency or other governmental agency or body (including, without
limitation, those having jurisdiction over environmental or similar
matters), domestic or foreign, having jurisdiction over the Company or the
Subsidiary or any of its or their respective activities or properties.
(ix) no consent, approval, authorization or order, and no filing
with, any arbitrator, court, regulatory body, administrative agency,
government agency or other body, domestic or foreign (other than such as
may be required under Blue Sky laws, as to which no opinion need be
rendered) is required in connection with the issuance of the Firm
Securities and the Option Securities pursuant to the Prospectus and the
Registration Statement, this Agreement, the Representative's Warrant
Agreement, or the issuance of the Representative's Warrants, the
performance of this Agreement and the Representative's Warrant Agreement,
and the transactions contemplated hereby and thereby;
(x) the properties and business of each of the Company and the
Subsidiary conform to the description thereof contained in the
Registration Statement and
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the Prospectus; and each of the Company and the Subsidiary has good and
marketable title to, or valid and enforceable leasehold estates in, all
items of real and personal property stated in the Prospectus to be owned
or leased by it, in each case free and clear of all liens, charges,
claims, encumbrances, pledges, security interests, defects or other
restrictions or equities of any kind whatsoever, other than those referred
to in the Prospectus and liens for taxes not yet due and payable;
(xi) neither the Company nor the Subsidiary is in breach of, or in
default under, any term or provision of any license, contract, collective
bargaining agreement, indenture, mortgage, installment sale agreement,
deed of trust, lease, voting trust agreement, stockholders' agreement,
partnership agreement, note, loan or credit agreement or any other
agreement or instrument evidencing an obligation for borrowed money, or
any other agreement or instrument to which the Company or the Subsidiary
is a party or by which the Company or the Subsidiary may be bound or to
which the properties or assets (tangible or intangible) of the Company or
the Subsidiary is or may be subject or affected; and neither the Company
nor the Subsidiary is in violation of any term or provision of its
Certificate of Incorporation or Bylaws with respect to the Company and the
Certificate of Incorporation or Bylaws with respect to the Subsidiary or
in violation of any franchise, license, permit, judgment, decree, order,
statute, rule or regulation;
(xii) the statements in the Prospectus under "RISK FACTORS,"
"BUSINESS," "MANAGEMENT," "PRINCIPAL STOCKHOLDERS," "CERTAIN
TRANSACTIONS," "DESCRIPTION OF SECURITIES," "SELLING STOCKHOLDERS AND PLAN
OF DISTRIBUTION" and "SHARES ELIGIBLE FOR FUTURE SALE" have been reviewed
by such counsel, and insofar as they refer to statements of law,
descriptions of statutes, licenses, rules or regulations or legal
conclusions, are correct in all material respects;
(xiii) the Securities have been accepted for quotation on AMEX;
(xiv) the persons listed under the caption "PRINCIPAL STOCKHOLDERS"
and "SELLING STOCKHOLDERS AND PLAN OF DISTRIBUTION" in the Prospectus are
the respective "beneficial owners" (as such phrase is defined in
regulation 13d-3 under the Exchange Act) of the securities set forth
opposite their respective names thereunder as and to the extent set forth
therein;
(xv) each of the Company and the Subsidiary owns or possesses, free
and clear of all liens or encumbrances and right thereto or therein by
third parties, the requisite licenses or other rights to use all
trademarks, service marks, copyrights, service names, tradenames, patents,
patent applications and licenses necessary to conduct its business
(including without limitation any such licenses or rights described in the
Prospectus as being owned or possessed by any of the Company or the
Subsidiary) and there is no claim or action by any person pertaining to,
or proceeding, pending or threatened, which challenges the exclusive
rights of any of the Company or the Subsidiary with respect to any
trademarks, service marks, copyrights, service names, trade names,
patents, patent applications and licenses used in the conduct of the
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Company's and the Subsidiary's businesses (including, without limitation,
any such licenses or rights described in the Prospectus as being owned or
possessed by any of the Company or the Subsidiary);
(xvi) neither the Company nor the Subsidiary, nor any of their
respective officers, stockholders, employees or agents, nor any other
person acting on behalf of the Company or the Subsidiary has, directly or
indirectly, given or agreed to give any money, gift or similar benefit
(other than legal price concessions to customers in the ordinary course of
business) to any customer, supplier, employee or agent of a customer or
supplier, or official or employee of any governmental agency or
instrumentality of any government (domestic or foreign) or any political
party or candidate for office (domestic or foreign) or other person who
was, is or may be in a position to help or hinder the business of the
Company or the Subsidiary (or assist it in connection with any actual or
proposed transaction) which (A) might subject any of the Company or the
Subsidiary or any such person to any damage or penalty in any civil,
criminal or governmental litigation or proceeding (domestic or foreign),
(B) if not given in the past, might have had an adverse effect on the
assets, business or operations of the Company or the Subsidiary, as
reflected in any of the financial statements contained in the Registration
Statement, or (C) if not continued in the future, might adversely affect
the assets, business, operations or prospects of the Company or the
Subsidiary;
(xvii) except as described in the Prospectus, no person,
corporation, trust, partnership, association or other entity has the right
to include and/or register any securities of the Company in the
Registration Statement, require the Company to file any registration
statement or, if filed, to include any security in such registration
statement;
(xviii) except as described in the Prospectus, there are no claims,
payments, issuances, arrangements or understandings for services in the
nature of a finder's or origination fee with respect to the sale of the
Securities hereunder or financial consulting arrangements or any other
arrangements, agreements, understandings, payments or issuances that may
affect the Underwriters' compensation, as determined by the NASD;
(xix) assuming due execution by the parties thereto other than the
Company, the Lock-up Agreements are legal, valid and binding obligations
of the parties thereto, enforceable against the party and any subsequent
holder of the securities subject thereto in accordance with its terms
(except as such enforceability may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium or other laws of general
application relating to or affecting enforcement of creditors' rights and
the application of equitable principles in any action, legal or equitable,
and except as rights to indemnity or contribution may be limited by
applicable law);
(xx) the minute books of the Company and the Subsidiary contain a
complete summary of all meetings and actions the directors and
stockholders of each of the Company and the Subsidiary since the time of
its incorporation and reflect all transactions referred to in such minutes
accurately in all material respects;
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(xxi) except as described in the Prospectus, neither the Company nor
the Subsidiary (A) maintains, sponsors or contributes to any ERISA Plans,
(B) maintains or contributes, now or at any time previously, to a defined
benefit plan, as defined in Section 3(35) of ERISA, and (C) has ever
completely or partially withdrawn from a "multiemployer plan";
(xxii) neither the Company, the Subsidiary or any of its or their
affiliates shall be subject to the requirements of or shall be deemed an
"Investment Company," pursuant to and as defined under, respectively, the
Investment Company Act.
Such counsel shall state that such counsel has participated in conferences
with officers and other representatives of the Company and the Subsidiary, and
representatives of the independent public accountants for the Company, at which
conferences such counsel made inquiries of such officers, representatives and
accountants and discussed the contents of the Preliminary Prospectus, the
Registration Statement, the Prospectus, and related matters and, although such
counsel is not passing upon and does not assume any responsibility for the
accuracy, completeness or fairness of the statements contained in the
Preliminary Prospectus, the Registration Statement and Prospectus, on the basis
of the foregoing, no facts have come to the attention of such counsel which lead
them to believe that either the Registration Statement or any amendment thereto,
at the time such Registration Statement or amendment became effective or the
Preliminary Prospectus or Prospectus or amendment or supplement thereto as of
the date of such opinion contained any untrue statement of a material fact or
omitted to state a material fact required to be stated therein or necessary to
make the statements therein not misleading (it being understood that such
counsel need express no opinion with respect to the financial statements and
schedules and other financial and statistical data included in the Preliminary
Prospectus, the Registration Statement or the Prospectus). Such counsel shall
further state that its opinions may be relied upon by Underwriters' Counsel in
rendering its opinion to the Underwriters.
In rendering such opinion, such counsel may rely (A) as to matters
involving the application of laws other than the laws of the United States and
jurisdictions in which they are admitted, to the extent such counsel deems
proper and to the extent specified in such opinion, if at all, upon an opinion
or opinions (in form and substance satisfactory to Underwriters' Counsel) of
other counsel acceptable to Underwriters' Counsel, familiar with the applicable
laws; (B) as to matters of fact, to the extent they deem proper, on certificates
and written statements of responsible officers of each of the Company and
Subsidiary and certificates or other written statements of officers of
departments of various jurisdictions having custody of documents respecting the
corporate existence or good standing of the Company and the Subsidiary, provided
that copies of any such statements or certificates shall be delivered to
Underwriters' Counsel if requested. The opinion of such counsel for the Company
shall state that the opinion of any such other counsel is in form satisfactory
to such counsel and that the Representative, Underwriters' Counsel and they are
each justified in relying thereon. Any opinion of counsel for the Company and
the Subsidiary shall not state that it is to be governed or qualified by, or
that it is otherwise subject to, any treatise, written policy or other document
relating to legal opinions, including, without limitation, the Legal Opinion
Accord of the ABA Section of Business Law (1991) or any comparable state accord.
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<PAGE>
(e) At each Option Closing Date, if any, the Underwriters shall have
received the favorable opinion of Silverman, Collura, & Chernis, P.C., counsel
to the Company, dated the relevant Option Closing Date, addressed to the
Underwriters, and in form and substance satisfactory to Underwriters' Counsel,
confirming as of the Option Closing Date, the statements made by Silverman,
Collura & Chernis, P.C., in its opinion delivered on the Closing Date.
(f) On or prior to each of the Closing Date and each Option Closing Date,
if any, Underwriters' Counsel shall have been furnished such documents,
certificates and opinions as they may reasonably require for the purpose of
enabling them to review or pass upon the matters referred to in subsection (c)
of this Section 6, or in order to evidence the accuracy, completeness or
satisfaction of any of the representations, warranties or conditions of the
Company herein contained.
(g) Prior to each of the Closing Date and each Option Closing Date, if
any, (i) there shall have been no material adverse change nor development
involving a prospective change in the condition, financial or otherwise,
earnings, position, value, properties, results of operations, prospects,
stockholders' equity or the business activities of the Company or the
Subsidiary, whether or not in the ordinary course of business, from the latest
dates as of which such condition is set forth in the Registration Statement and
Prospectus; (ii) there shall have been no transaction, not in the ordinary
course of business, entered into by the Company or the Subsidiary, from the
latest date as of which the financial condition of the Company is set forth in
the Registration Statement and Prospectus; (iii) neither the Company nor the
Subsidiary shall be in default under any provision of any instrument relating to
any outstanding indebtedness; (iv) neither the Company nor the Subsidiary shall
have issued any securities (other than the Securities) or declared or paid any
dividend or made any distribution in respect of its or their capital stock of
any class and there has not been any change in the capital stock or debt (long
or short term) or liabilities or obligations of the Company or the Subsidiary
(contingent or otherwise); (v) no material amount of the assets of the Company
or the Subsidiary shall have been pledged or mortgaged, except as set forth in
the Registration Statement and Prospectus; (vi) no arbitration, inquiry, action,
suit or proceeding, at law or in equity, shall have been pending or threatened
(or circumstances giving rise to same) against the Company or the Subsidiary, or
affecting any of its or their respective properties or businesses before or by
any court or federal, state or foreign commission, board or other administrative
agency wherein an unfavorable decision, ruling or finding may adversely affect
the business, operations, earnings, position, value, properties, results of
operations, prospects or financial condition or income of the Company or the
Subsidiary; and (vii) no stop order shall have been issued under the Act and no
proceedings therefor shall have been initiated, threatened or contemplated by
the Commission.
(h) At each of the Closing Date and each Option Closing Date, if any, the
Underwriters shall have received a certificate of the Company signed by the
principal executive officer and by the chief financial or chief accounting
officer of the Company, dated the Closing Date or Option Closing Date, as the
case may be, to the effect that each of such persons has carefully examined the
Registration Statement, the Prospectus and this Agreement, and that:
(i) The representations and warranties of the Company in this
Agreement are true and correct, as if made on and as of the Closing Date
or the Option Closing Date, as the case may be, and each of the Company
and the Subsidiary have
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complied with all agreements and covenants and satisfied all conditions
contained in this Agreement on its part to be performed or satisfied at or
prior to such Closing Date or Option Closing Date, as the case may be;
(ii) No stop order suspending the effectiveness of the Registration
Statement or any part thereof has been issued, and no proceedings for that
purpose have been instituted or are pending or, to the best of each of
such person's knowledge, after due inquiry, are contemplated or threatened
under the Act;
(iii) The Registration Statement and the Prospectus and, if any,
each amendment and each supplement thereto, contain all statements and
information required to be included therein, and none of the Registration
Statement, the Prospectus nor any amendment or supplement thereto includes
any untrue statement of a material fact or omits to state any material
fact required to be stated therein or necessary to make the statements
therein not misleading and neither the Preliminary Prospectus or any
supplement thereto included any untrue statement of a material fact or
omitted to state any material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances
under which they were made, not misleading; and
(iv) Subsequent to the respective dates as of which information is
given in the Registration Statement and the Prospectus, (a) neither the
Company nor the Subsidiary has incurred up to and including the Closing
Date or the Option Closing Date, as the case may be, other than in the
ordinary course of its business, any material liabilities or obligations,
direct or contingent; (b) neither the Company nor the Subsidiary has paid
or declared any dividends or other distributions on its capital stock; (c)
neither the Company nor the Subsidiary has entered into any transactions
not in the ordinary course of business; (d) there has not been any change
in the capital stock of any of the Company or the Subsidiary or any
material change in the debt (long or short term) of any of the Company or
the Subsidiaries; (e) neither the Company nor the Subsidiary has sustained
any loss or damage to its properties or assets, whether or not insured;
(f) there is no litigation which is pending or threatened (or
circumstances giving rise to same) against the Company or the Subsidiary
or any affiliated party which is required to be set forth in an amended or
supplemented Prospectus which has not been set forth; and (g) there has
occurred no event required to be set forth in an amended or supplemented
Prospectus which has not been set forth.
References to the Registration Statement and the Prospectus in this subsection
(i) are to such documents as amended and supplemented at the date of such
certificate.
(i) By the Closing Date, the Underwriters will have received clearance
from the NASD as to the amount of compensation allowable or payable to the
Underwriters, as described in the Registration Statement.
(j) 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 & Co., LLP:
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(i) confirming that they are independent certified public
accountants with respect to the Company and the Subsidiary within the
meaning of the Act and the applicable Rules and Regulations;
(ii) stating that it is their opinion that the financial statements
and supporting schedules of the Company and the Subsidiary 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 Representative may rely upon the
opinion of Richard A. Eisner & Co., LLP with respect to the financial
statements and supporting schedules included in the Registration
Statement;
(iii) stating that, on the basis of a limited review which included
a reading of the latest available unaudited interim financial statements
of each of the Company and the Subsidiary, a reading of the latest
available minutes of the stockholders and board of directors and the
various committees of the board of directors of each of the Company and
the Subsidiary, consultations with officers and other employees of each of
the Company and the Subsidiary responsible for financial and accounting
matters and other specified procedures and inquiries, nothing has come to
their attention which would lead them to believe that (A) the pro forma
and as adjusted financial information contained in the Registration
Statement and Prospectus does not comply as to form in all material
respects with the applicable accounting requirements of the Act and the
Rules and Regulations or is 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
and the Subsidiary or the unaudited pro forma or as adjusted financial
information included in the Registration Statement, or (B) the unaudited
financial statements and supporting schedules of the Company and the
Subsidiary 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 and the Subsidiaries included in the
Registration Statement, or (C) at a specified date not more than five (5)
days prior to the effective date of the Registration Statement, there has
been any change in the capital stock or long-term debt of any of the
Company or the Subsidiary, or any decrease in the stockholders' equity or
net current assets or net assets of the Company as compared with amounts
shown in the _____, 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 (C) during the period from ______,
1999 to a specified date not more than five (5) days prior to the
effective date of the Registration Statement, there was any decrease in
net revenues, net earnings or increase in net earnings per common share of
any of the Company or the Subsidiary, in each case as compared with the
corresponding period beginning _______, 1999, other than as set forth in
or contemplated by the Registration Statement, or, if there was any such
decrease, setting forth the amount of such decrease;
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(iv) setting forth, at a date not later than five (5) days prior to
the date of the Registration Statement, the amount of liabilities of the
Company and the Subsidiary (including a break-down of commercial paper and
notes payable to banks);
(v) 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 and the Subsidiary 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 the
Subsidiary 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;
(vi) statements as to such other matters incident to the transaction
contemplated hereby as the Representatives may request.
(k) At the Closing Date and each Option Closing Date, if any, the
Underwriters shall have received from Richard A. Eisner & Co., LLP a letter,
dated as of the Closing Date or the Option Closing Date, as the case may be, to
the effect that they reaffirm the statements made in the letter furnished
pursuant to subsection (j) of this Section, except that the specified date
referred to shall be a date not more than five (5) days prior to the 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 (v) of subsection
(j) of this Section with respect to certain amounts, percentages and financial
information as specified by the Representative 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 (v).
(l) On each of the Closing Date and each Option Closing Date, if any,
there shall have been duly tendered to the Representative for the several
Underwriters' accounts the appropriate number of Securities.
(m) No order suspending the sale of the Securities in any jurisdiction
designated by the Representative pursuant to subsection (e) of Section 4 hereof
shall have been issued on either the Closing Date or the Option Closing Date, if
any, and no proceedings for that purpose shall have been instituted or shall be
contemplated.
(n) On or before the Closing Date, the Company shall have executed and
delivered to the Representative, (i) the Representative's Warrant Agreement
substantially in the form filed as Exhibit 4.2 to the Registration Statement, in
final form and substance satisfactory to the Representative, and (ii) the
Representative's Warrants in such denominations and to such designees as shall
have been provided to the Company.
(o) On or before the Closing Date, the Firm Securities and Option
Securities shall have been duly approved for quotation on AMEX, subject to
official notice of issuance.
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(p) On or before the Closing Date, there shall have been delivered to the
Representative all of the Lock-up Agreements, in form and substance satisfactory
to Underwriters' Counsel.
If any condition to the Underwriters' obligations hereunder to be
fulfilled prior to or at the Closing Date or the relevant Option Closing Date,
as the case may be, is not so fulfilled, the Representative may terminate this
Agreement or, if the Representative so elects, it may waive any such conditions
which have not been fulfilled or extend the time for their fulfillment.
7. Indemnification.
(a) The Company agrees to indemnify and hold harmless each of the
Underwriters (for purposes of this Section 7 "Underwriter" shall include the
officers, directors, partners, employees, agents and counsel of the Underwriter,
including specifically each person who may be substituted for an Underwriter as
provided in Section 11 hereof), and each person, if any, who controls the
Underwriter ("controlling person") within the meaning of Section 15 of the Act
or Section 20(a) of the Exchange Act, from and against any and all losses,
claims, damages, expenses or liabilities, joint or several (and actions,
proceedings, investigations, inquiries, suits and litigation in respect
thereof), whatsoever (including but not limited to any and all expenses
whatsoever reasonably incurred in investigating, preparing or defending against
any such claim, action, proceeding, investigation, inquiry, suit or litigation,
commenced or threatened, or any claim whatsoever), as such are incurred, to
which the Underwriter or such controlling person may become subject under the
Act, the Exchange Act or any other statute or at common law or otherwise or
under the laws of foreign countries, arising out of or based upon (A) any untrue
statement or alleged untrue statement of a material fact contained (i) in any
Preliminary Prospectus, the Registration Statement or the Prospectus (as from
time to time amended and supplemented); (ii) in any post-effective amendment or
amendments or any new registration statement and prospectus in which is included
securities of the Company issued or issuable upon exercise of the Securities; or
(iii) in any application or other document or written communication (in this
Section 7 collectively called "application") executed by the Company or based
upon written information furnished by the Company in any jurisdiction in order
to qualify the Securities under the securities laws thereof or filed with the
Commission, any state securities commission or agency, AMEX or any other
securities exchange; (B) the omission or alleged omission therefrom of a
material fact required to be stated therein or necessary to make the statements
therein not misleading (in the case of the Prospectus, in the light of the
circumstances under which they were made), or (C) any breach of any
representation, warranty, covenant or agreement of the Company contained herein
or in any certificate by or on behalf of the Company or any of its officers
delivered pursuant hereto, unless, in the case of clause (A) or (B) above, such
statement or omission was made in reliance upon and in strict conformity with
written information furnished to the Company with respect to any Underwriter by
or on behalf of such Underwriter expressly for use in any Preliminary
Prospectus, the Registration Statement or Prospectus, or any amendment thereof
or supplement thereto, or in any application, as the case may be.
The indemnity agreement in this subsection (a) shall be in addition to any
liability which the Company may have at common law or otherwise.
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(b) Each of the Underwriters agrees severally, but not jointly, to
indemnify and hold harmless the Company, each of its directors, each of its
officers who has signed the Registration Statement, and each other person, if
any, who controls the Company within the meaning of the Act, to the same extent
as the foregoing indemnity from the Company to the Underwriters but only with
respect to statements or omissions, if any, made in any Preliminary Prospectus,
the Registration Statement or Prospectus or any amendment thereof or supplement
thereto or in any application made in reliance upon, and in strict conformity
with, written information furnished to the Company with respect to any
Underwriter by such Underwriter expressly for use in such Preliminary
Prospectus, the Registration Statement or Prospectus or any amendment thereof or
supplement thereto or in any such application, provided that such written
information or omissions only pertain to disclosures in the Preliminary
Prospectus, the Registration Statement or Prospectus directly relating to the
transactions effected by the Underwriters in connection with this Offering. The
Company acknowledges that the statements with respect to the public offering of
the Firm Securities and the Option Securities set forth under the heading
"Underwriting" and the stabilization legend in the Prospectus have been
furnished by the Underwriters expressly for use therein and constitute the only
information furnished in writing by or on behalf of the Underwriters for
inclusion in the Prospectus.
(c) Promptly after receipt by an indemnified party under this Section 7 of
notice of the commencement of any claim, action, suit, investigation, inquiry,
proceeding or litigation, such indemnified party shall, if a claim in respect
thereof is to be made against one or more indemnifying parties under this
Section 7, notify each party against whom indemnification is to be sought in
writing of the commencement thereof (but the failure so to notify an
indemnifying party shall not relieve it from any liability which it may have
under this Section 7 except to the extent that it has been prejudiced in any
material respect by such failure or from any liability which it may have
otherwise). In case any such claim, action, suit, investigation, inquiry,
proceeding or litigation is brought against any indemnified party, and it
notifies an indemnifying party or parties of the commencement thereof, the
indemnifying party or parties will be entitled to participate therein, and to
the extent it may elect by written notice delivered to the indemnified party
promptly after receiving the aforesaid notice from such indemnified party, to
assume the defense thereof with counsel reasonably satisfactory to such
indemnified party. Notwithstanding the foregoing, the indemnified party or
parties shall have the right to employ its or their own counsel in any such case
but the fees and expenses of such counsel shall be at the expense of such
indemnified party or parties unless (i) the employment of such counsel shall
have been authorized in writing by the indemnifying parties in connection with
the defense of thereof at the expense of the indemnifying party, (ii) the
indemnifying parties shall not have employed counsel reasonably satisfactory to
such indemnified party to have charge of the defense thereof within a reasonable
time after notice of commencement thereof, or (iii) such indemnified party or
parties shall have reasonably concluded that there may be defenses available to
it or them which are different from or additional to those available to one or
all of the indemnifying parties (in which case the indemnifying parties shall
not have the right to direct the defense thereof on behalf of the indemnified
party or parties), in any of which events such fees and expenses of one
additional counsel shall be borne by the indemnifying parties. In no event shall
the indemnifying parties be liable for fees and expenses of more than one
counsel (in addition to any local counsel) separate from their own counsel for
all indemnified parties in connection with any one claim, action, suit,
investigation, inquiry, proceeding or litigation or separate but similar or
related claims, actions, suits, investigations, inquiries, proceedings or
litigation in the same jurisdiction
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arising out of the same general allegations or circumstances. Anything in this
Section 7 to the contrary notwithstanding, an indemnifying party shall not be
liable for any settlement of any claim, action, suit, investigation, inquiry,
proceeding or litigation effected without its written consent; provided,
however, that such consent was not unreasonably withheld. An indemnifying party
will not, without the prior written consent of the indemnified parties, settle,
compromise or consent to the entry of any judgment with respect to any pending
or threatened claim, action, suit, investigation, inquiry, proceeding or
litigation in respect of which indemnification or contribution may be sought
hereunder (whether or not the indemnified parties are actual or potential
parties to such claim, action, suit, investigation, inquiry, proceeding or
litigation), unless such settlement, compromise or consent (i) includes an
unconditional release of each indemnified party from all liability arising out
of such claim, action, suit, investigation, inquiry, proceeding or litigation
and (ii) does not include a statement as to or an admission of fault,
culpability or a failure to act by or on behalf of any indemnified party.
(d) In order to provide for just and equitable contribution in any case in
which (i) an indemnified party makes claim for indemnification pursuant to this
Section 7, but it is judicially determined (by the entry of a final judgment or
decree by a court of competent jurisdiction and the expiration of time to appeal
or the denial of the last right of appeal) that such indemnification may not be
enforced in such case notwithstanding the fact that the express provisions of
this Section 7 provide for indemnification in such case, or (ii) contribution
under the Act may be required on the part of any indemnified party, then each
indemnifying party shall contribute to the amount paid as a result of such
losses, claims, damages, expenses or liabilities (or actions in respect thereof)
(A) in such proportion as is appropriate to reflect the relative benefits
received by each of the contributing parties, on the one hand, and the party to
be indemnified on the other hand, from the offering of the Firm Securities and
the Option Securities or (B) if the allocation provided by clause (A) above is
not permitted by applicable law, in such proportion as is appropriate to reflect
not only the relative benefits referred to in clause (i) above but also the
relative fault of each of the contributing parties, on the one hand, and the
party to be indemnified on the other hand in connection with the statements or
omissions that resulted in such losses, claims, damages, expenses or
liabilities, as well as any other relevant equitable considerations. In any case
where the Company is the contributing party and the Underwriters are the
indemnified party, 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 net proceeds from the offering of the Firm Securities
and the Option Securities (before deducting expenses) bear to the total
underwriting discounts received by the Underwriters hereunder, in each case as
set forth in the table on the Cover Page of the Prospectus. Relative fault shall
be determined by reference to, among other things, whether the untrue or alleged
untrue statement of a material fact or the omission or alleged omission to state
a material fact relates to information supplied by the Company, or by the
Underwriters, and the parties' relative intent, knowledge, access to information
and opportunity to correct or prevent such untrue statement or omission. The
amount paid or payable by an indemnified party as a result of the losses,
claims, damages, expenses or liabilities (or actions in respect thereof)
referred to above in this subsection (d) shall be deemed to include any legal or
other expenses reasonably incurred by such indemnified party in connection with
investigating or defending any such action or claim. Notwithstanding the
provisions of this subsection (d), the Underwriters shall not be required to
contribute any amount in excess of the underwriting discount applicable to the
Firm Securities and the Option Securities purchased by the Underwriters
hereunder. No person guilty of fraudulent misrepresentation (within the meaning
of Section 11(f) of the Act) shall be entitled to contribution from any person
who was
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not guilty of such fraudulent misrepresentation. For purposes of this Section 7,
each person, if any, who controls the Company or the Underwriter within the
meaning of the Act, each officer of the Company who has signed the Registration
Statement, and each director of the Company shall have the same rights to
contribution as the Company or the Underwriter, as the case may be, subject in
each case to this subsection (d). Any party entitled to contribution will,
promptly after receipt of notice of commencement of any action, suit or
proceeding against such party in respect to which a claim for contribution may
be made against another party or parties under this subsection (d), notify such
party or parties from whom contribution may be sought, but the omission so to
notify such party or parties shall not relieve the party or parties from whom
contribution may be sought from any obligation it or they may have hereunder or
otherwise than under this subsection (d), or to the extent that such party or
parties were not adversely affected by such omission. The contribution agreement
set forth above shall be in addition to any liabilities which any indemnifying
party may have at common law or otherwise.
8. Representations and Agreements to Survive Delivery. All
representations, warranties and agreements contained in this Agreement or
contained in certificates of officers of the Company submitted pursuant hereto,
shall be deemed to be representations, warranties and agreements at the Closing
Date and the Option Closing Date, as the case may be, and such representations,
warranties and agreements of the Company and the indemnity agreements contained
in Section 7 hereof, shall remain operative and in full force and effect
regardless of any investigation made by or on behalf of any Underwriter, the
Company, any controlling person of any Underwriter or the Company, and shall
survive termination of this Agreement or the issuance and delivery of the
Securities to the Underwriters and the Representative, as the case may be.
9. Effective Date. This Agreement shall become effective at 10:00 a.m.,
New York City time, on the next full business day following the date hereof, or
at such earlier time after the Registration Statement becomes effective as the
Representative, in its discretion, shall release the Securities for sale to the
public; provided, however, that the provisions of Sections 5, 7 and 10 of this
Agreement shall at all times be effective. For purposes of this Section 9, the
Securities to be purchased hereunder shall be deemed to have been so released
upon the earlier of dispatch by the Representative of telegrams to securities
dealers releasing such securities for offering or the release by the
Representative for publication of the first newspaper advertisement which is
subsequently published relating to the Securities.
10. Termination.
(a) Subject to subsection (b) of this Section 10, the Representative shall
have the right to terminate this Agreement, (i) if any domestic or international
event or act or occurrence has materially disrupted, or in the Representative's
opinion will in the immediate future materially adversely disrupt, the financial
markets; or (ii) if any material adverse change in the financial markets shall
have occurred; or (iii) if trading generally shall have been suspended or
materially limited on or by, as the case may be, any of the New York Stock
Exchange, the American Stock Exchange, the NASD, the Boston Stock Exchange, the
Chicago Board of Trade, the Chicago Board of Options Exchange, the Chicago
Mercantile Exchange, the Commission or any governmental authority having
jurisdiction over such matters; or (iv) if trading of any of the securities of
the Company shall have been suspended, or any of the securities of the Company
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shall have been delisted, on any exchange or in any over-the-counter market; (v)
if the United States shall have become involved in a war or major hostilities,
or if there shall have been an escalation in an existing war or major
hostilities or a national emergency shall have been declared in the United
States; or (vi) if a banking moratorium has been declared by a state or federal
authority; or (vii) if a moratorium in foreign exchange trading has been
declared; or (viii) if the Company or the Subsidiary shall have sustained a loss
material or substantial to the Company or the Subsidiary by fire, flood,
accident, hurricane, earthquake, theft, sabotage or other calamity or malicious
act which, whether or not such loss shall have been insured, will, in the
Representative's opinion, make it inadvisable to proceed with the offering, sale
and/or delivery of the Securities; or (ix) if there shall have occurred any
outbreak or escalation of hostilities or any calamity or crisis or if there
shall have been such a material adverse change in the conditions or prospects of
the Company or Subsidiary, or such material adverse change in the general
market, political or economic conditions, in the United States or elsewhere,
that, in each case, in the Representative's judgment, would make it inadvisable
to proceed with the offering, sale and/or delivery of the Securities or (xi) if
either Jacob R. Miles, III or __________ shall no longer serve the Company in
their respective present capacities.
(b) If this Agreement is terminated by the Representative in accordance
with the provisions of Section 10(a) the Company shall promptly reimburse and
indemnify the Representative for all of its actual out-of-pocket expenses,
including the fees and disbursements of counsel for the Underwriters (less
amounts previously paid pursuant to Section 5(c) above). Notwithstanding any
contrary provision contained in this Agreement, if this Agreement shall not be
carried out within the time specified herein, or any extension thereof granted
to the Representative, by reason of any failure on the part of the Company to
perform any undertaking or satisfy any condition of this Agreement by it to be
performed or satisfied (including, without limitation, pursuant to Section 6 or
Section 12) then, the Company shall promptly reimburse and indemnify the
Representative for all of its actual out-of-pocket expenses, including the fees
and disbursements of counsel for the Underwriters (less amounts previously paid
pursuant to Section 5(c) above). In addition, the Company shall remain liable
for all Blue Sky counsel fees and disbursements, expenses and filing fees.
Notwithstanding any contrary provision contained in this Agreement, any election
hereunder or any termination of this Agreement (including, without limitation,
pursuant to Sections 6, 10, 11 and 12 hereof), and whether or not this Agreement
is otherwise carried out, the provisions of Section 5 and Section 7 shall not be
in any way affected by such election or termination or failure to carry out the
terms of this Agreement or any part hereof.
11. Substitution of the Underwriters. If one or more of the Underwriters
shall fail (otherwise than for a reason sufficient to justify the termination of
this Agreement under the provisions of Section 6, Section 10 or Section 12
hereof) to purchase the Securities which it or they are obligated to purchase on
such date under this Agreement (the "Defaulted Securities"), the Representative
shall have the right, within 24 hours thereafter, to make arrangement for one or
more of the non-defaulting Underwriters, or any other underwriters, to purchase
all, but not less than all, of the Defaulted Securities in such amounts as may
be agreed upon and upon the terms herein set forth; if, however, the
Representative shall not have completed such arrangements within such 24-hour
period, then:
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(a) if the number of Defaulted Securities does not exceed 10% of the
total number of Firm Securities to be purchased on such date, the
non-defaulting Underwriters shall be obligated to purchase the full amount
thereof in the proportions that their respective underwriting obligations
hereunder bear to the underwriting obligations of all non-defaulting
Underwriters, or
(b) if the number of Defaulted Securities exceeds 10% of the total
number of Firm Securities, this Agreement shall terminate without
liability on the part of any non-defaulting Underwriters (or, if such
default shall occur with respect to any Option Securities to be purchased
on an Option Closing Date, the Underwriters may at the Representative's
option, by notice from the Representative to the Company, terminate the
Underwriters' obligation to purchase Option Securities from the Company on
such date).
No action taken pursuant to this Section 11 shall relieve any defaulting
Underwriter from liability in respect of any default by such Underwriter under
this Agreement.
In the event of any such default which does not result in a termination of
this Agreement, the Representative shall have the right to postpone the Closing
Date for a period not exceeding seven (7) days in order to effect any required
changes in the Registration Statement or Prospectus or in any other documents or
arrangements.
12. Default by the Company. If the Company shall fail at the Closing Date
or at any Option Closing Date, as applicable, to sell and deliver the number of
Securities which it is obligated to sell hereunder on such date, then this
Agreement shall terminate (or, if such default shall occur with respect to any
Option Securities to be purchased on an Option Closing Date, the Underwriters
may at the Representative's option, by notice from the Representative to the
Company, terminate the Underwriters' obligation to purchase Option Securities
from the Company on such date) without any liability on the part of any
non-defaulting party other than pursuant to Section 5, Section 7 and Section 10
hereof. No action taken pursuant to this Section 12 shall relieve the Company
from liability, if any, in respect of such default.
13. Notices. All notices and communications hereunder, except as herein
otherwise specifically provided, shall be in writing and shall be deemed to have
been duly given if mailed or transmitted by any standard form of
telecommunication. Notices to the Underwriters shall be directed to the
Representative at Security Capital Trading, Inc., 520 Madison Avenue, 10th
Floor, New York, New York 10022, Attention: ________, with a copy to Orrick,
Herrington & Sutcliffe LLP, 666 Fifth Avenue, New York, New York 10103,
Attention: Lawrence B. Fisher, Esq. Notices to the Company shall be directed to
the Company at Urban Cool Network, Inc., 1401 Elm Street, Dallas, Texas 75626,
Attention: Jacob R. Miles, III, with a copy to Silverman, Collura, & Chernis,
P.C., 381 Park Avenue South, New York, New York, 10016, Attention: Martin C.
Licht, Esq.
14. Parties. This Agreement shall inure solely to the benefit of and shall
be binding upon, the Underwriters, the Company and the controlling persons,
directors and officers referred to in Section 7 hereof, and their respective
successors, legal representatives and assigns, and no other person shall have or
be construed to have any legal or equitable right, remedy or claim under or in
respect of or by virtue of this Agreement or any provisions herein contained. No
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<PAGE>
purchaser of Securities from any Underwriter shall be deemed to be a successor
by reason merely of such purchase.
15. Construction. This Agreement shall be governed by and construed and
enforced in accordance with the laws of the State of New York without giving
effect to the choice of law or conflict of laws principles.
16. Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original, and all of which
taken together shall be deemed to be one and the same instrument.
17. Entire Agreement; Amendments. This Agreement and the Representative's
Warrant Agreement constitute the entire agreement of the parties hereto and
supersede all prior written or oral agreements, understandings and negotiations
with respect to the subject matter hereof. This Agreement may not be amended
except in a writing, signed by the Representative and the Company.
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If the foregoing correctly sets forth the understanding between the
Underwriters and the Company, please so indicate in the space provided below for
that purpose, whereupon this letter shall constitute a binding agreement among
us.
Very truly yours,
URBAN COOL NETWORK, INC.
By:__________________________
Name:
Title:
Confirmed and accepted as of
the date first above written.
SECURITY CAPITAL TRADING, INC.
For itself and as Representative of the
several Underwriters named in
Schedule A hereto.
By:________________________
Name:
Title:
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SCHEDULE A
----------
Number of Shares
Name of Underwriters to be Purchased
- -------------------- ----------------
Security Capital Trading, Inc...............................
Total.......................................................
----------------
2,000,000
================
EXHIBIT 10.30
ALLIANCE PARTNERING AGREEMENT
This ALLIANCE PARTNERING AGREEMENT (the "Agreement"), is entered into by
and between AKAMAI TECHNOLOGIES, INC., a Delaware corporation ("Akamai"), having
its principal place of business as set forth on the cover page of this
Agreement, and URBAN COOL NETWORK INC. a Delaware corporation ("Partner"),
having its principal place of business as set forth on the cover page of this
Agreement, effective as of 12/30/99 (the "Effective Date").
BACKGROUND
Akamai has deployed a worldwide network dedicated to web content
distribution and developed proprietary technology to efficiently deliver web
content from the Akamai network across the Internet. Partner is in the business
of providing professional services to businesses that require assistance
identifying, developing and implementing Internet strategies. Akamai and Partner
desire to enter into this Agreement whereby Partner will facilitate the
development of business relationships with potential customers for Akamai's
FreeFlow and related services (the "Akamai Services"), and Akamai will provide
supplementary support to Partner in representing the Akamai Services.
NOW, THEREFORE, in consideration of the mutual covenants and agreements
contained in this Agreement, and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, Akamai and Partner
agree as follows:
1. AKAMAI ACTIVITES AND OBLIGATIONS. Akamai shall place a hyperlink to
Partner's website presently located at www.urbancool.com ("Partner Website"). If
in the form of a logo link, such link shall be in the form and format of
Partner's logo as provided to Akamai by Partner. Akamai shall, subject to the
availability of personnel and other resources, provide (i) technical consulting
services to Partner, including general training of Partner's sales staff with
respect to the Akamai products and services and (ii) sales, marketing or
promotional literature, brochures and documentation; whitepapers; and
presentations relating to the Akamai products and services. Akamai's obligation
to provide technical consulting services pursuant to this Section 1 relate only
to the marketing of Akamai's products and services. Akamai shall make no
representations regarding Partner or its business, except as explicitly set
forth in this Agreement or contained in the marketing literature provided to
Akamai by Partner, without the prior written approval of Partner.
2. PARTNER ACTIVITIES AND OBLIGATIONS. Partner shall place a hyperlink to
Akamai's website presently located at www.akamai.com ("Akamai Website"). If in
the form of a logo link, such link shall be in the form and format of Akamai's
logo as provided to Partner by Akamai. Partner shall refer to Akamai any (i)
requests for or (ii) any offer to purchase or (iii) orders for Akamai products
or services. Partner shall make no representations regarding Akamai or its
business or the Akamai products and services, except as explicitly set forth in
this Agreement or contained in the marketing literature provided to Partner by
Akamai, without the prior written approval of Akamai.
3. AUTHORIZED CONTACTS. Akamai shall designate a dedicated contact person
(the "Akamai Contact"), who shall supervise all Akamai activities hereunder.
Akamai may change the Akamai Contact from time to time upon written notice to
Partner. Partner shall designate an employee who shall be assigned by Partner to
coordinate Partner's involvement in all Partner activities hereunder (the
"Partner Contact"). Partner may change the Partner Contact from time to time
upon written notice to Akamai.
4. OTHER AGREEMENTS OF THE PARTIES. Each party shall be responsible for any
and all expenses it incurs in connection with its performance of this Agreement,
unless otherwise expressly provided herein. All
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press releases, announcements and other forms of publicity made by either Akamai
or Partner concerning any joint activities or business relationships between the
parties must be mutually approved by the parties in writing, except as expressly
set forth herein. Partner is not under any obligation to market the Akamai
products and services on an exclusive basis. Either party may market and offer
its own or third party products and services (through any means) which are the
same as or similar to and which are competitive with the other party's products
and services. The terms and conditions of the Confidential Disclosure Agreement
executed by the parties and dated 12/30/99 shall be incorporated herein by
reference.
5. TERM AND TERMINATION OF AGREEMENT. This Agreement shall become effective
as of the Effective Date and remain in full force and effect for an initial term
of one (1) year, unless terminated earlier as provided herein. Either party may
terminate this Agreement for any reason on sixty (60) days written notice to the
other party. This Agreement may be renewed for one or more consecutive annual
terms upon mutual written agreement of the parties no later than thirty (30)
calendar days prior to the expiration of the agreement term then in effect. In
the event this Agreement expires by lapse of time without renewal as provided
above, but the parties continue to operate as if it were in effect, this
Agreement shall be deemed to have been renewed for a consecutive term of one (1)
year from the date of its expiration.
6. TRADEMARKS. Akamai hereby grants Partner a limited, worldwide,
non-exclusive, non-transferable, revocable license to utilize those Akamai
trademarks, logos, insignia, and symbols ("Akamai Marks") provided by Akamai in
a Akamai Link and otherwise on the Partner Website in the form and format
provided by Akamai in accordance with the terms hereof. Partner hereby grants
Akamai a limited, worldwide, non-exclusive, non-transferable, revocable license
to utilize those Partner trademarks, logos, insignia, and symbols (collectively,
the "Partner Marks") provided by Partner in a Partner Link and otherwise on the
Akamai Website in the form and format provided by Partner in accordance with the
terms hereof.
7. INDEMNIFICATION AND LIABILITY.
7.1 Each party (the "Indemnifying Party") agrees to indemnify, defend and
hold the other party (the "Indemnified Party") and its affiliates, and their
respective officers, directors, agents and employees, harmless from and against
any and all liabilities, damages, losses, expenses, claims demands, suits, fines
or judgments, and costs and expenses incidental thereto (including court costs
and reasonable attorneys' fees), which may be suffered by, accrued against,
charged to or recoverable from the Indemnified Party or any of its affiliates,
or any of their respective officers, directors, agents or employees, arising out
of a claim either that the Akamai Services (in the case of Partner) or any other
materials (tangible or intangible) provided by the Indemnifying Party to the
Indemnified Party hereunder or any portion or use thereof, infringes or
misappropriates any United States patent, copyright, trade secret, trademark or
other proprietary right. The Indemnifying Party's duty to indemnify the
Indemnified Party and its affiliates hereunder is subject to (i) the Indemnified
Party promptly notifying the Indemnifying Party, in writing, of the suit, claim
or proceeding or a threat of suit, claim or proceeding; (ii) at Indemnifying
Party's reasonable request and expense, the Indemnified Party providing the
Indemnifying Party with reasonable assistance for the defense of the suit, claim
or proceeding; and (iii) the Indemnifying Party having control of the defense of
any claim and all negotiations for settlement or compromise, subject to the
Indemnified Party's approval, which may not be unreasonably withheld or delayed.
THE PROVISIONS OF THIS SECTION 7 STATE THE SOLE AND EXCLUSIVE OBLIGATIONS AND
LIMITATION OF LIABILITY OF EITHER PARTY FOR ANY PATENT, COPYRIGHT, TRADEMARK,
TRADE SECRET OR OTHER INTELLECTUAL PROPERTY RIGHTS INFRINGEMENT AND ARE IN LIEU
OF ANY WARRANTIES OF NON-INFRINGEMENT, ALL OF WHICH ARE DISCLAIMED.
7.2 EACH PARTY'S ENTIRE LIABILITY FOR ANY CLAIM, LOSS, DAMAGE, OR EXPENSE
FROM ANY CAUSE WHATSOEVER, REGARDLESS OF THE FORM OF ACTION, WHETHER IN CONTRACT
OR TORT INCLUDING NEGLIGENCE, STRICT LIABILITY OR
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OTHERWISE, SHALL BE LIMITED TO DIRECT, PROVEN DAMAGES IN AN AMOUNT NOT TO EXCEED
TEN THOUSAND DOLLARS ($10,000) PER INCIDENT AND TEN THOUSAND DOLLARS ($10,000)
IN THE AGGREGATE FOR ALL SUCH CLAIMS, EXCEPT THAT THIS LIMITATION SHALL NOT
APPLY TO EACH PARTY'S INDEMNIFICATION AND CONFIDENTIALITY OBLIGATIONS. IN NO
EVENT SHALL EITHER PARTY BE LIABLE TO THE OTHER FOR ANY INCIDENTAL,
CONSEQUENTIAL, OR ANY OTHER INDIRECT LOSS OR DAMAGE, INCLUDING LOST PROFITS,
ARISING OUT OF THIS AGREEMENT OR ANY OBLIGATION RESULTING THEREFROM, REGARDLESS
OF THE FORM OF ACTION, WHETHER IN CONTRACT, TORT (INCLUDING NEGLIGENCE) STRICT
LIABILITY OR OTHERWISE.
8. WARRANTY DISCLAIMER. NEITHER PARTY MAKES ANY REPRESENTATIONS OR
WARRANTIES, EITHER EXPRESS OR IMPLIED, AND AKAMAI SPECIFICALLY DISCLAIMS ANY
IMPLIED WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE WITH
RESPECT TO THE AKAMAI SERVICES.
9. MISCELLANEOUS.
9.1 Independent Contractor. The relationship of Akamai and Partner
established by this Agreement is that of independent contractors, and nothing
contained in this Agreement shall be construed to (i) give either party the
power to direct and control the day-to-day activities of the other; (ii) deem
the parties to be acting as partners, joint ventures, co-owners or otherwise as
participants in a joint undertaking; or (iii) allow either party to create or
assume any obligation on behalf of the other party for any purpose whatsoever.
9.2 Notices. Any notice required or permitted hereunder shall be in writing
and will be deemed given when given or deposited in the mails or with common
carriers. All communications will be sent by mail, facsimile or electronic mail
to the receiving party's contact person for notices listed on the cover page of
this Agreement.
9.3 Assignment. Partner may not, without the prior written consent of
Akamai, assign this Agreement, in whole or in part, either voluntarily or by
operation of law, and any attempt to do so shall be a material default of this
Agreement and shall be void. Akamai's rights and obligations, in whole or in
part, under this Agreement may be assigned or transferred by Akamai.
9.4 Third Party Beneficiaries. This Agreement is solely for the benefit of
the parties and their successors and permitted assigns, and does not confer any
rights or penalties on any other person or entity.
9.5 Governing Law. This Agreement shall be interpreted according to the
laws of the Commonwealth of Massachusetts without regard to or application of
choice-of-law rules or principles.
9.6 Entire Agreement and Waiver. This Agreement and the Confidential
Disclosure Agreement executed by the parties constitute the entire agreement
between Akamai and Partner with respect to the subject matter hereof and all
other prior agreements, representations, and statement with respect to such
subject matter are superceded hereby.
9.7 Severability. In the event any provision of this Agreement is held by a
court of competent jurisdiction to be unenforceable, that provision will be
enforced to the maximum extent permissible under applicable law, and the other
provisions of this Agreement will remain in full force and effect.
9.8 Force Majeure. If either party is prevented from performing any of its
obligations under this Agreement due to any cause beyond the party's reasonable
control, including, without limitation, an act of God,
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fire, flood, explosion, war, strike, embargo, government regulation, civil or
military authority, acts or omissions of carriers, transmitters, providers,
vandals, or hackers (a "force majeure event") the time for that party's
performance will be extended for the period of the delay or inability to perform
due to such occurrence; provided, however, that if a party suffering a force
majeure event is unable to cure that event within thirty (30) days, the other
party may terminate this Agreement.
9.9 Counterparts. This Agreement may be executed in any number of
counterparts, each of which, when so executed and delivered, shall be deemed an
original, and all of which shall constitute one and the same Agreement.
9.10 Binding effect. This Agreement shall be binding upon and shall inure
to the benefit of the respective parties hereto, their respective
successors-in-interest, legal representatives, heirs and assigns.
9.11 Survival of Obligations. Sections 4.4 and 7 through 9 shall survive
any termination, cancellation or expiration of this Agreement for any reason.
IN WITNESS WHEREOF, each of the parties, by its duly authorized
representative, has entered into this Agreement as of the Effective Date.
URBAN COOL NETWORK INC. (PARTNER) AKAMAI TECHNOLOGIES, INC.
By: /s/ Jacob R. Miles By: /s/ Dennis J. Duckworth
------------------------------ -------------------------------
Name: Jacob R. Miles Name: Dennis J. Duckworth
---------------------------- -----------------------------
Title: CEO Title: Manager, Partner Programs
--------------------------- ----------------------------
4
EXHIBIT 10.31
Jake Miles
President/CEO
Urban Cool Network
1401 Elm St.
Suite 1955
Dallas, TX 75202
Re: NaviSite, Inc. Alliance Partner Program
Dear Jake:
I am pleased to invite Urban Cool Network to participate as a Partner in
NaviSite's Alliance Partner Program. The intent of the Alliance Program is to
provide a cooperative framework within which the companies can promote each
other's complementary products and services to clients we feel will benefit from
them. This letter sets forth the general terms and conditions of the Program.
Your participation in the Program is acknowledged by signing this copy of the
letter to indicate your acceptance of these terms and returning it to me at the
NaviSite address indicated below. Your participation in the Program is also
subject to the terms of NaviSite's standard Non-Disclosure Agreement dated _____
______a copy of which is enclosed for your convenience.
Scope of Participation
NaviSite authorizes your to promote, market and solicit orders for its
products and services on a non-exclusive basis. No order will be considered
binding upon us unless and until it is accepted by us and we reserve the right,
in our sole discretion, to reject any order placed by or through you and to
change our prices for products and services without notice to you or any
customers referred by you.
Your Responsibilities
You will use commercially reasonable efforts to successfully promote,
market and solicit orders for our products and services from customers during
your participation in the Program. You agree (a) to conduct your business in a
manner that reflects favorably at all times on NaviSite and our good name,
goodwill and reputation; (b) not to engage in any deceptive, misleading or
unethical practice; (c) not to make false or misleading representations
regarding NaviSite or its products and services; (d) not to publish or employ or
cooperate in the publication or employment or any misleading or deceptive
advertising material; and (e) not to make any representations, warranties or
guarantees to customers, potential customers or the trade generally with respect
to NaviSite which are inconsistent with those contained in the literature
provided to you by NaviSite or distributed directly by NaviSite. You also agree
to at all times comply with all applicable laws and regulations in the
performance of your responsibilities as a participant in the Program. During
your participation in the Program, you will not promote or market any products
or services which NaviSite deems to be competitive with its products or services
to a client of NaviSite (whether such client has been referred by you or not).
Our Responsibilities
We will provide you with marketing information, advertisements, sales
literature, user documentation, training and other promotional materials for the
marketing and promotion of our products and services.
<PAGE>
We will also identify you in a directory of Alliance Program participants
maintained on our website, communicate with you on a regular basis via a
newsletter or other format of our choosing, and provide your with access to a
"Partners only" website containing product and service information.
Additionally, we will offer you a discount of 25% off the standard list price of
the first server hosted by NaviSite for your own use.
Reciprocal Rights
We will each authorize the other to place Site Links to our Web pages more
fully described as to format, location and graphic and textual content in
Exhibit A.
Textual and graphic content will be provided to the linking party, if necessary,
as a computer-readable file in a compatible file format. We will each retain
sole and exclusive right, title and interest, including but not limited to all
intellectual property rights in our respective trademarks and logos.
Your Compensation
In return for your participation in the Program, NaviSite will pay you
approximately thirty (30) days after the end of each calendar quarter, a
commission equal to 10% of the aggregate amount of all fees, excluding any
taxes, actually collected by NaviSite during that quarter in connection with
providing standard NaviSite product and services (those on our Price List) to
each customer referred to us by your during the first twelve (12) month period
that NaviSite provides services to each such referred customer. If we determine
that a customer referral is the result of your efforts combined with the efforts
of another party, we reserve the right to allocate a portion of the commission
to such other party in a proportion that we determine to be equitable. Our
decision on the allocation of commissions will be final and binding on all
parties involved. Additionally, we will offer you a discount of 25% off the
standard list price of the first server hosted by NaviSite for your own use. Our
payment obligations are exclusive of, and you shall be responsible for, all
sales, use, value-added, privilege, excise or similar duties or taxes levied
upon you.
Termination
Either of us may terminate your participation in the Program at any time
upon sixty (60) days' written notice. We will pay you commissions for any
customers you refer and who enter into an agreement with us to receive NaviSite
products or services within fifteen (15) days of the effective date of the
termination of your participation in the Program. If you materially breach the
terms of the Program, you will not be entitled to any further commissions
whether earned before, on or after the date of such breach and NaviSite may
terminate your participation in the Program immediately.
Miscellaneous
The terms and conditions of the Alliance Partner Program will be
interpreted and governed by the laws of the State of California, without
reference to its conflict of law principles. Our relationship shall be that of
independent contractors, and nothing contained in this letter shall for any
purpose whatsoever or in any way or manner create any partnership, joint
venture, agency or other relationship between us. Neither of us may assign our
rights relating to your participation in the Program without the other's prior
written consent, except to an entity which has succeeded to substantially all of
its business and assets to which the Program relates, and which has assumed in
writing or by operation of law its obligations relating to the Program.
<PAGE>
We at NaviSite look forward to your participation in the Alliance Partner
Program and a long and mutually rewarding relationship with you.
Very truly yours,
Karen Schopp
Channel Development Manager
Accepted and Agreed to: Authorized NaviSite Signature:
Date: 12/29/99 Date: 1-6-99
-------------------------- --------------------------
By: /s/ Jacob R. Miles By: /s/ Howard S. Brown
---------------------------- ----------------------------
Name: Jacob R. Miles Name: Howard S. Brown
-------------------------- --------------------------
Title: CEO Title: DIR. OF SALES
------------------------- -------------------------
Exhibit 10.32
Urban Cool Network-NATIONet
MEMORANDUM OF UNDERSTANDING
This Memorandum of Understanding ("MOU") is effective as of November 29, 1999,
by and between Urban Cool Network, located at 1401 Elm Street, Suite 1965
Dallas, TX 75202 and NATIONet Online of 1155 Connecticut Avenue, NW, Washington,
District of Columbia 20036. In this MOU, the party contracting to receive
services will be referred to as Urban Cool Network or "UCN" and the party
providing the services will be referred to as "NATIONet or ISP."
Now therefore, in consideration of the mutual covenants and agreements contained
herein, and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties agree as follows:
UCN hereby retains NATIONet as a co-branded Internet Service Provider (ISP) to
UCN. NATIONet will provide such services as described herein under section 1.
UCN will market and offer these services to its members and potential members of
its web services. Those who register for these ISP services are hereinafter
referred to as the "Subscribers."
1. DESCRIPTION OF SERVICES. Beginning on November 29, 1999, NATIONet will
provide services with the following features:
1. Global Tier-one Internet connectivity. 2. Dial-up access from all 50
states, the District of Columbia and Canada (56k dial-up access). 3. Free
CD-ROM start-up software or direct on line 4. Toll-free 24-hr. Customer
service & technical support. 5. Free Email accounts & address.
6. Microsoft Internet Explorer. 7. Free Web based personal appointment
calendar. 8. Direct links to popular African-American websites. 9. Free
search engine directory. 10. NATIONet will collaborate with UCN the design
of a NATIONet/UCN co-branded CD jacket.
2. RESPONSIBILITIES OF Urban Cool Network. 1. UCN shall provide hypertext link
from its web page to NATIONet's registration server. 2. Provide direct
hypertext link to UCN network of websites. 3. UCN shall provide links to its
network of kiosks, in addition to a reciprocal presence on UCN's home page.
3. PAYMENT FOR SERVICES. In exchange for the above Services, NATIONet will
enable UCN to receive payment per Qualified Subscriber as follows:
NATIONet shall pay to UCN 5.1% of the monthly per Subscriber Fee (currently
equal to $1.00) for each Qualified Subscriber registered as a NATIONet
Subscriber and who remains a NATIONet subscriber for 90 days. The Payment will
be payable within fifteen (15) business days after the end of each Quarter.
NATIONet shall be responsible for calculating the number of Subscribers and the
Quarterly Payments.
4. TERM. This Contract will terminate twelve months from that date first written
above.
<PAGE>
5. CONFIDENTIALITY. Each of UCN and NATIONet, and their employees, agents, or
representatives will not at any time or in any manner, either directly or
indirectly, use for the personal benefit of UCN or NATIONet, divulge, disclose,
or communicate in any manner, any information that is proprietary to UCN or to
NATIONet. Each of UCN and NATIONet, their employees, agents, and representatives
will protect such information and treat it as strictly confidential. This
provision will continue to be effective eighteen months after the termination of
this Contract.
6. WARRANTY. Each of UCN and NATIONet shall provide its services and meet its
obligations under this Contract in a timely and workmanlike manner, using
knowledge and recommendations for performing the services which meet generally
acceptable standards in their community and region, and will provide a standard
of care equal to, or superior to, care used by Internet service providers
similar to NATIONet or WEB services providers similar to UCN or similar
projects.
7. Use of Trademarks and Logos. Each party's use of the other's Logo shall be
limited to the style and format of such Logos as provided by that party. In
exercising its rights under any license granted pursuant to this Agreement a
party shall not combine any other trademark or service mark with the other
party's Logo without the prior written consent of the other party. NATIONet
shall have the right to require the removal of any advertising or promotional
materials if it determines, in its absolute discretion, that such advertising or
promotional material is not consistent with its editorial policy or commonly
accepted standards of decency or tolerance or with any applicable laws relating
thereto. Furthermore, UCN shall have the right to require the removal of any
advertising or promotional material if it determines, in its absolute
discretion, that such advertising or promotional material is not consistent with
its editorial policy or commonly accepted standards of decency or tolerance or
with any applicable laws relating thereto.
8. UCN and NATIONet Content. Each UCN or NATIONet will own all rights in and to
their respective content and all Intellectual Property Rights therein and
thereto. UCN and NATIONet acknowledges that the Content and the goodwill
associated therewith are valuable properties belonging to UCN or NATIONet and
that all rights thereto are and shall remain the sole and exclusive property of
UCN or NATIONet.
9. REMEDIES. In addition to any and all other rights a party may have available
according to law, if a party defaults by failing to substantially perform any
provision, term or condition of this Contract, the other party may terminate the
Contract by providing written notice to the defaulting party. This notice shall
describe with sufficient detail the nature of the default. The party receiving
such notice shall have 30 days from the effective date of such notice to cure
the default(s). Unless waived by a party providing notice, the failure to cure
the default(s) within such time period shall result in the automatic termination
of this Contract.
10. ENTIRE AGREEMENT. This Contract contains the entire agreement of the
parties, and there are no other promises or conditions in any other agreement
whether oral or written concerning the subject matter of this Contract. This
Contract supersedes any prior written or oral agreements between the parties.
<PAGE>
DEFINITIONS: For the purposes of this Agreement, the following terms shall
have the indicated meaning:
"Hypertext Link" means a section of a Page that when selected provides
access to another Page (which may be part of the same document or size or part
of a different document or site).
"Intellectual Property Rights" means any and all now known or hereafter
existing rights associated with works of authorship or inventions throughout
the universe, including but not limited to copyrights, patents, trademarks,
service marks, know how, "look and feel" and all other intellectual and
industrial property and proprietary rights (of every kind and nature throughout
the universe and however designated) relating to intangible property.
"ISP Content" means any ISP logo, trademark, service mark, and all text,
data images, design structure, any audio and audiovisual material, photographs,
trademarks, and other materials developed by ISP that are (i) provided to
NATIONet hereunder for the purpose of promoting the Branded Site, and/or (ii)
incorporated into the Branded Site.
"ISP Site" means the collection of Pages established by NATIONet on the
internet and located at www.nationet.com and all portions thereof, including
without limitation, all HTML, Java and other computer languages used in the
creation of those Pages and/or other formatted text files, all related graphics
files, animation files, date files, modules, routines and objects, and the
computer software and all other script or program files required to exploit
such materials and collectively control the display of and user interaction with
that site.
"NATIONet Content" means any NATIONet, trademark, service mark, and all
text, data images, design structure, any audio and audiovisual material,
photographs, trademarks, and other materials that NATIONet provides to ISP for
the purpose of promoting NATIONet or the Co-Branded Site.
"Subscriber" means a person who has registered under the program(s)
contemplated under this agreement and who has paid a registration fee.
"Qualified Subscriber" means any Subscriber who upon registration so
indicates his UCN affiliation or has registered through the link provided to UCN
for purposes of registering members to the services listed herein under section
1, and has made three monthly payments of a monthly subscriber fee.
"Quarter" means each period of three months commencing on 1 January,
1 April, 1 July and 1 October in each year.
"UCN Content" means any Urban Cool Network trademark, service mark, and all
text, date images, design structure, any audio and audiovisual material,
photographs, trademarks, and other materials that UCN provides to ISP for the
purpose of promoting UCN or the Co-Branded Site.
<PAGE>
11. SEVERABILITY. If any provision of this Contract will be held to be invalid
non-enforceable for any reason, the remaining provisions will continue to be
valid and enforceable. If a court finds that any provision of this Contract
is invalid or unenforceable, but that by limiting such provision it would become
valid and enforceable, then such provision will be deemed to be written,
construed, and enforced as so limited.
12. INSURANCE. The parties agree to maintain insurance appropriate and
customary for the project anticipated by this agreement.
13. AMENDMENT. This Contract may be modified or amended in writing, if both
parties mutually agree in writing and sign the amendment.
14. GOVERNING LAW. This Contract shall be construed in accordance with the laws
of the State of Washington.
15. FORCE MAJEURE. Where a party is unable, wholly or in part, by reason of
force majeure, to carry out any obligations under this Agreement that obligation
is suspended so far as it is affected by force majeure during the continuance
thereof. In this Agreement, "force majeure" means an act of God, strike,
lockout or other interference with work, war declared or undeclared, blockade,
disturbance, lightning, fire, earthquake, storm, flood, explosion, governmental
or quasi-governmental restraint expropriation prohibition intervention direction
or embargo, unavailability or delay in availability of equipment or transport,
inability or delay in obtaining governmental or quasi-governmental approvals
consents permits licenses authorities or allocations, and any other cause
whether of the kind specified above or otherwise which is not reasonably within
the control of the party affected.
16. NOTICE. Any notice or communication required or permitted under this
Contract shall be sufficiently given if delivered in person or by certified
mail, return receipt requested, to the address set forth in the opening
paragraph or to such other address as one party may have furnished to the other
in writing.
17. ASSIGNMENT. Neither party may assign or transfer this Contract without the
prior written consent of the non-assigning party, which approval shall not be
unreasonably withheld.
18. COUNTERPARTS. This Agreement may be executed in counterparts, each of which
shall be deemed an original and all of which shall constitute one and the same
agreement.
Service Recipient: Service Provider:
Urban Cool Network NATIONet Online
By: /s/ Tony Winston By: /s/ Jacob R. Miles, III
--------------------------- ---------------------------
VP of Technology & Internet Services CEO
By: /s/ John Henderson
---------------------------
President & COO
AMENDMENT
to Exhibit 10.8
AMENDMENT, dated December 27, 1999, to Shareholders' Agreement by and
between Urban Cool Network, Inc. ("UCN") and Stanley Wolfson ("Wolfson") dated
as of November 21, 1999 (the "Agreement").
W I T N E S S E T H
WHEREAS, the parties hereto have previously entered into an agreement
pursuant to which e-Commerce is developing certain agreements;
WHEREAS, the parties hereto desire to amend and modify the aforementioned
agreement; and
WHEREAS, UCN was to make certain payments pursuant to the aforementioned
agreement and has not done so as of the date hereof.
NOW, THEREFORE, it is mutually agreed by and between the parties hereto as
follows:
1. Article 2 is hereby amended by striking out the whole of Article 2
thereof as it now exists and inserting in lieu thereof a new Article 2 to read
in its entirety as follows:
2. Capital Contributions.
(a.) UCN agrees to contribute $2,950,000 upon the consummation of a
public offering of UCN's securities. In addition, the Warrant issued to Wolfson
to purchase 1,000,000 shares of Common Stock of UCN (the "Warrant") shall be
exercisable as follows: (i) warrants to purchase 200,000 shares of Common Stock
shall be immediately granted and exerciseable upon the signing of the Amendment;
(ii) warrants to purchase 200,000 shares of Common Stock shall be
<PAGE>
exercisable upon e-Commerce Solutions, Inc., achieving gross sales of at least
$2,500,000 within 24 months of the Funding Date, as defined on the Warrant;
(iii) warrants to purchase an additional 200,000 shares of Common Stock shall be
exercisable upon e-Commerce Solutions, Inc., achieving gross sales of at least
$7,500,000 within 24 months of the Funding Date, as defined on the Warrant; (iv)
warrants to purchase an additional 200,000 shares of Common Stock shall be
exercisable upon e-Commerce Solutions, Inc., achieving gross sales of at least
$15,000,000 within 24 months of the Funding Date, as defined on the Warrant; and
(v) warrants to purchase an additional 200,000 shares of Common Stock shall be
exercisable upon e-Commerce Solutions, Inc., achieving gross sales of at least
$25,000,000 within 24 months of the Funding Date, as defined on the Warrant.
(b.) UCN agrees to contribute the sum of $50,000 to the Company on
December 27, 1999 pursuant to the e-Commerce Solutions, Inc. wiring
instructions, annexed as "Exhibit A" hereto.
2. By adding a new ARTICLE TWENTY to read in its entirety as follows:
20. Acknowledgement. The parties hereby agree and acknowledge that Wolfson
has fully completed the items on Schedule 2(a) to the reasonable
satisfaction of UCN and with Article 2(c).
IN WITNESS WHEREOF, the parties have executed this Shareholders' Agreement
as of
<PAGE>
the day and year first above written.
URBAN COOL NETWORK, INC.
By:/s/ Jacob R. Miles
--------------------------
Name: Jacob R. Miles
Title: CEO
/s/ Stanley Wolfson
-----------------------------
Stanley Wolfson
EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT
We consent to the inclusion in this Amendment No. 1 to the Registration
Statement on Form S-1 of our report dated November 23, 1999, on our audit of the
financial statements of Urban Cool Network, Inc. as of December 31, 1998 and for
the period January 23, 1998 (inception) through December 31, 1998 and to the
reference of our firm under the caption "Experts".
Richard A. Eisner & Company, LLP
New York, New York
January 18, 2000
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<PERIOD-TYPE> 9-MOS OTHER
<FISCAL-YEAR-END> Dec-31-1999 Dec-31-1998
<PERIOD-START> Jan-01-1999 Jan-23-1998
<PERIOD-END> Sep-30-1999 Dec-31-1998
<CASH> 2,000 2,000
<SECURITIES> 0 0
<RECEIVABLES> 0 0
<ALLOWANCES> 0 0
<INVENTORY> 0 0
<CURRENT-ASSETS> 2,000 2,000
<PP&E> 86,000 86,000
<DEPRECIATION> 28,000 0
<TOTAL-ASSETS> 251,000 88,000
<CURRENT-LIABILITIES> 778,000 222,000
<BONDS> 0 0
0 0
0 0
<COMMON> 32,000 21,000
<OTHER-SE> (559,000) (155,000)
<TOTAL-LIABILITY-AND-EQUITY> 0 0
<SALES> 0 0
<TOTAL-REVENUES> 0 0
<CGS> 0 0
<TOTAL-COSTS> 901,000 328,000
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 186,000 0
<INCOME-PRETAX> 0 0
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<NET-INCOME> (1,087,000) (328,000)
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