<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 13, 1999
REGISTRATION NO. -
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
PREDICT IT INC.
(NAME OF SMALL BUSINESS ISSUER IN ITS CHARTER)
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<S> <C> <C>
DELAWARE 7375 84-1433978
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
</TABLE>
------------------------
41 EAST 11TH STREET
NEW YORK, NEW YORK 10003
(212) 331-1120
(ADDRESS AND TELEPHONE NUMBER OF PRINCIPAL EXECUTIVE OFFICES)
------------------------
ANDREW P. MERKATZ
PRESIDENT
41 EAST 11TH STREET
NEW YORK, NEW YORK 10003
(212) 331-1120
(NAME, ADDRESS AND TELEPHONE NUMBER OF AGENT FOR SERVICE)
------------------------
Copies to:
MICHAEL L. PFLAUM, ESQ.
MARLENE M. MARKARD, ESQ.
CAMHY KARLINSKY & STEIN LLP
1740 BROADWAY, 16TH FLOOR
NEW YORK, NEW YORK 10019-4315
(212) 977-6600
Approximate date of commencement of proposed sale to public: As soon as
practicable after this Registration Statement becomes effective.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. / /
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, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. /x/
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. / /
If 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 registration statement for the same
offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule 434
check the following box. / /
-----------------------------
CALCULATION OF REGISTRATION FEE
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<CAPTION>
PROPOSED
MAXIMUM OFFERING PROPOSED
TITLE OF EACH CLASS AMOUNT TO BE PRICE PER MAXIMUM AGGREGATE AMOUNT OF
OF SECURITIES TO BE REGISTERED REGISTERED SHARE(1) OFFERING PRICE(1) REGISTRATION FEE
<S> <C> <C> <C> <C>
10,206,750
Common Stock, $0.01 par value........... shares(2) $1.43 $14,595,652.50 $4,057.60
</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee under
Rule 457(c) under the Securities Act on the basis of the average of the bid
and asked price of our common stock as quoted on the OTC Electronic Bulletin
Board on August 12, 1999.
(2) Includes: (i) 1,000,000 shares of common stock underlying 1,000,000 shares
of Series A Preferred Stock; (ii) 206,750 shares of common stock issuable
upon the exercise of two options which we have granted; and (iii) 9,000,000
shares of outstanding common stock.
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
The information contained in this prospectus is not complete and may be
changed. We may not sell these securities until the registration statement filed
with the Commission is effective. This prospectus is not an offer to sell these
securities and we are not soliciting an offer to buy these securities in any
state where the offer or sale is not permitted.
SUBJECT TO COMPLETION DATED AUGUST 13, 1999
PREDICT IT INC.
SHARES OF COMMON STOCK
------------------
This prospectus covers an aggregate of 10,206,750 shares of our common
stock, which will be sold, from time to time, by some of our stockholders. These
stockholders previously received the shares of common stock from us, or will
receive these shares of common stock from us, by converting their shares of our
preferred stock into shares of our common stock or exercising previously issued
options for shares of our common stock. We will not receive any money from the
stockholders when they sell their shares of common stock, but we will receive
monies upon the exercise of our stock options. We have agreed to pay all costs
and expenses relating to the registration of our common stock, but any
stockholders who sell their shares of common stock shall be responsible for any
related commissions, taxes, fees of counsel and related charges in connection
with the offer and sale of the common stock. The stockholders may sell all, or a
portion of, our common stock being registered by this registration statement in
the over-the-counter market or in private transactions at prices related to the
prevailing prices of our common stock at the time of negotiation. The
stockholders may sell their common stock through one or more broker-dealers, and
such broker-dealers may receive compensation in the form of underwriting
discounts, concessions or commissions from the stockholders.
Our common stock is quoted on the OTC Electronic Bulletin Board under the
symbol "PRIT." On August 12, 1999, the price of our common stock as quoted on
the OTC Electronic Bulletin Board was $1.81.
-----------------------
The securities offered hereby are speculative and involve a high degree of
risk. See "Risk Factors" commencing on page 7.
-----------------------
Neither the Securities and Exchange Commission nor any state securities
commission 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.
AUGUST 13, 1999
<PAGE>
You may rely only on the information contained in this prospectus. We have
not authorized anyone to provide information different from that contained in
this prospectus. Neither the delivery of the prospectus nor the sale of common
stock means that information contained in this prospectus is correct after the
date of this prospectus. This prospectus is not an offer to sell or solicitation
of an offer to buy these shares of common stock in any circumstances under which
the offer or solicitation is unlawful.
TABLE OF CONTENTS
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<CAPTION>
PAGE
----
<S> <C>
Special Note on Forward-looking Statements................................................................. 3
Prospectus Summary......................................................................................... 4
The Company................................................................................................ 4
The Offering............................................................................................... 4
Summary Financial Information.............................................................................. 5
Available Information...................................................................................... 6
Risk Factors............................................................................................... 7
The Company................................................................................................ 15
Use of Proceeds............................................................................................ 16
Price Range of Common Stock................................................................................ 16
Dividend Policy............................................................................................ 16
Capitalization............................................................................................. 16
Selected Financial Data.................................................................................... 17
Management's Discussion & Analysis of Financial Condition & Results of Operations.......................... 20
Business................................................................................................... 20
Management................................................................................................. 31
Executive Compensation and Other Information............................................................... 33
Stock Option Plan.......................................................................................... 35
Related Party Transactions................................................................................. 35
Principal Stockholders..................................................................................... 36
Selling Security Holders................................................................................... 38
Plan of Distribution....................................................................................... 40
Description of the Capital Stock........................................................................... 41
Shares Eligible for Future Sale............................................................................ 43
Legal Matters.............................................................................................. 44
Experts.................................................................................................... 44
Disclosure of Company Position on Indemnification for Securities Act Liabilities........................... 44
Index to Financial Statements.............................................................................. F-1
</TABLE>
2
<PAGE>
SPECIAL NOTE ON FORWARD-LOOKING STATEMENTS
Some of the statements contained in or incorporated by reference in this
prospectus discuss our plans and strategies for our business or state other
forward-looking statements, as this term is defined in the Private Securities
Litigation Reform Act. The words "anticipates," "believes," "estimates,"
"expects," "plans," "intends" and similar expressions are intended to identify
these forward-looking statements, but are not the exclusive means of identifying
them. These forward-looking statements reflect the current views of our
management; however, various risks, uncertainties and contingencies could cause
our actual results, performance or achievements to differ materially from those
expressed in, or implied by, these statements, including the following:
o the success or failure of our efforts to implement our business strategy;
and
o the other factors discussed under the heading "Risk Factors" and
elsewhere in this prospectus.
We assume no obligation to update publicly any forward-looking statements,
whether as a result of new information, future events or otherwise. For a
discussion of important risks of an investment in our securities, including
factors that could cause actual results to differ materially from results
referred to in the forward-looking statements, see the "Risk Factors" section.
You should carefully consider the information set forth under the caption the
"Risk Factors" Section. In light of these risks, uncertainties and assumptions,
the forward-looking events discussed in or incorporated by reference in this
prospectus might not occur.
3
<PAGE>
PROSPECTUS SUMMARY
THE COMPANY
Our business is the development and distribution of interactive Internet
applications. Our innovative "prediction exchange" system allows users to pick
and exchange predictions with other users. The Predict It engine lends itself to
calculating predictions for any set of events whose outcome can be measured
objectively. Our initial product offering, "Predict It Sports," allows users to
pick and exchange predictions on sporting events with fellow users. Our database
engine then calculates the accuracy of those predictions and allows other users
to view the entries. Our system, unlike chat rooms, bulletin boards and stock
tracking systems, enables users to quickly find and view the predictions of the
best analysts, who in turn, may earn money each time their future predictions
are viewed. Users may post predictions and view the predictions of others free
of charge.
On July 16, 1999, we launched the Predict It Network, which represents our
first integration of our various media properties, including Predict It Sports
and Virtual Stock Exchange. The Predict It Network is designed to allow for
easy integration of additional media properties that we may develop or acquire.
In addition, we expect that the Predict It Network will lay the groundwork for
an infrastructure that will support thousands of distributed Predict It
communities, including wholly-owned media properties, co-branded distribution
partnerships, and affiliated sites. The Predict It Network can be accessed at '
www.predictit.net.
On June 30, 1999, through a wholly-owned Delaware subsidiary of Predict It
Inc., we purchased Virtual Stock Exchange, Inc., a Delaware corporation. Please
see the "Selected Financial Data" and "Business" sections for a detailed account
of this transaction. VSE is an Internet-based stock market simulation and
forecasting company that operates www.VirtualStockExchange.com, which services
over 75,000 registered members and generates in excess of four million page
views per month. VSE is popular among college students and their professors, and
has been employed by over 100 high schools, colleges, and graduate business
schools around the world, including schools such as New York's Stuyvesant High
School, Stanford University, and UC Berkeley's Haas School of Business. The VSE
service has since expanded beyond educational markets and is now widely used by
online investors seeking to test different investment strategies before
executing these strategies in their actual portfolios. Consumers may access VSE
directly via its Web site or through one of its many co-branded partners,
including Crosswalk.com, PlanetDirect.com and Collegestudent.com. We anticipate
that VSE will continue to operate as a stand-alone media property, but will
exist within the Predict It Network.
We employ a co-branding strategy, marketing our product through a
distributor network of relevant industry and news content providers. Presently,
revenues are principally earned by the sale of advertisements either by us
directly or on a revenue sharing basis with our distributors. Unlike other
businesses on the Web that are trying to establish a destination site, our
strategy is to be a Web site's partner by providing unique, compelling and
user-generated content that drives repeat traffic to our Web partners.
THE OFFERING
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<S> <C>
Shares of common stock offered by us...... None.
Shares of common stock which may be sold
by our stockholders..................... Up to 10,206,750 shares of our common stock.(1)
Use of proceeds........................... We will not receive any money from any stockholders when they sell
their shares of common stock.
Risk factors.............................. The purchase of our common stock involves a high degree of risk.
Prospective investors should review carefully and consider the
information set forth under "Risk Factors."
OTC Electronic Bulletin Board symbol...... PRIT
</TABLE>
(Footnotes on next page)
4
<PAGE>
(Footnotes from previous page)
- ------------------
(1) Includes:
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<S> <C>
9,000,000 shares of our common stock;
1,000,000 shares of our common stock that may be acquired when 1,000,000 shares of Series A
Preferred Stock are converted into our common stock; and
206,750 shares of our common stock that may be acquired when two of our issued stock options are
exercised. As of August 12, 1999, only 152,250 of such stock options may be exercised.
</TABLE>
SUMMARY FINANCIAL INFORMATION
The summary financial information below is derived from and should be read
in conjunction with the financial statements, including the notes to the
financial statements, appearing elsewhere in this prospectus.
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA AS ADJUSTED FOR
--------------------------------------------------------- ACQUISITION OF VIRTUAL STOCK
SEPTEMBER 2, EXCHANGE, INC.
1997 ----------------------------
(INCEPTION) THREE MONTHS ENDED THREE MONTHS
THROUGH YEAR ENDED MARCH 31, YEAR ENDED ENDED
DECEMBER 31, DECEMBER 31, --------------------------- DECEMBER 31, MARCH 31,
1997 1998 1998 1999 1998 1999
------------ ------------ ------------ ------------ ------------ -------------
(UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenue:
User fees............................. $ 7,712 $ 135 $ 2,800 $ 24,173 $ 4,629
Advertising........................... 6,000 797 56,736 36,801
---------- ---------- ---------- ------------ -----------
13,712 135 3,597 80,909 41,430
---------- ---------- ---------- ------------ -----------
Costs and expenses:
Site development/maintenance.......... 177,783 38,708 227,243 54,160
Selling, general and
administrative(4)................... $ 21,402 340,698 17,150 114,539 503,679 254,288
Amortization of intangibles(3)........ 455,000 114,000
Interest expense...................... 3,000 9,768 3,262
-------- ---------- ---------- ---------- ------------ -----------
Total................................... 21,402 521,481 17,150 153,247 1,195,690 425,710
-------- ---------- ---------- ---------- ------------ -----------
Net Loss................................ $(21,402) $ (507,769) $ (17,015) $ (149,650) $ (1,114,781) $ (384,280)
-------- ---------- ---------- ---------- ------------ -----------
-------- ---------- ---------- ---------- ------------ -----------
Net loss per share--basic and diluted... $ (.04) $ (.21) $ (.01) $ (.03) $ (.24) $ (.05)
-------- ---------- ---------- ---------- ------------ -----------
-------- ---------- ---------- ---------- ------------ -----------
Weighted average number of shares
outstanding........................... 488,412 2,381,327 1,241,206 4,898,144 4,581,327 7,098,144
-------- ---------- ---------- ---------- ------------ -----------
-------- ---------- ---------- ---------- ------------ -----------
</TABLE>
<TABLE>
<CAPTION>
PRO FORMA AS ADJUSTED FOR
PRO FORMA FOR ACQUISITION OF VIRTUAL
RECAPITALIZATION STOCK EXCHANGE, INC.
AS OF DECEMBER 31, AS OF MARCH 31, ON MARCH 31, AS OF MARCH 31,
1998 1999 1999(1) 1999(2)
------------------ --------------- ---------------- -------------------------
(UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital........................ $ 45,118 $ 162,820 $3,067,042 $ 3,101,215
Total assets........................... 198,894 266,338 3,170,560 4,625,182
Long term debt........................... 0 0 0 112,533
Total liabilities........................ 72,729 34,094 34,094 168,716
-------- --------- ---------- -----------
-------- --------- ---------- -----------
Accumulated deficit...................... (529,171) (678,821) (678,821) (678,821)
-------- --------- ---------- -----------
-------- --------- ---------- -----------
Total stockholders' equity............... 126,165 232,244 3,136,466 4,456,466
-------- --------- ---------- -----------
-------- --------- ---------- -----------
</TABLE>
- ------------------
(1) The unaudited pro forma balance information reflects the issuance of
3,720,000 common shares and 1,000,000 preferred shares in exchange for
$2,931,035, together with a charge to paid-in-capital of $26,813 for
deferred merger costs included
(Footnotes continued on next page)
5
<PAGE>
(Footnotes continued from previous page)
in the balance sheet at March 31, 1999 as if the merger had occurred on
March 31, 1999.
(2) The unaudited pro forma as adjusted financial information reflects our
acquisition of VSE which was consummated on June 30, 1999, in exchange for
2,200,000 shares of our common stock. Does not include an additional 500,000
common shares to be held in escrow to be released to the sellers upon
Predict It Inc. attaining certain milestones.
(3) Represents amortization expense related to goodwill resulting from the
acquisition of VSE, which is being amortized over a period of three years.
(4) Includes the impact of employment agreements entered into upon the
consummation of the acquisition of VSE, representing additional costs of
$114,000 and $29,000 for the year ended December 31, 1998 and the three
months ended March 31, 1999, respectively.
AVAILABLE INFORMATION
We will file reports, proxy statements and other information with the
Securities and Exchange Commission. Such reports, proxy statements and other
information can be inspected and copied, at the Public Reference Room of the
Commission at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington,
D.C. 20549, at the Northeast Regional Office of the Commission located at Seven
World Trade Center, Suite 1300, New York, New York 10048 and at the Midwest
Regional Office of the Commission located at Citicorp Center, 500 West Madison
Street, Suite 1400, Chicago, Illinois 60661-2511. Please call the Commission at
1-800-SEC-0330 for further information on the public reference rooms. Our
Commission filings will also be available to the public from the Commission's
Web site at http://www.sec.gov.
We have filed a registration statement with the Commission on Form SB-2,
under the Securities Act of 1933, with respect to the securities described in
this prospectus. This prospectus, filed as part of the registration statement,
does not contain all of the information set forth in the registration statement
and the exhibits and schedules filed with the registration statement. For
further information about us, and our common stock described by this prospectus,
reference is made to the registration statement and to the exhibits and
schedules filed with it. Statements contained in this prospectus regarding the
contents of any contract or any other document to which reference is made are
not necessarily complete, and, in each instance where a copy of such contract or
other document has been filed as an exhibit to the registration statement,
reference is made to the copy so filed, each such statement being qualified in
all respects by such reference. Any document we file may be read and copied at
the Public Reference Room.
Our principal executive offices are located at 41 East 11th Street, New
York, New York 10003 and our telephone number is (212) 331-1120. We maintain
worldwide Web sites at http://www.predictit.com, http://www.predictit.net and
http://www.VirtualStockExchange.com. The reference to our worldwide Web
addresses does not constitute incorporation by reference of the information
contained at this site.
6
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RISK FACTORS
Investment in the shares of our common stock involves a high degree of
risk. You should carefully consider the risks described below, together with all
of the other information included in this prospectus, before making an
investment decision. If any of the following risks actually occurs, our
business, financial condition or operating results could be materially adversely
affected. In such case, the trading price of our common stock could decline, and
you may lose all or part of your investment.
INSIGNIFICANT HISTORICAL REVENUES DO NOT ENABLE US TO EVALUATE WHETHER WE WILL
OPERATE PROFITABLY.
We were organized in September 1997 and first launched SportsCappers at
SportsCappers.com in March 1998. SportsCappers was relaunched in September 1998
and Predict It Sports was first launched in March 1999. In addition, on June 30,
1999 we acquired Virtual Stock Exchange, Inc., which was formed in 1997. Because
of our limited operating history, it is extremely difficult to evaluate our
business and prospects. Our revenue and income potential are unproven and our
business model is constantly evolving. Since the way in which the Internet is
used is constantly changing, we may need to further change our business model to
adapt to those changes. Frequent changes in organizational structure could
impose significant burdens on our management and our employees and could result
in loss of productivity or even increased attrition.
Any investment in our company must be considered in light of the problems
frequently encountered by companies in an early stage of development in new and
rapidly evolving markets. To address the risks we face, we must, among other
things:
o Maintain and enhance our brand;
o Expand our product and service offerings;
o Increase the amount of traffic to the Predict It Sports, VSE, and Predict
It Network Web sites;
o Expend significant amounts to build brand awareness of our Predict It
services;
o Expand our distributor network;
o Attract, integrate, retain and motivate qualified personnel; and
o Maintain the leadership and quality of our services.
We cannot be certain that our business strategy will be successful or that
we will successfully address these risks.
WE HAVE A HISTORY OF NET LOSSES AND EXPECT TO CONTINUE TO INCUR NET LOSSES.
Our financial statements reflect that we have incurred losses since
inception, including a net loss of approximately $149,650 in the quarter ended
March 31, 1999. As of March 31, 1999, we had an accumulated deficit of
approximately $678,821. Although we expect our revenues to grow in upcoming
quarters, we expect to have increasing net losses and negative cash flows for
the foreseeable future. For a more detailed account of our historical losses,
please see the "Selected Financial Data" and "Management's Discussion and
Analysis of Financial Condition and Results of Operations" sections. The size of
these net losses will depend, in part, on the rate of growth in our revenues
from our advertisers and distributor relationships, and on our expenses. It is
critical to our success that we continue to expend financial and management
resources to develop brand loyalty through marketing, promotion and enhancement
of our services. As a result, we expect that our operating expenses will
increase significantly for the foreseeable future. With increased expenses, we
will need to generate significant additional revenues to achieve profitability.
Consequently, it is possible that we may never achieve profitability, and even
if we do achieve profitability, we may not sustain or increase profitability on
a quarterly or annual basis in the future.
WE ARE UNCERTAIN THAT WE WILL BE ABLE TO OBTAIN THE ADDITIONAL CAPITAL THAT MAY
BE NECESSARY TO ESTABLISH OUR BUSINESS.
Our recurring operating losses and growing working capital needs may
require us to obtain additional capital to operate the business before we have
established that our business will generate significant revenue. Although
management believes that we will be able to achieve our plans to begin to
generate significant
7
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revenue, we cannot be sure that those plans will succeed. If additional
financing is required, the terms of the financing may be adverse to the
interests of existing stockholders, including the possibility of substantially
diluting their ownership position.
FLUCTUATIONS IN OUR OPERATING RESULTS MAY NEGATIVELY IMPACT OUR STOCK PRICE.
Our quarterly operating results may fluctuate significantly in the future
due to a variety of factors that could affect our revenues or our expenses in
any particular quarter. It is possible that in some future periods our results
of operations or other performance measures may be below the expectations of
public market analysts and investors. If this occurs, the price of our common
stock will likely fall.
You should not rely on our results of operations during any particular
quarter as an indication of our future results for a full year or any other
quarter. Our quarterly revenues and operating results have varied significantly
in the past and may vary significantly in the future due to a number of factors,
including:
o Fluctuations in demand for our services, including seasonality;
o Unexpected rescheduling or cancellation of advertising orders and
distributor relationships;
o Our ability to develop and introduce new technology;
o Announcements and new technology introductions by our competitors;
o Our ability to attract and retain key personnel; and
o Costs relating to possible acquisitions and integration of technologies
or businesses.
Our operating expenses are based on our expectations of our future revenues
and are relatively fixed in the short term. Given our limited operating history,
user traffic on our Web site is extremely difficult to forecast accurately.
Moreover, obtaining new distributor relationships is time consuming and depends
on many factors that we are not able to control. Therefore, it is difficult to
predict the number of distributor relationship customers that we will have in
the future. In particular, we intend to expend significant amounts to build
brand awareness of Predict It. We may be unable to adjust spending quickly to
offset any unexpected revenue shortfall. Consequently, as fees are generated
from advertising, they will constitute a significant portion of our revenues for
the foreseeable future. As such, our revenues are difficult to predict
accurately.
OUR SERVICES ARE NOVEL AND UNPROVEN.
Our services are novel and unproven. We will be successful only if Internet
users adopt the usage of our applications on the Predict It Web sites. It is
difficult to forecast the extent and rate of user adoption of our services. We
cannot assure you that widespread acceptance of our services will occur.
OUR BUSINESS REVENUE MODEL IS NOVEL AND UNPROVEN.
We expect to generate substantially all of our future revenues through
Internet advertising and subscriptions. These methods of revenue generation are
relatively new and largely untested. Since the Internet advertising market is
new and rapidly evolving, we cannot yet gauge its effectiveness as compared to
traditional advertising media. Advertisers that traditionally relied on other
advertising media may be reluctant to advertise on the Internet (believing that
Internet advertising is less effective than traditional advertising media for
promoting their products and services). Consequently, they may allocate only
limited portions of their advertising budgets to Internet advertising. Our
business could be materially adversely affected if Internet advertising does not
continue to grow or if we are unsuccessful in increasing our advertising
revenues.
WE ARE UNCERTAIN THAT WE WILL GROW OR THAT WE WILL BE ABLE TO EFFECTIVELY MANAGE
OUR GROWTH.
We have experienced, and may continue to experience, rapid growth, which
has placed, and could continue to place, a significant strain on our managerial,
financial and operational resources. Any growth we may experience will result in
increased responsibility for existing and new management personnel. Effective
growth management will depend on the following:
o Our ability to integrate new personnel into our corporate structure;
8
<PAGE>
o Improving our operational, management and financial systems and controls;
and
o Our capacity to recruit, train, motivate and manage employees.
We cannot assure you that our systems, procedures or controls will be
adequate to support our operations or that we will be able to manage any growth
effectively. If we do not manage growth effectively, our business, results of
operations and financial condition may be adversely affected.
WE DEPEND ON CERTAIN KEY PERSONNEL AND THE LOSS OF THEM MAY ADVERSELY AFFECT US.
Our future success depends, in part, on the continued service of our key
management personnel, particularly Andrew Merkatz, our President, Robert Jacobs,
our Vice President of Business Development, Geordie Pace, our Senior Vice
President of Product Development, Alana Oldham, our Chief Technology Officer,
Gary Cheng, our Vice President of Business Development and Howard Yen, our
Director of Technology. The loss of their services, or the services of other key
employees, would have a material adverse effect on our business. Currently, we
have employment agreements with Mr. Merkatz, Mr. Cheng, Mr. Yen and Mr. Pace.
For detailed accounts of these employment agreements, please see the "Executive
Compensation and Other Information" section.
Our future success also depends on our ability to attract, retain and
motivate highly skilled employees. Competition for employees in our industry is
intense. We may be unable to attract, assimilate or retain other highly
qualified employees in the future. In the past, we have experienced from time to
time, and we expect to continue to experience in the future, difficulty in
hiring and retaining highly skilled employees with appropriate qualifications.
WE RECENTLY RECRUITED MOST OF OUR MANAGEMENT TEAM AND WE ARE UNSURE WHETHER OUR
MANAGEMENT TEAM WILL BE ABLE TO WORK TOGETHER.
Many members of our management team have recently been hired, including our
President. Our management team does not have significant experience working with
us. We cannot assure you that they will be able to work successfully together or
manage any growth we experience. The process of integrating these individuals
may detract from the operation of, and have an adverse effect on, our business.
WE NEED TO EXPAND OUR SALES AND SUPPORT ORGANIZATIONS IN ORDER TO INCREASE
MARKET AWARENESS OF OUR PRODUCTS AND SERVICES.
We will need to expand substantially both our advertising sales and
distributor sales operations and marketing efforts to increase market awareness
and sales of our products and services. We recently expanded our sales forces
and plan to hire additional sales personnel. Competition for highly-qualified
sales personnel is intense, and we may not be able to hire the kind and number
of sales personnel we are targeting. We will need to increase our staff to
support new distributors, a larger user base, and additional advertisers, and
the expanding needs of our existing customers. Hiring highly-qualified customer
service and support personnel is very competitive in our industry due to the
limited number of people available with the necessary technical skills and
understanding of the Internet.
OUR GROWTH WILL DEPEND ON OUR ABILITY TO DEVELOP OUR BRAND.
We believe that broader brand recognition and a favorable consumer
perception of the Predict It and VSE brands are essential to our future success.
Accordingly, we intend to continue pursuing an aggressive brand-enhancement
strategy, which will include mass market and multimedia advertising, promotional
programs and public relations activities. We intend to incur significant
expenditures on these advertising and promotional programs and activities in the
future. These expenditures may not result in a sufficient increase in revenues
to cover such advertising and promotion expenses. In addition, even if brand
recognition increases, the number of new users may not increase. Further, even
if the number of new users increases, the amount of traffic on our Web sites and
the number of distribution partners may not increase sufficiently to justify the
expenditures. If our brand enhancement strategy is unsuccessful, these expenses
may never be recovered and we may be unable to increase future revenues.
9
<PAGE>
WE DO NOT RECEIVE FUNDING FROM THIS OFFERING AND WE ARE UNCERTAIN WE CAN OBTAIN
THE CAPITAL TO GROW OUR BUSINESS.
The common stock registered in the registration statement will provide no
funds to us. To fully realize our business objectives and potential, we may
require significant additional financing by year-end 1999. Historically, we have
been largely dependent upon private equity financing when we required funds. We
may need to raise additional funds in the future to fund more aggressive brand
promotion or more rapid expansion in order to develop new or enhanced services,
respond to competitive pressures, or make acquisitions. We may be unable to
obtain any required additional financing on terms favorable to us. If adequate
funds are not available on acceptable terms, we may be unable to fund our
expansion, successfully promote our brand, develop or enhance services, respond
to competitive pressures or take advantage of acquisition opportunities, any of
which could have a material adverse effect on our business. Additional financing
may be debt, equity or a combination of debt and equity. If we raise additional
funds through the issuance of equity securities, our stockholders may experience
dilution of their ownership interests and the newly issued securities may have
rights superior to those of the common stock. If we raise additional funds by
issuing debt, we may be subject to limitations on our operations, including
limitations on the payment of dividends.
WE MAY NOT BE ABLE TO EFFECTIVELY COMPETE AGAINST OUR CURRENT AND POTENTIAL
COMPETITORS.
We may compete with Internet content providers for the same relationships
with third-party Web sites. Our ability to compete depends on numerous factors,
many of which are outside of our control. These factors include:
o The quality of content;
o The ease of use of online services;
o The timing and market acceptance of new and enhanced online services; and
o Sales and marketing efforts by us and our competitors.
Many of our existing competitors, as well as potential new competitors,
have longer operating histories, greater name recognition, larger customer bases
and significantly greater financial, technical and marketing resources than we
do. This may allow them to devote greater resources than we can to the
development and promotion of their services. Many of these competitors offer a
wider range of services than we do. These services may attract users to our
competitors' sites and may consequently result in a decrease of traffic to our
site. These competitors may also engage in more extensive research and
development, adopt more aggressive pricing policies and make more attractive
offers to existing and potential employees, partners, advertisers and electronic
commerce partners. Our competitors may develop products and services that are
equal or superior to ours or that achieve greater market acceptance. In
addition, current and potential competitors have established or may establish
cooperative relationships among themselves or with third parties to better
address the needs of advertisers and businesses engaged in electronic commerce.
As a result, it is possible that new competitors may emerge and rapidly acquire
significant market share.
WE FACE THE RISKS RELATED TO EXPANDING INTO NEW SERVICES AND BUSINESS AREAS, IN
PARTICULAR, ELECTRONIC COMMERCE.
To increase our revenues, we will need to expand our operations by
promoting new or complementary products and by expanding the breadth and depth
of our services. Specifically, our future success will largely depend on
obtaining revenues from the facilitation of electronic commerce transactions.
The market for electronic commerce services is extremely competitive. Because we
have little experience in this market, we may experience limited success in this
market. If we expand our operations in this manner, we will require significant
additional development resources and such expansion may strain our management,
financial and operational resources. Our expansion into new product and service
offerings may not be timely or may not generate sufficient revenues to offset
their cost. If this occurs, our business, operating results and financial
condition will be materially adversely effected.
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<PAGE>
WE WILL ONLY BE ABLE TO EXECUTE OUR BUSINESS PLAN IF INTERNET USAGE GROWS.
Our business will be adversely affected if Internet usage does not continue
to grow or grows at significantly lower rates compared to current trends. The
continued growth of the Internet depends on various factors, many of which are
outside our control. These factors include:
o The Internet infrastructure may not be able to support the demands placed
on it, and its performance and reliability may decline as usage grows;
o Security and authentication concerns with respect to the transmission
over the Internet of confidential information, such as credit card
numbers and attempts by unauthorized computer users, so-called hackers,
to penetrate online security systems; and
o Privacy concerns, including those related to the ability of Web sites to
gather user information without the user's knowledge or consent.
WE MAY NOT BE ABLE TO ADAPT TO EVOLVING INTERNET TECHNOLOGIES AND CUSTOMER
DEMANDS.
To be successful, we must adapt to rapidly changing Internet technologies
by continually enhancing our products and services and introducing new services
to address our customers' changing needs. If we need to modify our services or
infrastructure to adapt to changes affecting providers of Internet services, we
could incur substantial development or acquisition costs. Moreover, our business
could be materially adversely affected if we incur significant costs to adapt to
these changes. If we cannot adapt to these changes, or do not sufficiently
increase the features and functionality of our products and services, our
customers may switch to the product and service offerings of our competitors.
Furthermore, our competitors or potential competitors may develop novel Internet
applications that are equal or superior to our services. As a result, demand for
our services may decrease.
THE OPERATING PERFORMANCE OF OUR SYSTEMS AND SERVERS IS CRITICAL TO OUR BUSINESS
AND REPUTATION.
Any system failure, including network, software or hardware failure, that
causes an interruption in our service or a decrease in responsiveness of Predict
It could result in reduced user traffic on our Web sites and, therefore, reduced
revenues. The servers that host our Web sites are backed-up by remote servers.
Although we believe our current back-up methods are adequate, we cannot assure
you that the back-up servers will not fail or cause an interruption in our
service. Our Web sites could also be affected by computer viruses, electronic
break-ins or other similar disruptions. Our users and customers depend on
Internet service providers, online service providers and other Web site
operators for access to our Web sites. Each of these providers has experienced
significant outages in the past, and could experience outages, delays and other
difficulties due to system failures unrelated to our systems. Our systems are
vulnerable to damage or interruption from fire, flood, power loss,
telecommunications failure, break-ins, earthquake and similar events. Our
insurance policies have low coverage limits and may not adequately compensate us
for losses that may occur due to interruptions in our service.
WE MAY BE UNABLE TO PROTECT OUR INTELLECTUAL PROPERTY RIGHTS AND WE MAY BE
LIABLE FOR INFRINGING THE INTELLECTUAL PROPERTY RIGHTS OF OTHERS.
Third parties may infringe or misappropriate our patents, trademarks or
other proprietary rights, which could have a material adverse effect on our
business. We have filed for patents on our services, but no action has yet been
taken on our applications. We may be subject to or may initiate proceedings in
the United States Patent and Trademark Office, which may demand significant
financial and management resources. While we enter into confidentiality
agreements with our employees and consultants, and generally control access to
and distribution of our proprietary information, the steps we have taken to
protect our proprietary rights may not prevent misappropriation. In addition, we
do not know whether we will be able to defend our proprietary rights since the
validity, enforceability and scope of protection of proprietary rights in
Internet-related industries is uncertain and still evolving. Although we believe
our products and information system do not infringe upon the proprietary rights
of others, there can be no assurance that third parties will not assert
infringement claims against us. From time to time in the ordinary course of
business we may be subject to claims of alleged infringement of the trademarks
and other intellectual property rights of third parties. These claims and any
resultant litigation, should it occur, could subject us to significant liability
for damages. In
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<PAGE>
addition, even if we prevail, litigation could be time-consuming and expensive
to defend, and could result in the diversion of our time and attention. Any
claims from third parties may also result in limitations on our ability to use
the intellectual property subject to these claims unless we are able to enter
into agreements with the third parties making these claims.
GOVERNMENT REGULATION AND LEGAL UNCERTAINTIES COULD HARM OUR BUSINESS.
Since we are an Internet-based business, any new law or regulation
pertaining to the Internet, or the application or interpretation of existing
laws, could decrease the demand for our services, increase our cost of doing
business or otherwise have a material adverse effect on our business. There is,
and will likely continue to be, an increasing number of laws and regulations
pertaining to the Internet. These laws or regulations may relate to liability
for information retrieved from or transmitted over the Internet, online content
regulation, user privacy, taxation and the quality of products and services.
Furthermore, the growth and development of electronic commerce may prompt more
stringent consumer protection laws that may impose additional burdens on
electronic commerce companies as well as companies like us that provide
electronic commerce services. Moreover, the applicability to the Internet of
existing laws governing intellectual property ownership and infringement,
copyright, trademark, trade secret, obscenity, libel, employment, personal
privacy and other issues is uncertain and developing. We file tax returns in
such states as required by law based on principles applicable to traditional
businesses. However, one or more states could seek to impose additional income
tax obligations or sales tax collection obligations on out-of-state companies,
such as ours, which engage in or facilitate electronic commerce. A number of
proposals have been made at state and local levels that could impose such taxes
on the sale of products and services through the Internet or the income derived
from such sales. Such proposals, if adopted, could substantially impair the
growth of electronic commerce and adversely affect our opportunity to become
profitable. Legislation limiting the ability of the states to impose taxes on
Internet-based transactions recently has been enacted by the Untied States
Congress. However, this legislation, known as the Internet Tax Freedom Act,
imposes only a three-year moratorium, which commenced October 1, 1998 and ends
on October 21, 2001, on state and local taxes on (i) electronic commerce where
such taxes are discriminatory and (ii) Internet access unless such taxes were
generally imposed and actually enforced prior to October 1, 1998. It is possible
that the tax moratorium could fail to be renewed prior to October 21, 2001.
Failure to renew this legislation would allow various states to impose taxes on
Internet-based commerce. The imposition of such taxes could adversely affect our
ability to become profitable.
WE MAY FACE POTENTIAL COMMERCE-RELATED LIABILITIES AND EXPENSES WHICH COULD HAVE
A MATERIAL ADVERSE EFFECT ON US.
As part of our business, we plan to enter into agreements with sponsors,
content providers, service providers and merchants, under which we will be
entitled to receive a share of revenues from the purchase of goods and services
by users of our online properties. Such arrangements may expose us to additional
legal risks and uncertainties, including potential liabilities to consumers of
such products and services. Although we carry general liability insurance, our
insurance may not cover potential claims of this type or may not be adequate to
indemnify us for all liability that may be imposed. Some of the risks that may
result from these arrangements with businesses engaged in electronic commerce
include:
o Potential liabilities for illegal activities that may be conducted by
participating merchants;
o Product liability or other tort claims relating to goods or services sold
through third-party commerce sites;
o Consumer fraud and false or deceptive advertising or sales practices;
o Breach of contract claims relating to merchant transactions;
o Claims that materials included in merchant sites or sold by merchants
through these sites infringe third-party patents, copyrights, trademarks
or other intellectual property rights, or are libelous, defamatory or in
breach of third-party confidentiality or privacy rights; and
o Claims relating to any failure of merchants to appropriately collect and
remit sales or other taxes arising from electronic commerce transactions.
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<PAGE>
Even to the extent that such claims do not result in material liability,
investigating and defending such claims could have a material adverse effect on
our business, operating results or financial condition.
WE MAY FACE POTENTIAL LIABILITY FOR INVASION OF PRIVACY.
Although we have a policy against using personal information, current
computing and Internet technology allows us to collect personal information
about our users. We may decide in the future to compile and provide such
information to our corporate customers and electronic commerce partners. If we
begin collecting such information, we may face potential liability for invasion
of privacy for compiling and providing to our corporate customers and electronic
commerce partners information based on questions asked by users and visitors on
our Web sites. Because we may not obtain permission from users to distribute
this information, we may potentially face liability for invasion of privacy.
OUR OFFICERS AND DIRECTORS OWN A LARGE PERCENTAGE OF OUR OUTSTANDING SHARES AND
ARE THEREBY ABLE TO SIGNIFICANTLY INFLUENCE MATTERS REGARDING STOCKHOLDER
APPROVAL.
Our executive officers and directors, beneficially own in the aggregate
approximately 52.2% of our outstanding common stock. These stockholders may be
able to exercise control over all matters requiring approval by our
stockholders, including the election of directors and the approval of
significant corporate transactions. This concentration of ownership may also
have the effect of delaying or preventing an acquisition or change in control of
Predict It, which could have a material adverse effect on our stock price.
THE REGISTRATION AND TRADING OF ADDITIONAL SHARES MAY DEPRESS THE MARKET FOR OUR
COMMON STOCK.
The shares registered by this prospectus have not previously been
registered. Assuming that no existing options are exercised and that the Series
A preferred stock is not converted, there would be a total of 11,700,000 shares
(including 500,000 shares of common stock currently being held in escrow pending
Predict It achieving certain milestones) outstanding as of the date of this
prospectus. The 10,206,750 shares being registered, which include shares issued
upon exercise of certain of our options and conversion of the Series A preferred
stock, represent 87.2% of the outstanding shares of our common stock. Future
sales of significant numbers of shares of our common stock in the public market
could have a depressing effect on the prevailing market price of the common
stock, which might also adversely affect our ability to raise capital through
subsequent offerings of securities. If we decide to pay preferred dividends in
shares of our common stock, this too could depress the market for our common
stock if the recipients of those common stock dividends were to sell those newly
issued shares.
WE ARE LISTED ON THE OTC ELECTRONIC BULLETIN BOARD, WHICH CAN BE A VOLATILE
MARKET.
Our common stock is quoted on the OTC Electronic Bulletin Board, a NASD
sponsored and operated quotation system for equity securities. The OTC
Electronic Bulletin Board was introduced as an alternative to the NQB Pink
sheets for trading over-the-counter securities. It is a more limited trading
market than the NASDAQ SmallCap, and timely, accurate quotations of the price of
our common stock may not always be available. You may expect trading volume to
be low in such a market. Consequently, the activity of only a few shares may
affect the market and may result in wide swings in price and in volume.
Our common stock may be subject to the requirements of Rule 15g-9,
promulgated under the Securities Exchange Act of 1934, as amended, if the price
of our common stock falls below $5.00 per share. Under such rule, broker-dealers
who recommend low-priced securities to persons other than established customers
and accredited investors must satisfy special sales practice requirements,
including a requirement that they make an individualized written suitability
determination for the purchaser and receive the purchaser's consent prior to the
transaction. The Securities Enforcement Remedies and Penny Stock Reform Act of
1990 also requires additional disclosure in connection with any trades involving
a stock defined as a penny stock. Generally, the Commission defines a penny
stock as any equity security not traded on an exchange or quoted on NASDAQ that
has a market price of less than $5.00 per share. The required penny stock
disclosures include the delivery, prior to any transaction, of a disclosure
schedule explaining the penny stock market and the risks associated with it.
Such requirements could severely limit the market liquidity of the securities
and the ability of purchasers to sell their securities in the secondary market.
Our common stock was initially
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<PAGE>
quoted on the OTC Bulletin Board at $3.50 per share, but as of August 12, 1999
the share price was $1.81, and there can be no assurances that the price per
share will not remain below $5.00 per share.
OUR SHARES MAY EXPERIENCE EXTREME PRICE AND VOLUME FLUCTUATIONS.
The market for the stocks of Internet-related companies has experienced
extreme price and volume fluctuations. The market price of our common stock may
be volatile and may decline. In the past, securities class action litigation has
often been instituted against companies following periods of volatility in the
market price of their securities. If instituted against us, regardless of the
outcome, litigation could result in substantial costs and a diversion of our
management's attention and resources and have a material adverse effect on our
business, results of operations or financial condition.
THE EXERCISE OF EXISTING OPTIONS CAN DILUTE OUR COMMON STOCK AND SALES OF THE
SHARES MAY REDUCE THE PRICE.
The existence of 1,415,077 options may make it more difficult for us to
raise capital when necessary and may depress the market price of our common
stock in any market that may develop for such securities. Future sales of a
substantial number of shares of our common stock in the public market could
adversely affect the market price of the stock. It could also impair our ability
to raise additional capital by selling more of our common stock.
FUTURE SALES OF COMMON STOCK BY OUR EXISTING STOCKHOLDERS COULD ADVERSELY AFFECT
OUR STOCK PRICE.
The market price of our common stock could decline as a result of sales by
our existing stockholders of shares of common stock in the market, or the
perception that these sales could occur. These sales also might make it more
difficult for us to sell equity securities in the future at a time and at a
price that we deem appropriate. See the "Shares Eligible For Future Sale"
section of this prospectus for a more detailed discussion.
PROVISIONS IN OUR CHARTER OR AGREEMENTS MAY PREVENT OR DELAY A CHANGE OF
CONTROL.
Provisions of our certificate of incorporation and bylaws and provisions of
applicable Delaware law may discourage, delay or prevent a merger or other
change of control that a stockholder may consider favorable. Our board of
directors has the authority to issue up to 5,000,000 shares of preferred stock
and to determine the price and the terms, including preferences and voting
rights, of those shares without stockholder approval. We have issued 1,000,000
shares of Series A preferred stock, convertible into 1,000,000 shares of our
common stock. Although we have no current plans to issue additional shares of
our preferred stock, any such issuance could, among other things:
o Have the effect of delaying, deferring or preventing an acquisition or a
change in control of Predict It;
o Discourage bids for our common stock at a premium over the market price;
or
o Adversely affect the market price of, and the voting and other rights of
the holders of, our common stock.
Furthermore, we are subject to certain Delaware laws that could have the
effect of delaying, deterring or preventing a change in control of our company.
One of these laws prohibits us from engaging in a business combination with any
interested stockholder for a period of three years from the date the person
became an interested stockholder, unless certain conditions are met. In
addition, certain provisions of our certificate of incorporation and by-laws,
and the significant amount of common stock held by our executive officers,
directors and affiliates, could together have the effect of discouraging
potential takeover attempts or making it more difficult for stockholders to
change management. These provisions could have the effect of discouraging
potential takeover attempts.
WE COULD LOSE REVENUES AND INCUR SIGNIFICANT COSTS IF OUR SYSTEMS OR MATERIAL
THIRD-PARTY SYSTEMS ARE NOT YEAR 2000 COMPLIANT.
Many currently installed computer systems and software products are coded
to accept or recognize only two digit entries in the date code field. These
systems and software products will need to accept four digit entries to
distinguish 21st century dates from 20th century dates. As a result, computer
systems and software
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used by many companies and governmental agencies may need to be upgraded to
comply with such Year 2000 requirements or risk system failure or
miscalculations causing disruptions of normal business activities. The failure
of our internal systems, or any material third-party systems, to be Year 2000
compliant would have a material adverse effect on our business. All of our
systems were designed subsequent to October 1997, well after the Year 2000
compliance problem was identified. Accordingly, all of the systems we have
developed use four digits to identify the year rather than two digits. We are
also contacting our third-party vendors, licensors and providers of hardware,
software and services regarding their Year 2000 readiness. While we expect that
our precautionary measures have reduced or eliminated any significant impact of
Year 2000 issues, there is no assurance this will be the case. In addition,
there is no assurance that any Year 2000 problems that may be experienced by our
customers or suppliers will not have a negative impact on Predict It. See the
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Year 2000 Compliance" section of this prospectus for a more detailed
discussion.
THE COMPANY
Predict It Corp., the immediate predecessor to Predict It Inc., was
incorporated under the laws of the State of Delaware on August 11, 1998 as
SPORTSCAPPERS, INC. Predict It Corp. was the successor to the business of
SPORTSCAPPERS, INC., a Colorado corporation incorporated in September 1997,
which merged in August 1998 into SPORTSCAPPERS, INC., a Delaware corporation. We
changed our name to "Predict It Corp." on January 4, 1999. On April 28, 1999,
Predict It Corp. merged with and into WDC Development, Inc. WDC was the
surviving corporation and it changed its name to "Predict It Inc." The
post-merger business of Predict It Inc. is the pre-merger business of Predict It
Corp. and its predecessors. On June 30, 1999, through a wholly-owned Delaware
subsidiary of Predict It Inc., we purchased Virtual Stock Exchange, Inc., a
Delaware corporation. We maintain our principal business operations at 41 East
11th Street, New York, New York 10003. Our telephone number is (212) 331-1120,
and our Web sites include http://www.predictit.com., http://www.predictit.net,
and http://www.VirtualStockExchange.com. The information in our Web sites is not
incorporated by reference into this prospectus.
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USE OF PROCEEDS
We will not receive any part of the proceeds from the sale by our
stockholders of our common stock. However, we will receive monies from our
stockholders upon the exercise of their stock options.
PRICE RANGE OF COMMON STOCK
Our common stock is currently quoted on the OTC Electronic Bulletin Board
under the symbol "PRIT." There was no active market for Predict It's securities
until April 28, 1999(1). The following table sets forth the high and low bid
price information for the common stock as quoted on the OTC Electronic Bulletin
Board for the periods indicated. The quotations reflect inter-dealer prices,
without retail mark-ups, mark-downs or commissions, and may not represent actual
transactions.
<TABLE>
<CAPTION>
COMMON STOCK
--------------------
HIGH BID LOW BID
-------- --------
<S> <C> <C>
April 28, 1999 through August 12, 1999.................................. $ 2.625 $ 2.1406
</TABLE>
On August 12, 1999, the closing bid price as quoted by the OTC Electronic
Bulletin Board for our common stock was $1.81. As of August 12, 1999, there
were approximately 45 holders of record of our common stock.
There is no public trading market for any of our preferred stock or
options.
- ------------------
(1) Prior to the reverse merger, Predict It Inc. (then named WDC Development,
Inc.) was listed on the OTC Electronic Bulletin Board from November 1998
through April 27, 1999.
DIVIDEND POLICY
We have never declared or paid cash dividends on our common stock. We
presently intend to retain any earnings for use in the business and do not
anticipate paying cash dividends in the foreseeable future. Any future cash
dividends will be at the discretion of the board of directors and will depend on
our earnings, financial condition, cash flows, capital requirements and other
considerations that the board of directors may consider relevant. Our Series A
Preferred Stock does not pay any dividends.
CAPITALIZATION
The following table sets forth, as of March 31, 1999: (i) the
capitalization of Predict It Inc. as if the merger with WDC Development, Inc.,
which was consummated on April 28, 1999, had occurred on March 31, 1999; and
(ii) the pro forma capitalization of Predict It Inc. as adjusted to reflect the
acquisition of Virtual Stock Exchange, Inc., which was consummated on June 30,
1999. The following table should be read in conjunction with the financial
statements and notes thereto of Predict It Inc., Virtual Stock Exchange, Inc.
and the unaudited pro forma financial statements included elsewhere in this
prospectus.
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<TABLE>
<CAPTION>
MARCH 31, 1999
MARCH 31, 1999 ------------------------------------
-------------- PRO FORMA FOR PRO FORMA FOR
ACTUAL RECAPITALIZATION(1) ACQUISITION(2)
-------------- ------------------- -------------
<S> <C> <C> <C>
Current liabilities:
Accounts payable and accrued expenses........................ $ 34,094 $ 34,094 $ 56,183
-------- ----------- -----------
Long-term debt............................................... 112,533
-----------
Stockholders' equity:
Preferred stock, $.01 par value, 5,000,000 shares authorized,
none issued at March 31, 1999; 1,000,000 Series A
convertible preferred shares issued pro forma, (stated at
liquidation preference of $3,000,000)..................... 3,000,000 3,000,000
Common stock, $.01 par value, 25,000,000 shares authorized,
5,000,000 shares issued and outstanding at March 31, 1999;
9,000,000 shares issued pro forma for recapitalization and
11,200,000 shares issued pro forma as adjusted for the
acquisition.................................................. 50,000 90,000 112,000
Additional paid-in capital................................... 861,065 725,287 2,023,287
Deficit...................................................... (678,821) (678,821) (678,821)
-------- ----------- -----------
Total Shareholders' equity................................ 232,244 3,136,466 4,456,466
-------- ----------- -----------
Total Capitalization...................................... $266,338 $ 3,170,560 $ 4,625,182
-------- ----------- -----------
-------- ----------- -----------
</TABLE>
- ------------------
(1) Reflects the merger with and into WDC Development, Inc., which was
consummated on April 28, 1999. The merger has been accounted for as a
recapitalization.
(2) Reflects our acquisition of 100% of the issued and outstanding common stock
of Virtual Stock Exchange, Inc. in exchange for 2,200,000 shares of our
common stock. Does not include an additional 500,000 shares to be held in
escrow and to be released upon us attaining certain milestones. The
acquisition is being accounted for as a purchase.
SELECTED FINANCIAL DATA
On April 28, 1999, Predict It Corp. merged with and into WDC Development,
Inc. WDC was the surviving corporation and changed its name to "Predict It Inc."
In the merger, all of the outstanding capital stock of Predict It Corp. was
converted into shares of common stock of the surviving corporation. For
accounting purposes, the merger has been treated as a recapitalization of
Predict It Corp. Financial statements prior to the merger are those of Predict
It Corp. The financial statements give retroactive effect to the conversion of
Predict It Corp. capital stock into Predict It Inc. common stock to reflect the
recapitalization.
On June 30, 1999, through a wholly owned Delaware subsidiary of Predict It
Inc., we purchased 100% of the outstanding stock of Virtual Stock Exchange,
Inc., a Delaware corporation. In exchange, we issued to the 3 stockholders of
VSE an aggregate of 2,700,000 shares of our common stock, representing
approximately 23% of our outstanding common stock. Of the shares issued, 500,000
shares will be held in escrow with 50% of such shares to be released in January
2000, and the remaining 50% of which to be released in January 2001, as long
as the number of registered users and page views of the combined activities
exceeds certain specified amounts.
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Set forth below is selected financial data of Predict It Inc. as of
December 31, 1998, March 31, 1999, the period September 2, 1997 (inception)
through December 31, 1997, the year ended December 31, 1998, and the three month
periods ended March 31, 1999 and 1998. The statements of operations and balance
sheet data as of and for the three months ended March 31, 1999 and 1998 have
been derived from the unaudited books and records of Predict It Inc. The
statements of operations and the balance sheet data as of and for the period
September 2, 1997 through December 31, 1997 and for the year ended December 31,
1998 have been derived from the audited financial statements of Predict It Inc.
included elsewhere in this prospectus. The selected financial data for the three
months ended March 31, 1999 and 1998 include, in the opinion of management, all
adjustments (consisting only of normal recurring adjustments) necessary to
present fairly the financial position and results of operations of Predict It
Inc. for such periods. The results of operations for the three months ended
March 31, 1999 are not necessarily an indication of results for a full fiscal
year. Also set forth below are summary unaudited pro forma financial information
and summary unaudited pro forma as adjusted financial information of Predict It
Inc. The unaudited pro forma balance sheet reflects the merger of Predict It
Inc. with and into WDC Development, Inc., as if the merger had occurred at
March 31, 1999. The unaudited pro forma as adjusted balance sheet data as of
March 31, 1999 and the unaudited pro forma as adjusted statements of operations
data for the three months ended March 31, 1999 and for the year ended
December 31, 1998 are presented as if the acquisition of Virtual Stock Exchange,
Inc. had occurred as of the beginning of the periods presented. The unaudited
pro forma as adjusted financial information has been prepared based on the
audited and unaudited financial statements of Virtual Stock Exchange, Inc.,which
are included elsewhere in this prospectus. The unaudited pro forma as adjusted
financial data is not intended to be an indication of the results that would
have occurred for the periods indicated or which may be realized in the future.
The selected financial data and summary unaudited pro forma and summary
unaudited pro forma as adjusted financial information set forth below should be
read in conjunction with "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and the historical financial statements of
Predict It Inc. and Virtual Stock Exchange, Inc. and the notes thereto included
elsewhere in the prospectus.
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA AS ADJUSTED FOR
----------------------------------------------------- ACQUISITION OF VIRTUAL
SEPTEMBER 2, STOCK EXCHANGE, INC.
1997 ---------------------------
(INCEPTION) THREE MONTHS ENDED THREE MONTHS
THROUGH YEAR ENDED MARCH 31, YEAR ENDED ENDED
DECEMBER 31, DECEMBER 31, ---------------------- DECEMBER 31, MARCH 31,
1997 1998 1998 1999 1998 1999
------------- ------------- --------- --------- ------------ ------------
(UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenue:
User fees.......................... $ 7,712 $ 135 $ 2,800 $ 24,173 $ 4,629
Advertising........................ 6,000 797 56,736 36,801
--------- --------- --------- --------- ------------ ----------
13,712 135 3,597 80,909 41,430
--------- --------- --------- --------- ------------ ----------
Costs and expenses:
Site development/maintenance....... 177,783 38,708 227,243 54,160
Selling, general and
administrative(4)............... $ 21,402 340,698 17,150 114,539 503,679 254,288
Amortization of Intangibles(3)..... 455,000 114,000
Interest expense................... 3,000 9,768 3,262......
--------- --------- --------- --------- ------------ ----------
21,402 521,481 17,150 153,247 1,195,690 425,710
--------- --------- --------- --------- ------------ ----------
Net Loss............................. $ (21,402) $(507,769) $ (17,015) $(149,650) $ (1,114,781) $ (384,280)
--------- --------- --------- --------- ------------ ----------
--------- --------- --------- --------- ------------ ----------
Net loss per share--basic and
diluted............................ $ (.04) $ (.21) $ (.01) $ (.03) $ (.24) $ (.05)
--------- --------- --------- --------- ------------ ----------
--------- --------- --------- --------- ------------ ----------
Weighted average number of shares
outstanding........................ 488,412 2,381,327 1,241,206 4,898,144 4,581,327 7,098,144
--------- --------- --------- --------- ------------ ----------
--------- --------- --------- --------- ------------ ----------
</TABLE>
18
<PAGE>
<TABLE>
<CAPTION>
PRO FORMA
AS ADJUSTED
FOR ACQUISITION
OF VIRTUAL
STOCK
PRO FORMA FOR EXCHANGE, INC.
AS OF AS OF RECAPITALIZATION AS OF
DECEMBER 31, MARCH 31, ON MARCH 31, MARCH 31,
1998 1999 1999(1) 1999(2)
------------ ---------- ---------------- ---------------
(UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working Capital (deficit)......................... $ 45,118 $ 162,820 $3,067,042 $ 3,101,215
Total assets...................................... 198,894 266,338 3,170,560 4,625,182
Long term debt...................................... 0 0 0 112,533
Total liabilities................................... 72,729 34,094 34,094 168,716
---------- ---------- ---------- -----------
---------- ---------- ---------- -----------
Accumulated deficit................................. (529,171) (678,821) (678,821) (678,821)
---------- ---------- ---------- -----------
---------- ---------- ---------- -----------
Total stockholders' equity.......................... 126,165 232,244 3,136,466 4,456,466
---------- ---------- ---------- -----------
---------- ---------- ---------- -----------
</TABLE>
- ------------------
(1) The unaudited pro forma balance information reflects the issuance of
3,720,000 common shares and 1,000,000 preferred shares in exchange for
$2,931,035, together with a charge to paid-in-capital of $26,813 for
deferred merger costs included in the balance sheet at March 31, 1999 as if
the merger had occurred on March 31, 1999.
(2) The unaudited pro forma as adjusted financial information reflects our
acquisition of VSE, which was consummated on June 30, 1999, in exchange for
2,200,000 shares of our common stock. Does not include an additional 500,000
common shares to be held in escrow to be released to the sellers upon
Predict It Inc. attaining certain milestones.
(3) Represents amortization expense related to goodwill resulting from the
acquisition of VSE, which is being amortized over a period of three years.
(4) Includes the impact of employment agreements entered into upon the
consummation of the acquisition of VSE, representing additional costs of
$114,000 and $29,000 for the year ended December 31, 1998 and the three
months ended March 31, 1999, respectively.
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MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
Predict It Inc. provides user-generated prediction services on the
Internet. The innovative patent-pending system objectively measures, identifies
and ranks users, who are known as analysts, based on their prediction
performance in event categories such as sports, finance, politics, and
entertainment. The Predict It system then compensates these analysts when other
Predict It analysts seek out their opinions. The Predict It Web site engine
lends itself to any set of events whose outcomes can be measured objectively and
which occur with some regularity. Currently, Predict It offers predictive
services for sports and finance, but we plan to expand our product offerings
into additional product categories, including politics and entertainment.
Predict It Inc. is publicly traded on the OTC Electronic Bulletin Board under
the symbol "PRIT."
Predict It Corp., the immediate predecessor to Predict It Inc., was
incorporated under the laws of the State of Delaware on August 11, 1998 as
SPORTSCAPPERS, INC. Predict It Corp. was the successor to the business of
SPORTSCAPPERS, INC., a Colorado corporation incorporated in September 1997,
which merged in August 1998 into SPORTSCAPPERS, INC., a Delaware corporation. We
changed our name to "Predict It Corp." on January 4, 1999 as a strategic move to
better communicate the breadth of the proprietary prediction engine and its
application across multiple markets. The Predict It brand was introduced on the
Web in March 1999. The revenue model is largely advertising-based, but is unique
in that the advertising revenue is shared with the users whose information is
consumed by others.
On April 28, 1999, Predict It completed a reverse merger with WDC
Development, Inc. in which we merged with and into WDC. WDC was the surviving
corporation and changed its name to "Predict It Inc." The post-merger business
of Predict It Inc. is identical to the pre-merger business of Predict It Corp.
and its predecessors. For accounting purposes, the merger has been treated as a
recapitalization of Predict It Corp. For tax purposes, the merger was a tax-free
exchange of equity securities. The historical activities of WDC were limited to
capital raising activities, all of which were completed at or prior to the
merger.
On June 30, 1999, through a wholly-owned Delaware subsidiary of Predict It
Inc., we acquired Virtual Stock Exchange, Inc., a company engaged in predictive
stock markets simulations through its Web site, www.VirtualStockExchange.com.
The acquisition was made in connection with our expansion into the area of
financial predictive services. As a result of the acquisition, we have
recognized approximately $1,364,000 of goodwill on our Balance Sheet. The
goodwill is being amortized over a three-year period.
1999 PLAN OF OPERATION
Prior to March 31, 1999, we primarily derived our revenue from the sales of
analyst predictions. In April 1999, we began to offer our analysts' predictions
without any charge. We anticipate that revenues for the second quarter of 1999
will be derived primarily from the sale of advertising contracts. Advertising
revenue agreements typically include the delivery of impressions on our Web
sites and co-branded distributor Web sites. An impression is the viewing of
promotional material on a Web page, which may include banner advertisements,
links, buttons or other text images. Revenue based on number of impressions is
recognized at the time the guaranteed number of impressions is achieved, and
thereafter in the period the impressions are delivered.
RESULTS OF OPERATIONS--THREE MONTHS ENDED MARCH 31, 1999 VS. THREE MONTHS ENDED
MARCH 31, 1998
REVENUES
Revenues increased to $3,600 for the three months ended March 31, 1999,
from $100 for the three months ended March 31, 1998. The increase in revenues
was primarily due to the fact that we did not commence significant revenue
generating activities in 1998 until the second quarter. Revenue for the three
months ended March 31, 1999 was from analyst subscriptions ($2,800) and
advertising revenues ($800).
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SITE DEVELOPMENT AND MAINTENANCE EXPENSE
Site development and maintenance expense consist primarily of Web site
hosting, maintenance expenses and amortization related to capitalized software
costs. Site development and maintenance expense was $39,000 for the three months
ended March 31, 1999 which includes $8,000 of amortization expense related to
capitalized software costs and $31,000 in Web site hosting and maintenance
costs. Site development costs incurred during the three months ended March 31,
1998 were capitalized until the launch of our Web site in April 1998.
SELLING, GENERAL AND ADMINISTRATIVE
Selling general and administrative costs increased $98,000 from $17,000 for
the three months ended March 31, 1998 to $115,000 for the three months ended
March 31, 1999. Staffing costs increased from $21,000 to $74,000. The increase
is attributable to our increase in personnel. Operating costs increased from
$2,000 in the three months ended March 31, 1998 to $16,000 in the three months
ended March 31, 1999 primarily due to rent as a result of our moving into new
office space in the third quarter of 1998. Profession fees for the three months
ended March 31, 1999 and 1998 were $11,000 and $9,000 respectively.
RESULTS OF OPERATIONS--YEAR ENDED DECEMBER 31, 1998 VS. SEPTEMBER 2, 1997
(INCEPTION) THROUGH DECEMBER 31, 1997
REVENUES
Revenues increased to $13,700 for the year ended December 31, 1998, from $0
for the period September 2, 1997 (Inception) to December 31, 1997. The increase
in revenues occurred due to the fact that we commenced revenue generating
activities in 1998. Advertising revenue increased to $6,000 and analyst
subscription revenue increased to $7,700 for the year ended December 31, 1998,
from $0 for the period form inception to December 31, 1997.
SITE DEVELOPMENT AND MAINTENANCE EXPENSE
Site development and maintenance expense consist primarily of Web site
hosting, maintenance expenses and amortization related to capitalized software
costs. Site development and maintenance expense was $178,000 for the year ended
December 31, 1998 which includes $90,000 of amortization expense related to
capitalized software costs, $65,000 paid to a former source provider for the
transition to a new Web site and $23,000 in Web site hosting and maintenance
costs. Included in the $90,000 of amortization expense is approximately $49,000
of unamortized software costs which were deemed to be impaired, and written off,
as a result of rebuilding the site through a new provider. Site development
costs in 1997 were capitalized until the launch of our website in April 1998.
SELLING GENERAL AND ADMINISTRATIVE
Selling general and administrative costs increased $320,000 from $21,000 in
1997 to $341,000 in 1998. Staffing costs increased from $9,000 to $141,000. The
increase is attributable to having three employees in 1998 as compared to one in
1997. Operating costs increased from $3,000 in 1997 to $44,000 in 1998 primarily
due to increased rent and moving costs as a result of our moving into new office
space in the third quarter of 1998. Professional fees for consulting, legal and
accounting services increased from $9,000 to $95,000. Marketing expenses
increased from $0 in 1997 to $45,000 in 1998 due to Internet advertising of
$23,000 and $20,000 in travel and entertainment.
LIQUIDITY AND CAPITAL RESOURCES
Since our inception, we have financed our operations through the private
placement of our preferred stock and the sale of our common stock. As of
August 12, 1999, we had approximately $2,348,707 in cash. We believe that our
existing cash balances will be sufficient to meet anticipated cash requirements
for the next twelve months. We may, nonetheless, seek additional financing to
support our activities during the next twelve months or thereafter. There can be
no assurance, however, that additional capital will be available to us on
reasonable terms, if at all, when needed or desired.
Our capital requirements depend on numerous factors, including (i) market
acceptance of Predict It's services; (ii) the amount of resources we devote to
investments in our product development; and (iii) the resources we devote to
sales and marketing.
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<PAGE>
We anticipate that we will continue to evaluate possible investments in
business, products and technologies, and plans to expand its sales and marketing
programs while conducting more aggressive grand promotions.
YEAR 2000 COMPLIANCE
Many currently installed computer systems and software products are coded
to accept or recognize only two digit entries in the date code field. These
systems and software products will need to accept four digit entries to
distinguish 21st century dates from 20th century dates. As a result, computer
systems and/or software used by many companies and governmental agencies may
need to be upgraded to comply with such Year 2000 requirements or risk system
failure or miscalculations causing disruptions of normal business activities.
STATE OF READINESS
We have not yet made an assessment of the Year 2000 readiness of our
operating, financial and administrative systems, including the hardware and
software that support our systems. We plan to make such an assessment in the
third quarter of 1999. Our assessment plan will consist of: (i) quality
assurance testing of our internally developed proprietary software; (ii)
contacting third-party vendors and licensors of material hardware, software and
services that are both directly and indirectly related to the delivery of our
services to our users; (iii) contacting vendors of third-party systems; (iv)
assessing repair and replacement requirements; (v) implementing repair or
replacement; and (vi) creating contingency plans in the event of Year 2000
failures.
RISKS
We are not currently aware of any Year 2000 compliance problems relating to
our systems that would have a material adverse effect on our business, results
of operations and financial condition, without taking into account our efforts
to avoid or fix such problems. There can be no assurance that we will not
discover Year 2000 compliance problems in its systems that will require
substantial revision. In addition, there can be no assurance that third-party
software, hardware or services incorporated into our material systems will not
need to be revised or replaced, all of which could be time-consuming and
expensive. Our failure to fix or replace our internally developed proprietary
software or third-party software, hardware or services on a timely basis could
result in lost revenues, increased operating costs, the loss of customers and
other business interruptions, any of which could have a material adverse effect
on our business, results of operations and financial condition. Moreover, the
failure to adequately address Year 2000 compliance issues in our
internally-developed proprietary software could result in claims of
mismanagement, misrepresentation, or breach of contract and related litigation,
which could be costly and time-consuming to defend.
We are heavily dependent on a significant number of third-party vendors to
provide both network services and equipment. A significant Year 2000-related
disruption of the network, services or equipment that third-party vendors
provide to us could cause our members and visitors to consider seeking alternate
providers or cause an unmanageable burden on its technical support, which in
turn could materially and adversely affect our business, financial condition and
results of operations.
In addition, there can be no assurance that governmental agencies, utility
companies, Internet access companies, third-party service providers and others
outside of our control will be Year 2000 compliant. The failure by such entities
to be Year 2000 compliant could result in a systemic failure beyond our control,
such as a prolonged Internet, telecommunications or electrical failure, which
could also prevent us from delivering our services to our customers, decrease
the use of the Internet or prevent users from accessing our Web sites which
could have a material adverse effect on our business, results of operations and
financial condition.
CONTINGENCY PLAN
As discussed above, we have not yet completed a Year 2000 assessment and
have not yet developed any contingency plans. The results of our Year 2000
simulation testing and the responses received from third-party vendors and
service providers will be taken into account in determining the nature and
extent of any contingency plans.
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<PAGE>
BUSINESS
PREDICT IT
BACKGROUND
Predict It Corp., the immediate predecessor to Predict It Inc., was
incorporated under the laws of the State of Delaware on August 11, 1998 as
SPORTSCAPPERS, INC. Predict It Corp. was the successor to the business of
SPORTSCAPPERS, INC., a Colorado corporation incorporated in September 1997,
which merged in August 1998 into SPORTSCAPPERS, INC., a Delaware corporation. We
changed our name to "Predict It Corp." on January 4, 1999. On April 28, 1999,
Predict It Corp. merged with and into WDC Development, Inc. WDC was the
surviving corporation and changed its name to "Predict It Inc." The post-merger
business of Predict It Inc. is the pre-merger business of Predict It Corp. and
its predecessors. For accounting purposes, the merger has been treated as a
recapitalization of Predict It Corp. For tax purposes, the merger was a tax-
free exchange of equity securities. On June 30, 1999, through a wholly-owned
Delaware subsidiary of Predict It, we purchased Virtual Stock Exchange, Inc., a
Delaware corporation.
The historical activities of WDC were limited to capital raising
activities, all of which were completed at or prior to the merger. Accordingly,
in the following discussion, all references to our business relates to the
business of Predict It Corp. and its predecessors prior to the merger and
Predict It Inc. following the merger with WDC.
OVERVIEW
Our business is the development and distribution of interactive Internet
applications. Our innovative "prediction exchange" system allows users to pick
and exchange predictions with other users. The Predict It engine lends itself to
calculating predictions for any set of events whose outcome can be measured
objectively. Our initial product offering, "Predict It Sports," allows users to
pick and exchange predictions on sporting events with fellow users. Our database
engine then calculates the accuracy of these predictions and allows users to
view the entries. Our system, unlike chat rooms, bulletin boards and stock
tracking systems, enables users to quickly find and view the predictions of the
best analysts, who in turn earn money each time their predictions are viewed.
Users may post predictions and view the predictions of others free of charge.
On July 16, 1999, we launched the Predict It Network, which represents our
first integration of our various media properties, including Predict It Sports
and Virtual Stock Exchange. Our Predict It Network is designed to allow for easy
integration of additional media properties that we may develop or acquire. In
addition, the Predict It Network will lay the groundwork for an infrastructure
that will support thousands of distributed Predict It communities, including
wholly-owned media properties, co-branded distribution partnerships and
affiliated sites. Our Predict It Network can be accessed at www.predictit.net.
On June 30, 1999, through a wholly-owned Delaware subsidiary of Predict It
Inc., we acquired 100% of the stock of Virtual Stock Exchange, Inc., a Delaware
corporation. In exchange, we issued 2,700,000 shares of our common stock,
representing approximately 23% of our outstanding common stock. Of the shares
issued, 500,000 shares will be held in escrow with 50% of such shares to be
released in January 2000 and the remaining 50% to be released in January 2001,
as long as the number of registered users and page views for the combined
entities exceeds certain specified amounts. VSE's business is an interactive
Internet application where individuals create and manage hypothetical stock
portfolios, conduct mock trading, and compete with other members for prize
money, generally not to exceed $1,000 per month, based on their portfolio
performance. The Web site also provides quotes and research on United States
financial markets through links to other sites, and a forum for individuals to
exchange ideas with other members on a variety of investment topics. VSE
operates www.VirtualStockExchange.com, which services over 75,000 registered
members and generates in excess of four million page views per month. Consumers
may access VSE directly via its Web site or through one of its many co-branded
partners, including Crosswalk.com, Planetdirect.com and Collegestudent.com.
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We employ a co-branded strategy, by which we market our product through a
distributor network of relevant industry and news content providers. Revenues
principally are earned by the sale of advertisements either by us directly or on
a revenue sharing basis with our distributors. Unlike other businesses on the
Web who are trying to establish a destination site, our strategy is to be a Web
site's partner by providing unique, compelling and user-generated content that
drives repeat traffic to our Web partners.
INDUSTRY BACKGROUND
The Internet has emerged as a mass-market global medium for communications,
information and online commerce, enabling millions of users to obtain and share
information, and interact and conduct business electronically. Industry analyst
International Data Corporation, or IDC, estimates that the number of Internet
users was approximately 97 million at the end of 1998 and will reach
approximately 320 million by the end of 2002, representing a compound annual
growth rate of approximately 35%. The growth in Internet usage is being driven
by several factors, including an increasing base of computers in the home and in
the workplace, advancements in the performance and speed of personal computers,
improvements in network infrastructure, more convenient, faster and cheaper
access to the Internet and increased public awareness of benefits of using the
Internet.
In addition to its benefits for individuals, the Internet provides
businesses with a new method for delivering product information, as well as
marketing and selling products and services. As the Internet has grown, many
businesses have recognized the Internet as an important vehicle for
communicating with customers and changing traditional business processes and
practices. As businesses have turned to the Internet as a new way to reach
consumers, they have developed content-rich Web sites designed to hold users'
attention for extended time periods. More recently, new technology has enabled
commercial transactions to be conducted over the Internet, creating the
opportunity for business-to-consumer and business-to-business electronic
commerce. According to IDC, worldwide electronic commerce revenue was
approximately $32 billion in 1998 and is expected to grow to more than $425
billion in 2002, representing a compound annual growth rate of approximately
90%.
We believe that the creation of content-rich Web sites is an emerging
market opportunity. Properly developed, these consumer-friendly Web sites may
alter the way businesses interact with their customers. Nevertheless,
significant shortcomings in the way users interact with the Internet must be
overcome for this market opportunity to be fully realized. In short, Web sites
need new ways to drive traffic and increase repeat visits to their sites.
THE PREDICT IT SOLUTION
We believe that one of the major problems with the Internet is that every
Web site is competing to become the destination site for online users. To build
brand loyalty and drive traffic to a Web site has become increasingly costly,
with intense competition and constant upgrades and enhancements required by Web
developers who are trying to keep up with competitors by adding new content to
keep users at the site for extended periods and to create demand for users to
return to the site.
The answer for many of these content sites and Web portals has been to outsource
non-core business content in order to increase speed to market for new features
and enhancements to the site. Outsourcing content permits a site to maintain its
business focus of growing its site by retaining viewers and by attracting new
users to the site. Predict It addresses the needs of this community by providing
its customers with a turnkey solution to produce and rapidly develop a
co-branded content area which is 100% user-generated. This allows Web sites to
develop new traffic and retain existing users without having to hire new staff,
install new software, or buy new hardware. We believe that the Predict It
outsource solution is well-positioned to benefit from this trend. Predict It
aims to create a similar repeat user base for its co-branded customers by using
sports, stocks, and other compelling content to capture and retain users.
In short, Predict It will offer its customers:
o A turnkey service designed to hold users' attention and encourage repeat
visits by providing content which retains the look and feel of the
distributor's existing site;
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o New revenue opportunities;
o Detailed reports on usage patterns and registered users; and
o Reliability, performance and scalability.
PRODUCTS AND SERVICES
Our initial product is Predict It Sports, which was originally launched as
SportsCappers in March 1998 and re-launched in September 1998. Predict It Sports
is a sports information service that contains content and quantitative opinions
on sporting events that are user-generated. It permits tracking of the accuracy
of members' sports predictions and displays them in a manner that encourages
competition and motivates repeat visits to the site. The service caters to
sports fans that want to exercise their competitive nature by competing against
other users. The site documents the performance of registered users and allows
viewing of prior and future predictions of top performers based on their
historical success. Entering predictions is free to anyone who visits the site
and wishes to participate. In addition, as an added incentive to encourage
repeat site utilization, registered users share in a unique revenue structure
that pays registered users each time their predictions are viewed. Incentive
payments are presently paid at the rate of $10 per 1,000 pages viewed, so that
more money is earned each time a user's prediction is viewed. This encourages
usage by some of the very best amateur analysts and makes the site a compelling
destination for sports enthusiasts. We believe that our service is more
appealing to users of other sports information services since our service caters
to sports fans who want to exercise their sports expertise by competing against
other sports enthusiasts. Our site now focuses on football, basketball, hockey
and baseball, and has the potential to expand into other global sports markets
by extending coverage to international sports, including rugby, cricket and
track and field.
The Predict It Sports product is the first of several sites to be developed
using the Predict It engine. Other usages may include financial information,
current events, and entertainment. According to Intelligent Worldwide, an
industry analyst, 71% of online users look for general news, 59% access
entertainment information, 50% look for sports information, and 40% use the Web
to monitor stocks or other investments. The potential of these markets presents
opportunities for us to expand our Predict It database engine.
On July 16, 1999, we launched the Predict It Network, which represents our
first integration of our various media properties, including Predict It Sports
and Virtual Stock Exchange. The Predict It Network is designed to allow for easy
integration of additional media properties that we may develop or acquire. In
addition, the Predict It Network will lay the groundwork for an infrastructure
that will support thousands of distributed Predict It communities, including
wholly-owned media properties, co-branded distribution partnerships and
affiliated sites. The Predict It Network can be accessed at www.predictit.net.
On June 30, 1999, through a wholly-owned Delaware subsidiary of Predict It
Inc., we purchased Virtual Stock Exchange, Inc., a Delaware corporation. VSE's
business is an interactive Internet application where individuals create and
manage hypothetical stock portfolios, conduct mock trading, and compete with
other members for prize money, generally not to exceed $1,000 per month, based
on their portfolio performance. The Web site also provides quotes and research
on United States financial markets through links to other sites, and a forum for
individuals to exchange ideas with other members on a variety of investment
topics. VSE operates www.VirtualStockExchange.com, which services over 75,000
registered members and generates in excess of four million page views per month.
Consumers may access VSE directly via its Web site or through one of its many
co-branded partners, including Crosswalk.com, Planetdirect.com and
Collegestudent.com. Messrs. Cheng and Yen, the principle founders of VSE, have
signed employment agreements with us and have joined our management as Vice
President of Business Development and Director of Technology, respectively.
Please see the "Executive Compensation and Other Information" section for an
additional description of the employment contracts of Messrs. Cheng and Yen.
PREDICT IT DATA SYSTEM
Predict It has developed a proprietary data-system (which includes
data-model, system architecture, SQL calls, mathematical formulae and
user/administration interface) which lends itself to any set of events, whose
outcome can be measured objectively. The initial product on the System, Predict
It Sports, enables users to
25
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enter predictions on sporting events. The System then stores the user's
predictions, allowing other users access to the entered prediction. Upon
conclusion/tabulation of the sporting event being predicted, the System
calculates the accuracy of the predictions and allows other users to view the
entries and the results. The System ranks the top analysts based on the accuracy
of their predictions, and this information is made available to other users. The
logical structures underlying the Predict It System can be modified for
expansion into other areas of interest (politics, for example), based upon
modifications to the System's database to include the underlying data-structures
for the subject matter of the new area in which the System would be used.
PREDICT IT SYSTEM FEATURES
FOR USERS
o Live Demo. Anonymous users navigating the system see live data, not static
Internet mock-ups. Seeing current games and current user records encourages
participation.
o Easy Registration. A two-tier registration system makes it easy for users to
get started. The first tier registration, which gives users total access,
requires only the user's nickname, email address and password. To receive
their earnings payments, users must complete the more personal name, address
and telephone fields.
o Intuitive Pick Entry. The layout of the pick entry page makes it easy for
novice sports fans to participate.
o Robust Custom Query Engine. The cornerstone of the Predict It engine is the
real-time reporting system, which allows users to find the top performers in
any category over any period of time. Users can gather further information by
viewing the details associated with anyone's record to see how these top
performers accomplished their impressive track records.
o Real Time Earnings Reports. Earnings are calculated and posted to users'
accounts in real time.
o User Registration Management. These controls allow users to easily change
their email address, password and contact information.
FOR PUBLISHERS
o Co-Branding. Publishers incorporate their site's logo, design and navigation
links together with the Predict It navigation links to create a custom menu
bar for their users. The Predict It generic functionality is served in a frame
next to their custom menu bar, so the users feel as though they are still in
the publisher's site.
o Private Label Branding. The generically-designed functionality pages can be
customized to integrate the publisher's design, providing enhanced branding
opportunities.
o Advertising Management. Using the DoubleClick Dart system, publishers have
access to a powerful and flexible advertising management system, which can be
used independently of or in conjunction with the publishers' existing
advertising management system.
FOR INTERNAL ADMINISTRATORS
o Easy Expansion into New Sports. All of the world's major sports leagues are
already loaded into the database and can be activated within seconds. If a
real time feed is not incorporated or is not available for that sport, all of
the tools exist to manually input the events and results.
o Real Time Data Feed. Provided by SportsTicker, owned in part by ESPN, we have
signed a contract and begun programming specification for a real-time
data-feed that will fully automate the Predict It system, allowing for the
spontaneous system-generation of sporting events. This will lay the groundwork
for our incorporating more data-intensive markets, like financial markets.
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SYSTEM INTEGRITY CONTROLS
o Pick Entry. The system traps for and eliminates all of the possible ways that
users may attempt to enter picks on events already underway.
o Earnings. The system controls for users who may repeatedly access their own
picks or the picks of their friends in an attempt to artificially increase
earnings balances.
CUSTOMERS AND DISTRIBUTORS
We generate revenues from advertising sold on our site and on our
distributors co-branded sites. We optimize our revenues by utilizing a
co-branded model to attract advertisers to specific market niches. In this way,
we can expand our opportunities to reach more users who will view the services
that we offer.
Consequently, our strength lies in our ability to generate revenue through
our distributor relationships with limited marketing and advertising
expenditures. Our distributor relationships allow us the opportunity to attract
traffic to the co-branded sites based on the strength of our distributor
marketing and advertising efforts. In return for providing our distributors with
content and the ability for them to increase their advertising revenue we
generally share 50% of our distributors' advertising revenue that our Predict It
service generates from the distributors' co-branded pages. We believe that this
creates an attractive opportunity for establishing distributor relationships
since we provide our distributors with free content and increased advertising
revenue opportunities because our product encourages users to make repeat visits
to the site.
Our current distributors are:
o SportsWorld (Broadcast.com);
o SportServer (Nando Media/McClatchey Newspapers);
o DBC Sports (Data Broadcasting Corporation);
o The Sports Network;
o The Sports Daily;
o SportsFeed;
o Silly Sports;
o Gaming Guide;
o Bettors World;
o Bettors Luck;
o Sport Hits;
o The Daily Spread;
o SH Goddess;
o MLB Fans
o Tornado Report
o Sports Rumble
o Aces Sports
o Alpha Sim Interactive
o YourPortal.com (Acceleration Software)
o EnterSports
o Los Angeles Times
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o Web On-Site
o CMP Media
o Scoops Wrestling
o Investorlinks
o Planetdirect
o Crosswalk
o Collegestudent.com
Each Web page of the Predict It service is designed to optimize potential
advertising opportunities without diminishing the overall user experience. The
layout generally is configured to allow for 2 larger and 4 smaller
advertisements. This design allows the site to generate a high potential cost
per thousand, or CPM, without alienating the viewer. We anticipate that the bulk
of advertising to be priced on a CPM basis. At present, our rates are $20, with
discounts for volume purchases. In certain circumstances, we may elect to accept
advertising purchases on a cost-per-click or cost-per-lead basis or barter
basis. We may use this rate structure when the potential revenue is projected to
be greater than a CPM basis or if excess inventory is available.
As the Internet advertising market matures, online advertising decisions
will increasingly be made on the ability of a Web site to reach certain
demographics desired rather than on the ability to deliver bulk viewers. We
believe that we are in a position to take advantage of this opportunity because
of the nature of the Predict It product offering. Our initial target market of
United States and international sports information and financial markets
represents an attractive demographic for potential advertisers since the sports
and finance areas have historically generated substantial users with favorable
demographics.
COMPETITION
The market for Internet users and advertisers is new and rapidly evolving.
Competition is intense and is expected to increase significantly in the future.
The number of Web sites on the Internet competing for consumer's attention and
spending has proliferated and we expect that competition will continue to
intensify.
We compete directly or indirectly for advertisers, viewers, members and
content providers with competitors that fall within the following two
categories:
o Providers of fantasy sports games such as Small World Sports and Wall
Street Sports; and
o Syndicated content offering providers such as Pick' Em Sports.
We believe that other competitive sites that provide for online sports
pools, sweepstakes, and competition in financial market predictions present an
opportunity for us since our Predict It products can be used as tools for
individuals who are avid participants at these other sites. By providing a
source of knowledge to viewers, we believe that our products will encourage
users of these sites to visit our sites to view the predictions of our members.
We anticipate that the number of direct and indirect competitors will
increase in the future. This could result in price reductions for advertising,
reduced margins, greater operating losses or loss of market share, any of which
would materially adversely affect our business, results of operations and
financial condition.
We also compete for visitors with many Internet content providers and
Internet service providers, including Web directories, search engines, shareware
archives, content sites, commercial online services and sites maintained by
Internet service providers, as well as thousands of Internet sites operated by
individuals and government and educational institutions. These competitors
include free information, search and content sites or services, such as America
Online, CNET, CNN/Time Warner, Excite, Infoseek, Lycos, Microsoft, Netscape and
Yahoo!. We also compete with the foregoing companies, as well as traditional
forms of media such as newspapers, magazines, radio and television, for
advertisers and advertising revenues. We believe that the principal competitive
factors in attracting advertisers includes the amount of traffic on our Web
site,
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brand recognition, customer service, the demographics of our members and
viewers, our ability to offer targeted audiences and the overall
cost-effectiveness of the advertising medium we offer. We believe that the
number of Internet companies relying on Web-based advertising revenue will
increase substantially in the future. Accordingly, we will likely face increased
competition, resulting in increased pricing pressures on our advertising rates
which could in turn have a material adverse effect on our business, results of
operations and financial condition.
Many of our existing and potential competitors, including Web directories
and search engines and large traditional media companies, have longer operating
histories in the Web market, greater name recognition, larger customer bases and
significantly greater financial, technical and marketing resources than we have
currently. Our competitors may be able to undertake more extensive marketing
campaigns for their brands and services, adopt more aggressive advertising
pricing policies and make more attractive offers to potential employees,
distribution partners, commerce companies, advertisers and third-party content
providers. Advertisers may perceive Internet content providers and Internet
service providers, including Web directories, search engines, shareware
archives, sites that offer professional editorial content, commercial online
services and sites maintained by Internet service providers as more desirable
Web sites for placement of advertisements.
In addition, substantially all of our current advertising customers and
distributors also have established collaborative relationships with certain of
our competitors or potential competitors, and other high-traffic Web sites.
Accordingly, we cannot be certain that we will be able to grow our membership
base, traffic levels and advertiser customer base at historical levels or retain
our current members, traffic levels or advertiser customers. Advertisers may
find other Web sites more attractive if Web traffic grows at a faster rate on
the Web sites of competitors and thus, our distributors may decline to renew
their agreements with us. We may not be able to compete successfully against our
current or future competitors and competition could have a material adverse
effect on our business, results of operations and financial condition.
TECHNOLOGY
Our public Web site, www.Predictit.com, which features the Predict It
Sports service, is currently hosted and maintained by iXL Memphis. iXL provides
a guaranteed 99.7% uptime and monitors all aspects of the servers on a
twenty-four hour basis using a pager gateway with a 15-minute reponse time in
off-hours. iXL provides an on-call telephone line answered 24 hours a day by
on-duty engineers and maintains UPS systems capable of maintaining power on
battery for several hours.
Predict It services are written in C++ using an Oracle database and run on
a Unix platform. The 3-Mhz Ultra Sparc 10 server contains 512 MB RAM and a 2.4GB
EIDE hard drive. The system is scalable to increase traffic capacity.
The server connects to a Cisco Catalyst 5500 switch via a 100Base-T
connection and then to a Cisco 7513 with redundant connections to the Internet
via SprintLink clear channel DS-3 (45 Mbps) through the Atlanta Backbone (one
hop) with a 3Mbps diverse route, and on SprintLink, through Dallas-Ft. Worth
(one hop). This connection is a full fiber, SONET ring connection on the Sprint
Network.
INTELLECTUAL PROPERTY
Predict It seeks to protect its proprietary rights, but its actions may be
inadequate to protect its patents, trademarks or other proprietary rights to
prevent others from claiming violations of their proprietary rights. Predict It
has one patent application on file with the United States Patent and Trademark
Office. Predict It enters into confidentiality agreements with its employees,
consultants and distributors, and generally controls access to and distribution
of its proprietary information. Despite Predict It's efforts to protect its
proprietary rights from unauthorized use or disclosure, parties may attempt to
disclose, obtain or use its proprietary information. The steps Predict It has
taken may not prevent misappropriation of its proprietary information. Third
parties may infringe or misappropriate Predict It's proprietary rights, which
could have a material adverse effect on Predict It's business, results of
operations and financial condition. The validity, enforceability and scope of
protection of proprietary rights in Internet-related industries is uncertain and
still evolving.
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<PAGE>
Furthermore, third parties may assert infringement claims against Predict
It. Claims relating to infringement of the trademarks and other intellectual
property rights of third parties and any resultant litigation, should it occur,
could subject Predict It to significant liability for damages and could result
in the invalidation of Predict It's proprietary rights. In addition, even if
Predict It prevails, any litigation could be time-consuming and expensive to
defend, and could result in the diversion of management's time and attention,
any of which could materially adversely affect Predict It's business, results of
operations and financial condition. Any claims from third parties may also
result in limitations on Predict It's ability to use the trademarks and other
intellectual property subject to those claims unless Predict It enters into
agreements with the third parties responsible for those claims. However, such
third-party agreements may be unavailable on commercially reasonable terms.
We seek to protect our copyrights, service marks, trademarks, trade dress
and trade secrets through a combination of laws and contractual restrictions,
such as confidentiality agreements. For example, we attempt to register our
trademarks and service marks in the United States and internationally. However,
effective trademark, service mark, copyright and trade secret protection may not
be available in every country in which our services are made available online.
We currently own a number of Internet domain names, including
PredictIt.com, SportsCappers.com Predictit.net, and VirtualStockExchange.com.
Domain names generally are regulated by Internet regulatory bodies. The
relationship between regulations governing domain names and laws protecting
trademarks and similar proprietary rights is unclear. We, therefore, may be
unable to prevent third parties from acquiring domain names that infringe or
otherwise decrease the value of our trademarks and other proprietary rights.
NEW AND EXISTING REGULATION ON THE INTERNET
We are subject to the same federal, state and local laws as other companies
conducting business on the Internet. Today, there are relatively few laws
specifically directed towards online services. However, due to the increasing
popularity and use of the Internet and online services, it is possible that laws
and regulations will be adopted with respect to the Internet or online services.
These laws and regulations could cover issues such as online contracts, user
privacy, freedom of expression, pricing, fraud, content and quality of products
and services, taxation, advertising, intellectual property rights and
information security. Currently, applicability to the Internet of existing laws
governing issues such as property ownership, copyrights and other intellectual
property issues, taxation, libel, obscenity and personal privacy is uncertain.
Several states have proposed legislation that would limit the uses of
personal user information gathered online or require online services to
establish privacy policies. The Federal Trade Commission also has recently
started a proceeding with one online service regarding the manner in which
personal information is collected from users and provided to third parties.
Changes to existing laws or the passage of new laws intended to address these
issues could directly affect the way we do business or could create uncertainty
in the marketplace. This could reduce demand for our services or increase the
cost of doing business as a result of litigation costs or increased service
delivery costs, or could otherwise harm our business. In addition, because we
offer our services to users worldwide, foreign jurisdictions may claim that we
are required to comply with their laws. In some jurisdictions, we may be
required to collect value-added taxes on our fees. Our inadvertent failure to
comply with foreign laws could subject us to penalties ranging from fines to
bans on our ability to offer our services.
EMPLOYEES
As of August 12, 1999, we had 11 full time employees, including 4 in sales
and marketing, 5 in product development/technology and 2 in general and
administrative functions. From time to time, we also employ independent
contractors to support our engineering, marketing, sales and support and
administrative organizations. We depend on our key personnel to manage our
business effectively in a rapidly changing market. For a more detailed account
of our key personnel, please see the "Risk Factors" and "Management" sections.
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FACILITIES
We are headquartered in New York City, where we lease approximately 250
square feet of office space at 41 East 11th Street under a lease expiring in
August 1999. Our monthly rental payment is $3,400. We also lease approximately
700 square feet of office space at 11 Broadway, Suite 450 under a lease expiring
in August 1999. Our monthly rental payment is $1,109.38. In addition, we signed
a lease in July 1999 for approximately 4,900 square feet at 94 Eighth Avenue,
5th Floor, New York, New York. The term of this lease is 6 years, 2 months and
the average monthly payment over the term of the lease is $12,935. We believe
that our existing facility is adequate to meet our current and foreseeable
requirements or that suitable additional or substitute space will be available
as needed.
LEGAL PROCEEDINGS
Predict It is not a party to any material legal proceedings.
MANAGEMENT
The following table sets forth certain information with respect to our
executive officers, directors and key employees as of August 12, 1999:
<TABLE>
<CAPTION>
NAME AGE COMPANY POSITION AND OFFICES HELD
- ---------------------------------------------- --- ---------------------------------------------
<S> <C> <C>
Andrew Merkatz................................ 30 President and Director
Tom Courts.................................... 35 Chairman of the Board of Directors
Robert Jacobs................................. 38 Senior Vice President of Business Development
Geordie Pace.................................. 35 Senior Vice President of Product Development
Gary Cheng.................................... 25 Vice President of Business Development
and Director
Andrew Weissman............................... 32 Secretary and Director
Howard Yen.................................... 25 Director of Technology
Ajmal Khan.................................... 38 Director
Keith Rosenbloom.............................. 38 Director
Carol Lee..................................... 41 Director
Alana Oldham.................................. 29 Chief Technology Officer
</TABLE>
Tom Courts, age 35, is the Chairman of the Board and Founder of Predict It.
Since 1997, Mr. Courts has been a Director of Predict It. Between 1997 and May
1999, he held the office of President and Chief Executive Officer of Predict It.
Mr. Courts is not an employee of Predict It. Between 1995 and 1997, Mr. Courts
founded and operated a prototype quick-service restaurant specializing in
gourmet wraps, in Aspen, Colorado. Between 1989 and 1994, Mr. Courts was
involved with a start-up wholesale mortgage banking firm. Mr. Courts has a B.A.
in Economics from UCLA.
Andrew Merkatz, age 30, became the President of Predict It as of May 17,
1999. Immediately prior to joining Predict It, from 1998 to 1999, Mr. Merkatz
was the Vice President of Corporate Development and Finance for FLOORgraphics,
Inc., an out-of-home media company based in Princeton, New Jersey. Between 1995
and 1998, he was the Chief Financial Officer and Chief Operating Officer of
SiteSpecific, Inc., a New York-based Interactive Marketing Agency that he
assisted in founding in 1995. Mr. Merkatz began his career in 1990 as a Private
Equity Analyst for Interlaken Capital, Inc., in Greenwich, Connecticut. He
received his B.A. in Economics from the University of Pennsylvania and his
M.B.A. from Harvard University Graduate School of Business Administration.
Robert Jacobs, age 38, has served as Vice President of Business Development
for Predict It since July 1998 and as Senior Vice President of Business
Development since June 1999. Between 1990 and 1998, Mr. Jacobs was employed by
Bergen Brunswig Corporation, holding several sales and management positions of
increasing responsibility. Prior to Bergen Brunswig, Mr. Jacobs was a Director
of LaRae Enterprises, a private investment banking firm focusing primarily on
mergers and acquisitions. Mr. Jacobs received a B.A. in Psychology from UCLA.
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Geordie Pace, age 35, joined Predict It in June 1999 as its Senior Vice
President of Product Development. Prior to that, Mr. Pace worked at PaceKim
Partners, the Internet consulting agency that he co-founded in 1998. Between
1997 and 1998, Mr. Pace was Director of Production and Technology for CKS New
York (now USWEB/CKS), where he was responsible for creating interactive
strategies for such clients as Audi, Duracell, and W.W. Grainger. Between 1996
and 1997, Mr. Pace served as Associate Creative Director and Director of
Production at SiteSpecific Inc., a New York-based Interactive Marketing Agency
that was acquired by CKS in 1997.
Andrew Weissman, age 32, has been the Secretary and a Director of Predict
It since 1998. Since June 1998, Mr. Weissman has been a Senior Vice President
with the Dawntreader Fund I LP, which is a venture capital fund focused on early
stage Internet companies. Between November 1997 and June 1998, Mr. Weissman was
the President of Virtuosity Press, a start-up company formed to acquire the
copyrights to out-of-print and out-of-stock books. Between October 1997 and
1998, Mr. Weissman was Senior Counsel at America Online, and was responsible for
structuring and negotiating content distribution, marketing and
e-commerce-related transactions with AOL's largest distributors. He has also
practiced media and corporate law in Washington, D.C. and New York City, and
holds a B.A. in Economics from Wesleyan University and a J.D., magna cum laude,
from Georgetown University.
Gary Cheng, age 25, joined Predict It in July 1999 as its Vice President of
Business Development and as a Director. Between 1997 and July 1999, Mr. Cheng
served as the President of Virtual Stock Exchange, a New York-based stock market
simulation, message board and prediction company, which he co-founded in 1997.
Between August 1996 and 1997, Mr. Cheng served as a consultant at Systems &
Computer Technology Corporation, where he helped develop and launch their Web
for Faculty and Advisors product. Mr. Cheng holds a B.S. in Electrical
Engineering from Cornell University.
Howard Yen, age 25, joined Predict It in July 1999 as its Director of
Technology. In 1997, Mr. Yen focused primarily on all technical aspects of
Virtual Stock Exchange. Between 1995 and 1996, Mr. Yen worked as a software
designer at theglobe.com, which is a large portal on the Internet. Mr. Yen
helped build theglobe.com's proprietary chat system. In 1996, he worked as an
Internet Consultant with Siegel & Gale, a subsidiary of Saatchi & Saatchi, which
is an advertising agency. Mr. Yen holds a B.S. in Electrical Engineering from
Cornell University.
Ajmal Khan, age 38, has served as a Director of Predict It since 1999. In
1989, Mr. Khan founded Verus Capital Corp., a diversified investment group, and
has served as its President since its inception. He has been involved in
successfully structuring and syndicating North American real estate and
corporate acquisitions. Verus' principal activities involve the ownership of
hotels, venture capital financing, corporate acquisitions, and several
franchising and licensing joint ventures. Since February 1999, Mr. Khan has
served as a Director of Wattage Monitor, Inc., which provides electric rate
information over the Internet. Since October of 1998, Mr. Khan has served as a
Director of Advanced Bodymetrics, Inc., a publicly-traded high-tech company
dedicated to developing sports wristwatches that are able to monitor and display
various functions of the human body. Since July of 1998, Mr. Khan has also
served as a Director of iParty Corp., a publicly-traded company dedicated to
providing information and services with respect to coordinating parties and
events. Since June 1999, Mr. Khan has also served as a Director of On2.com Inc.,
a publicly-traded company that develops broadband video compression.
Keith Rosenbloom, age 31, has served as a Director of Predict It since
1998. Since 1992, Mr. Rosenbloom has been employed as Director of Merchant
Banking at Commonwealth Associates, L.P., which provides investment services on
the Internet. Mr. Rosenbloom holds a B.A. from Yale University.
Carol Lee, age 41, has served as a Director of Predict It since 1999. Since
1990, Ms. Lee has been employed at The Prospero Group, a real estate investment
company, where she has served as President since 1999. Between 1990 and 1998,
Ms. Lee served as Vice President of Prospero. Ms. Lee holds a Bachelor of
Commerce from the University of British Columbia and an M.B.A. from Harvard
University.
Alana Oldham, age 29, has served as our Chief Technology Officer since July
1999. Between June 1998 and July 1999, Ms. Oldham served as the Director of
Technology of Pixelpark, an international e-commerce Internet agency which is a
subsidiary of Bertelsmann AG. At Pixelpark, Ms. Oldham built strategic and
technical teams and created e-business solutions for clients such as Proctor &
Gamble, The Museum of Modern Art and Radio Shack. Prior to joining Pixelpark,
Ms. Oldham served as a technology innovator for
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companies, including THINK New Ideas, where she was a technical producer from
August 1995 to March 1996, and Sun Microsystems where she was a programmer from
October 1993 to September 1994.
INVOLVEMENT IN CERTAIN LEGAL PROCEEDINGS
During the last five years, none of the directors, executive officers or
control persons of Predict It have been:
o A party to a bankruptcy proceeding;
o Convicted in a criminal proceeding;
o Subject to any order, judgment or decree permanently or temporarily
enjoining, barring, suspending or otherwise limiting his involvement in
any type of business, securities or banking activities; or
o Found to have violated a federal or state securities or commodities law.
DIRECTOR COMPENSATION
Compensation of Directors consists solely of reimbursement of their
expenses for attending meetings.
EXECUTIVE COMPENSATION AND OTHER INFORMATION
SUMMARY COMPENSATION TABLE
The following table sets forth all compensation awarded to our Chief
Executive Officer and all of our executive officers who received compensation in
excess of $100,000 for the fiscal year ended December 31, 1998:
<TABLE>
<CAPTION>
LONG TERM COMPENSATION
-------------------------------------------------
AWARDS
-----------------------
ANNUAL COMPENSATION SECURITIES PAY-OUTS
------------------------------------ RESTRICTED UNDERLYING -----------------------
OTHER ANNUAL STOCK OPTIONS/ LTIP ALL OTHER
NAME AND POSITION YEAR SALARY BONUS COMPENSATION AWARDS SARS PAY-OUTS COMPENSATION
- ------------------------------- ---- ------------- ----- ------------ ---------- ---------- -------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Tom Courts(1) ................. 1998 $ 84,583 0 0 0 0(2) 0 0
Chief Executive Officer and 1997 $ 8,500 0 0 0 0 0 0
Director
</TABLE>
- ------------------
(1) Mr. Courts resigned as President and Chief Executive Officer on May 15,
1999.
(2) In 1999, Mr. Courts was awarded options to purchase an aggregate of 225,000
shares of our common stock.
OPTION GRANTS IN 1998
Set forth below is information on grants of stock options for our executive
officers for the fiscal year ended December 31, 1998.
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
---------------------------------------------------------
% OF TOTAL OPTIONS
NUMBER OF GRANTED TO EMPLOYEES EXERCISE PRICE
NAME OPTIONS GRANTED IN FISCAL YEAR PER SHARE EXPIRATION DATE
- ------------------------------------------ --------------- -------------------- -------------- ---------------
<S> <C> <C> <C> <C>
Robert Jacobs............................. 81,750(1) 100% $ .245 10/02/03
</TABLE>
- ------------------
(1) Upon the merger of Predict It Corp. into WDC Development, Inc., Mr. Jacobs'
prior option to purchase 14,678 shares of Series B Preferred Stock at an
exercise price of $1.3636 per share was converted into an option to purchase
81,750 shares of our common stock at an exercise price of $.245 per share.
COMPENSATION ARRANGEMENTS
On May 17, 1999, we entered into an Employment Agreement with Mr. Merkatz.
Mr. Merkatz's initial employment term expires on May 17, 2002. Mr. Merkatz
currently receives a base salary of $140,000 per year, which is subject to
review by management, and any merit increases will be subject to our company
policy. Under the terms of the agreement, Mr. Merkatz is eligible to receive a
bonus for services rendered, subject to the discretion of our Compensation
Committee. Upon executing his employment agreement,
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<PAGE>
Mr. Merkatz received options to purchase 537,198 shares of common stock at an
exercise price of $2.00 per share. Such options vest in equal portions over
three years and have anti-dilution protection. In addition, Mr. Merkatz received
a performance-based option to purchase 214,879 shares of our common stock at an
exercise price of $3.75 per share which is scheduled to vest as follows:
(i) 50% of the performance-based option shall vest on May 1, 2000 if the number
of registered users of Predict It exceeds 312,500 by such date and the page
views of Predict It for April 2000 exceed 25,000,000; and (ii) the remaining 50%
of the performance-based option shall vest on May 1, 2001 if the number of
registered users of Predict It exceeds 937,500 by such date and the page views
of Predict It for April 2001 exceed 85,714,275. However, in the event the
performance-based goals for the May 1, 2000 vesting schedule are not met by such
date, then if by May 1, 2001 the number of registered users of Predict It
exceeds 1,125,000 and the page views of Predict It for April 2001 exceed
102,857,130, then the whole performance-based option shall vest on May 1, 2001.
Such option does not have anti-dilution protection. In the event we terminate
Mr. Merkatz's employment for any reason other than "for cause,"
Mr. Merkatz will be entitled to 180 days advance written notice of the
termination and 30 days' salary.
On April 28, 1999, we entered into a Transition Agreement with Tom Courts
in conjunction with his resignation as President and Chief Executive Officer of
Predict It. Mr. Courts' Transition Agreement provides that Mr. Courts is
entitled to recover an annual base salary of $125,000 through October 28, 1999,
to be paid in equal semi-monthly installments. In addition, under the Transition
Agreement, Mr. Courts is entitled to receive an option to purchase 100,000
shares of our common stock, at an exercise price of $.60 per share. Such option
shall vest in equal quarterly amounts over a period of one year, ending May 15,
2000.
On May 1, 1999, we entered into a Consulting Agreement with Verus Capital
Corp.,one of our stockholders, for a two-year term ending April 30, 2001. Under
the agreement, Verus receives $10,000 per month plus authorized out-of-pocket
expenses for providing Predict It with consulting and advisory services relating
to its business. We have the right to terminate the agreement "for cause" and
Verus is restricted during the term of the agreement, and for two years
thereafter, from competing directly or indirectly with us by engaging in any
competitive business or by rendering any services to any competitor of ours,
except in a limited capacity as a passive investor in a publicly-traded company.
On June 9, 1999, we entered into an Employment Agreement with Mr. Pace.
Currently, Mr. Pace's base salary is $115,000 per year, which is subject to
review by management, and any merit increases will be subject to our company
policy. In addition to his base salary, Mr. Pace shall be eligible to receive an
annual bonus of up to $30,000 upon meeting certain conditions. Mr. Pace has been
granted an option to purchase 100,000 shares of common stock at an exercise
price of $2.30 per share. Such option will vest over three years with one-third
of the shares exercisable on June 9, 2000 and one-sixth of the shares
exercisable every six months thereafter. Mr. Pace is an at-will employee. In the
event we terminate Mr. Pace's employment for any reason other than "for cause"
Mr. Pace will be entitled to 30 days' salary and accrued vacation and bonus.
On June 30, 1999, we entered into an Employment Agreement with Howard Yen.
Mr. Yen's initial employment term expires on June 30, 2002. Mr. Yen currently
receives a base salary of $75,000 per year, which is subject to review by
management, and any merit increases will be subject to our company policy. Under
the terms of the agreement, Mr. Yen is eligible to receive a bonus up to $15,000
upon meeting certain conditions. In the event we terminate Mr. Yen for any
reason other than "for cause" Mr. Yen will be entitled to 30 days advance
written notice and 6 months' salary.
On June 30, 1999, we entered into an Employment Agreement with Gary Cheng.
Mr. Cheng's initial employment term expires on June 30, 2002. Mr. Cheng
currently receives a base salary of $75,000 per year, which is subject to review
by management, and any merit increases will be subject to our company policy.
Under the terms of the agreement, Mr. Cheng is eligible to receive a bonus up to
$15,000 upon meeting certain conditions. In the event we terminate Mr. Cheng for
any reason other than "for cause," Mr. Cheng will be entitled to 30 days advance
written notice and 6 months' salary.
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<PAGE>
STOCK OPTION PLAN
On April 28, 1999, upon completion of the reverse acquisition, our 1999
Stock Option Plan became effective. As of June 24, 1999, our 1999 Stock Option
Plan was amended to reserve a total of 1,500,000 shares of common stock, subject
to the approval of our stockholders.
OUR 1999 STOCK OPTION PLAN
Under our 1999 Stock Option Plan, key employees, officers, consultants and
directors are given an opportunity to acquire our shares. Our 1999 Stock Option
Plan provides for discretionary option grants, under which key employees,
officers, and consultants may be granted options to purchase our shares of
common stock at an exercise price not less than 85% of the fair market value of
our shares on the grant date. The options granted under our 1999 Stock Option
Plan may be either incentive stock options designed to meet the requirements of
Section 422 of the Internal Revenue Code of 1986, as amended, or non-statutory
options not intended to satisfy such requirements. Options may be granted to
eligible individuals in our employ or service or in the service of any
subsequent corporation.
As of June 24, 1999, our 1999 Stock Option Plan was amended to reserve a
total of 1,500,000 shares of common stock for issuance over the ten-year term of
our 1999 Stock Option Plan. Currently, there are 1,500,000 reserved shares of
our common stock which remain available for issuance.
Options have maximum terms of ten years from the grant date. Options are
not assignable or transferable other than by will or by the laws of inheritance.
The option may be exercised only by the optionee. The optionee will not have any
rights with respect to our shares of common stock underlying the options until
the options are exercised and the option price is paid for the purchased shares.
Our Board of Directors has the authority to cancel outstanding options in return
for the grant of new options for the same or a different number of shares with
an exercise price based on the lower fair market value of our common stock on
the new grant date. However, our Board of Directors may terminate our 1999 Stock
Option Plan at any time. Our 1999 Stock Option Plan terminates on April 28,
2009.
If we are acquired by merger, consolidation or asset sale, or there is a
hostile change in control, each option granted under the 1999 Stock Option Plan
may be accelerated, and all unvested shares issued under the 1999 Stock Option
Plan may be immediately vested.
RELATED PARTY TRANSACTIONS
On May 1, 1999, we entered into a Consulting Agreement with Verus for a
two-year term, ending April 30, 2001. Under the agreement, Verus receives
$10,000 per month plus authorized out-of-pocket expenses for providing us with
consulting and advisory services relating to our business. Verus is one of our
stockholders and Ajmal Khan, one of our directors, is the President and founder
of Verus.
For information concerning employment and consulting agreements with, and
compensation of Predict It's executive officers and directors, see the
"Management--Employment and Consulting Contracts" section.
We believe that the terms of the foregoing transaction are no less
favorable to us than could have been obtained from non-affiliated third parties,
although no independent appraisals were obtained.
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<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information regarding beneficial
ownership of our common stock as of August 12, 1999 as follows:
o By each person who is known by Predict It to beneficially own more than
5% of Predict It's common stock, fully diluted;
o By each of Predict It's directors;
o By each officer named under the "Management--Executive
Compensation--Summary Compensation Table"; and
o By all executive officers and directors as a group.
Except as indicated in the footnotes to this table, the persons named in
the table have sole voting and investment power with respect to all shares
beneficially owned, subject to community property laws where applicable. The
percentages set forth in the table assume 11,700,000 (including 500,000 shares
being held in escrow pending Predict It achieving certain milestones) shares of
common stock outstanding as of August 12, 1999.
<TABLE>
<CAPTION>
NUMBER OF SHARES OF
NAME AND ADDRESS COMMON STOCK PERCENTAGE OF
OF BENEFICIAL OWNER (1) BENEFICIALLY OWNED BENEFICIAL OWNERSHIP
- ------------------------------------------------------------------------ ------------------- --------------------
<S> <C> <C>
Dawntreader Fund I LP
188 West 22nd Street,
11th Floor
New York, NY 10011.................................................... 2,415,152 20.6%
Gary Cheng
c/o Predict It Inc.
41 E. 11th Street
New York, NY 10003.................................................... 1,261,683(2) 10.8%
Howard Yen
c/o Predict It Inc.
41 E. 11th Street
New York, NY 10003.................................................... 1,261,683(2) 10.8%
GEM France
712 Fifth Avenue
7th Floor
New York, NY 10019.................................................... 918,381 7.8%
Thomas Courts
c/o Predict It Inc.
41 E. 11th Street
New York, NY 10003.................................................... 675,982(3) 5.7%
Andrew Merkatz
c/o Predict It Inc.
41 E. 11th Street
New York, NY 10003.................................................... 0(4) *
Keith Rosenbloom
c/o Commonwealth Associates, L.P.
830 Third Avenue
New York, NY 10022.................................................... 466,682(5) 4.0%
</TABLE>
36
<PAGE>
<TABLE>
<S> <C> <C>
Andrew Weissman
c/o Dawntreader Fund I LP
188 West 22nd Street,
11th Floor
New York, NY 10011.................................................... 2,415,152(6) 20.6%
Carol Lee
c/o The Prospero Group 517-1177
West Hastings Street
Vancouver, B.C.
Canada V6E 2K3........................................................ 0 *
Robert Jacobs
c/o Predict It Inc.
41 East 11th Street
New York, NY 10003.................................................... 27,250(7) *
Ajmal Khan
c/o Verus Capital Corp.
1177 W. Hastings Street, Suite 2000
Vancouver, British Columbia
Canada V6E2K3......................................................... 10,000(8) *
Alana Oldham
c/o Predict It Inc.
41E. 11th Street
New York, NY 10003.................................................... 0(9) *
All Executive Officers and Directors
as a group (10 persons)............................................... 6,118,432 52.2%
</TABLE>
- ------------------
* Represents less than one (1%) percent
(1) Rule 13d-3 under the Securities exchange Act of 1934 provides the
determination of beneficial owners of securities. That rule includes as
beneficial owners of securities, any person who directly or indirectly has,
or shares, voting power and/or investment power with respect to such
securities. Rule 13d-3 also includes as a beneficial owner of a security any
person who has the right to acquire beneficial ownership of such security
within sixty days through means, including, the exercise of any options,
warrant or conversion of a security. Any securities not outstanding which
are subject to such options, warrants or conversion privileges are deemed to
be outstanding for the purpose of computing the percentage of outstanding
securities of the class owned by such person. Those securities are not
deemed to be outstanding for the purpose of computing the percentage of the
class by any other person.
(2) Includes 233,645 shares of common stock which are being held in escrow
pending Predict It's achievement of certain milestones.
(3) Includes the following: (i) an immediately exercisable option to purchase,
for a period of 5 years, 125,000 shares of common stock at an exercise price
of $.30 per share; and (ii) an option to purchase, for a period of one year,
100,000 shares of common stock, vesting in equal quarterly amounts, at an
exercise price of $.60 per share, 25,000 of which shall vest on August 15,
1999.
(4) Mr. Merkatz holds an option to purchase 537,198 shares of our common stock
at an exercise price of $2.00 per share, of which one-third shall vest on
May 19, 2000 and the remaining two-thirds shall vest every 6 months
thereafter in one-sixth increments. This option is subject to anti-dilution
protection. Mr. Merkatz also holds an option to purchase 214,879 shares of
common stock at an exercise price of $3.75 per share, of which one-third
shall vest on May 19, 2000 and the remaining two-thirds shall vest every 6
months thereafter in one-sixth increments upon attaining certain targets.
This option is not subject to anti-dilution protection.
37
<PAGE>
(5) Includes 416,683 shares of common stock that are held by Commonwealth
Associates, L.P., of which Mr. Rosenbloom is Director of Merchant Banking.
Mr. Rosenbloom disclaims beneficial ownership of such shares.
(6) Represents shares of common stock that are held by Dawntreader Fund I LP of,
which Mr. Weissman is Senior Vice President. Mr. Weissman disclaims
beneficial ownership of such shares.
(7) Represents an option to purchase 81,750 shares of common stock at an
exercise price of $.245 per share, of which 27,250 options vested on
July 19, 1999. Does not include an option to purchase 27,250 shares of
common stock at an exercise price of $2.30 per share, of which one-third
shall vest on June 24, 2000 and the remaining two-thirds shall vest every
6 months thereafter in one-sixth increments.
(8) Represents shares of common stock held by Verus Capital Corp., of which
Mr. Khan is founder and President. Mr. Khan disclaims beneficial ownership
of such shares.
(9) Ms. Oldham holds an option to purchase 120,000 shares of common stock at an
exercise price of $2.00 per share, of which one-third shall vest on
July 26, 2000 and the remaining two-thirds shall vest every 6 months
thereafter in one-sixth increments.
SELLING SECURITY HOLDERS
The following table shows for our stockholders the following information:
o The number of shares of our common stock beneficially owned by them as of
August 12, 1999 and covered by this prospectus; and
o The number of shares of common stock to be retained after this offering,
if any.
<TABLE>
<CAPTION>
COMMON STOCK(1)
------------------------------------------------
NUMBER OF SHARES NUMBER OF SHARES
OWNED PRIOR TO AND BENEFICIALLY OWNED
NAME OF SELLING SECURITY HOLDER REGISTERED IN THE OFFERING AFTER THE OFFERING
- --------------------------------------------------------------------- -------------------------- ------------------
<S> <C> <C>
Tom Courts........................................................... 750,982(2) 75,000
Dawntreader Fund I LP................................................ 2,415,152 0
Keith M. Rosenbloom.................................................. 466,682(3) 0
Robert Jacobs........................................................ 109,000(4) 81,750
Paul Yahnke.......................................................... 225,421 0
GEM France........................................................... 918,381 0
Snowmass Technologies LLC............................................ 81,697 0
Falk Family Foundation............................................... 70,841 0
Michael S. Falk...................................................... 70,841 0
Robert A. O'Sullivan Family Trust.................................... 16,664 0
Robert L. Priddy..................................................... 141,676 0
Gary N. Mansfield.................................................... 16,664 0
Ron Moschetta........................................................ 49,999 0
Commonwealth Associates, L.P......................................... 466,682 0
Navigator Holdings Corp.............................................. 546,600(5) 0
Sprott Capital S.A................................................... 546,600(5) 0
Century Capital Corp................................................. 382,716 0
Perth Management Corp................................................ 525,992(6) 0
Rock Capital Corp.................................................... 365,575 0
Salter Street Management Corp........................................ 516,815(7) 0
National Day Corporation............................................. 512,936(8) 0
Asia World Holdings, Ltd............................................. 380,830 0
Bright Outlook Consultants, Ltd...................................... 370,575 0
Pyrennes Investments Limited......................................... 522,118(9) 0
Verus Capital Corp................................................... 49,243(10) 0
Harold W. Gorden..................................................... 10,000 0
Mid-Continental Securities Corp...................................... 7,500 0
John B Lowy.......................................................... 7,500 0
</TABLE>
38
<PAGE>
<TABLE>
<CAPTION>
COMMON STOCK(1)
------------------------------------------------
NUMBER OF SHARES NUMBER OF SHARES
OWNED PRIOR TO AND BENEFICIALLY OWNED
NAME OF SELLING SECURITY HOLDER REGISTERED IN THE OFFERING AFTER THE OFFERING
- --------------------------------------------------------------------- -------------------------- ------------------
<S> <C> <C>
Alan M. Bass......................................................... 2,500 0
Sharon Brasure....................................................... 10,000 0
Leanne Donovan....................................................... 1,211 0
Robert Felch......................................................... 428 0
Jerry Gruenbaum...................................................... 1,850 0
Craig Hickok......................................................... 1,250 0
David G. Irwin....................................................... 2,500 0
Denise Johnson....................................................... 1,950 0
Jason E. Johnson..................................................... 1,950 0
K.D. Johnson......................................................... 1,950 0
Maile Johnson........................................................ 1,950 0
Aimee Masure......................................................... 1,250 0
James M. McCully..................................................... 1,000 0
Judith McCully....................................................... 1,000 0
Marla McCully........................................................ 500 0
Thomas Shakespear.................................................... 1,211 0
Stephen M. Siedow.................................................... 222,500 0
---------- --------
Total.............................................................. 10,800,682 156,750
</TABLE>
- ------------------
(1) We assume no purchase in this offering by any stockholder listed above of
any shares of our common stock and that each stockholder will sell all of
its shares being registered hereby.
(2) Includes the following: (i) an immediately exercisable option to purchase,
for a period of 5 years, 125,000 shares of common stock of an exercise
price of $.30 per share; and (ii) an option to purchase, for a period of
one year, 100,000 shares of common stock at an exercise price of $.60 per
share, of which 25,000 shares become exercisable on August 15, 1999.
(3) Includes 49,999 shares of common stock that are directly owned and 416,683
shares of common stock that are held by Commonwealth Associates, of which
Mr. Rosenbloom is Director of Merchant Banking. Mr. Rosenbloom disclaims
beneficial ownership of the stock held by Commonwealth Associates.
(4) Includes (i) an option to purchase 81,750 shares of common stock at an
exercise of $.245 per share, of which 27,250 shares became exercisable on
July 19, 1999, and (ii) an option to purchase 27,250 shares of common stock
at an exercise price of $2.30 per share.
(5) Includes 163,884 shares of our common stock underlying 163,884 shares of
Series A Preferred Stock, convertible at any time at the option of the
holder.
(6) Includes 157,704 shares of our common stock underlying 157,704 shares of
Series A Preferred Stock, convertible at any time at the option of the
holder.
(7) Includes 154,953 shares of our common stock underlying 157,704 shares of
Series A Preferred Stock convertible at any time at the option of the
holder.
(8) Includes 153,789 shares of our common stock underlying 153,789 shares of
Series A Preferred Stock, convertible at any time at the option of the
holder.
(9) Includes 156,543 shares of our common stock underlying 156,543 shares of
Series A Preferred Stock, convertible at any time at the option of the
holder.
(10) Includes 49,243 shares of our common stock underlying 49,243 shares of
Series A Preferred Stock, convertible at any time at the option of the
holder.
39
<PAGE>
PLAN OF DISTRIBUTION
We are registering the shares of our common stock covered by this
prospectus.
We will pay the costs, expenses, and fees of registering the common stock,
but our stockholders will pay any underwriting or brokerage commissions and
similar selling expenses relating to the sale of shares of their common stock.
Our stockholders may sell our common stock at market prices prevailing at
the time of the sale, at prices related to the prevailing market prices, at
negotiated prices or at fixed prices, which may change. Our stockholders may
sell some or all of their common stock through:
o Ordinary brokers' transactions, which may include long or short sales;
o Transactions involving cross or block trades or otherwise on the NASDAQ
SmallCap Market;
o Purchases by brokers, dealers or underwriters as principal and resale by
those purchasers for their own accounts under this prospectus;
o Market makers or into an existing market for the common stock;
o Transactions in options, swaps or other derivatives; or
o Any combination of the selling options described in this prospectus, or
by any other legally available means.
In addition, our stockholders may enter into hedging transactions with
broker-dealers, who may engage in short sales of our common stock in the course
of hedging the positions they assume. Finally, our stockholders may enter into
options or other transactions with broker-dealers that require the delivery of
our common stock to those broker-dealers. Subsequently, the shares may be resold
under this prospectus.
In their selling activities, our stockholders will be subject to applicable
provisions of the Securities Exchange Act of 1934 and its rules and regulations,
including Regulation M, which may limit the timing of purchases and sales of our
common stock by our stockholders.
Those of our stockholders and any broker-dealers involved in the sale or
resale of our common stock may qualify as "underwriters" within the meaning of
Section 2 (11) of the Securities Act of 1933. In addition, the broker-dealers'
commissions, discounts, or concessions may qualify as underwriters' compensation
under the Securities Act of 1933. If any broker-dealer or any of our
stockholders qualify as an "underwriter," they will be subject to the prospectus
delivery requirements of Section 153 of the Securities Act of 1933.
In conjunction with sales to or through brokers, dealers or agents, our
stockholders may agree to indemnify such brokers, dealers or agents against
liabilities arising under the Securities Act of 1933. We do not know of any
existing arrangements between our stockholders and any other stockholder,
broker, dealer, underwriter or agent relating to the sale or distribution of our
common stock.
In addition to selling their common stock under this prospectus, our
stockholders may:
o Transfer their common stock in other ways not involving market makers or
established trading markets, including by gift, distribution or other
transfer; or
o Sell their common stock under Rule 144 of the Securities Act, if the
transaction meets the requirements of Rule 144.
We have advised our stockholders that, during the time each is engaged in
distribution of their common stock, each must comply with Rule 10b-5 and
Regulation M under the Securities Exchange Act of 1934. They must do all of the
following under those rules:
o Not engage in any stabilization activity in connection with our common
stock;
o Furnish each broker who may be offering our common stock on behalf of our
stockholders the number of copies of this prospectus required by each
broker; and
o Not bid for or purchase any of our common stock or attempt to induce any
person to purchase any of our common stock, other than as permitted under
the Securities Exchange Act of 1934.
40
<PAGE>
Any of our stockholders who may be "affiliated purchasers," as defined in
Regulation M, have been further advised that they must coordinate their sales
under this prospectus with each other and us for the purposes of Regulation M.
To the extent required under the Securities Act, a supplemental prospectus
will be filed, disclosing:
o The name of any such broker-dealers;
o The number of securities involved;
o The price at which such securities are to be sold;
o The commissions paid or discounts or concessions allowed to such
broker-dealers, where applicable;
o That such broker-dealers did not conduct any investigation to verify the
information set out in this Prospectus, as supplemented; and
o Other facts material to the transaction.
There is no assurance that any of our stockholders will sell any of our
common stock.
We have agreed to keep the registration statement relating to the offering
and sale by our stockholders continuously effective until the earlier of the
sale of all their common stock or 12 months from the date of this prospectus.
DESCRIPTION OF THE CAPITAL STOCK
Our authorized capital stock consists of 25,000,000 shares of our common
stock, par value $.01 per share, and 5,000,000 shares of our preferred stock,
par value $.01 per share as set forth below.
Our Amended and Restated Certificate of Incorporation, By-laws and the
Registration Rights Agreement described below are included as exhibits to the
Registration Statement of which this prospectus forms a part.
COMMON STOCK
Our authorized common stock consists of 25,000,000 shares of common stock.
As of August 12, 1999, we had issued and outstanding 11,700,000 shares of common
stock (including 500,000 shares of common stock that are being held in escrow
pending Predict It achieving certain milestones). As of August 12, 1999, there
were approximately 45 holders of record of our common stock. In addition, we
have reserved the following shares of common stock:
o 1,000,000 shares of our common stock for conversion of our issued and
outstanding Series A Preferred Stock;
o 1,500,000 shares of our common stock under our 1999 Stock Option Plan;
and
o 206,750 shares of our common stock for existing options.
The holders of common stock are entitled to one vote for each share held of
record on all matters submitted to a vote of our stockholders. Subject to
preferences that may be applicable to any outstanding shares of our preferred
stock, the holders of our common stock are entitled to receive ratably such
dividends as may be declared by the board of directors out of funds legally
available for such dividends. In the event of our liquidation, dissolution or
winding up, holders of our common stock will be entitled to share ratably in all
assets remaining after payment of liabilities and the liquidation preferences of
any outstanding shares of preferred stock. Holders of common stock have no
preemptive rights and no right to convert their common stock into any other
securities. There are noredemption or sinking fund provisions applicable to the
common stock. All outstanding shares of common stock are fully paid and
non-assessable. The rights, preferences and privileges of holders of common
stock are subject to the rights of holders of shares of any series of preferred
stock that we may designate and issue in the future.
PREFERRED STOCK
We are authorized to issue up to 5,000,000 shares of preferred stock, par
value $.01 per share. As of August 12, 1999, 1,000,000 shares of our Series A
Preferred Stock were issued and outstanding, held by approximately 15 registered
holders. The holders of our Series A Preferred Stock have no voting power
41
<PAGE>
except as is expressly provided under Delaware law. Each share of our Series A
Preferred Stock is convertible into one share of our common stock at the option
of the holders of Series A Preferred Stock.
Pursuant to our articles of incorporation, our board of directors has the
authority, without further action by the stockholders, to issue shares of our
preferred stock in one or more series and to fix the designation, powers,
preferences, privileges and relative participating, optional or special rights
of such stock, and the qualifications, limitations or restrictions thereof,
including dividend rights, conversion rights, voting rights, terms of redemption
and liquidation preferences, any or all of which may be greater than the rights
of the common stock. Our board of directors, without stockholder approval, may
issue preferred stock with voting, conversion of other rights that could
adversely affect the voting power and other rights of the holder of our common
stock. Therefore, our preferred stock may be issued quickly, with terms that may
delay or prevent a change in control or make removal of management more
difficult. Additionally, the issuance of preferred stock may have the effect of
decreasing the market price of the common stock and may adversely affect the
voting and other rights of the holders of common stock.
REGISTRATION RIGHTS
In connection with our acquisition of VSE, Messrs. Cheng, Yen and Appleby
who received in the aggregate 2,700,000 shares of our common stock (including
500,000 shares of common stock that are being held in escrow pending Predict It
achieving certain milestones) pursuant to such acquisition, are entitled to
certain rights with respect to the registration of such shares under the
Securities Act. They are entitled to certain demand registration rights pursuant
to which they may require Predict It to file a registration statement under the
Securities Act at our expense with respect to all or a portion of the shares of
common stock held by either of them, their affiliates and permitted transferees,
and we are required to use commercially reasonable efforts to effect such
registration. If Predict It proposes to register any of its securities under the
Securities Act, either for its own account or for the account of other security
holders (other than a registration of our securities filed on Form S-4 or S-8 of
the Securities Act), Messrs. Cheng, Yen and Appleby are entitled to certain
"piggy back" registration rights pursuant to which they may require us to
include all or a portion of their shares in such registration. In addition,
pursuant to his employment agreement, Mr. Merkatz is entitled to certain "piggy
back" registration rights pursuant to which he may require us to include all or
a portion of his shares in such registration. All of these registration rights
are subject to certain conditions and limitations, among them the right of an
underwriter of an offering to limit the number of shares included in such
registration, and our right not to effect a demand registration during the
period starting with the fourteenth day immediately preceding the date of an
anticipated filing by us of, and ending on a date ninety (90) days following the
effective date of, a registration statement pertaining to this offering.
OPTIONS
We have issued 13 options to purchase an aggregate of 1,415,077 shares of
our common stock representing the following: (i) an option to purchase 100,000
shares of our common stock at an exercise price of $.60 per share, vesting in
quarterly amounts over a period of one year, commencing April 28, 1999; (ii) an
option to purchase 537,198 shares of our common stock at an exercise price of
$2.00 per share, of which one-third shall vest on May 19, 2000 and the remaining
two-thirds shall vest every 6 months thereafter, in one-sixth increments
commencing May 19, 1999; (iii) an option to purchase 125,000 shares of our
common stock at an exercise price of $.30 per share, which vested as of
January 11, 1999; (iv) an option to purchase 100,000 shares of our common stock
at an exercise price of $2.30 per share, of which one-third shall vest on
June 4, 2000 and the remaining two-thirds shall vest every 6 months thereafter,
commencing as of June 24, 1999 in one-sixth increments; (v) an option to
purchase 40,000 shares of our common stock at an exercise price of $2.30 per
share, of which one-third shall vest on June 4, 2000 and the remaining
two-thirds shall vest every 6 months thereafter, commencing as of June 24, 1999
in one-sixth increments; (vi) an option to purchase 27,250 shares of our common
stock at an exercise price of $2.30 per share, of which one-third shall vest on
June 24, 2000 and the remaining two-thirds shall vest every 6 months thereafter,
commencing as of June 24, 1999 in one-sixth increments; (vii) an option to
purchase 10,000 shares of our common stock at an exercise price of $2.30 per
share, of which one-third shall vest on November 23, 1999 and the remaining
two-thirds shall vest every 6 months thereafter, commencing as of June 24, 1999
in one-sixth increments; and
42
<PAGE>
(viii) an option to purchase 81,750 shares of our common stock at an exercise
price of $.245 per share, vesting over 3 years, commencing as of July 19, 1999;
(ix) an option to purchase 214,879 shares of common stock at an exercise price
of $3.75 per share, of which one-third shall vest on May 19, 2000 and the
remaining two-thirds shall vest every 6 months thereafter, commencing as of
May 19, 1999 in one-sixth increments; (x) an option to purchase 30,000 shares of
common stock at an exercise price of $2.00 per share, of which one-third shall
vest on July 21, 2000 and the remaining two-thirds shall vest every 6 months
thereafter, commencing as of July 27, 1999 in one-sixth increments; (xi) an
option to purchase 120,000 shares of our common stock at an exercise price of
$2.00 per share, of which one-third shall vest on July 26, 2000 and the
remaining two-thirds shall vest every 6 months thereafter, commencing as of
July 27, 1999 in one-sixth increments; (xii) an option to purchase 4,000 shares
of our common stock at an exercise price of $2.00 per share, of which one-third
shall vest on July 26, 2000 and the remaining two-thirds shall vest every
6 months thereafter, commencing as of July 27, 1999 in one-sixth increments; and
(xiii) an option to purchase 25,000 shares of common stock at an exercise price
$2.00 per share, of which one-twelfth shall vest on January 27, 2000 and the
remaining eleven-twelfths shall vest every 3 months thereafter, commencing as of
July 27, 1999 in one-twelfth increments.
TRANSFER AGENT AND REGISTRAR
The Transfer Agent and Registrar for Predict It's Common Stock is
Continental Stock Transfer & Trust, Inc., subject to confirmation by the board
of directors. As neither the convertible preferred stock nor the options is
registered, Predict It acts as its own Transfer Agent and Registrar as to such
securities.
SHARES ELIGIBLE FOR FUTURE SALE
We currently have 11,700,000 (including 500,000 shares that are being held
in escrow pending Predict It achieving certain milestones) shares of common
stock outstanding, of which 9,000,000 shares are freely tradeable without
restriction or further registration under the Securities Act of 1933. However,
any shares purchased by an affiliate of ours will be subject to the resale
limitations of Rule 144 under the Securities Act of 1933. An affiliate is a
person who has a control relationship with us. The remaining shares of common
stock are held by us. Rule 144 provides that a person who has satisfied a
one-year holding period for any restricted shares may sell within any
three-month period an amount of restricted shares that does not exceed the
greater of:
o one percent of that class of outstanding shares; or
o the average weekly trading volume of that class of securities during
the four calendar weeks prior to such sale.
Sales under Rule 144 are also subject to certain manner of sale provisions,
notice requirements and the availability of current public information about us.
In addition, under Rule 144, persons who are not affiliated with us and who have
held their restricted shares for at least two years are not subject to the
quantity limitations or the manner of sale restrictions.
In addition, 1,000,000 shares of our common stock underlying the shares of
Series A Preferred Stock will, upon conversion of the Series A Preferred Stock,
be freely tradeable without restriction or further registration. Also, 206,750
shares of our common stock underlying the options will, upon exercise of the
options, be freely tradeable without restriction or further registration.
REGISTRATION RIGHTS
Upon completion of this offering, the holders of 2,700,000 shares of our
common stock (including 500,000 shares of common stock being held in escrow
pending Predict It achieving certain milestones, and 752,077 shares of common
stock underlying 752,077 options to purchase common stock), or their permitted
transferees, will be entitled to certain rights with respect to the registration
of such shares under the Securities Act. Please see "Description of Capital
Stock--Registration Rights" for a description of such rights. Upon a
registration, these shares will become freely tradeable without restriction
under the Securities Act. Any sales of securities by these stockholders could
have a material adverse effect on the trading price of our common stock.
43
<PAGE>
LEGAL MATTERS
The validity of the common stock offered under this prospectus will be
passed upon for us by our counsel, Camhy Karlinsky & Stein LLP, New York, New
York. An attorney affiliated with Camhy Karlinsky & Stein LLP may be deemed to
have beneficial ownership of 2,415,152 shares of our common stock, although such
beneficial ownership is disclaimed.
EXPERTS
This registration statement includes the financial statements of Predict It
Inc., as of December 31, 1998, for the period from September 2, 1997 (inception)
through December 31, 1997 and for the year ended December 31, 1998, and the
financial statements of Virtual Stock Exchange, Inc. as of December 31, 1998 and
for the period from January 7, 1997 (inception) through December 31, 1997 and
for the year ended December 31, 1998, which have been audited by Richard A.
Eisner and Company, LLP, independent certified public accountants. These
financials have been included herein in reliance upon the audit reports
appearing elsewhere herein, given upon the authority of said firm as experts in
accounting and auditing.
DISCLOSURE OF COMPANY POSITION ON
INDEMNIFICATION FOR SECURITIES ACT LIABILITIES
Our certificate of incorporation and by-laws provide that we shall
indemnify all directors and officers of ours to the fullest extent permitted by
Delaware Law. Under such provisions, any director or officer, who in his
capacity as such is made or threatened to be made, party to any suit or
proceeding, shall be indemnified if it is determined that such director or
officer acted in good faith and in a manner he reasonably believed to be in or
not opposed to the best interests of Predict It. Insofar as indemnification for
liabilities arising under the Securities Act of 1933 may be permitted to
directors, officers and persons controlling Predict It pursuant to the foregoing
provision, or otherwise, we have been advised that in the opinion of the
Commission such indemnification is against public policy as expressed in the
Securities Act of 1933 and is, therefore, unenforceable.
We maintain directors' and officers' liability insurance providing
aggregate coverage of $5,000,000.
44
<PAGE>
PREDICT IT INC.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
CONTENTS PAGE
- -------------------------------------------------------------------------------------------------------- ----
<S> <C>
PREDICT IT INC.
Financial Statements
Independent auditors' report............................................................................ F-2
Balance sheets as of December 31, 1998 and March 31, 1999 (unaudited)................................... F-3
Statements of operations for the period from September 2, 1997 (inception) through December 31, 1997,
the year ended December 31, 1998 and the three months ended March 31, 1998 (unaudited) and March 31,
1999 (unaudited)...................................................................................... F-4
Statements of changes in stockholders' equity for the period from September 2, 1997 (inception) through
December 31, 1997, the year ended December 31, 1998 and the three months ended March 31, 1999
(unaudited)........................................................................................... F-5
Statements of cash flows for the period from September 2, 1997 (inception) through December 31, 1997,
the year ended December 31, 1998 and the three months ended March 31, 1998 (unaudited) and March 31,
1999 (unaudited)...................................................................................... F-6
Notes to financial statements........................................................................... F-7
<CAPTION>
VIRTUAL STOCK EXCHANGE, INC.
<S> <C>
Financial Statements
Independent auditors' report............................................................................ F-12
Balance sheets as of December 31, 1998 and March 31, 1999 (unaudited)................................... F-13
Statements of operations for the period from January 7, 1997 (inception) through December 31, 1997, the
year ended December 31, 1998, the three months ended March 31, 1998 (unaudited) and March 31, 1999
(unaudited)........................................................................................... F-14
Statements of changes in stockholders' equity for the period from January 7, 1997 (inception) through
December 31, 1997, the year ended December 31, 1998 and the three months ended March 31, 1999
(unaudited)........................................................................................... F-15
Statements of cash flows for the period from January 7, 1997 (inception) through December 31, 1997, the
year ended December 31, 1998, the three months ended March 31, 1998 (unaudited) and March 31, 1999
(unaudited)........................................................................................... F-16
Notes to financial statements........................................................................... F-17
<CAPTION>
UNAUDITED PRO FORMA FINANCIAL STATEMENTS
<S> <C>
Unaudited pro forma balance sheet as of March 31, 1999 and unaudited pro forma statements of operations
for the three months ended March 31, 1999 and for the year ended December 31, 1998 and the notes
thereto............................................................................................... F-19
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Directors and Stockholders
Predict It Inc.
New York, New York
We have audited the accompanying balance sheet of Predict It Inc. as of December
31, 1998 and the related statements of operations, changes in stockholders'
equity and cash flows for the year then ended and for the period from September
2, 1997 (inception) through December 31, 1997. These financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements enumerated above present fairly, in all
material respects, the financial position of Predict It Inc. as of December 31,
1998 and the results of its operations and its cash flows for the year then
ended and for the period from September 2, 1997 (inception) through December 31,
1997 in conformity with generally accepted accounting principles.
New York, New York
April 28, 1999
With respect to Note H, June 9, 1999,
Note I, June 30, 1999 and
Note D, July 6, 1999
F-2
<PAGE>
PREDICT IT INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31, MARCH 31,
1998 1999 1999
------------ ----------- -----------
(UNAUDITED) (UNAUDITED)
(PRO FORMA)
NOTE A
<S> <C> <C> <C>
ASSETS
Current assets:
Cash................................................................. $113,772 $ 170,101 $ 3,101,136
Prepaid expenses and other current assets............................ 4,075 26,813
-------- --------- -----------
Total current assets................................................... 117,847 196,914 3,101,136
Capitalized software costs, net of accumulated amortization of $5,374
and $13,436....................................................... 59,121 51,059 51,059
Computer equipment, net of accumulated depreciation of $5,253 and
$6,756............................................................ 12,798 11,295 11,295
Other assets......................................................... 9,128 7,070 7,070
-------- --------- -----------
$198,894 $ 266,338 $ 3,170,560
-------- --------- -----------
-------- --------- -----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses................................ $ 72,729 $ 34,094 $ 34,094
-------- --------- -----------
Commitments (Notes D and H)
Stockholders' equity:
Series A convertible preferred stock, $.001 par value, 1,000,000
shares authorized, 250,000 shares issued and outstanding in
1998.............................................................. 250
Series B convertible preferred stock, $.001 par value, 1,000,000
shares authorized, 183,338 issued and outstanding in 1998......... 183
Common stock, $.001 par value, 2,000,000 shares authorized, 315,256
shares issued and outstanding in 1998............................. 317
Preferred stock, $.01 par value, 5,000,000 shares authorized, none
issued at March 31, 1999; 1,000,000 Series A convertible preferred
shares issued and outstanding pro forma (stated at liquidation
preference of $3,000,000)......................................... $ 3,000,000
Common stock, $.01 par value, 25,000,000 shares authorized, 5,000,000
shares issued and outstanding at March 31, 1999; 9,000,000 shares
issued and outstanding pro forma.................................. 50,000 90,000
Additional paid-in capital............................................. 654,586 861,065 725,287
Deficit................................................................ (529,171) (678,821) (678,821)
-------- --------- -----------
126,165 232,244 3,136,466
-------- --------- -----------
$198,894 $ 266,338 $ 3,170,560
-------- --------- -----------
-------- --------- -----------
</TABLE>
See notes to financial statements
F-3
<PAGE>
PREDICT IT INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
SEPTEMBER 2,
1997
(INCEPTION) THREE MONTHS ENDED
THROUGH YEAR ENDED MARCH 31,
DECEMBER 31, DECEMBER 31, ------------------------
1997 1998 1998 1999
------------ ------------ ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C>
Revenue:
User fees............................................. $ 7,712 $ 135 $ 2,800
Advertising........................................... 6,000 797
---------- ---------- ----------
13,712 135 3,597
---------- ---------- ----------
Costs and expenses:
Site development/maintenance.......................... 177,783 38,708
Selling, general and administrative................... $ 21,402 340,698 17,150 114,539
Interest expense...................................... 3,000
-------- ---------- ---------- ----------
21,402 521,481 17,150 153,247
-------- ---------- ---------- ----------
Net loss................................................ $(21,402) $ (507,769) $ (17,015) $ (149,650)
-------- ---------- ---------- ----------
-------- ---------- ---------- ----------
Net loss per share--basic and diluted................... $ (.04) $ (.21) $ (.01) $ (.03)
-------- ---------- ---------- ----------
-------- ---------- ---------- ----------
Weighted average number of shares outstanding........... 488,412 2,381,327 1,241,206 4,898,144
-------- ---------- ---------- ----------
-------- ---------- ---------- ----------
</TABLE>
See notes to financial statements
F-4
<PAGE>
PREDICT IT INC.
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
SERIES A SERIES B
CONVERTIBLE CONVERTIBLE
COMMON STOCK PREFERRED STOCK PREFERRED STOCK COMMON STOCK
PAR VALUE $.01 PAR VALUE $.001 PAR VALUE $.001 PAR VALUE $.001
-------------------- ------------------ ------------------ ------------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
--------- ------- -------- ------ -------- ------ -------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Issuance of common stock for cash
and equipment ($6,700)........... 94,500 $ 95
Issuance of common stock for cash.. 40,500 41
Net loss for the period
September 2, 1997 (inception)
through December 31, 1997...
-------- ----
Balance at December 31, 1997....... 135,000 136
Issuance of common stock for cash.. 165,000 165
Issuance of common stock as
settlement for accrued interest.. 578 1
Issuance of common stock for non-
employee services................ 14,678 15
Issuance of preferred stock for
cash............................. 250,000 $250
Issuance of preferred stock for
cash............................. 183,338 $183
Net loss for the year ended
December 31, 1998.............
-------- ---- -------- ---- -------- ----
Balance at December 31, 1998....... 250,000 250 183,338 183 315,256 317
Issuance of preferred stock for
cash............................. 149,726 150
Net loss for the three months
ended March 31, 1999..........
Grant of options to employee by
stockholder......................
Recapitalization in connection
with merger into WDC.......... 5,000,000 $50,000 (250,000) (250) (333,064) (333) (315,256) (317)
--------- ------- -------- ---- -------- ---- -------- ----
Balance at March 31, 1999
(unaudited)...................... 5,000,000 $50,000 0 $ 0 $ 0 $ 0 0 $ 0
--------- ------- -------- ---- -------- ---- -------- ----
--------- ------- -------- ---- -------- ---- -------- ----
<CAPTION>
ADDITIONAL
PAID-IN
CAPITAL DEFICIT TOTAL
---------- --------- --------
<S> <C> <C> <C>
Issuance of common stock for cash
and equipment ($6,700)........... $ 9,905 $ 10,000
Issuance of common stock for cash.. 29,959 30,000
Net loss for the period
September 2, 1997 (inception)
through December 31, 1997... $ (21,402) (21,402)
-------- --------- --------
Balance at December 31, 1997....... 39,864 (21,402) 18,598
Issuance of common stock for cash.. 99,835 100,000
Issuance of common stock as
settlement for accrued interest.. 657 658
Issuance of common stock for non-
employee services................ 14,663 14,678
Issuance of preferred stock for
cash............................. 249,750 250,000
Issuance of preferred stock for
cash............................. 249,817 250,000
Net loss for the year ended
December 31, 1998............. (507,769) (507,769)
-------- --------- --------
Balance at December 31, 1998....... 654,586 (529,171) 126,165
Issuance of preferred stock for
cash............................. 249,850 250,000
Net loss for the three months
ended March 31, 1999.......... (149,650) (149,650)
Grant of options to employee by
stockholder...................... 5,729 5,729
Recapitalization in connection
with merger into WDC.......... (49,100) 0
-------- --------- --------
Balance at March 31, 1999
(unaudited)...................... $861,065 $(678,821) $232,244
-------- --------- --------
-------- --------- --------
</TABLE>
See notes to financial statements
F-5
<PAGE>
PREDICT IT INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
SEPTEMBER 2,
1997
(INCEPTION) THREE MONTHS ENDED
THROUGH YEAR ENDED MARCH 31,
DECEMBER 31, DECEMBER 31, ---------------------
1997 1998 1998 1999
------------ ------------ -------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net loss.................................................. $(21,402) $ (507,769) $(17,015) $(149,650)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization.......................... 1,122 95,210 560 9,565
Stock issued for services.............................. 14,678
Compensation expense related to option grant........... 5,729
Changes in:
Prepaid expenses and other assets.................... (13,203) (1,022) (20,680)
Accounts payable and accrued expenses................ 3,007 69,722 7,937 (38,635)
-------- ---------- -------- ---------
Net cash used in operating activities....................... (17,273) (341,362) (9,540) (193,671)
-------- ---------- -------- ---------
Cash flows from investing activities:
Cost incurred to develop software......................... (15,925) (134,275) (11,390)
Purchase of computer equipment............................ (11,318)
-------- ---------- -------- ---------
(15,925) (145,593) (11,390)
-------- ---------- -------- ---------
Cash flows from financing activities:
Issuance of capital stock................................. 33,267 600,658 50,000 250,000
Loans from related parties................................ 60,000
Loan repayments to related parties........................ (60,000)
-------- ---------- -------- ---------
Net cash provided by financing activities................... 33,267 600,658 50,000 250,000
-------- ---------- -------- ---------
Net increase in cash........................................ 69 113,703 29,070 56,329
Cash--beginning of period................................... 69 69 113,772
-------- ---------- -------- ---------
Cash--end of period......................................... $ 69 $ 113,772 $ 29,139 $ 170,101
-------- ---------- -------- ---------
-------- ---------- -------- ---------
Supplemental disclosure of cash flow information:
Interest paid during the period........................... $ 3,000
Supplemental disclosures of noncash investing and financing
activities:
Issuance of common stock for equipment.................... $ 6,700
Issuance of common stock as settlement for accrued
interest............................................... $ 658
</TABLE>
See notes to financial statements
F-6
<PAGE>
PREDICT IT INC.
NOTES TO FINANCIAL STATEMENTS
(INFORMATION WITH RESPECT TO MARCH 31, 1999 AND THE THREE MONTHS ENDED
MARCH 31, 1999 AND 1998 IS UNAUDITED)
NOTE A--THE COMPANY AND OPERATIONS
On April 28, 1999, Predict It Corp. ("PIC"), which was formed in August
1998 in connection with the reincorporation of Sportscappers, Inc. (which was
incorporated on September 2, 1997), was merged with and into WDC Development,
Inc. ("WDC"), a non-operating public shell company. In connection with the
merger, each of the common and preferred shares of PIC were exchanged for
5.5659453 shares of WDC's common stock, resulting in the issuance of 5,000,000
common shares of WDC. Immediately prior to the merger, the existing shareholders
of WDC held 4,000,000 common shares and 1,000,000 preferred shares. Accordingly,
upon completion of the merger, the shareholders of PIC owned 55.55% of the
outstanding common shares of WDC and the premerger shareholders of WDC owned
44.45% of the outstanding common shares of WDC. The 1,000,000 shares of
preferred stock owned by premerger shareholders of WDC are nonvoting and
convertible into 1,000,000 shares of common stock of WDC. Upon completion of the
merger, WDC's Board of Directors consisted of three members from PIC and two
members from WDC. WDC's assets at the date of the merger consisted of $2,931,035
in cash, representing the proceeds remaining from $3,000,000 received in
exchange for the issuance of 1,000,000 shares of preferred stock and $37,200
received in exchange for the issuance of 3,720,000 shares of common stock in
February and March 1999. Following the merger, WDC changed its name to Predict
It Inc. (the "Company").
The merger has been accounted for as a recapitalization of PIC together
with the issuance of 3,720,000 common shares and 1,000,000 preferred shares in
exchange for net proceeds of $2,931,035. Retroactive effect has been given to
the recapitalization in the accompanying historical financial statements at
March 31, 1999 and all per share amounts and numbers of shares have been
adjusted to reflect the exchange ratio.
The accompanying pro forma balance sheet reflects the issuance of the
preferred and common shares in exchange for $2,931,035, together with a charge
to paid-in-capital of $26,813 for deferred merger costs included in the balance
sheet at March 31, 1999, as if the merger had occurred on March 31, 1999. The
remaining 280,000 common shares of WDC outstanding at the date of the merger are
recorded in the pro forma balance sheet by a charge to additional paid-in
capital for their par value of $2,800.
The Company, which was in the development stage during 1997 and part of
1998, develops and distributes interactive Internet applications. The Company's
"prediction exchange" allows users to pick and exchange predictions with other
users. The Company's initial product offering, "Predict It! Sports", (originally
launched as Sportscappers in March 1998 and relaunched in September 1998) allows
users to pick and exchange predictions on sporting events with fellow users. The
database engine then calculates the accuracy of these predictions and allows
users to view the entries. Users may post predictions and view the predictions
of others free of charge. Revenues are principally earned by the sale of
advertisements either directly or on a revenue sharing basis with other websites
through which the product is marketed. In addition, through November 1998, users
were charged a transaction fee for accessing the predictions. Revenue is shared
with the users each time their predictions are viewed.
NOTE B--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
1. REVENUE RECOGNITION:
Transaction fees from users were recognized as revenue at the time
predictions were accessed by users. Advertising revenue is earned from both
fixed fee arrangements and fees based on the number of occasions a user views an
advertisement ("impression"). Revenues under fixed fee arrangements, which
provide for ads being shown month to month are recognized in the month the ads
are exhibited. Revenue based on number of impressions is recognized at the time
the guaranteed number of impressions is achieved, and thereafter in the period
the impressions are delivered.
F-7
<PAGE>
PREDICT IT INC.
NOTES TO FINANCIAL STATEMENTS
(INFORMATION WITH RESPECT TO MARCH 31, 1999 AND THE THREE MONTHS ENDED
MARCH 31, 1999 AND 1998 IS UNAUDITED)--(CONTINUED)
NOTE B--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
2. COMPUTER EQUIPMENT:
Computer equipment is stated at cost less accumulated depreciation.
Depreciation is computed using the straight-line method over an estimated useful
life of three years.
3. SOFTWARE COSTS:
In accordance with Statement of Position 98-1, "Accounting for the Costs of
Computer Software Developed or Obtained for Internal Use" issued in March 1998
and adopted by the Company, external direct costs of materials and services
incurred and payroll and related benefits for employees who devoted time in
connection with obtaining or developing internal use software were capitalized.
Capitalized software costs are being amortized on a straight-line basis over an
estimated useful life of two years. Amortization expense for the year ended
December 31, 1998 and for the three months ended March 31, 1999 was
approximately $90,000 and $8,000, respectively, and has been included in site
development/maintenance in the accompanying statements of operations.
Amortization for the year ended December 31, 1998, includes approximately
$49,000 for the write off of unamortized software costs which were deemed to be
impaired as a result of rebuilding the site through use of a new provider. Also,
site development/maintenance expense in 1998 includes compensation of $64,678
paid to the former source provider related to the transition to the new website.
4. LOSS PER SHARE:
Basic and diluted net loss per share is computed based on the weighted
average number of common shares outstanding for the periods and gives
retroactive effect to the shares issued in the recapitalization. Potential
common shares resulting from exercise of options are not included in the
calculation of diluted net loss per share as their effect would be
anti-dilutive.
5. STOCK-BASED COMPENSATION:
The Company accounts for its stock-based compensation plans using the
intrinsic value method prescribed by Accounting Principles Board Opinion No. 25
("APB No. 25"), "Accounting for Stock Issued to Employees." Under the provisions
of APB No. 25, compensation arising from the grant of stock options is measured
as the excess, if any, of the quoted market price of the Company's common stock
at the date of the grant over the amount an employee must pay to acquire the
stock.
6. ADVERTISING EXPENSE:
Advertising is expensed as incurred. Advertising expense amounted to
approximately $0 (1997), $23,000 (1998), $5,000 (3 months--1998) and $0
(3 months--1999).
7. 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.
8. UNAUDITED FINANCIAL STATEMENTS:
The financial information presented as of March 31, 1999 and for the
three-month periods ended March 31, 1999 and 1998 is unaudited, but in the
opinion of management contains all adjustments (consisting of only
F-8
<PAGE>
PREDICT IT INC.
NOTES TO FINANCIAL STATEMENTS
(INFORMATION WITH RESPECT TO MARCH 31, 1999 AND THE THREE MONTHS ENDED
MARCH 31, 1999 AND 1998 IS UNAUDITED)--(CONTINUED)
NOTE B--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
normal recurring adjustments) necessary for a fair presentation of such
financial information. Results of operations for interim periods are not
necessarily indicative of those to be achieved for full fiscal years.
NOTE C--RELATED PARTY TRANSACTIONS
During 1998, the Company borrowed and repaid $60,000 from two of its
stockholders at rates of 12%--15%. Interest expense related to such loans
amounted to $3,000 in 1998.
NOTE D--LEASE AGREEMENTS
The Company has two month to month agreements to sublease office space.
Rent expense was approximately $14,000 (1998), $800 (1997), $800
(3 months--1998) and $11,000 (3 months--1999). Other assets in the accompanying
balance sheets include security deposits for the leases of $6,870. On July 6,
1999, the Company entered into a six year and two months lease for office space
expiring August 2005 which provides for average monthly payments over the term
of the lease of approximately $13,000 aggregating approximately $962,000.
NOTE E--STOCK OPTIONS
On April 28, 1999, upon completion of the merger, the Company adopted the
1999 Stock Option Plan which provides for option grants to key employees,
officers and consultants to purchase up to 1,500,000 shares of common stock at
an exercise price not less than 85% of the fair market value on the grant date.
The options, which will have maximum terms of ten years, may be either incentive
stock options or nonstatutory options. The plan terminates after ten years.
In October 1998 and January 1999, PIC granted options to purchase shares of
Series B Preferred stock to two officers at exercise prices equivalent to the
estimated fair value of the stock at date of grant. Upon the merger into WDC,
the options were converted, based on the exchange ratio, into options to
purchase 81,750 and 125,000 shares of the Company's common stock at exercise
prices of $.245 and $.30 per share, respectively. The options for 125,000
shares, which expire in January 2004, are exerciseable upon grant and the
options for the 81,750 shares which expire in October 2003 become exerciseable
in three equal installments on July 19, 1999, 2000 and 2001. Additionally, in
January 1999, one of such officers was granted an option by a major shareholder
to purchase shares of Series B preferred stock, which upon the merger into WDC,
was converted into an option to purchase 104,167 shares of the Company's common
stock from such shareholder at an exercise price of $.245 per share.
Compensation expense of $5,729 was charged to operations in the quarter ended
March 31, 1999 in connection with such grant.
As set forth in Note B[5], the Company applies APB No. 25 in accounting for
its stock option incentive plans and, accordingly, recognizes compensation
expense for the difference between the fair value of the underlying common stock
and the exercise price of the option at the date of grant. Pro forma information
regarding net income and earnings per share is required by Statement of
Financial Accounting Standards No. 123 ("SFAS 123") "Accounting for Stock-Based
Compensation" and has been determined as if the Company had accounted for its
employee stock options under the fair value method of SFAS 123. The weighted
average fair value of options granted in 1998 and 1999 was approximately $.17
and $.15, respectively. Such fair value was determined using the Black-Scholes
option-pricing model with the following assumptions: dividend yield of 0%,
volatility of 70%, risk free interest rate of 4.62%, and expected life of three
years. For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the vesting period of the options. Had the
Company elected to recognize compensation expense based on SFAS 123, pro forma
net loss and net
F-9
<PAGE>
PREDICT IT INC.
NOTES TO FINANCIAL STATEMENTS
(INFORMATION WITH RESPECT TO MARCH 31, 1999 AND THE THREE MONTHS ENDED
MARCH 31, 1999 AND 1998 IS UNAUDITED)--(CONTINUED)
NOTE E--STOCK OPTIONS--(CONTINUED)
loss per share for the year ended December 31, 1998 and the three months ended
March 31, 1999 would have been approximately $(513,000) and $(187,000) and
$(.22) and $(.04), respectively.
See Note H for additional grants of stock options.
NOTE F--INCOME TAXES
The Company provides for income taxes in accordance with Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes" ("SFAS
No. 109"). SFAS No. 109 requires deferred tax assets and liabilities to be
recognized for the future tax consequences attributable to net operating loss
carryforwards and for differences between the financial statement carrying
amounts and tax bases of assets and liabilities. Deferred tax assets are
reduced, if necessary, by a valuation allowance if it is more likely than not
that some portion or all of the deferred tax assets will not be realized.
The Company elected to be taxed as an S corporation under the Internal
Revenue Code and accordingly, the Company was not subject to federal, state or
local corporate income taxes as taxable income or loss flowed through directly
to its stockholders. The Company terminated its S corporation status during
August 1998 when it issued preferred stock and accordingly, effective at such
time, the Company's income tax status was converted from a S corporation to that
of a C corporation.
As of December 31, 1998, the Company has a net operating loss carryforward
of approximately $170,000, the utilization of which will be subject to
limitations as a result of changes in stock ownership attributable to the
merger. The Company at such date had a deferred tax asset of approximately
$75,000 attributable to such carryforward which was offset by a valuation
allowance.
The following presents the income tax benefit and related increase in the
valuation allowance. For periods prior to August 1998, when the Company was
taxed as an S corporation the amounts are pro forma as if the Company was
taxable as a C corporation:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
----------------------
1997 1998 1998 1999
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Deferred:
Federal..................................................... $ (6,000) $(142,000) $ (5,000) $ (42,000)
State....................................................... (4,000) (81,000) (3,000) (24,000)
--------- --------- --------- ---------
Total income tax benefit................................. (10,000) (223,000) (8,000) (66,000)
Valuation allowance........................................... 10,000 223,000 8,000 66,000
--------- --------- --------- ---------
Income tax provision (benefit)................................ $ 0 $ 0 $ 0 $ 0
--------- --------- --------- ---------
--------- --------- --------- ---------
</TABLE>
NOTE G--PREFERRED STOCK
The Board of Directors has the authority, without further action by the
stockholders, to issue 5,000,000 shares of authorized preferred stock in one or
more series and to fix the designation, powers, preferences, privileges and
rights of such stock, and the qualifications, limitations or restrictions
thereof, including dividend rights, conversion rights, voting rights, terms of
redemption and liquidation preferences. The 1,000,000 shares of Series A
Preferred Stock, which was issued for $3,000,000 by WDC prior to the merger has
a liquidation preference of $3.00 per share or $3,000,000, is nonvoting, does
not provide for any dividend and is convertible into 1,000,000 shares of common
stock on a share for share basis.
F-10
<PAGE>
PREDICT IT INC.
NOTES TO FINANCIAL STATEMENTS
(INFORMATION WITH RESPECT TO MARCH 31, 1999 AND THE THREE MONTHS ENDED
MARCH 31, 1999 AND 1998 IS UNAUDITED)--(CONTINUED)
NOTE H--COMMITMENTS
1. EMPLOYMENT AGREEMENTS:
In May 1999, the Company executed a three year employment agreement with
its President. The agreement provides for an annual salary of $140,000, subject
to increases at the discretion of the Compensation Committee of the Board of
Directors. The agreement also provides for a discretionary performance bonus as
determined by the Board. In connection with the employment agreement, the
Company granted options to the President to purchase 537,198 shares common stock
at an exercise price of $2.00 per share. The options vest in equal portions over
three years and have anti-dilution protection. In addition, the President was
granted five year performance based options to purchase 214,879 shares of common
stock of the Company at an exercise price of $3.75 per share. Vesting of the
options occurs as to 50% on May 1, 2000 and 50% on May 1, 2001 based on the
number of registered users and page views exceeding certain targets by such
dates.
On June 9, 1999, the Company entered into a three-year employment agreement
with an employee which provides for an annual base salary of $115,000 and an
annual bonus not to exceed $20,000. In addition, the employee was granted an
option to purchase 100,000 shares of common stock at an exercise price of $2.30.
The option will vest over three years.
2. CONSULTING AND OTHER AGREEMENTS:
In April 1999, the Company entered into an agreement with the Company's
current Chairman (formerly the President and Chief Executive Officer), in
connection with his resignation. The agreement provides for payments aggregating
$62,500 and also provides for an option to purchase 100,000 shares of common
stock at $.60 per share. The option vests quarterly through May 2000.
On May 1, 1999, the Company executed a two year consulting agreement with
Verus Capital Inc. ("Verus"), a stockholder of the Company. Verus will provide
business advisory and consulting services for a monthly fee of $10,000.
NOTE I--SUBSEQUENT ACQUISITION
On June 30, 1999, the Company acquired Virtual Stock Exchange, Inc.
("VSE"), a company which develops and distributes interactive internet
applications where users manage hypothetical stock portfolios and conduct mock
trading. VSE's stockholders exchanged all of their outstanding common stock for
2,700,000 shares of the Company's common stock, including 500,000 shares to be
held in escrow with 50% of such shares being released in January 2000 and the
remaining 50% to be released in January 2001, upon the Company attaining certain
specified amounts of registered users and page views as of December 31, 1999 and
December 31, 2000, respectively. If the milestones are not achieved, the shares
will be returned to the Company and cancelled. The acquisition is being
accounted for by the purchase method.
In connection with the acquisition, the Company entered into three-year
employment agreements with two former stockholders of VSE which provide for
aggregate annual base salaries of $150,000 and annual aggregate bonuses not to
exceed $30,000.
F-11
<PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Directors and Stockholders
Virtual Stock Exchange, Inc.
New York, New York
We have audited the accompanying balance sheet of Virtual Stock Exchange, Inc.
as of December 31, 1998 and the related statements of operations, changes in
capital deficiency and cash flows for the year then ended and for the period
from January 7, 1997 (inception) through December 31, 1997. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements enumerated above present fairly, in all
material respects, the financial position of Virtual Stock Exchange, Inc. as of
December 31, 1998 and the results of its operations and its cash flows for the
year then ended and for the period from January 7, 1997 (inception) through
December 31, 1997 in conformity with generally accepted accounting principles.
New York, New York
July 27, 1999
F-12
<PAGE>
VIRTUAL STOCK EXCHANGE, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1998 1999
--------------- -----------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash.............................................................................. $39,570 $ 44,684
Accounts receivable, net.......................................................... 16,532 11,578
------- ---------
Total current assets.............................................................. 56,102 56,262
Capitalized software costs, net of accumulated amortization of $13,500 and
$15,750........................................................................ 4,500 2,250
Computer equipment, net of accumulated depreciation of $3,281 and $5,459.......... 19,374 27,632
Other assets...................................................................... 3,647 4,371
------- ---------
$83,623 $ 90,515
------- ---------
------- ---------
LIABILITIES AND CAPITAL DEFICIENCY
Current liabilities:
Accrued expenses.................................................................. $ 1,303 $ 2,600
Accrued interest.................................................................. 10,000
Capitalized lease obligation--current portion..................................... 6,187 9,489
------- ---------
Total current liabilities......................................................... 7,490 22,089
Capitalized lease obligation...................................................... 6,964 12,533
Notes payable--stockholders....................................................... 100,000 100,000
Accrued interest.................................................................. 8,000
------- ---------
122,454 134,622
------- ---------
Commitments
Capital deficiency:
Common stock, $10 par value, 1,500 shares authorized, 100 shares in 1998 and 107
shares in 1999 issued and outstanding.......................................... 1,000 1,070
Additional paid-in capital........................................................ 17,000 103,284
Deficit........................................................................... (56,831) (148,461)
------- ---------
(38,831) (44,107)
------- ---------
$83,623 $ 90,515
------- ---------
------- ---------
</TABLE>
See notes to financial statements.
F-13
<PAGE>
VIRTUAL STOCK EXCHANGE, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
JANUARY 7, 1997
(INCEPTION) THREE MONTHS ENDED
THROUGH YEAR ENDED MARCH 31,
DECEMBER 31, DECEMBER 31, ---------------------
1997 1998 1998 1999
---------------- ------------ -------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C>
Revenue:
User fees............................................. $ 19,149 $ 16,461 $ 973 $ 1,829
Advertising........................................... 50,736 12,748 36,004
-------- -------- -------- ---------
19,149 67,197 13,721 37,833
-------- -------- -------- ---------
Costs and expenses:
Site development/maintenance.......................... 25,305 49,460 13,517 15,452
Selling, general and administrative................... 10,663 48,981 10,995 110,749
Interest expense, net................................. 2,000 6,768 866 3,262
-------- -------- -------- ---------
37,968 105,209 25,378 129,463
-------- -------- -------- ---------
Net loss.............................................. $(18,819) $(38,012) $(11,657) $ (91,630)
-------- -------- -------- ---------
-------- -------- -------- ---------
</TABLE>
See notes to financial statements
F-14
<PAGE>
VIRTUAL STOCK EXCHANGE, INC.
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (CAPITAL DEFICIENCY)
<TABLE>
<CAPTION>
COMMON STOCK
PAR VALUE $10 ADDITIONAL
---------------- PAID-IN
SHARES AMOUNT CAPITAL DEFICIT TOTAL
------ ------ ---------- --------- --------
<S> <C> <C> <C> <C> <C>
Issuance of common stock for services..................... 100 $1,000 $ 17,000 $ 18,000
Net loss for the period January 7, 1997 (inception)
through December 31, 1997............................ $ (18,819) (18,819)
---- ------ -------- --------- --------
Balance at December 31, 1997.............................. 100 1,000 17,000 (18,819) (819)
Net loss for the year ended December 31, 1998........... (38,012) (38,012)
---- ------ -------- --------- --------
Balance at December 31, 1998.............................. 100 1,000 17,000 (56,831) (38,831)
Issuance of common stock for services..................... 7 70 86,284 86,354
Net loss for the three months ended
March 31, 1999....................................... (91,630) (91,630)
---- ------ -------- --------- --------
Balance at March 31, 1999 (unaudited)..................... 107 $1,070 $103,284 $(148,461) $(44,107)
---- ------ -------- --------- --------
---- ------ -------- --------- --------
</TABLE>
See notes to financial statements
F-15
<PAGE>
VIRTUAL STOCK EXCHANGE, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
JANUARY 7, 1997
(INCEPTION) THREE MONTHS ENDED
THROUGH YEAR ENDED MARCH 31,
DECEMBER 31, DECEMBER 31, --------------------
1997 1998 1998 1999
---------------- ------------ -------- --------
<S> <C> <C> <C> <C>
(UNAUDITED)
Cash flows from operating activities:
Net loss................................................ $(18,819) $(38,012) $(11,657) $(91,630)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Depreciation and amortization........................ 4,969 11,812 2,250 4,428
Issuance of common stock for services................ 86,354
Changes in:
Accounts receivable................................ (16,532) 4,954
Other assets....................................... (3,647) (724)
Accrued expenses and accrued interest.............. 2,625 6,678 376 3,297
-------- -------- -------- --------
Net cash provided by (used in) operating activities....... (11,225) (39,701) (9,031) 6,679
-------- -------- -------- --------
Cash flows from investing activities:
Purchase of computer equipment.......................... (2,414) (6,242)
-------- -------- -------- --------
Cash flows from financing activities:
Loans from stockholders................................. 50,000 50,000
Repayments on capital lease obligations................. (848) (1,565)
-------- -------- -------- --------
Net cash provided by (used in) financing activities....... 50,000 49,152 (1,565)
Net increase (decrease) in cash........................... 36,361 3,209 (9,031) 5,114
-------- -------- -------- --------
Cash--beginning of period................................. 36,361 36,361 39,570
-------- -------- -------- --------
Cash--end of period....................................... $ 36,361 $ 39,570 $ 27,330 $ 44,684
Supplemental disclosure of cash flow information:
Interest paid during the period......................... $ 768 $ 1,262
Supplemental disclosures of noncash investing and
financing activities:
Issuance of common stock for services................... $ 18,000
Purchase of equipment through capital lease............. $ 13,999 $ 10,436
</TABLE>
See notes to financial statements
F-16
<PAGE>
VIRTUAL STOCK EXCHANGE, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998
(INFORMATION WITH RESPECT TO MARCH 31, 1999 AND FOR THE PERIODS ENDED
MARCH 31, 1999 AND MARCH 31, 1998 IS UNAUDITED)
NOTE A--THE COMPANY AND OPERATIONS
Virtual Stock Exchange, Inc. ("VSE"), which was formed in January 1997,
develops and distributes interactive internet application where individuals
create and manage hypothetical stock portfolios, conduct mock trading, and
compete with other members for prize money based on their portfolio performance.
The web site also provides quotes and research on U.S. financial markets through
links to other sites and provides a forum for individuals to exchange ideas with
other members on a variety of investment topics.
NOTE B--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
1. REVENUE RECOGNITION:
The Company offers a basic service which, starting in 1998, is free to
users. In addition, starting in 1998, the Company offers users a premium service
as an upgrade to the basic service, for a monthly user fee. User fees are
recognized as revenue pro rata over the subscription period.
Advertising revenue is earned from both fixed fee arrangements and fees
based on the number of occasions a user views an advertisement ("impression").
Revenues under fixed fee arrangements, which provide for ads being shown
month-to-month are recognized in the month the ads are exhibited. Revenue based
on number of impressions is recognized at the time the guaranteed number of
impressions is achieved.
2. COMPUTER EQUIPMENT:
Computer equipment is stated at cost less accumulated depreciation.
Depreciation is computed using the straight-line method over an estimated useful
life of three years.
3. SOFTWARE COSTS:
In accordance with Statement of Position 98-1, of the American Institute of
Certified Public Accountants "Accounting for the Costs of Computer Software
Developed or Obtained for Internal Use" issued in March 1998 and adopted by the
Company, external direct costs of materials and services incurred and payroll
and related benefits for employees who devoted time in connection with obtaining
or developing internal use software were capitalized. Capitalized software costs
are being amortized on a straight-line basis over an estimated useful life of
two years.
Amortization expense for the year ended December 31, 1998 and the period
from January 7, 1997 through December 31, 1997 was approximately $9,000 and
$4,500, respectively and has been included in site development/maintenance in
the accompanying financial statements. Amortization expense for the three months
ended March 31, 1999 and 1998 was $2,250 for each period.
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. UNAUDITED FINANCIAL STATEMENTS:
The financial information presented as of March 31, 1999 and for the
three-month periods ended March 31, 1999 and 1998 is unaudited, but in the
opinion of management contains all adjustments (consisting of only normal
recurring adjustments) necessary for a fair presentation of such financial
information. Results of operations for interim periods are not necessarily
indicative of those to be achieved for full fiscal years.
F-17
<PAGE>
VIRTUAL STOCK EXCHANGE, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1998
(INFORMATION WITH RESPECT TO MARCH 31, 1999 AND FOR THE PERIODS ENDED
MARCH 31, 1999 AND MARCH 31, 1998 IS UNAUDITED)
NOTE C--RELATED PARTY TRANSACTIONS
During 1997 and 1998, the Company borrowed an aggregate of $100,000 from
its founders at an interest rate of 8% per annum. Interest expense related to
such loans amounted to $2,000 (1997), $6,000 (1998), $1,000 (3 months--1998) and
$2,000 (3 months--1999). Interest is payable semi-annually beginning January 1,
2000 and the principal is due on June 1, 2002.
NOTE D--LEASE AGREEMENT
The Company had a lease for office space that expired on June 30, 1999. The
Company is continuing to lease the space on a month to month basis. Rent expense
was approximately none (1997), $7,000 (1998), none (3 months--1998) and $3,000
(3 months--1999). Other assets in the accompanying balance sheets include
security deposits for the leases of $3,647.
NOTE E--OBLIGATION UNDER CAPITAL LEASE
Minimum future lease payments under a capital lease agreement for each of
the remaining years and in the aggregate are:
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1998 1999
------------ ---------
<S> <C> <C>
1999................................................................ $ 9,690
2000................................................................ 8,075 $14,545
2001................................................................ 10,507
2002................................................................ 4,450
-------- -------
Total minimum lease payments........................................ 17,765 29,502
Less amounts representing interest.................................. 4,614 7,480
-------- -------
Present value of minimum lease payments............................. 13,151 22,022
Less current portion of capital lease obligation.................... 6,187 9,489
-------- -------
Capital lease obligation, noncurrent................................ $ 6,964 $12,533
-------- -------
-------- -------
</TABLE>
Interest expense on capital lease obligations was approximately $1,000 for
the year ended December 31, 1998 and $1,300 for the three months ended March 31,
1999.
NOTE F--INCOME TAXES
The Company has elected to be taxed as an S corporation for federal and
state income tax purposes. The Company is subject to New York City corporate
income tax. Federal and state income taxes on the Company's income are the
responsibility of the individual stockholders.
NOTE G--SUBSEQUENT EVENT
On June 30, 1999, VSE was acquired by Predict It Inc.
F-18
<PAGE>
UNAUDITED PRO FORMA BALANCE SHEET AS OF MARCH 31, 1999 AND UNAUDITED PRO FORMA
STATEMENTS OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 1999 AND FOR THE
YEAR ENDED DECEMBER 31, 1998
Business Acquired Subsequent to Year End
On June 30, 1999, Predict It Inc. (the "Company") acquired all of the
issued and outstanding common shares of Virtual Stock Exchange ("VSE"), a
company which develops and distributes interactive internet applications, in
exchange for 2,700,000 common shares of the Company (including 500,000 shares to
be held in escrow) (the "Acquisition"). The Acquisition will be accounted for as
a purchase. The shares held in escrow are to be released as follows: 50% of such
shares in January 2000 and the remaining 50% to be released in January 2001 upon
the Company attaining certain specified amounts of registered users and page
views as of December 31, 1999 and December 31, 2000, respectively. If the
milestones are not achieved, the shares will be returned to the Company and
cancelled.
The unaudited pro forma balance sheet is presented as if the Acquisition
had occurred on March 31, 1999. The unaudited pro forma statements of operations
for the three months ended March 31, 1999 and for the year ended December 31,
1998 are presented as if the Acquisition had occurred at the beginning of the
periods presented.
The pro forma financial statements have been prepared based on the audited
and unaudited financial statements of the Company and VSE, which financial
statements are included elsewhere in this Registration Statement. These pro
forma financial statements are not intended to be indicative of the results that
would have occurred on the dates indicated or which may be realized in the
future.
F-19
<PAGE>
PREDICT IT INC.
UNAUDITED PRO FORMA BALANCE SHEET
MARCH 31, 1999
<TABLE>
<CAPTION>
PREDICT IT INC. VIRTUAL STOCK PRO FORMA
PRO FORMA FOR EXCHANGE, INC. PRO FORMA FOR
REORGANIZATION(A) HISTORICAL ADJUSTMENTS ACQUISITION
----------------- -------------- ----------- -----------
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash.............................................. $ 3,101,136 $ 44,684 $ 3,145,820
Accounts receivable............................... 11,578 11,578
----------- ---------- ----------- -----------
Total current assets................................ 3,101,136 56,262 3,157,398
Capitalized software costs.......................... 51,059 2,250 53,309
Computer equipment.................................. 11,295 27,632 38,927
Intangibles......................................... $ 1,364,107(b) 1,364,107
Other assets........................................ 7,070 4,371 11,441
----------- ---------- ----------- -----------
$ 3,170,560 $ 90,515 $ 1,364,107 $ 4,625,182
----------- ---------- ----------- -----------
----------- ---------- ----------- -----------
LIABILITIES
Current liabilities:
Accounts payable and accrued expenses............. $ 34,094 $ 2,600 $ 36,694
Accrued interest.................................. 10,000 10,000
Capitalized lease obligations..................... 9,489 9,489
----------- ---------- ----------- -----------
Total current liabilities........................... 34,094 22,089 56,183
Long-term liabilities:
Capitalized lease obligations..................... 12,533 12,533
Notes payable, stockholders....................... 100,000 100,000
----------- ---------- ----------- -----------
34,094 134,622 168,716
----------- ---------- ----------- -----------
STOCKHOLDERS' EQUITY
Preferred stock..................................... 3,000,000 3,000,000
Common stock........................................ 90,000 1,070 20,930 112,000
Additional paid-in-capital.......................... 725,287 103,284 1,194,716 2,023,287
Deficit............................................. (678,821) (148,461) 148,461 (678,821)
----------- ---------- ----------- -----------
Total stockholders' equity.......................... 3,136,466 (44,107) 1,364,107 4,456,466
----------- ---------- ----------- -----------
$ 3,170,560 $ 90,515 $ 1,364,107 $ 4,625,182
----------- ---------- ----------- -----------
----------- ---------- ----------- -----------
</TABLE>
F-20
<PAGE>
PREDICT IT INC.
UNAUDITED PRO FORMA STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
VIRTUAL
STOCK ADJUSTED
PREDICT IT INC. EXCHANGE, INC. PRO FORMA PRO FORMA
HISTORICAL HISTORICAL ADJUSTMENTS CONSOLIDATED
--------------- -------------- ----------- ------------
<S> <C> <C> <C> <C>
Revenue:
User fees........................................... $ 7,712 $ 16,461 $ 24,173
Advertising......................................... 6,000 50,736 56,736
----------- -------- ------------
13,712 67,197 80,909
----------- -------- ------------
Costs and expenses:
Site development/maintenance........................ 177,783 49,460 227,243
Selling, general and administrative................. 340,698 48,981 $ 114,000(d) 503,679
Amortization of intangible.......................... 455,000(c) 455,000
Interest expense.................................... 3,000 6,768 9,768
----------- -------- --------- ------------
521,481 105,209 569,000 1,195,690
----------- -------- --------- ------------
Net loss.............................................. $ (507,769) $(38,012) $(569,000) $ (1,114,781)
----------- -------- --------- ------------
----------- -------- --------- ------------
Net loss per share--basic and diluted................. $ (0.21) $ (.24)
----------- ------------
----------- ------------
Weighted average number of shares outstanding......... 2,381,327 4,581,327(e)
----------- ------------
----------- ------------
</TABLE>
F-21
<PAGE>
PREDICT IT INC.
UNAUDITED PRO FORMA STATEMENT OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1999
<TABLE>
<CAPTION>
VIRTUAL
STOCK ADJUSTED
PREDICT IT INC. EXCHANGE, INC. PRO FORMA PRO FORMA
HISTORICAL HISTORICAL ADJUSTMENTS CONSOLIDATED
--------------- -------------- ----------- ------------
<S> <C> <C> <C> <C>
Revenue:
User fees........................................... $ 2,800 $ 1,829 $ 4,629
Advertising......................................... 797 36,004 36,801
----------- -------- ------------
3,597 37,833 41,430
----------- -------- ------------
Costs and expenses:
Site development/maintenance........................ 38,708 15,452 54,160
Selling, general and administrative................. 114,539 110,749 $ 29,000(d) 254,288
Amortization of intangible.......................... 114,000(c) 114,000
Interest expense.................................... 3,262 3,262
----------- -------- --------- ------------
153,247 129,463 143,000 425,710
----------- -------- --------- ------------
Net loss.............................................. $ (149,650) $(91,630) $(143,000) $ (384,280)
----------- -------- --------- ------------
----------- -------- --------- ------------
Net loss per share--basic and diluted................. $ (0.03) $ (0.05)
----------- ------------
----------- ------------
Weighted average number of shares outstanding......... 4,898,144 7,098,144(e)
----------- ------------
----------- ------------
</TABLE>
F-22
<PAGE>
PREDICT IT INC.
NOTES TO UNAUDITED PRO FORMA FINANCIAL INFORMATION
(a) Reflects the merger with and into WDC Development, Inc., which was
consummated on April 28, 1999. The merger has been accounted for as a
recapitalization.
(b) Represents the purchase price ($1,320,000 which is computed on the
basis of 2,200,000 shares issued as consideration valued at $.60 per share) plus
the net liabilities assumed of $44,107. Does not include 500,000 shares of the
Company's common stock to be held in escrow with 50% of such shares being
released in January 2000 and the remaining 50% to be released in January 2001,
upon the Company attaining certain specified amounts of registered users and
page views.
(c) Represents amortization expense of intangibles resulting from the
acquisition, which is being amortized over a period of 3 years.
(d) Represents the impact of employment agreements entered into upon
consummation of the acquisition.
(e) Does not include 500,000 held in escrow. See item (b) above.
F-23
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The registrant's articles of incorporation eliminate the personal liability
of directors to the registrant or its stockholders for monetary damages for
breach of fiduciary duty to the extent permitted by Delaware law. The
registrant's articles of incorporation and by-laws provide that the registrant
shall indemnify its officers and directors to the extent permitted by Delaware
law, which authorizes a corporation to indemnify directors, officers, employees
or agents of the corporation in non-derivative suits if such party acted in good
faith and in a manner such party reasonably believed to be in or not opposed to
the best interest of the corporation and, with respect to any criminal action or
proceeding, had no reasonable cause to believe his or her conduct was unlawful.
The Delaware General Corporation Act further provides that indemnification shall
be provided if the party in question is successful on the merits or otherwise.
The Company also has insurance policies which covers acts by directors and
officers of the Company.
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the costs and expenses, payable in
connection with the sale of the common stock being registered hereby. Except for
the Commission's registration fee, all expenses are estimated.
<TABLE>
<CAPTION>
ITEM AMOUNT
- --------------------------------------------------------------------- -----------
<S> <C>
SEC registration fee................................................. $ 4,057.60
Printing and engraving expenses...................................... $ 25,000.00
Legal fees and expenses.............................................. $ 60,000.00
Auditors' accounting fees and expenses............................... $ 40,000.00
Miscellaneous expenses............................................... $ 5,942.40
-----------
Total.............................................................. $135,000.00
-----------
-----------
</TABLE>
In addition, holders of the shares being registered under this registration
statement will be responsible for all selling commissions, transfer taxes and
related charges in connection with the offer and sale of the shares offered.
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES.
On July 27, 1999, we issued to Miranda Langan, an employee, an option to
purchase 30,000 shares of our common stock at an exercise price of $2.00 per
share. On July 27, 1999, we also issued to Alana Oldham, an employee, an option
to purchase 120,000 shares of our common stock at an exercise price of $2.00 per
share. In addition, on July 27, 1999, we issued to Joanne Van Wranken, an
employee, an option to purchase 4,000 shares of our common stock at an exercise
price of $2.00 per share. Finally, on July 27, 1999, we issued to Peter Norris,
an employee, an option to purchase 25,000 shares of our common stock at an
exercise price of $2.00 per share. In connection with these transactions, we
relied on the statutory exemption provided by Section 4(2) of the Securities Act
of 1933, because these issuances did not involve public offerings.
On June 30, 1999, we acquired Virtual Stock Exchange, Inc. from its 3
stockholders, and issued to them an aggregate of 2,700,000 shares of our common
stock. In connection with these transactions we relied on the statutory
exemption provided by Section 4(2) of the Securities Act of 1933, because these
issuances did not involve public offerings.
On June 24, 1999, we issued to Robert Jacobs, an employee, an option to
purchase 27,250 shares of our common stock at an exercise price of $2.30 per
share. On June 24, 1999, we also issued to Brendan McGovern, an employee, an
option to purchase 10,000 shares of our common stock at an exercise price of
$2.30 per share. In addition, on June 24, 1999, we issued to Geordie Pace, an
employee, an option to purchase 100,000 shares of our common stock at an
exercise price of $2.30 per share. Finally, on June 24, 1999, we issued to Jihan
Kim, an employee, an option to purchase 40,000 shares of our common stock at an
exercise price of $2.30 per share. In connection with these transactions, we
relied on the statutory exemption provided by Section 4(2) of the Securities Act
of 1933, because these issuances did not involve public offering.
II-1
<PAGE>
On April 28, 1999, we completed a merger with Predict It Corp. In
connection with the merger, we converted all of the outstanding capital stock in
Predict It Corp. into an aggregate of 5,000,000 shares of our common stock. We
relied on the statutory exemption provided by Section 4(2) of the Securities Act
of 1933, because these issuances did not involve public offerings. On April 28,
1999, we completed an offering of 1,000,000 shares of our Series A Preferred
Stock to several institutional investors. We raised $3,000,000 from that
offering, which was made pursuant to the exemption from registration provided by
Rule 506 of Regulation D, promulgated under the Securities Act of 1933 as an
offering solely to accredited investors not involving any public offering.
On March 4, 1999, we completed an offering of 713,600 shares of our common
stock to several institutional investors. We raised $7,136 from that offering
which was made pursuant to the exemption from registration provided by Rule 504
of Regulation D, promulgated under the Securities Act of 1933 as an offering
solely to accredited investors not involving any public offering.
On February 25, 1999, we completed an offering of 25,000 shares of our
common stock to 2 individuals and 1 entity in return for consulting services
provided to us. The offering was made pursuant to the exemption from
registration provided by Rule 504 of Regulation D, promulgated under the
Securities Act of 1933 as an offering solely to accredited investors not
involving any public offering.
On February 19, 1999, we completed an offering of 3,006,400 shares of our
common stock to several institutional investors. We raised $30,064 from that
offering which was made pursuant to the exemption from registration provided by
Rule 504 of Regulation D, promulgated under the Securities Act of 1933 as an
offering solely to accredited investors not involving any public offering.
On January 11, 1999, our predecessor, Predict It Corp., issued to Tom
Courts, our former President and Chief Executive Officer, an option to purchase
22,458 shares of Series B Preferred Stock at an exercise price of $1.6697 per
share. We relied on the statutory exemption provided by Section 4(2) of the
Securities Act of 1933, because the issuance did not involve a public offering.
In connection with the reverse acquisition of Predict It Corp., the option was
converted into an option to acquire 125,000 shares of our common stock at an
exercise price of $.30 per share. The option is exercisable at any time and
expires on January 11, 2004.
On October 3, 1998, Predict It Corp. issued to Robert Jacobs, an employee,
an option to purchase 14,678 shares of Series B Preferred Stock at an exercise
price of $1.3636 per share. We relied on the statutory exemption provided by
Section 4(2) of the Securities Act of 1933, because the issuance did not involve
a public offering. In connection with the reverse acquisition of Predict It
Corp., the option was converted into an option to acquire 81,750 shares of our
common stock at an exercise price of $.245 per share. The option is exercisable
in three equal amounts on each of July 19, 1999, July 19, 2000 and July 19,
2001.
On January 15, 1996, we issued 255,000 shares of our common stock to the
three original members of the Board of Directors. We raised $255 from that
issuance, which was made pursuant to the statutory exemption provided by Section
4(2) of the Securities Act of 1933, because these issuances did not involve
public offerings.
ITEM 27. EXHIBITS.
The following exhibits are filed as part of this registration statement:
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- ------ --------------------------------------------------------------------------------------------------------
<S> <C>
2.1 Agreement and Plan of Merger by and between Predict It Corp. and WDC Development, Inc.*
2.2 Agreement and Plan of Merger and Reorganization by and among the Registrant, PII Acquisition Corp.,
Virtual Stock Exchange, Inc., Gary Cheng, Howard Yen and Scott Appleby*
3.1 Certificate of Incorporation of the Registrant, as amended*
3.2 By-Laws of the Registrant*
4.1 Certificate of Designation of Series A Preferred Stock*
4.2 Specimen of Registrant's Common Stock*
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
---- --------------------------------------------------------------------------------------------------------
<S> <C>
4.3 Registration Rights Agreement by and among the Registrant, Gary Cheng, Howard Yen and Scott Appleby*
5.1 Opinion and Consent of Camhy Karlinsky & Stein LLP*
10.1 1999 Stock Option Plan*
10.2 Employment Agreement between Registrant and Andrew Merkatz*
10.3 Employment Agreement between Registrant and Howard Yen*
10.4 Transition Agreement between Registrant and Tom Courts*
10.5 Employment Agreement between Registrant and Gary Cheng*
10.6 Employment Agreement between Registrant and Geordie Pace*
23.1 Consent of Camhy Karlinsky & Stein LLP, included in Exhibit 5.1*
23.2 Consent of Richard A. Eisner & Company, LLP*
24 Power of Attorney, included in II-4.*
</TABLE>
- ------------------
* filed herewith
ITEM 28. UNDERTAKINGS.
1. To file, during any period in which offers or sales of the securities
are being made, a post-effective amendment to this registration statement to:
(i) Include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933, as amended
(ii) Reflect in the prospectus any facts or events which, individually
or together, represent a fundamental change in the information in the
registration statement. Notwithstanding the foregoing, any increase or
decrease in volume of securities offered may be reflected in the form of
prospectus filed with the Commission under Rule 424(b) if, in aggregate,
the changes in the volume and price represent no more than a 20% change in
the maximum aggregate offering price set forth in the "Calculation of
Registration Fee" table in the effective registration statement;
(iii) To include any additional or changed material information on the
plan of distribution.
2. That, for the purpose of determining liability under the Securities Act
or 1933, it shall treat each post-effective amendment as a new registration
statement of the securities offered, and treat the offering of the securities at
that time as an initial bona fide offering.
3. To remove from registration by means of a post-effective amendment any
of the securities being registered which remains unsold at the termination of
the offering.
To the extent that indemnification for liabilities arising under the
Securities Act or 1933 may be permitted to directors, officers and controlling
persons of the company pursuant to the provisions described in Item 15, or
otherwise, the company has been advised that, in the opinion of the Securities
and Exchange Commission, such indemnification is against public policy as
expressed in the Securities Act of 1933 and is, therefore, unenforceable.
In the event a claim for indemnification against such liabilities, other
than the payment by the company of expenses incurred or paid by a director,
officer of controlling person of the company in the successful defense of any
action, suit or proceeding, is asserted by such director, officer or controlling
person in connection with the shares being registered hereby, the company 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 as to
whether such indemnification by the company against public policy as expressed
in the Securities Act of 1933 and will be governed by the final adjudication of
such issue.
II-3
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
CERTIFIES THAT IT HAS REASONABLE GROUNDS TO BELIEVE THAT IT MEETS ALL OF THE
REQUIREMENTS FOR FILING ON FORM SB-2 AND HAS DULY CAUSED THIS REGISTRATION
STATEMENT ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE
CITY OF NEW YORK, STATE OF NEW YORK, ON THE 13TH DAY OF AUGUST,1999.
PREDICT IT INC.
By: /s/ ANDREW MERKATZ
----------------------------------
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Andrew Merkatz, as 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, any related registration statements and any subsequent registration
statement filed by the Registrant pursuant to Rule 462(b) of the Securities Act
of 1933 and to file same, with exhibits thereto and other documents in
connection therewith, with the Securities and Exchange Commission, granting unto
said attorneys-in-fact and agent, full power and authority to do separately and
perform each and every act and thing requisite and necessary to be done, as
fully to all intents and purposes as he might or could so in person, hereby
ratifying and confirming all that said attorneys-in-fact and agent, or their
substitutes may lawfully do or cause to be done by virtue hereof.
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS
REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE
CAPACITIES AND ON THE DATES INDICATED.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------------------ ---------------------------------------------- ----------------
<S> <C> <C>
/s/ ANDREW MERKATZ President and Director August 13, 1999
- ------------------------------------------ (Principal Executive Officer)
Andrew Merkatz
/s/ TOM COURTS Director August 13, 1999
- ------------------------------------------
Tom Courts
/s/ ANDREW WEISSMAN Director August 13, 1999
- ------------------------------------------
Andrew Weissman
/s/ AJMAL KHAN Director August 13, 1999
- ------------------------------------------
Ajmal Khan
/s/ KEITH ROSENBLOOM Director August 13, 1999
- ------------------------------------------
Keith Rosenbloom
/s/ CAROL LEE Director August 13, 1999
- ------------------------------------------
Carol Lee
</TABLE>
II-4
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- ------ --------------------------------------------------------------------------------------------------------
<S> <C>
2.1 Agreement and Plan of Merger by and between Predict It Corp. and WDC Development, Inc.*
2.2 Agreement and Plan of Merger and Reorganization by and among the Registrant, PII Acquisition Corp.,
Virtual Stock Exchange, Inc., Gary Cheng, Howard Yen and Scott Appleby*
3.1 Certificate of Incorporation of the Registrant, as amended*
3.2 By-Laws of the Registrant*
4.1 Certificate of Designation of Series A Preferred Stock*
4.2 Specimens of Registrant's Common Stock*
4.3 Registration Rights Agreement by and among the Registrant, Gary Cheng, Howard Yen and Scott Appleby*
5.1 Opinion and Consent of Camhy Karlinsky & Stein LLP*
10.1 1999 Stock Option Plan*
10.2 Employment Agreement between Registrant and Andrew Merkatz*
10.3 Employment Agreement between Registrant and Howard Yen*
10.4 Transition Agreement between Registrant and Tom Courts*
10.5 Employment Agreement between Registrant and Gary Cheng*
10.6 Employment Agreement between Registrant and Geordie Pace*
23.1 Consent of Camhy Karlinsky & Stein LLP, included in Exhibit 5.1*
23.2 Consent of Richard A. Eisner & Company, LLP*
24 Power of Attorney*
</TABLE>
- ------------------
* filed herewith
<PAGE>
AGREEMENT AND PLAN OF MERGER
BY AND BETWEEN
PREDICT IT CORP.
AND
WDC DEVELOPMENT INC.
<PAGE>
AGREEMENT AND PLAN OF MERGER
BY AND BETWEEN
PREDICT IT CORP.
AND
WDC DEVELOPMENT INC.
THIS AGREEMENT AND PLAN OF MERGER (this "Agreement"), is dated
as of April 28, 1999, by and between Predict It Corp., a Delaware corporation,
whose address is 41 E. 11th Street, New York, New York 10003 ("PIC"), and WDC
Development Inc., a Delaware corporation, whose address is 12373 E. Cornell
Avenue, Aurora, Colorado 80014 (the "Company"). The Company shall be the
surviving corporation of the proposed merger between the Company and PIC and, in
such capacity, the Company shall sometimes be referred to herein as the
"Surviving Corporation." The Company and PIC are collectively referred to herein
as the "Constituent Entities."
W I T N E S S E T H:
WHEREAS, the Board of Directors of PIC and the Board of
Directors of the Company have determined that it is advisable and in the best
interests of their respective equity owners to consummate the business
combination transaction provided for herein in which PIC would merge with and
into the Company (the "Merger"); and
WHEREAS, PIC and the Company desire to make certain agreements
in connection with the Merger.
<PAGE>
NOW, THEREFORE, in consideration of the mutual premises,
covenants and agreements set forth in this Agreement, and for other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:
I. THE MERGER.
Section 1.01 The Merger
At the Effective Time (as defined in Section 1.02), upon the
terms and subject to the conditions of this Agreement, PIC shall be merged with
and into the Company in accordance with the Delaware General Corporation Law
(the "DGCL"). The Company shall be the surviving corporation in the Merger, and
the name of the Surviving Corporation shall be "Predict It Inc." As a result of
the Merger, all outstanding shares of capital stock of PIC (the "PIC Capital
Stock") shall be converted and cancelled in the manner provided in Article II.
Section 1.02 Effective Time.
At the Closing (as defined in Section 1.03), a certificate
of merger (the "Certificate of Merger") shall be duly prepared by the Surviving
Corporation and delivered to the Secretary of State of Delaware for filing as
provided in the DGCL, on, or as soon as practicable after, the Closing Date (as
defined in Section 1.03). The Merger shall become effective as soon as the
Certificate of Merger has been filed with the Secretary of State of Delaware
(the date and time when such condition has been satisfied being referred to
herein as the "Effective Time").
Section 1.03 Closing.
The closing of the Merger (the "Closing") will take place at
the offices of Camhy Karlinsky & Stein LLP, 1740 Broadway, New York, New York
10019-4315 on or before Thursday,
2
<PAGE>
April 15, 1999 (the "Closing Date"). Notwithstanding the foregoing, the Closing
Date can be extended to a date not later than Monday, May 3, 1999, upon the
mutual agreement of PIC and the Company, and if the parties are in substantial
compliance with the terms of this Agreement. At the Closing, there shall be
delivered to PIC and the Company the certificates and other documents and
instruments required to be delivered under Article V. The Closing will be
effective as of the Effective Time.
Section 1.04 Certificate of Incorporation.
At the Effective Time, the Certificate of Incorporation of
the Company as in effect immediately prior to the Effective Time shall be the
Certificate of Incorporation of the Surviving Corporation. The form of
Certificate of Incorporation and By-Laws of the Company as in effect as of the
Effective Time is attached hereto as Exhibits 1.04-1 and 1.04-2, respectively.
Section 1.05 Qualification to do Business.
By the Effective Time, and as a condition to the Closing,
the Company shall be duly qualified to conduct business in New York.
Section 1.06 Trademarks and Intellectual Property.
At the Closing and effective as of the Effective Time, all
trademarks and other intellectual property of PIC, if any, shall be transferred
and assigned to the Surviving Corporation; and where applicable, such
assignments shall be filed with the U.S. Patent and Trademark Office.
3
<PAGE>
II. STATUS AND CONVERSION OF SECURITIES; OTHER AGREEMENTS.
Section 2.01 Capital Stock of PIC.
(a) Each share of PIC Capital Stock (both common and
preferred stock) issued and outstanding at the Effective Time shall, by virtue
of the Merger and without any further action on the part of the holders thereof,
be converted into 5.5659453 shares of common stock, par value $.01 per share, of
the Surviving Corporation ("Surviving Corporation Common Stock") for an
aggregate of five million (5,000,000) shares of Surviving Corporation Common
Stock. As of the Closing Date, the former holders of PIC Capital Stock (the
"Former PIC Stockholders") shall effectively own 55.55% of the unencumbered
outstanding Surviving Corporation Common Stock.
Section 2.02 Capital Stock of the Company.
Immediately prior to the Effective Time, the Company shall
have an aggregate of (i) four million (4,000,000) shares of Common Stock and
(ii) one million (1,000,000) shares of Series A Preferred Stock issued and
outstanding, sold pursuant to a Rule 506 offering (the "Rule 506 Offering")
under the Securities Act of 1933, as amended (the "Act").
Section 2.03 Stock Option Plan.
At or prior to the Closing, the Surviving Corporation shall
adopt a Stock Option Plan (the "Stock Option Plan") and five hundred thousand
(500,000) shares of Surviving Corporation Common Stock shall be reserved for
issuance thereunder. The form of the Stock Option Plan is attached hereto as
Exhibit 2.03.
Section 2.04 Capital Structure of Surviving Corporation.
(a) As of the Closing Date, and as of the Effective Time,
the Surviving Corporation shall have cash on hand of not less than three million
dollars ($3,000,000), less up to thirty-five
4
<PAGE>
thousand dollars ($35,000) in payment of fees and costs incurred in connection
with this Agreement, and no debt, liabilities, obligations, or contingent
obligations of any nature whatsoever, except as set forth on Schedule 2.04(a).
(b) As of the Effective Time, the Surviving Corporation
shall have the following capital structure:
(i) Authorized Shares.
(A) Twenty-five million (25,000,000) shares
of Surviving Corporation Common Stock.
(B) Five million (5,000,000) shares of blank
check preferred stock ("Surviving Corporation
Preferred Stock")
(ii) Issued and Outstanding Shares.
(A) Five million (5,000,000) shares of
Surviving Corporation Common Stock shall be issued to
the Former PIC Stockholders.
(B) Four million (4,000,000) shares of
Surviving Corporation Common Stock and one million
(1,000,000) shares of Series A Preferred Stock of the
Surviving Corporation (the "Series A Preferred
Stock") shall be held by the stockholders (the
"Existing Stockholders") of the Company at or
immediately prior to the Closing. The Series A
Preferred Stock shall be non-voting and convertible
into Surviving Corporation Common Stock on a
one-to-one basis. The form of Certificate of
Designation of the Series A Preferred Stock is
attached hereto as Exhibit 2.04(b)-2.
5
<PAGE>
(iii) Issued and Outstanding Options.
(A) Two (2) options of the Surviving
Corporation (the "Surviving Corporation Option")
shall be issued, representing rights to acquire (i)
one hundred and twenty-five (125,000) shares of
Surviving Corporation Common Stock, at purchase
prices of $.30; and (ii) eighty-one thousand seventy
hundred and fifty (81,750) shares of Surviving
Corporation Common Stock, at a purchase price of
$.245 per share.
Section 2.05 Registration Rights
(a) Within thirty (30) days after the Effective Time, and
subject to the completion of an audit and the preparation and delivery of
audited financial statements, the Surviving Corporation will file a registration
statement on Form SB-2 with the Securities and Exchange Commission (the "SEC")
relating to (i) the shares of Surviving Corporation Common Stock; (ii) the
shares of Surviving Corporation Common Stock underlying the Series A Preferred
Stock; and (iii) the shares of Surviving Corporation Common Stock underlying the
Surviving Corporation Options. The Company shall use its best efforts to have
such registration statement declared effective within seventy-five (75) days
after filing with the SEC.
Section 2.06 [Reserved]
Section 2.07 Consulting Agreement.
At the Effective Time, the Surviving Corporation shall enter
into a consulting agreement (the "Consulting Agreement") with Verus for a two
(2) year term, which shall provide that Verus shall receive ten thousand dollars
($10,000) per month for consulting services it renders to the Surviving
Corporation. The form of Consulting Agreement is attached hereto as Exhibit
2.09.
6
<PAGE>
Section 2.08 Board of Directors of the Surviving Corporation
The Board of Directors of the Surviving Corporation shall
consist of five (5) persons: three (3) selected by the Former PIC Stockholders
and two (2) selected by the purchasers of Series A Preferred Stock.
Section 2.09 Employment Agreement
At the Closing, Tom Courts' employment agreement (the
"Courts Employment Agreement") shall be assigned to the Surviving Corporation.
The Courts Employment Agreement is attached hereto as Exhibit 2.11.
III. REPRESENTATIONS AND WARRANTIES.
Section 3.01 Representations and Warranties of PIC.
PIC represents and warrants to the Company as follows:
(a) Organization and Qualification. PIC is a corporation
duly organized, validly existing and in good standing under the laws of the
State of Delaware and has full power and authority to conduct its business as
and to the extent now conducted and to own, use and lease its assets and
properties, except for such failures to have such power and authority which,
individually or in the aggregate, do not and are not reasonably expected to have
a Material Adverse Effect (as defined in this Section 3.01(a)) on PIC. PIC is
duly qualified, licensed or admitted to do business and is in good standing in
each jurisdiction in which the ownership, use or leasing of its assets and
properties, or the conduct or nature of its business makes such qualification,
licensing or admission necessary, except for such failures to be so qualified,
licensed or admitted and in good standing which, individually or in the
aggregate, do not and are not reasonably expected to have a Material
7
<PAGE>
Adverse Effect on PIC. As used in this Agreement, a "Material Adverse Effect"
shall mean a material adverse effect on the businesses, properties, assets,
liabilities, condition (financial or otherwise) or results of operations of an
entity (or group of entities taken as a whole). Notwithstanding the foregoing, a
Material Adverse Effect shall not include any change in political or economic
matters of general applicability. PIC does not directly or indirectly own any
equity or similar interest in, or any interest convertible into or exchangeable
or exercisable for, any equity or similar interest in, any corporation,
partnership, joint venture or other business association or entity.
(b) Organizational Documents; Capital Stock.
(i) Attached hereto as Exhibit 3.01(b)(i) is a true
and complete copy of the Certificate of Incorporation of PIC
as in effect on the date hereof.
(ii) Attached as Schedule 3.01(b)(ii) is a true and
complete table of all stockholders of PIC.
(iii) Except as set forth on Exhibit 3.01(b)(iii),
there are no outstanding options, warrants, rights or
agreements obligating PIC to issue or sell shares of PIC.
(iv) There are no outstanding contractual obligations
of PIC to repurchase, redeem or otherwise acquire any shares
of PIC.
(v) There are no debt obligations of PIC of any
nature, and as of the Closing Date PIC will have no debt, liabilities,
obligations or contingent liabilities of any nature whatsoever, except as set
forth on Schedule 3.01(b)(v).
(c) Authority Relative to this Agreement. PIC has full power
and authority to enter into this Agreement and to perform its obligations
hereunder and to consummate the transactions contemplated hereby. The execution,
delivery and performance of this Agreement by
8
<PAGE>
PIC and the consummation by PIC of the Merger and the transactions contemplated
hereby have been duly and validly approved by the Board of Directors of PIC and
its stockholders, and no other proceedings on the part of PIC are necessary to
authorize the execution, delivery and performance of this Agreement by PIC and
the consummation by PIC of the transactions contemplated hereby. This Agreement
has been duly and validly executed and delivered by PIC, constitutes the legal,
valid and binding obligation of PIC enforceable against PIC in accordance with
its terms.
(d) Non-Contravention; Approvals and Consents.
(i) The execution and delivery of this Agreement by
PIC does not, and the performance by PIC of its obligations
hereunder and the consummation of the transactions
contemplated hereby will not, conflict with, result in a
violation or breach of, constitute (with or without notice
or lapse of time or both) a default under, result in or give
to any person any right of payment or reimbursement,
termination, cancellation, modification or acceleration of,
or result in the creation or imposition of any lien, claim,
mortgage, encumbrance, pledge, security interest, equity or
charge of any kind (any of the foregoing, a "Lien") upon any
of the assets or properties of PIC under any of the terms,
conditions or provisions of (x) the Certificate of
Incorporation of PIC, (y) any statute, law, rule, regulation
or ordinance (collectively, "Laws"), or any judgment,
decree, order, writ, permit or license (collectively,
"Orders"), of any court, tribunal, arbitrator, authority,
agency, commission, official or other instrumentality of the
United States, any foreign country, or any domestic or
foreign state, county, city or other political subdivision
(a "Governmental or Regulatory Authority"), applicable to
PIC or any of its assets
9
<PAGE>
or properties, or (z) any note, bond, mortgage, security
agreement, indenture, license, franchise, permit,
concession, contract, lease (capital or operating) or other
instrument, obligation or agreement of any kind
(collectively, "Contracts") to which PIC is a party or by
which PIC or any of its assets or properties is bound,
excluding from the foregoing clauses (y) and (z) conflicts,
violations, breaches, defaults, terminations, modifications,
accelerations and creations and impositions of Liens which,
individually or in the aggregate, could not be reasonably
expected to have a Material Adverse Effect on PIC or on its
ability to consummate the transactions contemplated by this
Agreement.
(ii) Except (x) for the filing of the Certificate of
Merger and other appropriate merger documents required by
the DGCL with the Secretary of State of Delaware and (y) as
otherwise disclosed in Schedule 3.01(d)(ii) hereto, no
consent, approval, or action of, filing with, or notice to
any Governmental or Regulatory Authority or other public or
private third party is necessary or required under any of
the terms, conditions or provisions of any Law or Order of
any Governmental or Regulatory Authority or any Contract to
which PIC is a party or by which PIC or any of its assets or
properties is bound for the execution and delivery of this
Agreement by PIC, the performance by PIC of its obligations
hereunder or the consummation of the transactions
contemplated hereby, except for such consents, approvals, or
actions of, filings with or notices to any Governmental or
Regulatory Authority or other public or private third party
the failure of which to make or obtain could not reasonably
be expected to have a Material Adverse Effect on PIC,
10
<PAGE>
the Surviving Corporation, or on PIC's ability to consummate
the transactions contemplated by this Agreement.
(e) Legal Proceedings. There are no actions, suits,
arbitrations, or proceedings pending, nor to the knowledge of PIC, threatened
against, relating to or affecting, PIC or any of its assets and properties
which, individually or in the aggregate, could reasonably be expected to have a
Material Adverse Effect on PIC or on the ability of PIC to consummate the
transactions contemplated by this Agreement. PIC is not subject to any judgment,
decree, court order or writ of any Governmental or Regulatory Authority.
(f) Patents, Trademarks, Intangibles. Except as set forth on
Schedule 3.01(f)-1, PIC has all right, title and interest in, or a valid and
binding license to use all patents, patent applications, trademarks, trademark
applications, trade names, service marks, copyrights, copyright applications,
franchises, trade secrets, computer programs (in object or source code form), or
other intangible property or asset (collectively, "Intangibles") which are
individually or in the aggregate material to the conduct of its business.
Attached as Schedule 3.01(f)-2 is a true and complete list of all Intangibles of
PIC. PIC is not in default (or with the giving of notice or lapse of time or
both, would be in default) in any material respect under any license to use such
Intangibles. To PIC's knowledge, no such Intangibles are being infringed by any
third party, and PIC is not infringing any Intangible of any third party, except
for such defaults and infringements which, individually or in the aggregate, do
not and are not reasonably expected to have a Material Adverse Effect on PIC or
the Surviving Corporation.
(g) Financial Statements. PIC has delivered to the Company a
true, correct and complete copy of the unaudited balance sheet of PIC as of
December 31, 1998 (the "PIC Balance
11
<PAGE>
Sheet"). The PIC Balance Sheet fairly presents the financial condition, assets,
liabilities and stockholders' equity of PIC as of its date.
(h) Absence of Certain Changes or Events. Except as set
forth in Schedule 3.01(h) hereto, (i) since March 8, 1999, no change, event or
development or combination of changes or developments (including any worsening
of any condition currently existing) has occurred or is reasonably expected to
have, individually or in the aggregate, a Material Adverse Effect on PIC.
(i) Absence of Undisclosed Liabilities. Except for matters
reflected or reserved against in the PIC Balance Sheet, PIC did not have at the
date of the PIC Balance Sheet and has not incurred since that date, any
liabilities or obligations (whether absolute, accrued, contingent, fixed or
otherwise, or whether due or to become due) of any nature, except liabilities or
obligations which were incurred in connection with this Agreement and the
transactions contemplated hereby.
(j) Information Supplied. Nothing in this Agreement or any
schedule, annex, certificate, document or statement in writing which has been
supplied by or on behalf of PIC, in connection with the transactions
contemplated hereby, contains any untrue statement of a material fact, or omits
any statement of a material fact required to be stated or necessary in order to
make the statements contained herein or therein not misleading. There is no fact
known to PIC which materially and adversely affects PIC, which has not been set
forth in this Agreement or in the schedules, annexes, certificates, documents or
statements in writing furnished by PIC in connection with the transactions
contemplated by this Agreement.
(k) Compliance with Laws and Orders. PIC holds all permits,
licenses, variances, exemptions, orders and approvals of all Governmental and
Regulatory Authorities necessary for the lawful conduct of its business (the
"PIC Permits"), except for failures to hold such
12
<PAGE>
permits, licenses, variances, exemptions, orders and approvals which,
individually or in the aggregate, do not and are not reasonably expected to have
a Material Adverse Effect on PIC. PIC is in compliance with the terms of the PIC
Permits, except failures so to comply which, individually or in the aggregate,
do not have and are not reasonably expected to have a Material Adverse Effect on
PIC. PIC is not in violation of, or in default under, any Law or Order of any
Governmental or Regulatory Authority, except for violations which, individually
or in the aggregate, do not and are not reasonably expected to have a Material
Adverse Effect on PIC.
(l) Compliance with Agreements; Certain Agreements. Neither
PIC, nor to the knowledge of PIC, any other party thereto, is in breach or
violation of, or in default in the performance or observance of any term or
provision of, and no event has occurred which, with notice or lapse of time or
both, is reasonably expected to result in a default under, (x) the Certificate
of Incorporation of PIC or (y) any material Contract to which PIC is a party or
by which PIC or any of its assets or properties is bound, except in the case of
clause (y) for breaches, violations and defaults which, individually or in the
aggregate, do not and are not reasonably expected to have a Material Adverse
Effect on PIC.
(m) Brokers. All negotiations relative to this Agreement and
the transactions contemplated hereby have been carried out by PIC and its
affiliates directly with the Company, without the intervention of any person on
behalf of PIC and its affiliates in such manner as to give rise to any valid
claim by any person against PIC, the Company or the Surviving Corporation for a
finder's fee, brokerage commission or similar payment, except as specifically
set forth in Schedule 3.01(m).
13
<PAGE>
(n) Consents Without Any Condition. PIC has not made any
agreement or reached any understanding not approved by the Company as a
condition for obtaining any consent, authorization, approval, order, license,
certificate or permit required for the consummation of the transactions
contemplated by this Agreement.
(o) Tax Matters.
(i) Except as set forth in Schedule 3.01(o), PIC has
filed all tax returns to be filed by applicable law prior to
the Closing. All tax returns were (and, as to tax returns
not filed as of the date hereof, will be) true, complete and
correct and filed on a timely basis. PIC (x) has paid all
taxes due, or claimed or asserted in writing by any taxing
authority to be due, for the periods covered by such tax
returns or (y) has duly and fully provided reserves (in
accordance with GAAP) adequate to reflect all such taxes.
(ii) PIC has established (and until the Closing will
maintain) on its books and records reserves adequate to
reflect all material taxes not yet due and payable. PIC has
made available to the Company complete and accurate copies
of all work papers associated with the calculation of PIC's
tax reserves.
(iii) There are no tax liens upon the assets of PIC.
(iv) PIC has not requested (and no request has been
made on its behalf) any extension of time within which to
file any material tax return.
(v)(A) No income tax returns have been examined by
any taxing authorities for any periods; and (B) no
deficiency for any material taxes has been
14
<PAGE>
suggested, proposed, asserted, or assessed against PIC that
has not been resolved and paid in full.
(vi) No audits or other administrative proceedings or
court proceedings are presently pending with regard to any
taxes or tax returns of PIC.
(vii) To the extent requested by the Company, PIC has
made available to the Company (or, in the case of tax
returns to be filed on or before the Closing, will make
available) complete and accurate copies of all tax returns
and associated work papers filed by or on behalf of PIC for
all taxable years ending on or prior to the Closing.
(viii) No agreements relating to allocating or
sharing of any taxes have been entered into by PIC.
(ix) PIC has not entered into any transactions that
could give rise to an understatement of Federal Income Tax.
Section 3.02 Representations and Warranties of the Company.
The Company represents and warrants to PIC as follows:
(a) Organization and Qualification. The Company is a
corporation duly organized, validly existing and in good standing under the laws
of Delaware and has full corporate power and authority to conduct its business
as and to the extent now conducted and to own, use and lease its assets and
properties. As of the Closing Date, the Company will be duly qualified, licensed
or admitted to do business and is in good standing in New York. The Company does
not directly or indirectly own any equity or similar interest in, or any
interest convertible into or exchangeable
15
<PAGE>
or exercisable for, any equity or similar interest in, any corporation,
partnership, joint venture or otherbusiness association or entity. The Company
has no subsidiaries and owns no interest either directly or indirectly in any
subsidiaries.
(b) Organizational Documents; Capital Stock.
(i) Attached hereto as Exhibits 1.04-a and 1.04-2,
respectively, are true and complete copies of the
Certificate of Incorporation and By-laws of the Company as
in effect on the date hereof.
(ii) As of the Closing Date, the authorized capital
stock of the Company will consist solely of twenty-five
million (25,000,000) shares of the Company's common stock,
par value $.01 per share (the "Company Common Stock") and
five million (5,000,000) shares of preferred stock, par
value $.01 per share. As of the Closing Date, four million
(4,000,000) shares of Surviving Corporation Common Stock and
one million (1,000,000) shares of Series A Preferred Stock
shall be issued and outstanding and held by the Existing
Stockholders of the Company. There are no outstanding
options obligating the Company to issue or sell any shares
of capital stock of the Company, or to grant, extend or
enter into any option with respect thereto. The shares of
the Company Common Stock (which will be Surviving
Corporation Common Stock) issuable to the Former PIC
Stockholders pursuant to Article II hereof, will be, when
issued in accordance with this Agreement, duly authorized,
validly issued, fully paid and nonassessable. The
outstanding shares of the Company Common Stock are eligible
for quotation on the
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Over-the-Counter Bulletin Board (the "OTCBB") of the
National Association of Securities Dealers (the "NASD").
(iii) Except as contemplated hereby, there are no
outstanding contractual obligations of the Company to
repurchase, redeem or otherwise acquire any shares of the
Company Common Stock.
(iv) There are no debt obligations of the Company of
any nature whatsoever, and as of the Closing Date, the
Company will have no debt, liabilities, obligations, or
contingent obligations of any nature whatsoever, except as
set forth on Schedule 2.04(a).
(v) Since the date of its incorporation, the Company
has not authorized, declared, paid or effected any cash or
non-cash dividend or liquidating or other distribution or
stock split.
(c) Authority Relative to this Agreement. The Company has
full corporate power and authority to enter into this Agreement and to perform
its obligations hereunder and to consummate the transactions contemplated
hereby. The execution, delivery and performance of this Agreement by the Company
and the consummation by the Company of the Merger and the transactions
contemplated hereby have been duly and validly approved by the Board of
Directors of the Company and the stockholders of the Company, and no other
corporate proceedings on the part of the Company are necessary to authorize the
execution, delivery and performance of this Agreement by the Company and the
consummation by the Company of the transactions contemplated hereby. This
Agreement has been duly and validly executed and delivered by the Company, and
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constitutes a legal, valid and binding obligation of the Company enforceable
against the Company in accordance with its terms.
(d) Non-Contravention; Approvals and Consents.
(i) The execution and delivery of this Agreement by
the Company does not, and the performance by the Company of
its obligations hereunder and the consummation of the
transactions contemplated hereby will not, conflict with,
result in a violation or breach of, constitute (with or
without notice or lapse of time or both) a default under,
result in, or give to any person any right of payment or
reimbursement, termination, cancellation, modification or
acceleration of, or result in the creation or imposition of
any Lien on any of the assets or properties of the Company
under any of the terms, conditions or provisions of (x) the
Certificate of Incorporation or By-laws of the Company, (y)
any Laws or Orders of any Governmental or Regulatory
Authority applicable to the Company or any of its assets or
properties, or (z) any Contracts to which the Company is a
party or by which the Company or any of its assets or
properties is bound, excluding from the foregoing clauses
(y) and (z) conflicts, violations, breaches, defaults,
terminations, modifications, accelerations and creations and
impositions of Liens, which individually or in the
aggregate, could not be reasonably expected to have a
Material Adverse Effect on the Company or on its ability to
consummate the transactions contemplated by this Agreement.
(ii) Except (x) for the filing of the Certificate of
Merger and other appropriate merger documents required by
the DGCL with the Secretary of State of
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Delaware and appropriate documents with the relevant
authorities of other states in which the Constituent
Entities are qualified to do business, and (y) as disclosed
in Schedule 3.02(d) hereto, no consent, approval, or action
of, filing with or notice to any Governmental or Regulatory
Authority or other public or private third party is
necessary or required under any of the terms, conditions or
provisions of any Law or Order of any Governmental or
Regulatory Authority or any Contract to which the Company is
a party or by which the Company or any of its assets or
properties is bound for the execution and delivery of this
Agreement by the Company, the performance by the Company of
its obligations hereunder or the consummation of the
transactions contemplated hereby, except for such consents,
approvals or actions of, filing with or notices to any
Governmental or Regulatory Authority or other public or
private third party the failure of which to make or obtain
could not reasonably be expected to have a Material Adverse
Effect on the Company or the Surviving Corporation or on the
Company's ability to consummate the transactions
contemplated by this Agreement.
(e) Financial Statements. The Company has delivered to PIC
true, correct and complete copies of the following: the audited balance sheets
of the Company (the "Company Balance Sheets") as of December 31, 1997 and
December 31, 1998; the audited statement of operations of the Company (the
"Company Operations Statement") for the years ending December 31, 1997 and
December 31, 1998; the audited statement of changes in stockholders' deficit of
the Company (the "Company Stockholders' Equity Statement") for the years ending
December 31, 1997 and December 31, 1998; and the audited statement of cash flows
of the Company (the "Company Cash Flow
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Statement") for the years ending December 31, 1997 and December 31, 1998
(together, the "Company Financial Statements"). The Company Financial Statements
fairly present the financial condition, assets, liabilities, stockholders equity
and results of operations of the Company for the periods indicated.
(f) NASD Report. The Company has delivered to PIC a true,
correct, and complete copy of the Company's information report filed with the
OTCBB of the NASD on October 7, 1998 pursuant to Rule 6740 (the "Rule"),
together with all amendments thereof and supplements thereto (as such document
has since the time of its filing been amended or supplemented, the "Company NASD
Report"), which is the only document (other than preliminary material) that the
Company was required to file with the NASD since such date. As of its date, the
Company NASD Report (i) complied as to form in all material respects with the
requirements of the Exchange Act, and the rules promulgated by the NASD, and
(ii) did not contain any untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they were made,
not misleading. As of the date of the Closing, the NASD Report is not deficient
in any manner, and any deficiencies previously existing in the NASD Report have
been satisfactorily remedied. The unaudited financial statements (including, in
each case, the notes, if any, thereto) included in the Company NASD Report
complied as to form in all material respects with the published rules and
regulations of the NASD with respect thereto.
(g) Absence of Certain Changes or Events. Except as set
forth in Schedule 3.02(g) hereto, (i) since March 8, 1999, no change, event or
development or combination of changes or developments (including any worsening
of any condition currently existing) has occurred or is
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reasonably expected to have, individually or in the aggregate, a Material
Adverse Effect on the Company, and (ii) between such date and the date hereof
the Company has conducted its business only in the ordinary course of business
consistent with past practice.
(h) Absence of Undisclosed Liabilities. Except for matters
reflected or reserved against in the Company Balance Sheets included in the
Company Financial Statements, the Company did not have at such date and has not
incurred since that date, any liabilities or obligations (whether absolute,
accrued, contingent, fixed or otherwise, or whether due or to become due) of any
nature, except liabilities or obligations which were incurred in connection with
this Agreement and the transactions contemplated hereby or in the ordinary
course of business consistent with past practice.
(i) Legal Proceedings. Except as set forth in Schedule
3.02(i), there are no actions, suits, arbitrations or proceedings pending or to
the knowledge of the Company, threatened against, relating to or affecting, nor
to the knowledge of the Company, are there any Governmental or Regulatory
Authority investigations or audits pending or threatened against, relating to or
affecting, the Company or any of its assets and properties which, individually
or in the aggregate, could reasonably be expected to have a Material Adverse
Effect on the Company or on the ability of the Company to consummate the
transactions contemplated by this Agreement. The Company is not subject to any
judgment, decree, court order or writ of any Governmental or Regulatory
Authority.
(j) Information Supplied. Nothing in this Agreement or any
schedule, annex, certificate, document or statement in writing which has been
supplied by or on behalf of the Company, in connection with the transactions
contemplated hereby, contains any untrue statement of a material fact, or omits
any statement of a material fact required to be stated or necessary in order
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to make the statements contained herein or therein not misleading. There is no
fact known to the Company which materially and adversely affects the Company,
which has not been set forth in this Agreement or in the schedules, exhibits,
annexes, certificates, documents or statements in writing furnished by the
Company in connection with the transactions contemplated by this Agreement.
(k) Compliance with Laws and Orders. The Company holds all
permits, licenses, variances, exemptions, orders and approvals of all
Governmental and Regulatory Authorities necessary for the lawful conduct of its
business (the "the Company Permits"), except for failures to hold such permits,
licenses, variances, exemptions, orders and approvals which, individually or in
the aggregate, do not and are not reasonably expected to have a Material Adverse
Effect on the Company. The Company is in compliance with the terms of the
Company Permits, except failures so to comply which, individually or in the
aggregate, do not have and are not reasonably expected to have a Material
Adverse Effect on the Company. The Company is not in violation of, or in default
under, any Law or Order of any Governmental or Regulatory Authority except for
violations which, individually or in the aggregate, do not and are not
reasonably expected to have a Material Adverse Effect on the Company.
(l) Compliance with Agreements; Certain Agreements. Neither
the Company, nor to the knowledge of the Company, any other party thereto, is in
breach or violation of, or in default in the performance or observance of any
term or provision of and no event has occurred which, with notice or lapse of
time or both, is reasonably expected to result in a default under, (x) the
Certificate of Incorporation or By-laws of the Company or (y) any material
Contract to which the Company is a party or by which the Company or any of its
assets or properties is bound, except in
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the case of clause (y) for breaches, violations and defaults which, individually
or in the aggregate, do not and are not reasonably expected to have a Material
Adverse Effect on the Company.
(m) Employee Benefit Plans. The Company does not have or
contribute to any pension, profit-sharing, option, other incentive plan, or any
other type of employee benefit plan, or have any obligation to or customary
arrangement with employees for bonuses, incentive compensation, vacations,
severance pay, sick pay, sick leave, insurance, service award, relocation,
disability, tuition refund or other benefits, whether oral or written.
(n) Patents, Trademarks, Et Cetera. The Company has no
Intangibles.
(o) Insurance. The Company has no insurance policies.
(p) Labor Matters. The Company has two (2) employees,
the salaries of whichare fixed from time to time by the Board of Directors of
the Company.
(q) Tangible Property and Assets. Other than as contemplated
by Section 2 hereof, the Company has no facilities or assets.
(r) Brokers. All negotiations relative to this Agreement and
the transactions contemplated hereby have been carried out by the Company and
its affiliates directly with PIC, without the intervention of any person on
behalf of the Company and its affiliates in such manner as to give rise to any
valid claim by any person against the Company, PIC or the Surviving Corporation
for a finder's fee, brokerage commission or similar payment, except as
specifically set forth in Schedule 3.02(r).
(s) Tax Matters.
(i) Except as set forth in Schedule 3.02(s), the
Company has filed all tax returns to be filed by applicable
law prior to the Closing. All tax returns were (and,
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as to tax returns not filed as of the date hereof,
will be) true, complete and correct and filed on a timely
basis. The Company (x) has paid all taxes due, or claimed or
asserted in writing by any taxing authority to be due, for
the periods covered by such tax returns or (y) has duly and
fully provided reserves (in accordance with GAAP) adequate
to reflect all such taxes.
(ii) The Company has established (and until the
Closing will maintain) on its books and records reserves
adequate to reflect all material taxes not yet due and
payable. The Company has made available to PIC complete and
accurate copies of all work papers associated with the
calculation of the Company's tax reserves.
(iii) There are no tax liens upon the assets of the
Company.
(iv) The Company has not requested (and no request
has been made on itsbehalf) any extension of time within
which to file any material tax return.
(v) (A) No income tax returns have been examined by
any taxing authorities for any periods; and (B) no
deficiency for any material taxes has been suggested,
proposed, asserted, or assessed against the Company that has
not been resolved and paid in full.
(vi) No audits or other administrative proceedings or
court proceedings are presently pending with regard to any
taxes or tax returns of the Company.
(vii) To the extent requested by PIC, the Company has
made available to PIC (or, in the case of tax returns to be
filed on or before the Closing, will make available)
complete and accurate copies of all tax returns and
associated work
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<PAGE>
papers filed by or on behalf of the Company for all taxable
years ending on or prior to the Closing.
(viii) No agreements relating to allocating or
sharing of any taxes have been entered into by the Company.
(ix) The Company has not entered into any
transactions that could give rise to an understatement of
Federal Income Tax.
IV. COVENANTS.
Section 4.01 Covenants of the Company.
The Company covenants and agrees as follows:
(a) Certificate of Incorporation and By-laws. As of the
Closing Date, the Certificate of Incorporation and By-laws of the Company shall
be substantially in the form of Exhibits 1.04-1 and 1.04-2, respectively.
(b) Shares and Options. Except as contemplated hereby, until
the earlier of the Effective Time or the Termination of this Agreement pursuant
to Article VI (the "Release Time") without the prior written consent of PIC, no
share of capital stock of the Company or any option or warrant for any such
share, right to subscribe to or purchase any such share, or security convertible
into or exchangeable for any such share, shall be issued or sold by the Company,
nor shall the Company enter into any agreement or commitment to effect any such
issuance or sale, except as set forth in Schedule 4.01(b) hereto.
(c) Dividends and Purchases of Stock. Until the Release
Time, without the prior written consent of PIC, no cash or non-cash dividend or
liquidating or other distribution or stock
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split shall be authorized, declared, paid or effected by the Company in respect
of the outstanding shares of the Company Common Stock.
(d) Borrowing of Money; Working Capital. Until the Release
Time, the Company shall not incur indebtedness for borrowed money. Until the
Release Time, the Company shall not guarantee the borrowing of money by any
third party, enter into or modify any capital or operating lease or enter into
any material agreement, which in any case would by its terms require the payment
by the Company of more than five thousand dollars ($5,000) by the Company in any
twelve (12) month period.
(e) Access. Until the Release Time, the Company will afford
the directors, stockholders, counsel, agents, investment bankers, accountants,
and other representatives of PIC reasonable access to the plants, properties,
books, and records of the Company, will permit them to make extracts from and
copies of such books and records, and will from time to time furnish PIC with
such additional financial and operating data and other information as to the
financial condition, results of operations, businesses, properties, assets,
liabilities, or future prospects of the Company as PIC from time to time may
reasonably request.
(f) Conduct of Business. Except as otherwise contemplated or
permitted hereby, until the Release Time, the Company shall not take any action
that would or is reasonably likely to result in any of the representations or
warranties of the Company set forth in this Agreement being untrue at the
Closing Date, or in any of the conditions to the Merger set forth in Article V
not being satisfied. Except as otherwise contemplated or permitted hereby, until
the Release Time, the Company will conduct its affairs in all respects only in
the ordinary course.
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<PAGE>
(g) Advice of Changes. Until the Release Time, the Company
will promptly advise PIC in a reasonably detailed written notice of any fact or
occurrence or any pending threatened occurrence of which it obtains knowledge
and which (if existing and known at the date of the execution of this Agreement)
would have been required to be set forth or disclosed in or pursuant to this
Agreement, which (if existing or known at any time prior to or at the Effective
Time) would make the performance by any party of a covenant contained in this
Agreement impossible or make such performance materially more difficult in the
absence of such fact or occurrence, or which (if existing or known at the time
of the Effective Time) would cause a condition to any party's obligations under
this Agreement not to be fully satisfied.
(h) Public Statements. Before the Company releases any
information concerning this Agreement, the Merger, or any other transactions
contemplated by this Agreement which is intended for or is reasonably expected
to result in public dissemination thereof, the Company shall cooperate with PIC,
shall furnish drafts of all documents or proposed oral statements to PIC for
comments, and shall not release any such information without the prior consent
of PIC; provided, however, that the foregoing shall not be deemed to prevent the
Company from releasing any information or making any disclosure to the extent
that the Company reasonably determines that it is required to do so by law.
(i) Other Proposals. Until the Release Time, the Company
shall not, and shall not authorize or permit any officer, director, employee,
counsel, agent, investment banker, accountant, or other representative of the
Company, directly or indirectly, to: (i) initiate contact with any person or
entity in an effort to solicit any Company Takeover Proposal (as such term is
defined in this Section 4.01(i)); (ii) cooperate with, or furnish or cause to be
furnished any non-public information
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<PAGE>
concerning the financial condition, results of operations, businesses,
properties, assets, liabilities, or future prospects of the Company to, any
person or entity in connection with any Company Takeover Proposal; (iii)
negotiate with any person or entity with respect to any Company Takeover
Proposal; or (iv) enter into any agreement or understanding with the intent to
effect a Company Takeover Proposal; provided, however, that the Company shall be
entitled to take any action described in the foregoing clauses (ii)-(iv) if and
to the extent that the Board of Directors of the Company determines in good
faith, based on the advice of its counsel, that the failure to take any such
action would violate its fiduciary duties to the Company's stockholders. The
Company will immediately give written notice to PIC of the details of any
Company Takeover Proposal of which the Company becomes aware. As used in Section
4.01(i), "Company Takeover Proposal" shall mean any proposal, other than as
contemplated by this Agreement, for a merger, consolidation, reorganization,
other business combination, or recapitalization involving the Company, for the
acquisition of a ten percent (10%) or greater interest in the equity or in any
class or series of capital stock of the Company, for the acquisition of the
right to cast ten percent (10%) or more of the votes on any matter with respect
to the Company or any subsidiary of the Company, or for the acquisition of one
of its divisions or of a substantial portion of any of its respective assets,
the effect of which may be to prohibit, restrict, or delay the consummation of
the Merger or any of the other transactions contemplated by this Agreement, or
impair the contemplated benefits to PIC of the Merger or any of the other
transactions contemplated by this Agreement.
(j) Consents Without Any Condition. The Company shall not
make any agreement or reach any understanding, not approved in writing by PIC,
as a condition for obtaining any consent,
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authorization, approval, order, license, certificate, or permit required for the
consummation of the transactions contemplated by this Agreement.
(k) Transfer Taxes. The Company shall timely prepare and
file any declaration or filing necessary to comply with any transfer tax
statutes that require any such filing before the Effective Time.
Section 4.02 Covenants of PIC.
PIC covenants and agrees as follows:
(a) Conduct of Business. Until the Release Time, PIC shall
not take any action that would or is reasonably likely to result in any of the
representations or warranties of PIC set forth in this Agreement being untrue at
the Closing Date or to any of the conditions to the Merger set forth in Article
V not being satisfied. Until Release Time, PIC will use all reasonable efforts
to preserve the business operations of PIC intact, to keep available the
services of their present personnel, and to preserve the good will of its
suppliers, customers, and others having business relations with any of them.
(b) Advice of Changes. Until the Release Time, PIC will
promptly advise the Company in a reasonably detailed written notice of any fact
or occurrence or any pending threatened occurrence of which it obtains knowledge
and which (if existing or known at the date of the execution of this Agreement)
would have been required to be set forth or disclosed in or pursuant to this
Agreement, which (if existing and known at any time prior to or at the Effective
Time) would make the performance by any party of a covenant contained in this
Agreement impossible or make such performance materially more difficult than in
the absence of such fact or occurrence, or which
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(if existing and known at the time of the Effective Time) would cause a
condition to any party's obligations under this Agreement not to be fully
satisfied.
(c) Public Statements. Before PIC releases any information
concerning this Agreement, the Merger, or any of the other transactions
contemplated by this Agreement which is intended for or is reasonably expected
to result in public dissemination thereof, PIC shall cooperate with the Company
, shall furnish drafts of all documents or proposed oral statements to the
Company for comments, and shall not release any such information without the
prior consent of the Company; provided, however, that the foregoing shall not be
deemed to prevent PIC from releasing any information or making any disclosure to
the extent PIC reasonably determines that it is required to do so by law.
Section 4.03 Approval of Members and Stockholders.
(a) PIC shall, through its Board of Directors, duly call,
give notice of, convene and hold a meeting of its stockholders for the purpose
of voting on the ratification and approval of this Merger Agreement and the
issuance of the shares of Surviving Corporation Common Stock pursuant to the
Merger, as soon as reasonably practicable following the date hereof or shall
take such other action as will satisfy the requirement of stockholder approval
under Delaware law.
(b) The Company shall, through its Board of Directors, duly
call, give notice of, convene and hold a meeting of its stockholders for the
purpose of voting on the ratification and approval of this Merger Agreement and
the issuance of the shares of Surviving Corporation Common Stock pursuant to the
Merger, as soon as reasonably practicable following the date hereof, or shall
take such other action as will satisfy the requirement of stockholder approval
under Delaware law.
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Section 4.04 Directors' and Officers' Insurance.
(a) The Surviving Corporation shall at its expense, until
the third (3rd) anniversary of the Effective Time, cause to be maintained in
effect, to the extent available, policies of directors' and officers' liability
insurance in a face amount of not less than five million dollars ($5,000,000).
(b) The provisions of this Section 4.04 are intended to be
for the benefit of, and shall be enforceable by, each party entitled to
insurance coverage under Section 4.04(a) above, and his or her heirs and legal
representatives, and shall be in addition to any other rights a Director or
Officer may have under the Certificate of Incorporation or By-Laws of the
Surviving Corporation or under the DGCL or otherwise.
(c) In the event the Surviving Corporation or any of its
successors or assigns (i) consolidates with or merges into any other person and
shall not be the continuing or surviving corporation or entity of such
consolidation or merger or (ii) transfers all or substantially all of its
properties and assets to any person, then, in each such case, proper provision
shall be made so that the successors and assigns of the Surviving Corporation,
as the case may be, shall assume the obligations set forth in this Section 4.04.
Section 4.05 NASD Listing.
The Company shall cause the shares of Surviving Corporation
Common Stock to be issued in the Merger in accordance with this Agreement to be
admitted for trading or authorized for quotation on the OTCBB of the NASD,
subject to official notice of issuance, prior to the Effective Time.
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V. CONDITIONS.
Section 5.01 Conditions to Each Party's Obligation to Effect the
Merger.
The respective obligation of each party to effect the Merger
is subject to the fulfillment, at or prior to the Closing, of each of the
following conditions:
(a) Stockholder Approval. This Agreement and the Merger
shall have been adopted by the requisite vote of (i) the stockholders of the
Company and (ii) the stockholders of PIC.
(b) State Securities Laws. The Company shall have received
all state securities or "Blue Sky" permits and other authorizations necessary to
issue the Company Common Stock pursuant to the Merger.
(c) No Injunctions or Restraints. No court of competent
jurisdiction or other competent Governmental or Regulatory Authority shall have
enacted, issued, promulgated, enforced or entered any Law or Order (whether
temporary, preliminary or permanent) which is then in effect and has the effect
of making illegal or otherwise restricting, preventing or prohibiting
consummation of the Merger or the other transactions contemplated by this
Agreement.
(d) Consents and Approvals. Other than the filings provided
for by Section 1.02, all consents, approvals and actions of, filings with and
notices to any Governmental or Regulatory Authority or any other public or
private third parties required of the Company or PIC to consummate the Merger
shall have been obtained, all in form and substance reasonably satisfactory to
the Company and PIC, and no such consent, approval or action shall contain any
term or condition which could be reasonably expected to result in a material
diminution of the benefits of the Merger to the stockholders or Members of the
Company and PIC.
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Section 5.02 Conditions to Obligation of the Company to Effect the
Merger.
The obligation of the Company to effect the Merger is
further subject to the fulfillment, at or prior to the Closing, of each of the
following additional conditions (all or any of which may be waived in whole or
in part by the Company and in its sole discretion):
(a) Representations and Warranties. The representations and
warranties made by PIC in this Agreement shall be true and correct in all
material respects as of the Closing Date as though made on and as of the Closing
Date or, in the case of representations and warranties made as of a specified
date earlier than the Closing Date, on and as of such earlier date, and PIC
shall have delivered to the Company a certificate, dated the Closing Date and
executed on behalf of PIC by a duly authorized officer, to such effect.
(b) Performance of Obligations. PIC shall have performed and
complied with, in all material respects, each agreement, covenant and obligation
required by this Agreement to be so performed or complied with by PIC at or
prior to the Closing, and PIC shall have delivered to the Company a certificate
dated the Closing Date and executed on behalf of PIC by a duly authorized
officer, to such effect.
(c) Other Closing Documents. PIC shall have delivered to the
Company at or prior to the Closing Date such other documents as the Company may
reasonably request in order to enable the Company to determine whether the
conditions to its obligations under this Agreement have been met and otherwise
to carry out the provisions of this Agreement.
(d) Review of Proceedings. All actions, proceedings,
instruments and documents required by the Company to carry out this Agreement or
incidental thereto and all other related legal matters shall be subject to the
reasonable approval of Preston Gates & Ellis LLP, counsel to the
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Company, and PIC shall have furnished such documents as such counsel may have
reasonably requested for the purpose of enabling it to pass upon such matters.
(e) Legal Action. There shall not have been instituted or
threatened any legal proceeding relating to, or seeking to prohibit or otherwise
challenge the consummation of, the transactions contemplated by this Agreement,
or to obtain substantial damages with respect thereto.
Section 5.03 Conditions to Obligation of PIC to Effect the Merger.
The obligation of PIC to effect the Merger is further
subject to the fulfillment, at or prior to the Closing, of each of the following
additional conditions (all or any of which may be waived in whole or in part by
PIC in its sole discretion):
(a) Representations and Warranties. The representations and
warranties made by the Company in this Agreement shall be true and correct in
all material respects as of the Closing Date as though made on and as of the
Closing Date or, in the case of representations and warranties made as of a
specified date earlier than the Closing Date, on and as of such earlier date,
and the Company shall have delivered to PIC a certificate, dated the Closing
Date and executed on behalf of the Company by a duly authorized officer, to such
effect.
(b) Performance of Obligations. The Company shall have
performed and complied with in all material respects, each agreement, covenant
and obligation required by this Agreement to be so performed or complied with by
the Company at or prior to the Closing, and the Company shall have delivered to
PIC a certificate, dated the Closing Date and executed on behalf of the Company
by a duly authorized officer, to such effect.
(c) Other Closing Documents. The Company shall have
delivered to PIC at or prior to the Effective Time such other documents as PIC
may reasonably request in order to enable
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PIC to determine whether the conditions to its obligations under this Agreement
have been met and otherwise to carry out the provisions of this Agreement.
(d) Review of Proceedings. All actions, proceedings,
instruments and documents required by PIC to carry out this Agreement or
incidental thereto and all other related legal matters shall be subject to the
reasonable approval of Camhy Karlinsky & Stein LLP, counsel to PIC, and the
Company shall have furnished such documents as such counsel may have reasonably
requested for the purpose of enabling it to pass upon such matters.
(e) Legal Action. There shall not have been instituted or
threatened any legal proceeding relating to, or seeking to prohibit or otherwise
challenge the consummation of, the trans actions contemplated by this Agreement,
or to obtain substantial damages with respect thereto.
(f) NASD Bulletin Board Listing. The shares of the Company
Common Stock issued shall be eligible for quotation on the OTCBB of the NASD.
(g) Capital. The Company shall be in strict compliance with
Section 2.04.
(h) Stock Option Plan. As of the Closing Date, the Stock
Option Plan shall have been adopted.
VI. TERMINATION.
Section 6.01 Termination.
This Agreement may be terminated, and the transactions
contemplated hereby may be abandoned at any time prior to the Effective Time,
whether prior to or after the Company stockholders' approval or the PIC
stockholders' approval:
35
<PAGE>
(a) By mutual written agreement of the parties hereto duly
authorized by action taken by or on behalf of their respective Boards of
Directors.
(b) By either PIC or the Company upon written notification
to the other party, if:
(i) the Company's stockholders' approval or the PIC's
stockholders' approval shall not be obtained by reason of the failure to obtain
the requisite vote upon a vote held at a meeting of such stockholders; or
(ii) facts exist which render impossible the
satisfaction of one or more of the conditions set forth in Section 5.01 and such
are not waived by the Company and PIC.
(c) By the Company upon written notification to PIC, if:
(i) there has been a material breach of any
representation, warranty, covenant or agreement on the part of PIC set forth in
this Agreement which breach has not been cured within ten (10) business days
following receipt by PIC of notice of such breach from the Company or assurance
of such cure reasonably satisfactory to the Company have not been given by or on
behalf of PIC within such ten (10) business day period; or
(ii) facts exist which render impossible the
satisfaction of one or more of the conditions set forth in Section 5.02 and such
are not waived by the Company; or
(iii) the Company or its stockholders receive a
proposal or offer for any Company Takeover Proposal, other than pursuant to the
transactions contemplated by this Agreement, in connection with which the Board
of Directors of the Company exercises any of its rights specified in Section
4.01(i) and 4.01(j).
(d) By PIC upon written notification to the Company, if:
36
<PAGE>
(i) at any time after May 8, 1999 if the Merger shall
not have been consummated on or prior to such date and such failure to
consummate the Merger is not caused by a breach of this Agreement by PIC; or
(ii) there has been a material breach of any
representation, warranty, covenant or agreement on the part of the Company set
forth in this Agreement which breach has not been cured with ten (10) business
days following receipt by the Company of notice of such breach from PIC or
assurance of such cure reasonably satisfactory to PIC shall not have been given
by or on behalf of the Company within such ten (10) business day period; or
(iii) facts exist which render impossible the
satisfaction of one or more of the conditions set forth in Section 5.03 and such
are not waived by PIC.
Section 6.02 Effect of Termination.
If this Agreement is validly terminated by the Company or
PIC pursuant to Section 6.01, this Agreement shall forthwith become null and
void and there shall be no liability or obligation on the part of either the
Company or PIC (or any of their respective officers, directors, representatives,
or affiliates), except that (i) the provisions of this Section 6.02 will
continue to apply following any such termination, and (ii) nothing contained
herein shall relieve the Company or PIC from liability for wilful or intentional
breach of their respective obligations contained in this Agreement or for fraud.
37
<PAGE>
VII. INDEMNIFICATION.
Section 7.01 Indemnification by the Company.
(a) The Company agrees to indemnify and hold harmless PIC
and its Members, directors, directors, employees, counsel and agents against and
in respect of any and all claims as and when incurred, arising out of or based
upon any breach or inaccuracy of any representation, warranty, covenant or
agreement of the Company contained in this Agreement (including the Exhibits and
Schedules attached hereto) or any certificates delivered pursuant to this
Agreement.
(b) Each indemnified party (an "PIC Indemnitee") shall give
the Company prompt notice of any claim asserted or threatened against such PIC
Indemnitee on the basis of which such PIC Indemnitee intends to seek
indemnification (but the obligations of the Company shall not be conditioned
upon receipt of such notice, except to the extent that the Company is actually
prejudiced by such failure to give notice). If the claim is a third party claim,
demand, action or proceeding, the Company promptly shall assume the defense of
any PIC Indemnitee, with counsel reasonably satisfactory to such PIC Indemnitee,
and the fees and expenses of such counsel shall be the sole cost and expense of
the Company. Notwithstanding the foregoing, any Indemnitee shall be entitled, at
his or its expense, to employ counsel separate from counsel for the Company and
from any other party in such action, proceeding or investigation. No Indemnitee
may agree to a settlement of claim without the prior written approval of the
Company which approval shall not be unreasonably withheld. The Company may not
agree to a settlement of a claim involving anything other than the payment of
money without the prior written approval of the PIC Indemnitee which shall not
be unreasonably withheld.
38
<PAGE>
Section 7.02 Indemnification by PIC.
(a) PIC agrees to indemnify and hold harmless the Company
and its officers, directors, counsel and agents against and in respect of any
and all claims as and when incurred, arising out of or based upon any breach or
inaccuracy of any representation, warranty, covenant or agreement of PIC
contained in this Agreement (including the Exhibits and Schedules attached
hereto) or any certificates delivered pursuant to this Agreement.
(b) Each indemnified party (an "Indemnitee") shall give PIC
prompt notice of any claim asserted or threatened against such Indemnitee on the
basis of which such Indemnitee intends to seek indemnification (but the
obligations of PIC shall not be conditioned upon receipt of such notice, except
to the extent that PIC is actually prejudiced by such failure to give notice).
If the claim is a third party claim, demand, action or proceeding, PIC promptly
shall assume the defense of any Indemnitee, with counsel reasonably satisfactory
to such Indemnitee, and the fees and expenses of such counsel shall be the sole
cost and expense of PIC. Notwithstanding the foregoing, any Indemnitee shall be
entitled, at his or its expense, to employ counsel separate from counsel for PIC
and from any other party in such action, proceeding or investigation. No
Indemnitee may agree to a settlement of claim without the prior written approval
of PIC which approval shall not be unreasonably withheld. PIC may not agree to a
settlement of a claim involving anything other than the payment of money without
the prior written approval of the Indemnitee which shall not be unreasonably
withheld.
39
<PAGE>
VIII. MISCELLANEOUS.
Section 8.01 Further Actions.
Each party hereto will execute such further documents and
instruments and take such further actions as may reasonably be requested by the
other party to consummate the Merger, to vest the Surviving Corporation with
full title to all assets, properties, rights, approvals, immunities and
franchises of either of the Constituent Entities or to effect the other purposes
of this Agreement.
Section 8.02 Availability of Equitable Remedies.
Since a breach of the provisions of this Agreement could not
adequately be compensated by money damages, any party shall be entitled, either
before or after the Effective Time, in addition to any other right or remedy
available to it, to an injunction restraining such breach or threatened breach
and to specific performance of any such provision of this Agreement, and, in
either case, no bond or other security shall be required in connection
therewith, and the parties hereby consent to the issuance of such an injunction
and to the ordering of specific performance.
Section 8.03 Survival.
The representations, warranties, covenants and agreements
contained in this Agreement or in any instrument delivered pursuant to this
Agreement shall survive the Merger for a period of eighteen months after the
Effective Time.
Section 8.04 Modification.
This Agreement may be amended, supplemented or modified by
action taken by or on behalf of the respective Board of Directors or Board of
Directors of the parties hereto at any time prior to the Effective Time. No such
amendment, supplement or modification shall be effective unless set forth in a
written instrument duly executed by or on behalf of each party hereto.
40
<PAGE>
Section 8.05 Notices.
Any notice or other communication required or permitted to
be given hereunder shall be in writing and shall be mailed by certified mail,
return receipt requested or by Federal Express, express mail or similar
overnight delivery or courier service or delivered (in person or by telecopy,
telex or similar telecommunications equipment) against receipt to the party to
which it is to be given at the address of such party set forth in the preamble
to this Agreement (or to such other address as the party shall have furnished in
writing in accordance with the provisions of this Section 8.05) with copies
(which copies shall not constitute notice) as follows:
If to the Company: 1177 West Hastings Street, Suite 2000
Vancouver, British Columbia V6E2K3
Attn: Ajmal Khan
With a copy to: Preston Gates & Ellis LLP
701 Fifth Avenue, Suite 5000
Seattle, Washington 98104-7078
Attn: Gary J. Kocher, Esq.
If to PIC: 41 E. 11th Street
New York, New York 10003
Attention: Tom Courts
With a copy to: Camhy Karlinsky & Stein LLP
1740 Broadway, 16th Floor
New York, New York 10019
Attn: Daniel I. DeWolf, Esq.
Any notice shall be addressed to the attention of the Chief Executive Officer.
Any notice or other communication given by certified mail shall be deemed given
three business days after certification thereof, except for a notice changing a
party's address which will be deemed given at the time of
41
<PAGE>
receipt thereof. Any notice given by other means permitted by this Section 8.05
shall be deemed given at the time of receipt hereof.
Section 8.06 Waiver.
Any waiver by any party of a breach of any term of this
Agreement shall not operate as or be construed to be a waiver of any other
breach of that term or of any breach of any other term of this Agreement. The
failure of a party to insist upon strict adherence to any term of this Agreement
on one or more occasions will not be considered a waiver or deprive that party
of the right thereafter to insist upon strict adherence to that term or any
other term of this Agreement. Any waiver must be in writing and be authorized by
a resolution of the Board of Directors or by an officer of the waiving party.
Section 8.07 Binding Effect.
The provisions of this Agreement shall be binding upon and
inure to the benefit of the Company, Verus, and PIC , and their respective
successors and assigns.
Section 8.08 No Third-Party Beneficiaries.
This Agreement does not create, and shall not be construed
as creating, any rights enforceable by any person not a party to this Agreement,
except as referred to in Sections 7.01 and 7.02.
Section 8.09 Severability.
If any provision of this Agreement is hereafter held to be
invalid, illegal or unenforceable for any reason, such provision shall be
reformed to the maximum extent permitted so as to preserve the parties' original
intent, failing which, it shall be severed from this Agreement, with the balance
of this Agreement continuing in full force and effect. If any provision of this
Agreement
42
<PAGE>
is so broad as to be unenforceable, the provision shall be interpreted to be
only so broad as is enforceable. If any provision is inapplicable to any person
or circumstance, it shall nevertheless remain applicable to all other persons
and circumstances.
Section 8.10 Merger; Assignability.
This Agreement and the other agreements to be delivered
pursuant to this Agreement, and Exhibits attached hereto set forth the entire
understanding of the parties with respect to the subject matter hereof and
supersede all existing agreements concerning such subject matter. This Agreement
may not be assigned by any party without the prior written consent of each other
party to their Agreement.
Section 8.11 Headings.
The headings in this Agreement are solely for convenience of
reference and shall be given no effect in the construction or interpretation of
this Agreement.
Section 8.12 Counterparts; Governing Law; Jurisdiction.
This Agreement may be executed in any number of counterparts
(and by facsimile), each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument. It shall be governed by,
and construed in accordance with, the laws of the State of Delaware, without
giving effect to the rules governing the conflict of laws. Any action, suit or
proceeding arising out of, based on, or in connection with this Agreement, the
Merger, or the other transactions contemplated hereby, or any document relating
hereto or delivered in connection with the transactions contemplated hereby, may
be brought only and exclusively in the Federal or State Courts located in the
State of New York; and each party covenants and agrees not to assert, by way of
motion, as a defense or otherwise, in any such action, suit or proceeding, any
claim that it is not
43
<PAGE>
subject personally to the jurisdiction of such court if it has been duly served
with process, that its property is exempt or immune from attachment or
execution, that the action, suit or proceeding is brought in an inconvenient
forum, that the venue of the action, suit or proceeding is improper, or that
this Agreement or the subject matter hereof may not be enforced in or by such
court.
44
<PAGE>
IN WITNESS WHEREOF, this Agreement has been executed by duly
authorized officers of each of the parties hereto as of the date first above
written.
PREDICT IT CORP.
By:
-------------------------------
Name:
Title:
WDC DEVELOPMENT INC.
By:
-------------------------------
Name:
Title:
45
<PAGE>
AGREEMENT AND PLAN
OF MERGER AND REORGANIZATION
by and among
PREDICT IT, INC.,
PII ACQUISITION CORP.,
VIRTUAL STOCK EXCHANGE, INC.,
GARY CHENG,
HOWARD YEN,
and
SCOTT APPLEBY
dated as of
June 30, 1999
<PAGE>
TABLE OF CONTENTS
[S]
I. THE MERGER...........................................................-3-
Section 1.1 Terms of the Merger....................................-3-
Section 1.2 Closing................................................-3-
Section 1.3 Effective Time.........................................-4-
Section 1.4 Certificate of Incorporation and By-Laws of
the Surviving Corporation..............................-4-
Section 1.5 Directors of the Surviving Corporation.................-4-
Section 1.6 Reorganization.........................................-5-
II. STATUS AND CONVERSION OF OUTSTANDING SECURITIES......................-5-
Section 2.1 Conversion of Outstanding Securities; Closing
of Transfer Books......................................-5-
Section 2.2 Merger Consideration...................................-6-
Section 2.3 Non-Registered Shares..................................-9-
III. REPRESENTATIONS AND WARRANTIES OF VSE AND THE SHAREHOLDERS...........-9-
Section 3.1 Organization and Qualification........................-10-
Section 3.2 Capitalization........................................-10-
Section 3.3 Financial Condition...................................-11-
Section 3.4 Tax and Other Liabilities.............................-12-
Section 3.5 Litigation and Claims.................................-14-
Section 3.6 Compliance with Laws, Licenses and Permits............-14-
Section 3.7 Properties of VSE.....................................-15-
Section 3.8 Contracts and Other Instruments.......................-16-
Section 3.9 Employees.............................................-17-
Section 3.10 Intangibles...........................................-17-
Section 3.11 Insurance.............................................-17-
Section 3.12 Authority to Sell.....................................-18-
Section 3.13 Year 2000.............................................-19-
Section 3.14 Brokers and Finders...................................-20-
Section 3.15 Written Technology Documentation......................-20-
IV. REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER-SUB.............-23-
Section 4.1 Organization..........................................-23-
Section 4.2 Authority to Buy......................................-24-
Section 4.3 Financial Condition...................................-25-
Section 4.4 Nondistributive Intent................................-25-
Section 4.5 Tax and Other Liabilities.............................-26-
Section 4.6 Compliance with Laws, Licenses and Permits............-28-
Section 4.7 Intangibles...........................................-28-
Section 4.8 Litigation and Claims.................................-28-
Section 4.9 Shares of Capital Stock...............................-29-
Section 4.10 Certificate of Incorporation and Bylaws...............-29-
-i-
<PAGE>
Section 4.11 Year 2000.............................................-29-
Section 4.12 Most Favored Nation Status............................-29-
Section 4.13 Required Consents.....................................-30-
Section 4.14 Certain Statutes......................................-30-
Section 4.15 Bulletin Board........................................-30-
Section 4.16 Brokers and Finders...................................-31-
V. INTENTIONALLY OMITTED...............................................-31-
VI. CONDITIONS TO OBLIGATIONS OF PARENT AND MERGER-SUB..................-31-
Section 6.1 Accuracy of Representations and Compliance
with Conditions........................................-31-
Section 6.2 Satisfactory Employment Agreements with certain
of the Shareholders....................................-31-
Section 6.3 Opinion of Counsel.....................................-32-
Section 6.4 Other Closing Documents................................-32-
Section 6.5 Legal Action...........................................-32-
Section 6.6 No Governmental Action.................................-32-
Section 6.7 Contractual Consents Needed............................-33-
Section 6.8 Escrow Release.........................................-33-
VII. CONDITIONS TO OBLIGATIONS OF THE SHAREHOLDERS AND VSE...............-33-
Section 7.1 Accuracy of Representations and Compliance
With Conditions........................................-34-
Section 7.2 Employment Agreements..................................-34-
Section 7.3 Contractual Consents ..................................-34-
Section 7.4 Other Closing Documents................................-34-
Section 7.5 Legal Action...........................................-35-
Section 7.6 No Governmental Action.................................-35-
Section 7.7 Opinion of Counsel.....................................-36-
VIII. POST-CLOSING COVENANTS..............................................-36-
Section 8.1 Income and Franchise Taxes.............................-36-
IX. FEES AND EXPENSES...................................................-37-
Section 9.1 Expenses..............................................-38-
X. INDEMNIFICATION; SURVIVAL; LIMITATIONS ON LIABILITY.................-38-
Section 10.1 Indemnification.......................................-38-
Section 10.2 Survival; Limitations on Liability....................-39-
XI. MISCELLANEOUS.......................................................-41-
Section 11.1 Further Actions.......................................-41-
Section 11.2 Submission to Jurisdiction............................-41-
Section 11.3 Merger; Modification..................................-41-
Section 11.4 Notices...............................................-42-
Section 11.5 Waiver................................................-42-
Section 11.6 Assignment............................................-43-
-ii-
<PAGE>
Section 11.7 No Third-Party Beneficiaries..........................-43-
Section 11.8 Separability..........................................-43-
Section 11.9 Headings..............................................-43-
Section 11.10 Counterparts; Governing Law..........................-44-
Exhibits
Exhibit A. - Employment Agreement for Gary Cheng
Exhibit B. - Employment Agreement for Howard Yen
Exhibit C. - Escrow Agreement
Exhibit D. - Form of VSE Site Storyboard
Exhibit E. - Form of VSE Site Codemap
-iii-
<PAGE>
AGREEMENT AND PLAN
OF MERGER AND REORGANIZATION
THIS AGREEMENT AND PLAN OF MERGER AND REORGANIZATION (this
"Agreement") is being made as of this 30th day of June, 1999, by and among
PREDICT IT, INC., a Delaware corporation, with offices at 41 East 11th Street,
11th Floor, New York, New York 10003 (the "Parent"); PII ACQUISITION CORP., a
Delaware corporation and wholly-owned subsidiary of Parent, with offices at 41
East 11th Street, 11th Floor, New York, New York 10003 ("Merger-Sub"); VIRTUAL
STOCK EXCHANGE, INC., a Delaware corporation, with offices at 11 Broadway, New
York, New York 10004 ("VSE"); MR. GARY CHENG, an individual residing at 347 West
57th Street, Apt. 41A, New York, New York 10019 ("Cheng"); MR. HOWARD YEN, an
individual residing at 182 East 95th Street, Apt. 18C, New York, New York 10128
("Yen") and MR. SCOTT APPLEBY, an individual residing at 24 Noroton Avenue,
Darien, Connecticut 06820 ("Appleby," together with Cheng and Yen, the
"Shareholders" and each a "Shareholder").
W I T N E S S E T H :
WHEREAS, the respective Boards of Directors of Parent,
Merger-Sub and VSE deem it advisable and in the best interests of their
respective companies that Merger-Sub merge with and into VSE solely in exchange
for shares of common stock, par value $.01 per share of Parent (the "Common
Stock"), and, accordingly, have each approved this Agreement and the
transactions contemplated hereby, upon the terms and subject to the conditions
set forth herein;
<PAGE>
WHEREAS, contemporaneously with the execution of this
Agreement, the holders of all of the issued outstanding stock of VSE are
executing a unanimous written consent of the shareholders pursuant to Section
228 of the Delaware General Corporation Law (the "DGCL") approving and adopting
this Agreement, and all of the transactions contemplated herein, in accordance
with Section 251 and 252 of the DGCL;
WHEREAS, contemporaneously with the execution of this
Agreement, the holder of all of the issued and outstanding stock of Merger-Sub
is executing a written consent pursuant to Section 228 of the DGCL approving and
adopting this Agreement, and all of the transactions contemplated herein, in
accordance with Section 251 and 252 of the DGCL;
WHEREAS, contemporaneously with the closing of the
transactions contemplated by this Agreement, each of Cheng and Yen is executing
an employment agreement (respectively, the "Cheng Employment Agreement" and the
"Yen Employment Agreement," and collectively, the "Employment Agreements" and
each an "Employment Agreement"), substantially in the form of Exhibits A and B,
respectively, attached hereto;
WHEREAS, it is the express intention of Parent, Merger-Sub,
VSE and the Shareholders that the merger contemplated by this Agreement qualify
for federal income tax purposes as a "reorganization" within the meaning of
Section 368(a) of the Internal Revenue Code of 1986, as amended from time to
time, and any successor statute thereto (the "Code") and the receipt by the
Shareholders of the Merger Consideration (as defined in Section 2.2 hereof)
shall not be subject to income tax under the Code;
-2-
<PAGE>
NOW, THEREFORE, in consideration of the mutual premises,
representations, warranties, covenants and agreements contained herein, and
intending to be legally bound hereby, the parties hereto agree as follows:
I. THE MERGER.
Section 1.1 Terms of the Merger.
At the Effective Time (as defined in Section 1.3 hereof), upon the
terms and subject to the conditions of this Agreement, Merger-Sub shall be
merged with and into VSE and the separate existence of Merger-Sub shall
thereupon cease in accordance with the DGCL. VSE shall be the surviving
corporation in the Merger and shall continue to be governed by the laws of the
State of Delaware, and the separate corporate existence of VSE, and all of its
rights, privileges, immunities and franchises, public or private, and all its
duties and liabilities as a corporation organized under the DGCL, will continue
unaffected by the Merger. VSE, as the surviving corporation after the Merger, is
hereinafter sometimes referred to as the "Surviving Corporation".
Section 1.2 Closing.
The closing of the Merger (the "Closing") will take place at the
offices of Camhy Karlinsky & Stein LLP, 1740 Broadway, 16th Floor, New York, New
York 10019-4315, on or about June 30, 1999, or at such other time or place as
the parties hereto mutually agree (the "Closing Date"). The Closing Date shall
occur simultaneously with the Effective Time.
-3-
<PAGE>
Section 1.3 Effective Time.
As of the Closing, a certificate of merger meeting the requirements of
Sections 251 and 252 of the DGCL (the "Certificate of Merger") shall be duly
prepared and executed by Surviving Corporation and thereafter delivered to the
Secretary of State of the State of Delaware (the "Secretary") for filing. The
Merger shall become effective at the time of the filing of the Certificate of
Merger with the Secretary (the date and time of such filing being referred to
herein as the "Effective Time") and thereafter the Surviving Corporation shall
file a certified copy of the Certificate of Merger with the Secretary of State
of the State of Delaware. At the Effective Time, all the property, rights,
privileges, powers and franchises of VSE and Merger-Sub shall vest in the
Surviving Corporation, and all debts, liabilities and duties of VSE and
Merger-Sub shall become the debts, liabilities and duties of the Surviving
Corporation.
Section 1.4 Certificate of Incorporation and By-Laws of the
Surviving Corporation.
At the Effective Time and without any further action on the part of
VSE, Merger-Sub or their respective stockholders or shareholders, the
Certificate of Incorporation and By-Laws of Merger-Sub, as in effect immediately
prior to the Effective Time, shall be the Certificate of Incorporation and
By-Laws of the Surviving Corporation until duly amended in accordance with
applicable law.
Section 1.5 Directors of the Surviving Corporation.
From and after the Effective Time, the Board of Directors of VSE shall
be the Board of Directors of the Meger-Sub and shall serve until their
successors have been duly elected or appointed and qualified. The Shareholders
shall have the right to designate one person to be included in management's
slate of candidates for election as members of the Board of Directors of the
Parent, until the later of (i) three
-4-
<PAGE>
(3) years from the Closing or (ii) such time as the Shareholders no longer hold,
in the aggregate, at least 20% of the total outstanding equity of Parent.
Section 1.6 Reorganization.
The parties intend that the transactions contemplated by this Agreement
constitute a reorganization within the meaning of Sections 368(a)(1)(A) and
(a)(2)(E) of the Code. Each party shall treat the transaction as such a
reorganization, including, without limitation, the reporting and record keeping
requirements of Treasury Regulation Section 1.368-3. Except as required by law,
no party shall take or fail to take (or permit any affiliate to take or fail to
take) any action that would adversely effect such characterization. Except as
required by law, no party shall take or fail to take (or permit any affiliate to
take or fail to take) any action that would adversely effect such
characterization. Further, Parent and Merger-Sub represent and warrant to the
Shareholders, on one hand, and the Shareholders represent and warrant to Parent
and Merger-Sub, on the other, that, to their respective actual knowledge, there
is no set of facts, circumstances or other events or requirements, legal or
otherwise, and nothing is contemplated that would require any of the respective
parties to this Agreement to take or fail to take (or permit any affiliate to
take or fail to take) any action that would adversely effect such
characterization, including the execution of this Agreement and the consummation
of the transactions contemplated hereby.
II. STATUS AND CONVERSION OF OUTSTANDING SECURITIES.
Section 2.1 Conversion of Outstanding Securities; Closing of
Transfer Books.
At the Effective Time, by virtue of the Merger and without any action
on the part of any party:
-5-
<PAGE>
(a) Each share of common stock, par value $10.00 per
share, of VSE (the "VSE Common Stock") outstanding immediately prior to the
Effective Time shall remain outstanding and shall represent one share of common
stock, par value $.01 per share, of the Surviving Corporation, so that after the
Effective Time, Parent shall be the holder of all of the issued and outstanding
shares of the Surviving Corporation's common stock.
(b) Each share of VSE Common Stock outstanding
immediately prior to the Closing (the "Outstanding Securities") shall be
converted into the Merger Consideration (as defined in Section 2.2(a)) in
proportion to the total number of VSE Common Stock outstanding, without
interest, and, at the Closing, (i) the Outstanding Securities shall otherwise
cease to be outstanding, shall be canceled and retired and shall cease to exist,
and (ii) all of the outstanding shares of Merger-Sub shall be canceled and
retired and shall cease to exist. At the Closing, the Shareholders shall deliver
to Parent certificates representing all of the Outstanding Securities in
exchange for the Merger Consideration.
(c) The stock transfer books of Merger-Sub shall be
delivered to VSE and at the Closing the stock transfer books of Merger-Sub shall
be closed and no transfer of Common Stock of Merger-Sub shall thereafter be
made.
Section 2.2 Merger Consideration.
(a) The aggregate consideration to be paid in the
Merger for the Outstanding Securities (the "Merger Consideration") shall be (i)
Two Million Two Hundred Thousand (2,200,000) shares of Parent Common Stock and
(ii) an additional Five Hundred Thousand (500,000) shares of
-6-
<PAGE>
Parent Common Stock which shall be held in escrow, subject to the achievement of
certain performance goals, in accordance with the provisions of Section 2.2(c)
hereof.
(b) At the Closing, the following Merger Consideration
shall be delivered to the Shareholders as set forth below:
(i) One Million Twenty-eight Thousand Thirty-eight
(1,028,038) shares of Parent Common Stock to Cheng;
(ii) One Million Twenty-eight Thousand Thirty-
eight (1,028,038) shares of Parent Common Stock to Yen;
(iii) One Hundred Forty-three Thousand Nine
Hundred Twenty-four (143,924) shares of Parent Common Stock to Appleby; and
(iv) Two Hundred Thirty-three Thousand Six
Hundred Forty-five (233,645) shares of Parent Common Stock issued and
registered in the name of Cheng, Two Hundred Thirty- three Thousand Six Hundred
Forty-five (233,645) shares of Parent Common Stock issued and registered in the
name of Yen, and Thirty-two Thousand Seven Hundred Ten (32,710) shares of Parent
Common Stock registered in the name of Appleby, it being agreed that such shares
(the "Escrowed Shares") shall be held in escrow by Parker, Chapin, Flattau, &
Klimpl, LLP as Escrow Agent ("Escrow Agent") pursuant to the terms of an Escrow
Agreement between Parent, Cheng, Yen, Appleby, and Escrow Agent (the "Escrow
Agreement"), dated as of the Closing Date, substantially in the form of Exhibit
C attached hereto, to be distributed in accordance with Section 2.2(c).
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(c) Cheng, Yen, and Appleby shall be entitled to have
released and delivered to them an aggregate amount of up to Five Hundred
Thousand (500,000) of the Escrowed Shares as follows:
(i) on January 31, 2000, One Hundred Sixteen
Thousand Eight Hundred Twenty-five and one-half (116,822.5) of the
Escrowed Shares shall be released from escrow and delivered to Cheng,
One Hundred Sixteen Thousand Eight Hundred Twenty-five and one-half
(116,822.5) of the Escrowed Shares shall be released from escrow and
delivered to Yen, and Sixteen Thousand Three Hundred Fifty-five
(16,355) of the Escrowed Shares shall be released from escrow and
delivered to Appleby (for an aggregate of 250,000 of the Escrowed
Shares), if the number of registered users of Parent exceeds 250,000 by
December 31, 1999 and the page views of Parent for December 1999
exceeds 17.5 million; and
(ii) on January 31, 2001, One Hundred Sixteen
Thousand Eight Hundred Twenty-five and one-half (116,822.5) of the
Escrowed Shares shall be released from escrow and delivered to Cheng,
One Hundred Sixteen Thousand Eight Hundred Twenty-five and one-half
(116,822.5) of the Escrowed Shares shall be released from escrow and
delivered to Yen, and Sixteen Thousand Three Hundred Fifty-five
(16,355) of the Escrowed Shares shall be released from escrow and
delivered to Appleby (for an aggregate of 250,000 of the Escrowed
Shares), if the number of registered users of Parent exceeds 750,000 by
December 31, 2000 and the page views of Parent for December 2000
exceeds 60 million; and
(iii) In the event that the performance based goals
specified in Section 2.2(c)(i) above are not met, then if, by December
31, 2000, the number of registered users of Parent
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exceeds 900,000 and the page views of Parent for December 2000 exceed
72 million, then all of the Escrowed Shares shall be released from
escrow and, in the amounts set forth in Section 2.2(c) (i) and (ii)
above, delivered to Cheng, Yen, and Appleby on January 31, 2001.
As of December 31, 2000, to the extent any Escrowed Shares have not been
released in accordance with Sections 2.2(c)(i), (ii) or (iii) above, such
Escrowed Shares shall be returned by the Escrow Agent to the Company for
cancellation.
Section 2.3 Non-Registered Shares
The Merger Consideration delivered pursuant to Section 2.2 shall not be
registered under the Securities Act of 1933, as amended (the "Securities Act").
The Shareholders acknowledge that they may not sell or otherwise dispose of such
shares in the absence of either a registration statement under the Securities
Act or an exemption from the registration provisions of the Securities Act. The
certificates representing such shares will contain a legend substantially to the
effect that such shares have not been registered under the Securities Act, and
may not be sold or transferred without an effective registration statement under
the Securities Act or an exemption from the registration provisions under the
Securities Act.
III. REPRESENTATIONS AND WARRANTIES OF VSE AND THE SHAREHOLDERS.
Each of VSE and the Shareholders, jointly and severally, represents and
warrants to Parent and Merger-Sub as follows:
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Section 3.1 Organization and Qualification.
VSE is a corporation duly organized, validly existing, and in good
standing under the laws of its jurisdiction of incorporation and has full
corporate power and authority to conduct its business as and to the extent now
conducted and to own, use, and lease its assets and properties. VSE is duly
qualified, licensed, or admitted to do business and is in good standing in each
jurisdiction in which the ownership, use, or leasing of its assets and
properties, or the conduct or nature of its businesses, makes such
qualification, licensing, or admission necessary, except for the failure to
qualify in New York and for such failures to be so qualified, licensed, or
admitted and in good standing which, individually or in the aggregate, are not
having and could not reasonably be expected to have a Material Adverse Effect.
As used in this Agreement, a "Material Adverse Effect" shall mean a material
adverse effect on the businesses, properties, assets, liabilities, condition
(financial or otherwise), or results of operations of VSE. Notwithstanding the
foregoing, a Material Adverse Effect shall not include any change in political,
economic or stock market conditions or in the Internet and computer software
industry. VSE does not have any subsidiaries and, except as disclosed in
Schedule 3.1 hereto, VSE does not directly or indirectly own any equity or
similar interest in, or any interest convertible into or exchangeable or
exercisable for, any equity or similar interest in, any corporation,
partnership, joint venture or other business association or entity.
Section 3.2 Capitalization.
The authorized capital stock of VSE consists solely of 1,500 shares of
VSE Common Stock, 107 of which are issued and outstanding and owned of record
and beneficially by the Shareholders. All of the issued and outstanding shares
of VSE Common Stock are duly authorized, validly issued, fully paid, and
nonassessable. Except pursuant to this Agreement, there are no outstanding
subscriptions,
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options, warrants, rights (including "phantom" stock rights), preemptive rights
or other contracts, commitments, understandings or arrangements, including any
right of conversion or exchange under any outstanding security, instrument or
agreement (collectively, "Options"), obligating VSE to issue or sell any shares
of capital stock of VSE or to grant, extend, or enter into any Option with
respect thereto.
Section 3.3 Financial Condition.
The Shareholders have delivered to Parent true and correct copies of
the following, which are incorporated by reference herein: the unaudited
consolidated balance sheet of VSE as of March 31, 1999 and December 31, 1998 and
the unaudited consolidated statements of income, statements of retained
earnings, and statements of cash flows of VSE for the three month period ended
March 31, 1999 and the year ended December 31, 1998. Each such balance sheet
presents fairly the financial conditions, assets, liabilities, and stockholders'
equity of VSE as of its date; each such statement of income and statement of
retained earnings presents fairly the results of operations of VSE for the
period indicated and their retained earnings as of the date indicated; and each
such statement of cash flows presents fairly the information purported to be
shown therein. The financial statements referred to in this Section 3.3 (i) are
in accordance with the books and records of the Company in all material respects
and (ii) are prepared on a substantially consistent basis (although not in
accordance with GAAP). Since March 31, 1999:
(a) There has at no time been a material adverse change
in the financial condition, results of operations, business, properties, assets,
liabilities of VSE; and
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(b) VSE has not suffered an extraordinary loss
(whether or not covered by insurance) or waived any right of substantial value.
Section 3.4 Tax and Other Liabilities.
(a) VSE has no liability of any nature, accrued or
contingent, including without limitation liabilities for Taxes (as defined in
Section 3.4(d)) and liabilities to customers or suppliers, other than the
following:
(i) Liabilities for which full provision has been
made on the balance sheet (the "Last Balance Sheet") as of March 31, 1999 (the
"Last Balance Sheet Date"); and
(ii) Any and all other liabilities arising since
the Last Balance Sheet Date and prior to the Closing in the ordinary course of
business which are not inconsistent with the representations and warranties of
the Shareholders or any other provision of this Agreement or which would not
have a Material Adverse Effect on VSE.
(b) Without limiting the generality of Section 3.4(a):
(i) Except as set forth on Schedule 3.4(b), VSE
(A) has paid all Taxes required to be paid on or prior to the date hereof
(including, without limitation, payments of estimated Taxes) for which VSE is
liable, except for Taxes which are being contested in good faith and by
appropriate proceedings or where failure to pay would not have a Material
Adverse Effect on VSE, and (B) has timely filed (or timely filed an extension
for), all material federal, state, local, and foreign tax returns, reports, and
forms with respect to such taxes required to be filed by VSE on or before the
date hereof, which returns are true, correct, and complete in all material
respects.
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(ii) The amount set up as provisions for Taxes on
the Last Balance Sheet are sufficient for all material accrued and unpaid Taxes
of VSE, whether or not due and payable and whether or not in dispute, under tax
laws as in effect on the Last Balance Sheet Date, for the period ended on such
date and for all periods prior thereto.
(c) Except as set forth on Schedule 3.4(c), there is no
material dispute or claim concerning any material liability for Taxes of VSE (i)
asserted by any taxing authority in writing and received by VSE, or (ii) as to
which the Shareholders have actual knowledge based upon personal contact with
any agent of such authority.
(d) For purposes of this Agreement, "Taxes" of a person
shall mean all federal, state, local or foreign taxes, assessments, duties which
are payable or remittable by such person or levied upon such person or any
property of such person, or levied with respect to any of its assets,
franchises, income, receipts, including, without limitation, import duties,
excise, franchise, gross receipts, utility, real property, capital, personal
property, withholding, FICA, unemployment compensation, sales or use,
withholding, governmental charges (whether or not requiring the filing of a
return), and all additions to tax, penalties and interest relating thereto.
(e) Schedule 3.4(e) lists all income tax returns filed
with respect to VSE for all taxable periods ended on or after December 31, 1997,
including those Tax returns that have been audited, and indicates those income
tax returns for which VSE has received written notification that such returns
are currently the subject of audit. VSE shall have delivered to Parent correct
and complete copies of all federal income tax returns of VSE for taxable periods
ended on or after December 31, 1997. Except as set forth on Schedule 3.4(e), VSE
has not waived any statute of
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limitations with respect to income tax or agreed to any extension of time with
respect to an income tax assessment or deficiency.
(f) VSE is currently an S corporation within the
meaning of Section 1361(a) of the Code and has been an S corporation since its
inception.
Section 3.5 Litigation and Claims.
Except as set forth on Schedule 3.5, there are no claims suits, actions
or proceedings pending before any Governmental Entity (as defined in Section
3.6) or arbitration panel or, to the knowledge of VSE or the Shareholders,
threatened against, relating to or affecting VSE; nor is VSE subject to any
judgement, decree, order, injunction, writ or rule of any Governmental Entity or
arbitration panel which could have a Material Adverse Effect.
Section 3.6 Compliance with Laws, Licenses and Permits.
VSE has complied in all material respects with all laws, rules,
regulations, ordinances, codes, statutes, judgments, injunctions, orders,
decrees, permits, policies and other requirements (collectively "Laws") of all
federal, state or local court, administrative agency or commission or other
governmental authority or instrumentality (collectively "Governmental Entities")
and possesses all authorizations, licenses and permits necessary for the conduct
of its businesses, and is not in default with respect to any order, writ,
judgment, award, injunction or decree of any Governmental Entity or arbitration
panel, applicable to its businesses or any of its assets, properties or
operations except where such noncompliance or default would not have a Material
Adverse Effect.
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Section 3.7 Properties of VSE.
(a) Set forth on Schedule 3.7(a) is a list of all real
property leased by VSE. VSE does not own any real property.
(b) Set forth in Schedule 3.7(b) is a true and complete
list of all personal properties and assets (other than real property) owned by
VSE, or leased or licensed by VSE from or to a third party. All such properties
and assets owned by VSE are reflected on the Last Balance Sheet (except for
acquisitions subsequent to the Last Balance Sheet Date which are noted on
Schedule 3.7(b)). All such properties and assets owned, leased, or licensed by
VSE are in good and usable condition (reasonable wear and tear which is not such
as to affect adversely the operation of the business of VSE excepted).
(c) No real property leased, or licensed by VSE lies in
an area which, to the knowledge of the Shareholders, is or will be, subject to
zoning, use, or building code restrictions that would prohibit the continued
effective ownership, leasing, licensing, or use of such real property in the
business which VSE is now engaged.
(d) VSE has not caused or permitted its respective
businesses, properties, or assets to be used to generate, manufacture, refine,
transport, treat, store, handle, dispose of, transfer, produce, or process any
Hazardous Substance (as such term is defined in this Section 3.7(d)) except in
compliance with all applicable laws, rules, regulations, orders, judgments, and
decrees, and has not caused or permitted the Release (as such term is defined in
this Section 3.7(d)) of any Hazardous Substance on or off the site of any
property of VSE. The term "Hazardous Substance" shall mean any hazardous waste,
as defined by 42 U.S.C. Section 6903(5), any hazardous substance, as defined by
42 U.S.C. Section 9601(14), any pollutant or contaminant, as defined by 42
U.S.C. Section 9601(33), and all toxic substances,
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hazardous materials, or other chemical substances regulated by any other law,
rule, or regulation. The term "Release" shall have the meaning set forth in 42
U.S.C. Section 9601(22).
Section 3.8 Contracts and Other Instruments.
Schedule 3.8 accurately and completely sets forth a list of all
material contracts, agreements, loan agreements, instruments, leases, licenses,
arrangements, or understandings with respect to VSE. Each such contract,
agreement, loan agreement, instrument, lease, or license is in full force and is
the legal, valid, and binding obligation of VSE and (subject to applicable
bankruptcy, insolvency, and other laws affecting the enforceability of
creditors' rights generally) is enforceable as to it in accordance with its
terms. VSE is not in material violation, in breach of, or in default with
respect to any material terms of any such contract, agreement, loan agreement,
instrument, lease, or license. Except for employment agreements and as disclosed
in Schedule 3.8, VSE is not a party to any contract, agreement, loan agreement,
instrument, lease, license, arrangement, or understanding with, any director,
officer, or employee of VSE, or any relative or affiliate of the Shareholders or
of any such director, officer, or employee. The stock ledgers and stock transfer
books of VSE relating to all issuances and transfers of any capital stock of VSE
and the minute book records of the Board of Directors and committees thereof of
VSE since their incorporation made available to Parent are the original stock
ledgers and stock transfer books and minute book records of VSE or exact copies
thereof.
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Section 3.9 Employees.
The Company does not have and it does not contribute to, any pension,
profitsharing, option, other incentive plan, or any other type of Employee
Benefit Plan (as defined in Section 3(3) of the Employee Retirement Income
Security Act of 1974, as amended ("ERISA")), and does not have any obligation to
or customary arrangement with employees for bonuses, incentive compensation,
vacations, severance pay, insurance, or other benefits, except as set forth in
Schedule 3.9.
Section 3.10 Intangibles.
VSE has all right, title and interest in, or a valid and binding
license to use all patents, patent applications, trademarks, trademark
applications, trade names, service marks, copyrights, copyright applications,
franchises, trade secrets, computer programs (in object or source code form), or
other intangible property or assets (collectively, "Intangibles") which are
individually or in the aggregate material to the conduct of the business of VSE.
VSE is not in default (or with the giving of notice or lapse of time or both,
would be in default) in any respect under any license to use such Intangibles,
such Intangibles are not , to the knowledge of VSE and the Shareholders, being
infringed by any third party, and VSE, to the knowledge of VSE and the
Shareholders, is not infringing any Intangible of any third party.
Section 3.11 Insurance.
The Shareholders have delivered to Parent prior to the execution of
this Agreement a true and complete list of all liability, property, workers'
compensation, directors' and officers' liability and other insurance policies
currently in effect that insure the business, operations, properties, assets, or
employees of VSE. Such insurance policies are placed with, to the knowledge of
VSE and the Shareholders, financially sound and reputable insurers and, in light
of the respective business,
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operations, assets, and properties of VSE, are in amounts and have coverages
that are, to the knowledge of VSE and the Shareholders, reasonable and customary
for persons engaged in such businesses and operations and having such assets and
properties.
Section 3.12 Authority to Sell.
(a) The Shareholders have the capacity to execute,
deliver, and perform this Agreement. This Agreement has been duly executed and
delivered by the Shareholders, is the legal, valid, and binding obligation of
the Shareholders, and subject to applicable bankruptcy, insolvency, and other
laws affecting the enforceability of creditors rights generally, is enforceable
as to them in accordance with its terms, except as set forth in Schedule 3.12.
The Shareholders are not under any contractual restriction of obligation which
is inconsistent with the execution and performance of this Agreement. The
Shareholders have no knowledge of any consent, authorization, approval, order,
license, certificate, or permit of or from, or declaration or filing with, any
Governmental Entity or any court or other tribunal that is required by VSE, or
the Shareholders, for the execution, delivery, or performance of this Agreement
by the Shareholders.
(b) No consent of any party to any material lease,
license, distribution, agency, consulting, employment, financing, lending,
installment sale or conditional sale, security, pledge, guarantee, or other
agreement, arrangement, or understanding to which VSE is, or the Shareholders
are, a party, or to which any of its or their properties or assets are subject,
is required for the execution, delivery, or performance of this Agreement,
except as disclosed in Schedule 3.12. Neither VSE nor the Shareholders have made
any agreement or understanding not approved in writing by Parent as a condition
for obtaining any consent, authorization, approval, order, license, certificate,
or permit required for the consummation of the transactions contemplated by this
Agreement. The
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execution, delivery, and performance of this Agreement by the Shareholders will
not violate, result in a breach of, conflict with, or (with or without the
giving of notice or the passage of time or both) entitle any party to terminate
or call a default under such lease, license, distribution, agency, consulting,
employment, financing, lending, installment sale or conditional sale, security,
pledge, guarantee, or other agreement, or understanding, or violate or result in
a breach of any term of the certificate of incorporation (or other charter
document) or by-laws of VSE or, to the Shareholders' knowledge, violate, result
in a material breach of, or conflict with any Law binding on VSE, or to which
any of its operations, business, properties, or assets are subject, and which
would have a Material Adverse Effect on VSE.
(c) Upon the Closing, the Shareholders will convey to
Parent, good title to all the Acquired Securities, free and clear of all liens,
security interests, pledges, charges, encumbrances, stockholders' agreements,
voting trusts, and adverse claims of any kind or nature whatsoever.
Section 3.13 Year 2000.
The Information Technology (as defined below) owned, licensed, utilized
and relied upon by VSE is Year 2000 Compliant (as defined below). For purposes
hereof, "Year 2000 Compliant" means that, with respect to any Information
Technology, including without limitation, any function, process, system or other
device or item, regardless of the particular date, year, century or other
chronological variable: (a) will accurately process date information (e.g.,
accept date input, provide date output and perform calculations and comparisons
on dates and portions of dates); (b) will function without interruption due to a
change in date, ensuring that any results, data or information processed,
generated or transmitted in connection therewith, shall be correct, valid and
not adversely affected; and, if
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applicable (c) will include date data century recognition, calculations which
accommodate same century and multi-century date values and formulae, as well as
date data interfaces (to application and operating system software, as
applicable) reflecting the correct date, year and century. For purposes hereof,
"Information Technology" means any computer hardware, computer software,
computer firmware or databases (whether for a specific or general purpose), and
other similar or related items of automated, computerized or software system(s).
Section 3.14 Brokers and Finders.
The Shareholders have not employed any broker, financial advisor or
finder or incurred any liability for any broker, financial advisory or finders'
fees in connection with this Agreement or the transactions contemplated hereby.
Section 3.15 Written Technology Documentation.
(a) VSE and the Shareholders have delivered, or within
sixty (60) days from the Closing will deliver, to Parent and Merger-Sub, in
writing, in order for Parent and Merger-Sub to properly integrate and utilize
the assets of VSE, to the mutual satisfaction of Parent and the Shareholders,
the following:
(i) a graphic representation of the site directory structure of
www.virtualstockexchange.com;
(ii) a "site storyboard" of the user's page flow as demonstrated
in Exhibit D;
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(iii) a codemap for the site, linking page functions with specific
script-names and data-sources as demonstrated in Exhibit E;
(iv) a commenting standard for all code deployed within the site,
including, but not limited to, the following:
(A) Standard information such as author and date of creation;
(B) Functional standards such as general script-functionality
commenting on what this script does and how it does it;
(C) Subroutine functions such as what these functions do and how
they do it;
(v) an identification, explanation, and profile of the datasources
used within the site, including items such as internal
information, flat file information (including, but not limited
to, information identifying and profiling the flat files used
within the site and a list of the field format of the various
flat files), external information, and data feed information
(including, but not limited to, an overview of how they are
used in the site and the identity of the vendor and the
technology required to be featured on the site;
(vi) maintenance schedules which identify normal maintenance
procedures and their timing and which identify normal site
down times;
(vii) network architecture, such as machine statistics, software
statistics, and usage statistics;
(viii) known issues of ongoing development, including, but not limited
to, the identification and profile of any issues with the
current site codebase, the identification and detail of
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ongoing corrective actions, and the identification and profile
any code currently under development; and
(ix) provide an electronic copy of the code (html, cgi, all
associated files including all user records) used within the
site itself, provided on either a CD or ZIP.
(b) Upon delivery by the Shareholders to the Parent of the items
specified in subsections (i) through (ix) above (the "Materials"), the Parent
shall have five (5) business days during which to review the Materials presented
and shall notify the Shareholders by the end of such period if there are any
deficiencies, corrections, or alterations to the Materials provided to them.
Upon receipt of such notice, the Shareholders shall have ten (10) business days
in which to respond to Parent to explain the Material in question or revise such
Materials accordingly. In the event the Material provided to Parent by the
Shareholders is acceptable to Parent, it shall provide the Shareholders with
written confirmation of its acceptance of the Materials. In the event the Parent
does not respond within the ten-day period described above, the Materials shall
be deemed accepted by the Parent.
(c) Upon the earlier of final delivery of the materials set
forth in Section 3.15(a) or sixty (60) days from the Closing, the Shareholders
shall deliver a certificate to Parent certifying and representing that all of
the documentation set forth in Section 3.15(a) that had not been delivered as of
the Closing Date has been so delivered.
(d) The representation set forth in this Section 3.15 shall not
be subject to the "Basket" set forth in Section 10.2(b)(ii) (as such term is
defined therein).
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IV. REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER-SUB.
Parent and Merger-Sub, jointly and severally, represent and warrant to
each Shareholder as follows:
Section 4.1 Organization.
(a) Parent and Merger-Sub are each a corporation duly
organized, validly existing, and in good standing under the laws of its
jurisdiction of incorporation, and has full power and authority to conduct its
business as and to the extent now conducted and to own, use, and lease its
assets and properties. Parent is duly qualified, licensed, or admitted to do
business and is in good standing in each jurisdiction in which the ownership,
use, or leasing of its assets and properties, or the conduct or nature of its
businesses, makes such qualification, licensing or admission necessary, except
for such failures to be so qualified, licensed, or admitted and in good standing
which, individually or in the aggregate, are not having and could not reasonably
be expected to have a Material Adverse Effect.
(b) Merger-Sub has not conducted any business
activities prior to the date of this Agreement, other than the negotiation and
execution of this Agreement. All outstanding shares of capital stock of
Merger-Sub are owned, beneficially and of record, by Parent. Except for this
Agreement, there are no agreements, arrangements, warrants, options, puts,
calls, rights or other commitments, plans or understandings of any character
relating to the issuance, sale, purchase, redemption, conversion, exchange,
registration, voting or transfer of any shares of Merger-Sub's Common Stock or
any other securities of Merger-Sub.
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Section 4.2 Authority to Buy.
(a) Parent and Merger-Sub have all requisite power and
authority to execute, deliver, and perform this Agreement. All necessary
corporate proceedings of Parent and Merger-Sub have been duly taken to authorize
the execution, delivery, and performance of this Agreement by Parent and
Merger-Sub. This Agreement has been duly authorized, executed and delivered by
Parent and Merger-Sub, is the legal, valid, and binding obligation of each of
Parent and Merger-Sub, and is enforceable as to it in accordance with its terms.
(b) No consent of any party to any material lease,
license, distribution, agency, consulting, employment, financing, lending,
installment sale or conditional sale, security, pledge, guarantee, or other
agreement, arrangement, or understanding to which Parent or Merger-Sub is a
party, or to which any of its properties or assets are subject, is required for
the execution, delivery, or performance of this Agreement. Neither Parent nor
Merger-Sub has made any agreement or understanding not approved in writing by
the Shareholders as a condition for obtaining any consent, authorization,
approval, order, license, certificate, or permit required for the consummation
of the transactions contemplated by this Agreement. The execution, delivery, and
performance of this Agreement by Parent and Merger-Sub will not violate, result
in a breach of, conflict with, or (with or without the giving of notice or the
passage of time or both) entitle any party to terminate or call a default under
such lease, license, distribution, agency, consulting, employment, financing,
lending, installment sale or conditional sale, security, pledge, guarantee, or
other agreement, or understanding, or violate or result in a breach of any term
of the certificate of incorporation (or other charter document) or by-laws of
either Parent or Merger-Sub or, to Parent's or Merger-Sub's knowledge,
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violate, result in a breach of, or conflict with any Law binding on Parent or
Merger-Sub, or to which any of their operations, business, properties, or assets
are subject.
Section 4.3 Financial Condition.
Parent has delivered to VSE true and correct copies of the following,
which are incorporated by reference herein: the unaudited consolidated balance
sheet of Parent as of March 31, 1999 and December 31, 1998 and the unaudited
consolidated statements of income, statements of retained earnings, and
statements of cash flows of Parent for the three month period ended March 31,
1999 and the year ended December 31, 1998. Each such balance sheet presents
fairly the financial conditions, assets, liabilities, and stockholders' equity
of Parent as of its date; each such statement of income and statement of
retained earnings presents fairly the results of operations of Parent for the
period indicated and their retained earnings as of the date indicated; and each
such statement of cash flows presents fairly the information purported to be
shown therein. The financial statements referred to in this Section 4.3 (i) are
in accordance with the books and records of the Company in all material respects
and (ii) are prepared in accordance with GAAP. Since March 31, 1999:
(a) There has at no time been a material adverse change
in the financial condition, results of operations, business, properties, assets,
liabilities of Parent; and
(b) Parent has not suffered an extraordinary loss
(whether or not covered by insurance) or waived any right of substantial value.
Section 4.4 Nondistributive Intent.
Parent, as contemplated hereunder, is acquiring the Outstanding
Securities for its own account (and not for the account of others) for
investment and not with a view to the distribution thereof. Parent will not sell
or otherwise dispose of such shares without registration under the Securities
Act, or
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an exemption therefrom, and the certificate or certificates representing such
shares may contain a legend to the foregoing effect. By virtue of its position,
Parent has access to the kind of financial and other information about VSE as
would be contained in a registration statement filed under the Securities Act.
Parent understands that it may not sell or otherwise dispose of such shares in
the absence of either a registration statement under the Securities Act or an
exemption from the registration provisions of the Securities Act.
Section 4.5 Tax and Other Liabilities.
(a) Parent has no liability of any nature, accrued or
contingent, including without limitation liabilities for Taxes (as defined in
Section 4.5(d)) and liabilities to customers or suppliers, other than the
following:
(i) Liabilities for which full provision has been
made on the balance sheet (the "Parent's Last Balance Sheet") as of the Last
Balance Sheet Date; and
(ii) Any and all other liabilities arising since
the Last Balance Sheet Date and prior to the Closing in the ordinary course of
business which are not inconsistent with the representations and warranties of
Parent or Merger-Sub or any other provision of this Agreement.
(b) Merger-Sub has no liability of any nature, accrued
or contingent, including, without limitation, liabilities for Taxes or liability
to any customer or supplier.
(c) Without limiting the generality of Section 4.5(a):
(i) Except as set forth on Schedule 4.5(c), Parent
(A) has paid all Taxes required to be paid on or prior to the date hereof
(including, without limitation, payments of estimated
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Taxes) for which Parent is liable, except for Taxes which are being contested in
good faith and by appropriate proceedings or where failure to pay would not have
a Material Adverse Effect on Parent, and (B) has timely filed (or timely filed
an extension for and has or will file within such extension of time), all
material federal, state, local, and foreign tax returns, reports, and forms with
respect to such taxes required to be filed by Parent on or before the date
hereof, which returns are true, correct, and complete in all material respects.
(ii) The amount set up as provisions for Taxes on
the Parent's Last Balance Sheet are sufficient for all material accrued and
unpaid Taxes of Parent, whether or not due and payable and whether or not in
dispute, under tax laws as in effect on the Last Balance Sheet Date, for the
period ended on such date and for all periods prior thereto.
(d) Except as set forth on Schedule 4.5(d), there is no
material dispute or claim concerning any material liability for Taxes of Parent
(i) asserted by any taxing authority in writing and received by Parent, or (ii)
as to which Parent has knowledge based upon personal contact with any agent of
such authority.
(e) Schedule 4.5(e) lists all income tax returns filed
with respect to Parent for all taxable periods ended on or after December 31,
1997, including those Tax returns that have been audited, and indicates those
income tax returns for which Parent has received written notification that such
returns are currently the subject of audit. Parent shall have delivered to VSE
and the Shareholders correct and complete copies of all federal income tax
returns of Parent for taxable periods ended on or after December 31, 1997.
Parent has not waived any statute of limitations with respect to income tax or
agreed to any extension of time with respect to an income tax assessment or
deficiency.
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Section 4.6 Compliance with Laws, Licenses and Permits.
Parent has complied in all material respects with all Laws of all
Governmental Entities and possesses all authorizations, licenses and permits
necessary for the conduct of its businesses, and is not in default with respect
to any order, writ, judgment, award, injunction or decree of any Governmental
Entity or arbitration panel, applicable to its businesses or any of its assets,
properties or operations except where such noncompliance or default would not
have a Material Adverse Effect.
Section 4.7 Intangibles.
Parent has all right, title and interest in, or a valid and binding
license to use all Intangibles which are individually or in the aggregate
material to the conduct of the business of Parent. Parent is not in default (or
with the giving of notice or lapse of time or both, would be in default) in any
respect under any license to use such Intangibles, such Intangibles are not , to
the knowledge of Parent, being infringed by any third party, and Parent, to its
knowledge, is not infringing any Intangible of any third party.
Section 4.8 Litigation and Claims.
Except as set forth on Schedule 4.8, there are no claims, suits,
actions or proceedings pending before any Governmental Entity or arbitration
panel nor, to the knowledge of Parent or Merger-Sub, threatened against,
relating to or affecting Parent or Merger-Sub; nor is Parent or Merger-Sub
subject to any judgment, decree, order, injunction, writ or rule of any
Governmental Entity or arbitration panel which could have a Material Adverse
Effect.
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Section 4.9 Shares of Capital Stock.
All of the Merger Consideration issued to the Shareholders pursuant to
this Agreement, will be duly authorized and validly issued and shall, upon
issuance, be fully paid and nonassessable.
Section 4.10 Certificate of Incorporation and Bylaws.
Parent and Merger-Sub shall have delivered to Shareholders certified
copies of Parent's and Merger-Sub's Certificate of Incorporation and copies of
the bylaws of Parent and Merger-Sub, which shall be in effect at the Closing, as
well as all other relevant corporate documents.
Section 4.11 Year 2000.
The Information Technology owned, licensed, utilized and relied upon by
Parent is Year 2000 Compliant. Merger-Sub does not own, license, utilize or rely
upon any Information Technology.
Section 4.12 Most Favored Nation Status.
As of the date of this Agreement, neither Parent nor Merger-Sub has
entered into any agreement to effect the acquisition of an Internet or computer
software company (any such agreement an "Acquisition Agreement") the terms of
which Acquisition Agreement (in the aggregate and in light of the size and
circumstances of such acquisition) are more favorable in any material respect
than the terms of this Agreement.
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Section 4.13 Required Consents.
The execution and delivery of this Agreement by Parent and Merger-Sub
does not, and the performance of this Agreement by Parent and Merger-Sub will
not, require any consent, approval, authorization or permit of any Governmental
Entity, if any, where the failure to obtain such consents, approvals,
authorizations or permits, individually or in the aggregate, has not resulted
and could not reasonably be expected to result in a Material Adverse Effect to
Parent or Merger-Sub.
Section 4.14 Certain Statutes.
Parent and Merger-Sub have taken all appropriate and necessary actions
to ensure that the merger of Parent with WDC Development, Inc., a Delaware
corporation, which was consummated on April 28, 1999 is in full compliance with
any and all applicable laws, including DGCL and Parent has obtained all
necessary approvals required for such merger.
Section 4.15 Bulletin Board.
Parent's Common Stock is currently trading on the Over-the-Counter
Bulletin Board (the "OTCBB") and an active market exists, and such trading is in
full compliance with the applicable rules and regulations of the National
Association of Securities Dealers, Inc. As of the last trading date prior to the
date of the Agreement, the bid and asked price for such Common Stock was $17/8
and $21/8, respectively. As a requirement for maintaining the listing of its
common stock on the OTCBB, Parent is required to file a registration statement
under the Securities Exchange Act of 1934, as amended (the "Exchange Act") by
March 1, 2000 and thereby become a reporting company under the Exchange Act.
Parent shall use its reasonable best efforts to comply with such requirements.
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Section 4.16 Brokers and Finders.
Neither Parent nor Merger-Sub has employed any broker, financial
advisor or finder or incurred any liability for any broker, financial advisory
or finders fee in connection with this Agreement or the transaction contemplated
hereby.
V. INTENTIONALLY OMITTED.
VI. CONDITIONS TO OBLIGATIONS OF PARENT AND MERGER-SUB.
The obligations of Parent and Merger-Sub under this Agreement are
subject, at the option of Parent and Merger-Sub, to the following conditions:
Section 6.1 Accuracy of Representations and Compliance With
Conditions.
All representations and warranties of VSE and the Shareholders
contained in this Agreement shall be accurate in all material respects as of the
Closing as though such representations and warranties were then made in exactly
the same language by VSE and the Shareholders and regardless of knowledge or
lack thereof on the part of the Shareholders or changes beyond its control; as
of the Closing, VSE and the Shareholders shall have performed and complied with
all material covenants and agreements and satisfied all material conditions
required to be performed and complied with by them at or before such time by
this Agreement; and Parent shall have received a certificate executed by VSE and
each of the Shareholders, dated the date of the Closing, to that effect.
Section 6.2 Satisfactory Employment Agreements with certain of the
Shareholders.
Cheng and Yen shall each execute and deliver their respective
Employment Agreements to Parent as of the Effective Time.
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Section 6.3 Opinion of Counsel.
The Shareholders shall have delivered to Parent the opinion of Parker
Chapin Flattau & Klimpl, LLP, special counsel to VSE, dated as of the Closing
Date, in form and substance reasonably satisfactory to counsel for Parent.
Section 6.4 Other Closing Documents.
The Shareholders and VSE shall have delivered to Parent at or prior to
the Closing such other documents as Parent may reasonably request in order to
enable Parent to determine whether the conditions to its obligations under this
Agreement have been met and otherwise to carry out the provisions of this
Agreement.
Section 6.5 Legal Action.
There shall not have been instituted, or to the knowledge of VSE or the
Shareholders threatened, any legal proceeding relating to, or seeking to
prohibit or otherwise challenge the consummation of, the transactions
contemplated by this Agreement, or to obtain substantial damages with respect
thereto.
Section 6.6 No Governmental Action.
There shall not have been any action taken, or any law, rule,
regulation, order, judgment, or decree proposed, promulgated, enacted, entered,
enforced, or deemed applicable to the transactions contemplated by this
Agreement by any Governmental Entity or by any court or other tribunal,
including the entry of a preliminary or permanent injunction, which, in the
reasonable judgment of Parent or Merger-Sub, (a) makes any of the transactions
contemplated by this Agreement, illegal, (b)
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results in a material delay in the ability of Parent or Merger-Sub to consummate
any of the transactions contemplated by this Agreement, (c) requires the
divestiture by Parent of any of the Outstanding Securities or of a material
portion of the business of either Parent and its subsidiaries taken as a whole,
or of VSE, (d) imposes material limitations on the ability of Parent or
Merger-Sub effectively to exercise full rights of ownership of such shares, or
(e) otherwise prohibits, restricts, or materially delays consummation of any of
the transactions contemplated by this Agreement or impairs the contemplated
benefits to Parent or Merger-Sub of any of the transactions contemplated by this
Agreement.
Section 6.7 Contractual Consents Needed.
The Shareholders and VSE shall have obtained at or prior to the Closing
all consents required for the consummation of the transactions contemplated by
this Agreement from any party to any contract, agreement, instrument, lease,
license, arrangement, or understanding to which any of them is a party, or to
which any of them or any of their respective businesses, properties, or assets
are subject.
Section 6.8 Escrow Release.
The Shareholders shall deliver to the Escrow Agent stock powers,
executed in blank, relating to the Escrowed Shares.
VII. CONDITIONS TO OBLIGATIONS OF THE SHAREHOLDERS AND VSE.
The obligations of the Shareholders and VSE under this Agreement are
subject, at the option of the Shareholders and VSE, to the following conditions:
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Section 7.1 Accuracy of Representations and Compliance With
Conditions.
All representations and warranties of Parent and Merger-Sub contained
in this Agreement shall be accurate in all material respects when made and, in
addition, shall be accurate as of the Closing as though such representations and
warranties were then made in exactly the same language by Parent and Merger-Sub
and regardless of the knowledge or lack thereof on the part of Parent or
Merger-Sub or changes beyond its control; as of the Closing, Parent and
Merger-Sub shall have performed and complied with all material conditions
required to be performed and complied with by it at or before such time by this
Agreement, and the Shareholders shall have received a certificate executed an
executive officer of Parent and Merger-Sub, dated the date of the Closing, to
that effect.
Section 7.2 Employment Agreements
Parent shall execute and deliver the Cheng Employment Agreement and the
Yen Employment Agreement to Cheng and Yen, respectively, as of the Effective
Time.
Section 7.3 Contractual Consents Needed.
Parent and Merger-Sub shall have obtained at or prior to the Closing
all consents required for the consummation of the transactions contemplated by
this Agreement from any party to any contract, agreement, instrument, lease,
license, arrangement, or understanding to which any of them is a party, or to
which any of them or any of their respective businesses, properties, or assets
are subject.
Section 7.4 Other Closing Documents.
Parent and Merger-Sub shall have delivered to the Shareholders at or
prior to the Closing such other documents as the Shareholders may reasonably
request in order to enable VSE and the
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Shareholders to determine whether the conditions to their obligations under this
Agreement have been met and otherwise to carry out the provisions of this
Agreement.
Section 7.5 Legal Action.
There shall not have been instituted or threatened any legal
proceeding relating to, or seeking to prohibit or otherwise challenge the
consummation of, the transactions contemplated by this Agreement, or to obtain
substantial damages with respect thereto.
Section 7.6 No Governmental Action.
There shall not have been any action taken, or any law, rule,
regulation, order, judgment, or decree proposed, promulgated, enacted, entered,
enforced, or deemed applicable to the transactions contemplated by this
Agreement by any Governmental Entity or by any court or other tribunal,
including the entry of a preliminary or permanent injunction, which, in the
reasonable judgment of the Shareholders, (a) makes any of the transactions
contemplated by this Agreement, illegal, (b) results in a material delay in the
ability of the Shareholders to consummate any of the transactions contemplated
by this Agreement, (c) requires the divestiture by the Shareholders of any of
the shares or of a material portion of VSE, (d) imposes material limitations on
the ability of the Shareholders effectively to exercise full rights of ownership
of such shares, or (e) otherwise prohibits, restricts, or materially delays
consummation of any of the transactions contemplated by this Agreement or
impairs the contemplated benefits to the Shareholders of any of the transactions
contemplated by this Agreement.
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Section 7.7 Opinion of Counsel.
Parent shall have delivered to the Shareholders the opinion of Camhy
Karlinsky & Stein LLP, general counsel to Parent, dated as of the Closing Date,
in form and substance reasonably satisfactory to counsel for the Shareholders.
VIII. POST-CLOSING COVENANTS.
Section 8.1 Income and Franchise Taxes.
(a) Returns and Payments.
(i) The Shareholders shall cause to be prepared,
consistent with past practice, and shall file or submit to Parent for filing,
all required income and franchise tax returns of VSE for any period which ends
on or before the Closing Date, for which tax returns are not required to have
been filed as of the Closing Date. Parent shall cause VSE to timely pay to the
appropriate taxing authority the tax shown on such tax return.
(ii) Parent shall cause to be prepared, consistent
with past practice, and timely file, all required tax returns of VSE for taxable
periods ending after the Closing Date. Parent shall not amend or permit to be
amended any tax return of VSE for any period ending on or before the Closing
Date without the Shareholder's consent, except as may be required by law.
(b) Audits. Parent shall promptly notify the
Shareholders in writing upon receipt by Parent, or any affiliate of Parent
(including VSE), of notice of any pending or threatened federal, state, local or
foreign tax audit or assessment for which Parent may seek indemnification
pursuant to the terms of Section 10.1. The Shareholders shall have the sole
right to represent VSE's interests in any federal, state, local or foreign tax
matter, including any audit or administrative or judicial proceeding or the
filing of any amended return (a "Tax Matter"), involving a tax liability or
potential
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tax liability for which Parent may seek indemnification pursuant to the terms of
Section 10.1, and to employ counsel of the Shareholders' choice and reasonably
acceptable to Parent at the Shareholders' expense. Parent agrees that it will
cooperate fully with Shareholders and its counsel (including, without
limitation, executing and delivering applicable powers of attorney) in
connection with the preparation or filing of any applicable tax return or the
defense or compromise of any Tax Matter. The Shareholders will not concede the
correctness of any part of any proposed adjustment pertaining to Taxes of VSE
for which the Shareholders may be required to indemnify Parent and will not
enter into any closing or compromise agreement with respect to any of the issues
which form the basis for such proposed adjustment without the consent of Parent;
provided, however, that if Parent fails to so consent, Parent may not thereafter
seek indemnification for an amount in excess of the amount it would have been
entitled to had it consented to such closing or compromise agreement.
(c) Cooperation. After the Closing Date, Parent and its
affiliates (including VSE) and the Shareholders shall make available to the
other, as reasonably requested, all information, records and documents relating
to the tax liabilities or potential tax liabilities of VSE or items of VSE that
pass-through to the Shareholders for all periods ending prior to the Effective
Time or relating to any Tax of VSE for which the Shareholders may be required to
indemnify any Parent Indemnities (as defined below) and shall preserve all such
information, records and documents until sixty (60) days after the expiration of
any applicable statute of limitations (including any waiver or extension
thereof). Prior to disposing of any such information, records or documents,
Parent shall give the Shareholders at least thirty (30) days prior written
notice and opportunity to take possession of such items.
IX. FEES AND EXPENSES.
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Section 9.1 Expenses.
(a) Parent shall bear the expenses and fees of counsel
to VSE and the Shareholders and VSE's accountants incurred by the Company or the
Shareholders in connection with the preparation, negotiation and execution of
the Agreement, the Employment Agreements, the Escrow Agreement, and other
transaction documents and consummation of the transactions contemplated hereby
and thereby, and any and all such expenses shall be paid prior to or at Closing;
provided, however, that Parent shall not be required to pay or be liable for any
of such expenses and fees which exceed $25,000.
(b) Parent shall bear its own expenses and fees and
commissions (including, but not limited to, all compensation and expenses of
counsel, consultants and accountants) incurred in connection with its
preparation, negotiation and execution of the Agreement, the Employment
Agreements and other transaction documents and consummation of the transactions
contemplated hereby or thereby.
X. INDEMNIFICATION; SURVIVAL; LIMITATIONS ON LIABILITY.
Section 10.1 Indemnification.
(a) Subject to the terms and conditions set forth in
Section 10.3, each of the Shareholders, jointly and severally, agree to
indemnify and hold harmless Parent and Merger-Sub, and their respective
officers, directors, employees, counsel, and agents (collectively, the "Parent
Indemnitees"), against and in respect of any and all claims, suits, actions,
proceedings (formal or informal), investigations, judgments, deficiencies,
damages, settlements, liabilities, and reasonable legal and other expenses
related thereto (collectively, "Claims"), as and when incurred, arising out of
or based upon any material breach of any representation, warranty, covenant, or
agreement of each of the Shareholders contained in this Agreement.
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(b) Subject to the provisions of Section 10.2(b),
Parent and Merger-Sub agree to indemnify and hold harmless each of the
Shareholders and their employees, affiliates and agents (the "Seller
Indemnitees") against and in respect of any and all Claims as and when incurred,
arising out of or based upon any material breach of any representation,
warranty, covenant or agreement of Parent and Merger-Sub contained in this
Agreement.
(c) Each Indemnitee shall give the indemnifying party
prompt notice of any claim asserted or threatened against such Indemnitee on the
basis of which such Indemnitee intends to seek indemnification (but the
obligations of the indemnifying party shall not be conditioned upon receipt of
such notice, except to the extent that the indemnifying party is actually
prejudiced by the failure of the Indemnitee to give notice). The indemnifying
party shall promptly assume and control the defense of any Indemnitee, with
counsel reasonably satisfactory to such Indemnitee, and the fees and expenses of
such counsel shall be at the sole cost and expense of the indemnifying party.
Notwithstanding the foregoing, any Indemnitee shall be entitled, at his or its
expense, to employ counsel separate from counsel for the indemnifying party and
from any other party in such action, proceeding, or investigation. No Indemnitee
may agree to a settlement of a claim without the prior written approval of the
indemnifying party, which approval shall not be unreasonably withheld.
Section 10.2 Survival; Limitations on Liability.
(a) Subject to the provisions of Section 10.2(b), the
covenants, agreements, representations, and warranties contained in or made
pursuant to this Agreement shall survive the Closing.
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(b) The liabilities and obligations of the parties
under this Agreement shall be subject to the following limitations:
(i) No party shall have liability or obligation
with respect to any claim for a breach of a representation or warranty under
this Agreement made after one (1) year from the Closing Date except for claims
arising out of a breach of the representations as to tax liabilities under
Section 3.4 hereof, with respect to which the Shareholders shall remain liable
until ninety (90) days after the expiration of the applicable statute of
limitations relating to such potential liabilities; and
(ii) No indemnifying party shall be liable to all
or any of its indemnitees under this Agreement unless the aggregate amount of
any Claims which are covered by the indemnifying party's obligations under this
Section (the "Covered Claims") exceed $25,000 (the "Basket") (except as set
forth in Section 3.15 herein) and in such event the indemnifying party shall
only be liable for Covered Claims in excess of the Basket; and
(iii) An indemnifying party shall only be liable
to its indemnitees under this Agreement for a maximum amount which, in the
aggregate for all Covered Claims, shall not exceed $3,000,000 (the "Cap). With
regard to the Shareholders, the Cap shall be applied to them as a whole.
(iv) The parties hereby agree that any amount
required to be paid by the Shareholders hereunder in connection with any Covered
Claims may be paid either in full or in part from the Merger Consideration
received by the Shareholders. The Merger Consideration shall be valued at the
fair market value of such shares as of the close of business on the last
business day prior to when payment is required hereunder and any of such shares
are to be tendered. Parent agrees that in the event
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that the fair market value for such Merger Consideration at the time of tender
shall be less than the total amount owed by the Shareholders, the Shareholders
may satisfy their entire obligation for all Covered Claims by tendering all of
the Merger Consideration (net of any forfeitures) back to Parent.
(v) Scott Appleby's indemnity hereunder shall be
limited to the amount of Merger Consideration received by Scott Appleby
hereunder.
XI. MISCELLANEOUS.
Section 11.1 Further Actions.
At any time and from time to time, each party agrees, at its or his
expense, to take such actions and to execute and deliver such documents as may
be reasonably necessary to effectuate the purposes of this Agreement.
Section 11.2 Submission to Jurisdiction.
Each of the parties hereto irrevocably submits to the jurisdiction of
the courts of the State of New York, and of any federal court located in the
State of New York, in connection with any action or proceeding arising out of or
relating to, or a breach of, this Agreement, or of any document or instrument
delivered pursuant to, in connection with, or simultaneously with this
Agreement.
Section 11.3 Merger; Modification.
This Agreement, the Schedules and Exhibits attached hereto and the
Employment Agreements set forth the entire understanding of the parties with
respect to the subject matter hereof, supersede all existing agreements among
them concerning such subject matter, and may be modified only by a written
instrument duly executed by each party to be charged.
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Section 11.4 Notices.
Any notice or other communication required or permitted to be given
hereunder shall be in writing and shall be mailed by certified mail, return
receipt requested (or by the most nearly comparable method if mailed from or to
a location outside of the United States) or by Federal Express, Express Mail, or
similar overnight delivery or courier service or delivered in person or by
telecopy, or similar telecommunications equipment against receipt to the party
to whom it is to be given at the address of such party set forth in the preamble
to this Agreement (or to such other address as the party shall have furnished in
writing in accordance with the provisions of this Section 11.4). Any notice
given to Parent or Merger-Sub (or VSE following the Closing) shall be addressed
to the attention of Andrew P. Merkatz, President, and a copy of such notice
(which copy shall not constitute notice) shall also be sent to Camhy Karlinsky &
Stein LLP, 1740 Broadway, 16th Floor, New York, New York 10019-4315 Attention:
Eric M. Roth, Esq. A copy of any notice given to VSE (prior to the Closing) or
the Shareholders (which copy shall not constitute notice) shall also be sent to
Parker Chapin Flattau & Klimpl, LLP, 1211 Avenue of the Americas, 17th Floor,
New York, NY 10036, Attention: Henry I. Rothman, Esq. Any notice or other
communication given by certified mail (or by such comparable method) shall be
deemed given at the time of certification thereof (or comparable act) except for
a notice changing a party's address which will be deemed given at the time of
receipt thereof. Any notice given by other means permitted by this Section 11.4
shall be deemed given at the time of receipt thereof.
Section 11.5 Waiver.
Any waiver by any party of a breach of any terms of this Agreement
shall not operate as or be construed to be a waiver of any other breach of that
term or of any breach of any other term of this Agreement. The failure of a
party to insist upon strict adherence to any term of this Agreement on one or
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more occasions will not be considered a waiver or deprive that party of the
right thereafter to insist upon strict adherence to that term or any other term
of this Agreement. Any waiver must be in writing.
Section 11.6 Assignment.
This Agreement may not be assigned by any of the parties hereto and any
attempted assignment of this Agreement shall be null and void ab initio.
Section 11.7 No Third-Party Beneficiaries.
This Agreement does not create, and shall not be construed as creating,
any rights enforceable by any person not a party to this Agreement (except as
provided in Section 11.6).
Section 11.8 Separability.
If any provision of this Agreement is invalid, illegal, or
unenforceable, the balance of this Agreement shall remain in effect, and if any
provision is inapplicable to any person or circumstance, it shall nevertheless
remain applicable to all other persons and circumstances.
Section 11.9 Headings.
The headings in this Agreement are solely for convenience of reference
and shall be given no effect in the construction or interpretation of this
Agreement.
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Section 11.10 Counterparts; Governing Law.
This Agreement may be executed in any number of counterparts (and by
facsimile), each of which shall be deemed an original, but all of which together
shall constitute one and the same instrument. It shall be governed by, and
construed in accordance with, the laws of the State of New York, without giving
effect to the rules governing the conflict of laws, that would defer to the
substantive laws of another jurisdiction.
[The remainder of this page is intentionally left blank.]
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IN WITNESS WHEREOF, the parties have duly executed this
Agreement as of the date first written above.
PREDICT IT, INC.
By:
----------------------------------------
Name:
Title:
PII ACQUISITION CORP.
By:
----------------------------------------
Name:
Title:
VIRTUAL STOCK EXCHANGE, INC.
By:
----------------------------------------
Name:
Title:
-------------------------------------------
Gary Cheng
-------------------------------------------
Howard Yen
-------------------------------------------
Scott Appleby
<PAGE>
CERTIFICATE OF INCORPORATION
OF
SPORTSCAPPERS, INC.
* * * * * * * * * * * * * * *
FIRST. The name of the Corporation is Sportcappers, Inc.
SECOND. The address of the Corporation's registered office in
the State of Delaware is Corporation Trust Center, 1209 Orange Street, City of
Wilmington, County of New Castle. The name of its registered agent at such
address is The Corporation Trust Company.
THIRD. The purpose of the Corporation is to engage in any
lawful act or activity for which corporations may be organized under the General
Corporation Law of the State of Delaware.
FOURTH. Authorized Shares.
1. The aggregate number of shares which the Corporation shall
have authority to issue is 3,000,000, of which 1,000,000 shares of the par value
of $.001 per share shall be designated as Preferred Stock, and 2,000,000 shares
of the par value of $.001 per share par value shall be designated as Common
Stock.
2. Authority is hereby expressly granted to the Board of
Directors from time to time to issue the Preferred Stock as Preferred Stock of
any series and, in connection with the creation of each such series, to fix by
the resolution or resolutions providing for the issue of shares thereof, the
number of shares of such series, and the designations, powers, preferences, and
rights, and the qualifications, limitations, and restrictions, of such series,
to the full extent now or hereafter permitted by the laws of the State of
Delaware.
FIFTH. Directors.
1. Election of directors need not be by written ballot.
2. Holders of the Preferred Stock, if any, have the right: (i)
acting separately as one class in the aggregate to elect one Director to the
Board of Directors of the Corporation, and (ii) to participate in the election
of all other Directors of the Corporation according to the terms of any
effective Certificate of Designation filed with the Secretary of State governing
the Preferred Stock.
SIXTH. The Board of Directors is authorized to adopt, amend,
or repeal By-Laws of the Corporation (except as and to the extent provided in
the By-Laws).
<PAGE>
SEVENTH. Any person who was or is a party or is threatened to
be made a party to any threatened, pending, or completed action, suit, or
proceeding, whether civil, criminal, administrative, or investigative (other
than an action by or in the right of the Corporation) by reason of the fact that
the person is or was a director, officer, incorporator, employee, or agent of
the Corporation, or is or was serving at the request of the Corporation as a
director, officer, incorporator, employee, partner, trustee, or agent of another
corporation, partnership, joint venture, trust, or other enterprise (including
an employee benefit plan), shall be entitled to be indemnified by the
Corporation to the full extent then permitted by law against expenses (including
reasonable counsel fees and disbursements), judgments, fines (including excise
taxes assessed on a person with respect to an employee benefit plan), and
amounts paid in settlement incurred by the person in connection with such
action, suit, or proceeding if the person acted in good faith and in a manner
the person reasonably believed to be in or not opposed to the best interests of
the corporation and, with respect to any criminal action or proceeding, had no
reasonable cause to believe the person's conduct was unlawful. Such right of
indemnification shall inure whether or not the claim asserted is based on
matters which antedate the adoption of this Article SEVENTH. Such right of
indemnification shall continue as to a person who has ceased to be a director,
officer, incorporator, employee, partner, trustee, or agent and shall inure to
the benefit of the heirs and personal representatives of such a person. The
indemnification provided by this Article SEVENTH shall not be deemed exclusive
of any other rights which may be provided now or in the future under any
provision currently in effect or hereafter adopted of the By-Laws, by any
agreement, by vote of stockholders, by resolution of disinterested directors, by
provision of law, or otherwise.
EIGHTH. No director of the Corporation shall be liable to the
Corporation or any of its stockholders for monetary damages for breach of
fiduciary duty as a director, provided that this provision does not eliminate or
limit the liability of the director (i) for any breach of the director's duty of
loyalty to the Corporation or its stockholders, (ii) for acts or omissions not
in good faith or which involve intentional misconduct or a knowing violation of
law, (iii) under Section 174 of Title 8 of the Delaware Code, or (iv) for any
transaction from which the director derived an improper personal benefit. For
purposes of the prior sentence, the term "damages" shall, to the extent
permitted by law, include without limitation, any judgment, fine, amount paid in
settlement, penalty, punitive damages, excise or other tax assessed with respect
to an employee benefit plan, or expense of any nature (including, without
limitation, reasonable counsel fees and disbursements). Each person who serves
as a director of the corporation while this Article EIGHTH is in effect shall be
deemed to be doing so in reliance on the provisions of this Article EIGHTH, and
neither the amendment or repeal of this Article EIGHTH, nor the adoption of any
provision of this Certificate of Incorporation inconsistent with this Article
EIGHTH, shall apply to or have any effect on the liability or alleged liability
of any director of the Corporation for, arising out of, based upon, or in
connection with any acts or omissions of such director occurring prior to such
amendment, repeal, or adoption of an inconsistent provision. The provisions of
this Article EIGHTH are cumulative and shall be in addition to and independent
of any and all other limitations on or
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<PAGE>
eliminations of the liabilities of directors of the Corporation, as such,
whether such limitations or eliminations arise under or are created by any law,
rule, regulation, by-law, agreement, vote of shareholders or disinterested
directors, or otherwise.
IN WITNESS WHEREOF, I have made, signed, and sealed this
Certificate of Incorporation this 11th day of August, 1998.
---------------------------------
Eric M. Roth, Incorporator
3-
<PAGE>
CERTIIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
SPORTCAPPERS, INC.
* * * * * * * * *
SPORTCAPPERS, INC., a corporation organized and existing under
and by virtue of the General Corporation Law of the State of Delaware (the
"Corporation"),
DOES HEREBY CERTIFY:
FIRST: That the Board of Directors of the Corporation,
pursuant to action by unanimous written consent, adopted a resolution proposing
and declaring advisable the following amendment to the Certificate of
Incorporation of the Corporation:
RESOLVED, that the Certificate of Incorporation of the
Corporation be amended by deleting Article 1 thereof in its
entirety and substituting the following in its stead:
The name of the Corporation is PREDICT IT CORP.
SECOND: That in lieu of a meeting and vote of stockholders,
the stockholders have given unanimous written consent to said amendment in
accordance with Section 228 of the General Corporation Law of the State of
Delaware.
<PAGE>
THIRD: That the aforementioned amendment was duly adopted in
accordance with the applicable provisions of Sections 242 and 228 of the General
Corporation Law of the State of Delaware.
IN WITNESS WHEREOF, the Corporation has caused this
Certificate to be signed this 17th day of December, 1998.
SPORTCAPPERS, INC.
By:
-----------------------------
Name: Andrew Weissman
Title: Assistant Secretary
<PAGE>
AMENDED AND RESTATED
BY-LAWS
of
WDC DEVELOPMENT, INC.
As adopted April 22, 1999
<PAGE>
WDC DEVELOPMENT, INC.
A Delaware Corporation
AMENDED AND RESTATED
BY-LAWS
* * * * * * * * * * * * *
ARTICLE I
STOCKHOLDERS
Section 1.1 Annual Meeting. An annual meeting of stockholders
for the purpose of electing directors and of transacting such other business as
may come before it shall be held each year at such date, time, and place, either
within or without the State of Delaware, as may be specified by the Board of
Directors.
Section 1.2 Special Meetings. Special meetings of stockholders
for any purpose or purposes may be held at any time upon call of the Chairman of
the Board, if any, the President, the Secretary, or a majority of the Board of
Directors, at such time and place either within or without the State of Delaware
as may be stated in the notice. A special meeting of stockholders
<PAGE>
shall be called by the President or the Secretary upon the written request,
stating time, place, and the purpose or purposes of the meeting, of stockholders
who together own of record a majority of the outstanding stock of all classes
entitled to vote at such a meeting.
Section 1.3 Notice of Meetings. Written notice of stockholders
meetings, stating the place, date, and hour thereof, and, in the case of a
special meeting, the purpose or purposes for which the meeting is called, shall
be given by the Chairman of the Board, if any, the President, any Vice
President, the Secretary, or an Assistant Secretary, to each stockholder
entitled to vote thereat at least ten (10) days but not more than sixty (60)
days before the date of the meeting, unless a different period is prescribed by
law.
Section 1.4 Quorum. Except as otherwise provided by law or in
the Certificate of Incorporation or these By-Laws, at any meeting of
stockholders, the holders of a majority of the outstanding shares of each class
of stock entitled to vote at the meeting shall be present or represented by
proxy in order to constitute a quorum for the transaction of any business. In
the absence of a quorum, a majority of the stockholders present or the chairman
of the meeting may
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<PAGE>
adjourn the meeting from time to time in the manner provided in Section 1.5 of
these By-Laws until a quorum shall attend.
Section 1.5 Adjournment. Any meeting of stockholders, annual
or special, may adjourn from time to time to reconvene at the same or some other
place, and notice need not be given of any such adjourned meeting if the time
and place thereof are announced at the meeting at which the adjournment is
taken. At the adjourned meeting, the Corporation may transact any business which
might have been transacted at the original meeting. If the adjournment is for
more than thirty (30) days, or if after the adjournment a new record date is
fixed for the adjourned meeting, a notice of the adjourned meeting shall be
given to each stockholder of record entitled to vote at the meeting.
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<PAGE>
Section 1.6 Organization. The Chairman of the Board, if any,
or in his absence the President, or in their absence any Vice President, shall
call to order meetings of stockholders and shall act as chairman of such
meetings. The Board of Directors or, if the Board fails to act, the stockholders
may appoint any stockholder, director, or officer of the Corporation to act as
chairman of any meeting in the absence of the Chairman of the Board, the
President, and all Vice Presidents.
The Secretary of the Corporation shall act as secretary of all
meetings of stockholders, but, in the absence of the Secretary, the chairman of
the meeting may appoint any other person to act as secretary of the meeting.
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<PAGE>
Section 1.7 Voting. Except as otherwise provided by law or in
the Certificate of Incorporation or these By-Laws and except for the election of
directors, at any meeting duly called and held at which a quorum is present, a
majority of the votes cast at such meeting upon a given question by the holders
of outstanding shares of stock of all classes of stock of the Corporation
entitled to vote thereon, voting as one class, who are present in person or by
proxy shall decide such question. At any meeting duly called and held for the
election of directors at which a quorum is present, directors shall be elected
by a plurality of the votes cast by the holders (acting as such) of shares of
stock of the Corporation entitled to elect such directors.
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<PAGE>
Section 1.8 Action by Consent in Lieu of a Meeting. Unless
otherwise provided in the certificate of incorporation, any action required to
be taken at any annual or special meeting of stockholders of the corporation, or
any action which may be taken at any annual or special meeting of stockholders
of such stockholders, may be taken without a meeting, without prior written
notice and without a vote, if a consent in writing, setting forth the action so
taken, shall be signed by the holders of outstanding stock having not less than
the minimum number of votes that would be necessary to authorize or take such
action at meeting at which all shares entitled to vote thereon were present and
voted. Prompt notice of the taking of the corporate action without a meeting by
less than unanimous written consent shall be given to those stockholders who
have not consented in writing.
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<PAGE>
ARTICLE II
BOARD OF DIRECTORS
Section 2.1 Number and Term of Office. The business, property,
and affairs of the Corporation shall be managed by or under the direction of a
Board consisting of not fewer than three (3) nor more than seven (7) directors.
Each director shall be elected by the holders of shares entitled to vote thereon
at the annual meeting of stockholders, to serve (subject to the provisions of
Article IV) until the next succeeding annual meeting of stockholders and until
his respective successor has been elected and qualified.
Section 2.2 Chairman of the Board. The directors may elect one
of their members to be Chairman of the Board of Directors. The Chairman shall be
subject to the control of and may be removed by the Board of Directors.
He shall perform such duties as may from time to time be assigned to him by the
Board.
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<PAGE>
Section 2.3 Meetings. The annual meeting of the Board of
Directors, for the election of officers and the transaction of such other
business as may come before the meeting, shall be held without notice at the
same place as, and immediately following, the annual meeting of the
stockholders.
Regular meetings of the Board of Directors may be held without
notice at such time and place as shall from time to time be determined by the
Board.
Special meetings of the Board of Directors shall be held at
such time and place as shall be designated in the notice of the meeting whenever
called by the Chairman of the Board, if any, the President, or by a majority of
the directors then in office.
Section 2.4 Notice of Special Meetings. The Secretary, or in
his absence any other officer of the Corporation, shall give each director
notice of the time and place of holding of special meetings of the Board of
Directors by mail at least five (5) days before the meeting, or by facsimile,
cable, or telegram, overnight courier, or personal service at least three (3)
days before
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<PAGE>
the meeting. Unless otherwise stated in the notice thereof, any and all business
may be transacted at any meeting without specification of such business in the
notice.
Section 2.5 Quorum and Organization of Meetings. A majority of
the total number of members of the Board of Directors as constituted from time
to time shall constitute a quorum for the transaction of business. If at any
meeting of the Board of Directors (whether or not adjourned from a previous
meeting) there shall be less than a quorum present, a majority of those present
may adjourn the meeting to another time and place, and the meeting may be held
as adjourned without further notice or waiver. Except as otherwise provided by
law or in the Certificate of Incorporation or these By-Laws, a majority of the
directors present at any meeting at which a quorum is present may decide any
question brought before such meeting. Meetings shall be presided over by the
Chairman of the Board, if any, or in his absence by the President, or in the
absence of both by such other person as the directors may select. The Secretary
of the
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<PAGE>
Corporation shall act as secretary of the meeting, but in his absence the
chairman of the meeting may appoint any person to act as secretary of the
meeting.
Section 2.6 Committees. The Board of Directors may, by
resolution passed by a majority of the whole Board, designate one (1) or more
committees, each committee to consist of one (1) or more of the directors of the
Corporation. The Board may designate one or more directors as alternate members
of any committee, who may replace any absent or disqualified member at any
meeting of the committee. In the absence or disqualification of a member of a
committee, the member or members thereof present at any meeting and not
disqualified from voting, whether or not such member or members constitute a
quorum, may unanimously appoint another member of the Board of Directors to act
at the meeting in place of any such absent or disqualified member. Any such
committee, to the extent provided in the resolution of the Board of Directors,
shall have and may exercise all the powers and authority of the Board of
Directors in the management of the business, property, and affairs of the
Corporation, and may authorize
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<PAGE>
the seal of the Corporation to be affixed to all papers which may require it;
but no such committee shall have power or authority in reference to: (i)
approving or adopting, or recommending to the stockholders, any action or matter
expressly required by the General Corporation Law of Delaware to be submitted to
stockholders for approval or (ii) adopting, amending or repealing any by-law of
the corporation. Such committee or committees shall have such name or names as
may be determined from time to time by resolution adopted by the Board of
Directors. Each committee which may be established by the Board of Directors
pursuant to these By-Laws may fix its own rules and procedures. Notice of
meetings of committees, other than of regular meetings provided for by the
rules, shall be given to committee members. All action taken by committees shall
be recorded in minutes of the meetings.
Section 2.7 Action Without Meeting. Nothing contained in these
By-Laws shall be deemed to restrict the power of members of the Board of
Directors or any committee designated
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<PAGE>
by the Board to take any action required or permitted to be taken by them
without a meeting if all members of the Board or committee, as the case may be,
consent thereto in writing.
Section 2.8 Telephone Meetings. Nothing contained in these
By-Laws shall be deemed to restrict the power of members of the Board of
Directors, or any committee designated by the Board, to participate in a meeting
of the Board, or committee, by means of conference telephone or similar
communications equipment by means of which all persons participating in the
meeting can hear each other.
Section 2.9 Board Compensation. The Board shall have the
authority to fix the compensation of directors.
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<PAGE>
ARTICLE III
OFFICERS
Section 3.1 Executive Officers. The executive officers of the
Corporation shall be a President, (one or more vice Presidents,) a Treasurer,
and a Secretary, each of whom shall be elected by the Board of Directors. The
Board of Directors may elect or appoint such other officers (including a
Controller and one or more Assistant Treasurers and Assistant Secretaries) as it
may deem necessary or desirable. Each officer shall hold office for such term as
may be prescribed by the Board of Directors from time to time. Any person may
hold at one time two (2) or more offices.
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<PAGE>
Section 3.2 Powers and Duties. The Chairman of the Board, if
any, or, in his absence, the President, shall preside at all meetings of the
stockholders and of the Board of Directors. In the absence of the President, a
Vice President appointed by the President or, if the President fails to make
such appointment, by the Board, shall perform all the duties of the President.
The officers and agents of the Corporation shall each have such powers and
authority and shall perform such duties in the management of the business,
property, and affairs of the Corporation as generally pertain to their
respective offices, as well as such powers and authorities and such duties as
from time to time may be prescribed by the Board of Directors.
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<PAGE>
ARTICLE IV
RESIGNATIONS, REMOVALS, AND VACANCIES
Section 4.1 Resignations. Any director or officer of the
Corporation, or any member of any committee, may resign at any time by giving
written notice to the Board of Directors, the President, or the Secretary of the
Corporation. Any such resignation shall take effect at the time specified
therein or, if the time be not specified therein, then upon receipt thereof. The
acceptance of such resignation shall not be necessary to make it effective.
Section 4.2 Removals. The Board of Directors, by a vote of not
less than a majority of the entire Board, at any meeting thereof, or by written
consent, at any time, may, to the extent permitted by law, remove with or
without cause from office or terminate the employment of any officer or member
of any committee and may, with or without cause, disband any committee.
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<PAGE>
Any director elected by the holders of any series of shares
entitled at the time to vote as a class at an election of directors may be
removed without cause only by the vote of the holders of a majority of such
series of shares, voting as a class, and may be removed with cause by holders of
a majority of the shares entitled to vote at an election of directors.
Section 4.3 Vacancies. Any vacancy in the office of any
officer or director through death, resignation, removal, disqualification, or
other cause and any additional directorship resulting from an increase in the
number of directors may be filled at any time by a majority of the directors
then in office (even though less than a quorum) or, in the case of any vacancy
in the office of any director, by the stockholders, and, subject to the
provisions of this Article IV, the person so chosen shall hold office until his
successor shall have been elected and qualified; or, if the person so chosen is
a director elected to fill a vacancy, he shall (subject to the provisions of
this Article IV) hold office for the unexpired term of his predecessor. Any
vacancy in the office of any director through death, resignation, removal,
disqualification, or other cause, and any additional directorship resulting from
increase in the number of directors, may be filled at any time by a majority of
the directors then in office elected by the holders of the class or series of
shares which elected the director who previously held such office or would be
entitled to elect the director to fill such newly created directorship, as the
case may be (even though less than a quorum), or, by the sole remaining director
so elected, or, by the holders of such class or series of shares, voting as a
class who are entitled to elect such director, and, subject to the provisions of
this
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<PAGE>
Article IV, the person so chosen shall hold office until his successor shall
have been elected and qualified.
ARTICLE V
CAPITAL STOCK
Section 5.1 Stock Certificates. The certificates for shares of
the capital stock of the Corporation shall be in such form as shall be
prescribed by law and approved, from time to time, by the Board of Directors.
Section 5.2 Transfer of Shares. Shares of the capital stock of
the Corporation may be transferred on the books of the Corporation only by the
holder of such shares or by his duly authorized attorney, upon the surrender to
the Corporation or its transfer agent of the certificate representing such stock
properly endorsed.
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<PAGE>
Section 5.3 Fixing Record Date. In order that the Corporation
may determine the stockholders entitled to notice of or to vote at any meeting
of stockholders or any adjournment thereof (or to express consent to corporate
action in writing without a meeting), or entitled to receive payment of any
dividend or other distribution or allotment of any rights, or entitled to
exercise any rights in respect of any change, conversion, or exchange of stock,
or for the purpose of any other lawful action, the Board of Directors may fix,
in advance, a record date, which, unless otherwise provided by law, shall not be
more than sixty (60) nor less than ten (10) days before the date of such
meeting, nor more than sixty (60) days prior to any other action. A
determination of stockholders of record entitled to notice of or to vote at a
meeting of stockholders shall apply to any adjournment of the meeting; provided,
however, that the board of directors may fix a new record date for the adjourned
meeting.
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<PAGE>
Section 5.4 Lost Certificates. The Board of Directors or any
transfer agent of the Corporation may direct a new certificate or certificates
representing stock of the Corporation to be issued in place of any certificate
or certificates theretofore issued by the Corporation, which are alleged to have
been lost, stolen, or destroyed, upon the making of an affidavit of that fact by
the person claiming the certificate to be lost, stolen, or destroyed. When
authorizing such issue of a new certificate or certificates, the Board of
Directors (or any transfer agent of the Corporation authorized to do so by a
resolution of the Board of Directors) may, in its discretion and as a condition
precedent to the issuance thereof, require the owner of such lost, stolen, or
destroyed certificate or certificates, or his legal representative, to give the
Corporation a bond in such sum as the Board of Directors (or any transfer agent
so authorized) shall direct to indemnify the Corporation against any claim that
may be made against the Corporation with respect to the certificate alleged to
have been lost, stolen, or destroyed or the issuance of such new certificates,
and such requirement may be general or confined to specific instances.
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<PAGE>
Section 5.5 Regulations. The Board of Directors shall have
power and authority to make all such rules and regulations as it may deem
expedient concerning the issue, transfer, registration, cancellation, and
replacement of certificates representing stock of the Corporation.
ARTICLE VI
MISCELLANEOUS
Section 6.1 Corporate Seal. The corporate seal shall have
inscribed thereon the name of the Corporation and shall be in such form as may
be approved from time to time by the Board of Directors.
Section 6.2 Fiscal Year. The fiscal year of the
Corporation shall be determined by resolution of the Board of Directors.
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<PAGE>
Section 6.3 Notices and Waivers Thereof. Whenever any notice
is required by law, the Certificate of Incorporation, or these By-Laws to be
given to any stockholder, director, or officer, such notice, except as otherwise
provided by law, may be given personally, or by mail, or, in the case of
directors or officers, by facsimile, telegram, or cable, addressed to such
address as appears on the books of the Corporation. Any notice given by
facsimile, telegram, or cable, shall be deemed to have been given when
transmission is confirmed and any notice given by mail shall be deemed to have
been given when it shall have been deposited in the United States mail with
postage thereon prepaid.
Whenever any notice is required to be given by law, the
Certificate of Incorporation, or these By-Laws, a written waiver thereof, signed
by the person entitled to such notice, whether before or after the meeting or
the time stated therein, shall be deemed equivalent in all respects to such
notice to the full extent permitted by law.
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<PAGE>
Section 6.4 Stock of Other Corporations or Other Interests.
Unless otherwise ordered by the Board of Directors, the President, the
Secretary, and such attorneys or agents of the Corporation as may be from time
to time authorized by the Board of Directors or the President, shall have full
power and authority on behalf of this Corporation to attend and to act and vote
in person or by proxy at any meeting of the holders of securities of any
corporation or other entity in which this Corporation may own or hold shares or
other securities, and at such meetings shall possess and may exercise all the
rights and powers incident to the ownership of such shares or other securities
which this Corporation, as the owner or holder thereof, might have possessed and
exercised if present. The President, the Secretary, or such attorneys or agents,
may also execute and deliver on behalf of this Corporation powers of attorney,
proxies, consents, waivers, and other instruments relating to the shares or
securities owned or held by this Corporation.
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<PAGE>
ARTICLE VII
AMENDMENTS
Section 7.1. Restrictions. All amendments to the By-Laws
are subject to the terms of any Certificate of Designation governing the terms
of outstanding Preferred Stock and filed with the Secretary of State of the
state of Delaware.
Section 7.2. Amendments. The holders of shares entitled at the
time to vote for the election of directors shall have power to adopt, amend, or
repeal the By-Laws of the Corporation by vote of not less than a majority of
such shares, and except as otherwise provided by law, the Board of Directors
shall have power equal in all respects to that of the stockholders to adopt,
amend, or repeal the By-Laws by vote of not less than a majority of the entire
Board. However, any By-Law adopted by the Board may be amended or repealed by
vote of the holders of a majority of the shares entitled at the time to vote for
the election of directors. Such power to adopt, amend or repeal the By-Laws
conferred upon the Board of Directors shall not divest or limit the power of the
stockholders to adopt, amend and repeal the By-Laws.
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<PAGE>
CERTIFICATE OF DESIGNATION,
POWERS, PREFERENCES AND RIGHTS OF
SERIES A PREFERRED STOCK
PAR VALUE $.01 PER SHARE
OF
WDC DEVELOPMENT, INC.
--------------------
Pursuant to Section 151 of the General
Corporation Law of the State of Delaware
--------------------
IT IS HEREBY CERTIFIED that:
1. The name of the company (hereinafter called the "Company") is WDC
Development, Inc., a corporation organized and existing under the General
Corporation Law of the State of Delaware.
2. The certificate of incorporation of the Company (the "Certificate
of Incorporation") authorizes the issuance of Five Million (5,000,000) shares of
preferred stock, $.01 par value per share (the "Preferred Stock"), and expressly
vests in the Board of Directors of the Company the authority provided therein to
issue any or all of said shares in one (1) or more series and by resolution or
resolutions to establish the designation and number and to fix the relative
rights and preferences of each series to be issued.
3. The Board of Directors of the Company, pursuant to the authority
expressly vested in it as aforesaid, and pursuant to the provisions of Section
151 of the General Corporation Law of the State of Delaware, has adopted the
resolutions set forth below creating a Series A issue of Preferred Stock:
RESOLVED, that One Million (1,000,000) shares of the Five Million
(5,000,000) authorized shares of Preferred Stock of the Company shall be
designated Series A Preferred Stock, $.01 par value per share, and shall possess
the rights and preferences set forth below:
Section 1. Designation and Amount. The shares of such series shall have
a par value of $.01 per share, and shall be designated as Series A Preferred
Stock (the "Series A Preferred Stock"). The number of shares constituting the
Series A Preferred Stock shall be One Million (1,000,000). The Series A
Preferred Stock shall be issued or offered at a purchase price of $3.00 per
share (the "Original Issue Price").
<PAGE>
Section 2. Rank. The Series A Preferred Stock shall rank: (i) junior
to any other class or series of capital stock of the Company hereafter created
specifically ranking by its terms senior to the Series A Preferred Stock (the
"Senior Securities"); (ii) prior to all of the Common Stock; (iii) prior to any
class or series of capital stock of the Company hereafter created not
specifically ranking by its terms senior to or on parity with any Series A
Preferred Stock of whatever subdivision (collectively, with the Common Stock,
the "Junior Securities"); and (iv) on parity with any class or series of capital
stock of the Company hereafter created specifically ranking by its terms on
parity with the Series A Preferred Stock ("Parity Securities") in each case as
to distribution of assets upon liquidation, dissolution or winding up of the
Company, whether voluntary or involuntary (all such distributions being referred
to collectively as "Distributions").
Section 3. Liquidation Preference.
(a) In the event of any liquidation, dissolution or winding
up of the Company, either voluntary or involuntary, the Holders of shares of
Series A Preferred Stock shall be entitled to receive, immediately after any
distributions to Senior Securities required by the Company's Certificate of
Incorporation or any certificate of designation, and prior in preference to any
distribution to Junior Securities but in parity with any distribution to Parity
Securities, an amount per share equal to the sum of the Original Issue Price. If
upon the occurrence of such event, and after payment in full of the preferential
amounts with respect to the Senior Securities, the assets and funds available to
be distributed among the Holders of the Series A Preferred Stock and Parity
Securities shall be insufficient to permit the payment to such Holders of the
full preferential amounts due to the Holders of the Series A Preferred Stock and
the Parity Securities, respectively, then the entire assets and funds of the
Company legally available for distribution shall be distributed among the
Holders of the Series A Preferred Stock and the Parity Securities, pro rata,
based on the respective liquidation amounts to which each such series of stock
is entitled by the Company's Certificate of Incorporation and any certificate(s)
of designation relating thereto.
(b) Upon the completion of the distribution required by
Section 3(a), if assets remain in the Company, they shall be distributed to
holders of Junior Securities in accordance with the Company's Certificate of
Incorporation, including any duly adopted certificate(s) of designation.
(c) At each Holder's option, a sale, conveyance or
disposition of all or substantially all the assets of the Company to a private
entity, the common stock of which is not publicly traded, shall be deemed to be
a liquidation, dissolution or winding up within the meaning of this Section 3;
provided, however, that an event described in the prior clause that the Holder
does not elect to treat as a liquidation and a consolidation, merger,
acquisition, or other business combination of the Company with or into any other
company or companies shall not be treated as a liquidation, dissolution or
winding up within the meaning of this Section 3, but
<PAGE>
instead shall be treated pursuant to Section 4(c) hereof (a Holder who elects to
have the transaction treated as a liquidation is herein referred to as a
"Liquidating Holder").
(d) Prior to the closing of a transaction described in
Section 3(c) which would constitute a liquidation event, the Company shall
either (i) make all cash distributions it is required to make to the Liquidating
Holders pursuant to the first sentence of Section 3(a), (ii) set aside
sufficient funds from which the cash distributions required to be made to the
Liquidating Holders can be made, or (iii) establish an escrow or other similar
arrangement with a third party pursuant to which the proceeds payable to the
Company from a sale of all or substantially all the assets of the Company will
be used to make the liquidating payments to the Liquidating Holders immediately
after the consummation of such sale. In the event that the Company has not fully
complied with any of the foregoing alternatives, the Company shall either: (x)
cause such closing to be postponed until such cash distributions have been made,
or (y) cancel such transaction, in which event the rights of the Holders or
other arrangements shall be the same as existing immediately prior to such
proposed transaction.
Section 4. Conversion of Series A Preferred Stock. The record Holders
of the Series A Preferred Stock shall have conversion rights as follows:
(a) Right to Convert. Each record Holder of Series A
Preferred Stock shall be entitled to convert whole shares of Series A Preferred
Stock for the Common Stock issuable upon conversion of the Series A Preferred
Stock, as follows: each outstanding share of Series A Preferred Stock is
convertible into one fully-paid and non-assessable share of Common Stock,
subject to adjustment as provided in Section 4(d) hereof. The number of shares
of Common Stock issuable upon conversion of one share of Series A Preferred
Stock is hereafter referred to as the "Conversion Rate."
(b) Mechanics of Conversion. In order to convert Series A
Preferred Stock into full shares of Common Stock, the Holder shall (i) fax a
copy of a fully executed notice of conversion ("Notice of Conversion") to the
Company at the office of the Company or to the Company's designated transfer
agent (the "Transfer Agent") for the Series A Preferred Stock, stating that the
Holder elects to convert, which notice shall specify the date of conversion, the
number of shares of Series A Preferred Stock to be converted, the Conversion
Rate and a calculation of the number of shares of Common Stock issuable upon
such conversion (together with a copy of the front page of each certificate to
be converted) and (ii) surrender to a common courier for either overnight or two
(2) day delivery to the office of the Company or the Transfer Agent, the
original certificates representing the Series A Preferred Stock being converted
(the "Preferred Stock Certificates"), duly endorsed for transfer; provided,
however, that the Company shall not be obligated to issue certificates
evidencing the shares of Common Stock issuable upon such conversion, unless
either the Preferred Stock Certificates are delivered to the Company or the
Transfer Agent as provided above, or the Holder notifies the Company or its
Transfer Agent that such certificates have been lost, stolen or destroyed
(subject to the requirements of subsection 4(b)(i) below).
<PAGE>
(i) Lost or Stolen Certificates. Upon receipt by the
Company of evidence of the loss, theft, destruction or mutilation of any
Preferred Stock Certificates representing shares of Series A Preferred Stock,
and (in the case of loss, theft or destruction) of indemnity or security
reasonably satisfactory to the Company, and upon surrender and cancellation of
the Preferred Stock Certificates, if mutilated, the Company shall execute and
deliver new Preferred Stock Certificates of like tenor and date. However, the
Company shall not be obligated to re-issue such lost or stolen Preferred Stock
Certificates if Holder contemporaneously requests the Company to convert such
Series A Preferred Stock into Common Stock.
(ii) Delivery of Common Stock Upon Conversion. The
Company no later than 6:00 p.m. (New York City time) on the third (3rd) business
day after receipt by the Company or its Transfer Agent of all necessary
documentation duly executed and in proper form required for conversion,
including the original Preferred Stock Certificates to be converted (or after
provision for security or indemnification in the case of lost, stolen or
destroyed certificates, if required), shall issue and surrender to a common
courier for either overnight or (if delivery is outside the United States) two
(2) day delivery to the Holder as shown on the stock records of the Company a
certificate for the number of shares of Common Stock to which the Holder shall
be entitled as aforesaid.
(iii) Date of Conversion. The date on which conversion
occurs (the "Date of Conversion") shall be deemed to be the date such Notice of
Conversion is faxed to the Company or the Transfer Agent, as the case may be,
provided that the advance copy of the Notice of Conversion is faxed to the
Company on or prior to 6:00 p.m., New York City time, on the Date of Conversion.
The original Preferred Stock Certificates representing the shares of Series A
Preferred Stock to be converted shall be surrendered by depositing such
certificates with a common courier for either overnight or two (2) day delivery,
as soon as practicable following the Date of Conversion. The person or persons
entitled to receive the shares of Common Stock issuable upon such conversion
shall be treated for all purposes as the record Holder or Holders of such shares
of Common Stock on the Date of Conversion.
(c) Adjustment to Conversion Rate.
(i) Adjustment to the Conversion Rate due to Stock
Split, Stock Dividend or Other Similar Event. If, prior to the conversion of all
the Series A Preferred Stock, the number of outstanding shares of Common Stock
is increased by a stock split, stock dividend or other similar event, the
Conversion Rate shall be proportionately reduced, or if the number of
outstanding shares of Common Stock is decreased by a combination or
reclassification of shares, or other similar event, the Conversion Rate shall be
proportionately increased.
(ii) Adjustment Due to Consolidation, Merger, Exchange
of Shares, Recapitalization, Reorganization or Other Similar Event. If, prior to
the conversion of all the
<PAGE>
Series A Preferred Stock, there shall be any merger, consolidation, exchange of
shares, recapitalization, reorganization or other similar event, as a result of
which shares of Common Stock of the Company shall be changed into the same or a
different number of shares of the same or another class or classes of stock or
securities of the Company or another entity or there is a sale of all or
substantially all of the Company's assets that is not deemed to be a liquidation
pursuant to Section 3(c), then the Holders of Series A Preferred Stock
thereafter shall have the right to receive upon conversion of Series A Preferred
Stock, upon the basis and upon the terms and conditions specified herein and in
lieu of the shares of Common Stock immediately theretofore issuable upon
conversion, such stock, securities and/or other assets which the Holder would
have been entitled to receive in such transaction had the Series A Preferred
Stock been converted immediately prior to such transaction, and in any such case
appropriate provisions shall be made with respect to the rights and interests of
the Holders of the Series A Preferred Stock to the end that the provisions
hereof (including, without limitation, provisions for the adjustment of the
Conversion Rate and of the number of shares issuable upon conversion of the
Series A Preferred Stock) shall thereafter be applicable, as nearly as may be
practicable in relation to any securities thereafter deliverable upon the
exercise hereof The Company shall not effect any transaction described in this
subsection 4(c)(ii) unless (a) it first gives thirty (30) calendar days prior
notice of such merger, consolidation, exchange of shares, recapitalization,
reorganization or other similar event (during which time the Holder shall be
entitled to convert its shares of Series A Preferred Stock into Common Stock to
the extent permitted hereby) and (b) the resulting successor or acquiring entity
(if not the Company) assumes by written instrument the obligation of the Company
under this Certificate of Designation, including the obligation of this
subsection 4(c)(ii).
(iii) No Fractional Shares. If any adjustment under this
Section 4(c) would create a fractional share of Common Stock or a right to
acquire a fractional share of Common Stock, such fractional share shall be
disregarded and the number of shares of Common Stock issuable upon conversion
shall be the next higher number of shares of Series A Preferred Stock.
Section 5. Voting Rights. The Holders of the Series A Preferred
Stock shall have no voting power whatsoever except to the extent otherwise
expressly provided by the General Corporation Law of Delaware, and no Holder of
Series A Preferred Stock shall vote or otherwise participate in any proceeding
in which actions shall be taken by the Company or the stockholders thereof or be
entitled to notification as to any meeting of the stockholders.
Section 6. Protective Provision. So long as shares of Series A
Preferred Stock are outstanding, the Company shall not without first obtaining
the approval (by vote or written consent, as provided by the General Corporation
Law of Delaware) of the Holders of at least a majority of the then-outstanding
shares of Series A Preferred Stock:
(a) alter or change the rights, preferences or privileges
of the Series A Preferred Stock so as to affect adversely the Series A Preferred
Stock;
<PAGE>
(b) increase the size of the authorized number of Series
A Preferred Stock; or
(c) do any act or thing not authorized or contemplated by
this Certificate of Designation which would result in taxation of the Holders of
shares of the Series A Preferred Stock under Section 305 of the Internal Revenue
Code of 1986, as amended (or any comparable provision of the Internal Revenue
Code as hereafter from time to time amended).
In the event Holders of a majority of the then-outstanding shares of
Series A Preferred Stock agree to allow the Company to alter or change the
rights, preferences or privileges of the shares of Series A Preferred Stock,
pursuant to subsection (a) above, so as to affect adversely the Series A
Preferred Stock, then the Company will deliver notice of such approved
alteration or change to the Holders of the Series A Preferred Stock that did not
agree to such alteration or change (the "Dissenting Holders") and the Dissenting
Holders shall have the right for a period of thirty (30) days to convert
pursuant to the terms of this Certificate of Designation as they exist prior to
such alteration or change or continue to hold their shares of Series A Preferred
Stock subject to the approved alteration or change of the rights, preferences or
privileges of the Series A Preferred Stock.
Section 7. Status of Converted Stock. In the event any shares of
Series A Preferred Stock shall be converted pursuant to Section 4 hereof, the
shares so converted shall be canceled, shall return to the status of authorized
but unissued preferred stock of no designated series, and shall not be issuable
by the Company as Series A Preferred Stock.
Section 8. Preference Rights. Nothing contained herein shall
be construed to prevent the Board of Directors of the Company from issuing one
(1) or more series of preferred stock with dividend and/or liquidation
preferences junior to the dividend and liquidation preferences of the Series A
Preferred Stock.
[SIGNATURE PAGE TO FOLLOW]
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Certificate of
Designation to be duly executed on its behalf by its Secretary this 13th day of
April, 1999.
WDC DEVELOPMENT, INC.
By:
--------------------------------------
Name: Peter Lee
Title: Senior Vice President and Secretary
Acknowledgment
- ---------------------------
Notary Public
<PAGE>
PREDICT IT INC.
INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE
COMMON STOCK
SEE REVERSE FOR
CERTAIN DEFINITIONS
THIS CERTIFIES that
is the owner of
CUSIP
FULLY PAID AND NON-ASSESSABLE SHARES OF THE COMMON STOCK, PAR VALUE $.01 PER
SHARE, OF PREDICT IT INC.
transferable on the books of the Corporation in person or by attorney upon
surrender of this certificate duly endorsed or assigned. This certificate and
the shares represented hereby are subject to the laws of the State of Delaware,
and to the Certificate of Incorporation and By-Laws of the Corporation, as now
or hereafter amended. This certificate is not valid until countersigned and
registered by the Transfer Agent and Registrar.
IN WITNESS WHEREOF, said Corporation has caused this Certificate to be signed in
facsimile by its duly authorized officers, and its Corporate Seal to be affixed
in facsimile.
Dated:
Secretary
President
COUNTERSIGNED AND REGISTERED:
CONTINENTAL STOCK TRANSFER & TRUST COMPANY
(JERSEY CITY, N.J.)
TRANSFER AGENT AND REGISTRAR
BY
---------------------------
AUTHORIZED OFFICER
<PAGE>
The following abbreviations, when used in the inscription on the face of this
certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
TEN COM -
TEN ENT -
JT TEN -
as tenants in common
as tenants by the entireties
as joint tenants with right of
survivorship and not as tenants
in common
Additional abbreviations may also be used though not in the above list.
For Value Received, hereby sell, assign and transfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER IDENTIFYING NUMBER OF ASSIGNEE
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE, OF ASSIGNEE)
Shares
of the capital stock represented by the within Certificate, and do hereby
irrevocably constitute
and appoint
Attorney
to transfer the said stock on the books of the within named Corporation with
full power of substitution in the premises.
Dated
NOTICE:
THE SIGNATURE TO THIS ASSIGNMENT MUST CORRESPOND WITH THE NAME AS WRITTEN UPON
THE FACE OF
THE CERTIFICATE IN EVERY PARTICULAR, WITHOUT ALTERATION OR ENLARGEMENT OR ANY
CHANGE WHATEVER.
Signature(s) Guaranteed:
THE SIGNATURE(S) MUST BE GUARANTEED BY AN ELIGIBLE GUARANTOR INSTITUTION (BANKS,
STOCKBROKERS, SAVINGS AND LOAN ASSOCIATIONS AND CREDIT UNIONS WITH MEMBERSHIP IN
AN APPROVED SIGNATURE GUARANTEE MEDALLION PROGRAM), PURSUANT TO S.E.C. RULE
17Ad-15.
KEEP THIS CERTIFICATE IN A SAFE PLACE. IF IT IS LOST, STOLEN, MUTILATED OR
DESTROYED, THE CORPORATION WILL REQUIRE A BOND OF INDEMNITY AS A CONDITION TO
THE ISSUANCE OF A REPLACEMENT CERTIFICATE.
<PAGE>
REGISTRATION RIGHTS AGREEMENT
This REGISTRATION RIGHTS AGREEMENT (the "Agreement") is made
and entered into as of the 30th day of June, 1999 by and between Predict It,
Inc., a Delaware corporation (the "Company"), Gary Cheng, Howard Yen, and Scott
Appleby (collectively with Gary Cheng and Howard Yen, the "Shareholders").
R E C I T A L S :
WHEREAS, the Shareholders are acquiring shares of the common
stock, par value $.001 per share, of the Company (the "Shares", or sometimes
hereinafter referred to as the "Securities"), pursuant to the Agreement and Plan
of Merger and Reorganization by and among the Company, PII Acquisition Corp.,
the Shareholders, and Virtual Stock Exchange, Inc., dated as of June 30, 1999
(the "Merger Agreement"); and
WHEREAS, the Company desires to grant to the Shareholders
certain registration rights relating to the Shares and the Shareholders desire
to obtain such registration rights, subject to the terms and conditions set
forth herein;
NOW, THEREFORE, in consideration of the mutual premises,
representations, warranties and conditions set forth in this Agreement, the
parties hereto, intending to be legally bound hereby, agree as follows:
1. Definitions and References. For purposes of this Agreement,
in addition to the definitions set forth above and elsewhere herein, the
following terms shall have the following meanings:
(a) The term "Commission" shall mean the Securities and
Exchange Commission and any successor agency.
(b) The terms "register", "registered" and
"registration" shall refer to a registration effected by
preparing and filing a registration statement or similar
document in compliance with the 1933 Act (as herein defined)
and the declaration or ordering of effectiveness of such
registration statement or document.
(c) For purposes of this Agreement, the term
"Registrable Stock" shall mean (i) the Shares, (ii) any shares
of the common stock of the Company, par value $.001 per share
(the "Common Stock") issued as, or issuable upon the
conversion or exercise of any warrant, right, option or other
convertible security which is issued as, a dividend or other
distribution with respect to, or in exchange for, or in
<PAGE>
replacement of, the Shares, and (iii) any Common Stock issued
by way of a stock split of the Shares. For purposes of this
Agreement, any Registrable Stock shall cease to be Registrable
Stock when (v) a registration statement covering such
Registrable Stock has been declared effective and such
Registrable Stock has been disposed of pursuant to such
effective registration statement, (w) such Registrable Stock
is sold pursuant to Rule 144 (or any similar provision then in
force) under the 1933 Act, (x) such Registrable Stock is
eligible to be sold pursuant to Rule 144(k) under the 1933
Act, (y) such Registrable Stock has been otherwise
transferred, no stop transfer order affecting such stock is in
effect and the Company has delivered new certificates or other
evidences of ownership for such Registrable Stock not bearing
any legend indicating that such shares have not been
registered under the 1933 Act, or (z) such Registrable Stock
is sold by a person in a transaction in which the rights under
the provisions of this Agreement are not assigned.
(d) The term "Holders" shall mean the Shareholders or
any transferee or assignee thereof to whom the rights under
this Agreement are assigned in accordance with Section 10
hereof; provided, that the Shareholders or such transferee or
assignee shall then own the Registrable Stock.
(e) The term "1933 Act" shall mean the Securities Act
of 1933, as amended.
(f) An "affiliate of such Holder" shall mean a person
who controls, is controlled by or is under common control with
such Holder, or the spouse or children (or a trust exclusively
for the benefit of the spouse and/or children) of such Holder,
or, in the case of a Holder that is a partnership, its
partners.
(g) The term "Person" shall mean an individual,
corporation, partnership, trust, limited liability company,
unincorporated organization or association or other entity,
including any governmental entity.
(h) References in this Agreement to any rules,
regulations or forms promulgated by the Commission shall
include rules, regulations and forms succeeding to the
functions thereof, whether or not bearing the same
designation.
2. Demand Registration.
(a) Commencing December 30, 1999, Holders of, in the
aggregate, at least a majority of the Registrable Stock (the
"Requesting Holders") may make a written request to the
Company (specifying that it is being made pursuant to this
Section 2) that the Company file a registration statement
under the 1933 Act (or a similar document pursuant to any
other statute then in effect corresponding to the 1933 Act)
-2-
<PAGE>
covering the registration of Registrable Stock (if and only if
the Registrable Securities have not already been registered
under the 1933 Act pursuant to Section 4 hereof). In such
event, the Company shall (x) within ten (10) days thereafter
notify in writing all other Holders of Registrable Stock of
such request, and (y) use its best efforts to cause to be
registered under the 1933 Act all Registrable Stock of the
Requesting Holders and such other Holders who have requested,
within sixty (60) days after the Company has given such
notice, their Registrable Stock be registered. The Requesting
Holders shall be entitled to exercise their rights under this
Section 2(a) once and only once.
(b) If the Requesting Holders intend to distribute the
Registrable Stock covered by their request by means of an
underwritten offering, they shall so advise the Company as a
part of their request pursuant to Section 2(a) above, and the
Company shall include such information in the written notice
referred to in clause (x) of Section 2(a) above. In such
event, the Holder's right to include its Registrable Stock in
such registration shall be conditioned upon such Holder's
participation in such underwritten offering and the inclusion
of such Holder's Registrable Stock in the underwritten
offering to the extent provided in this Section 2. All Holders
proposing to distribute Registrable Stock through such
underwritten offering shall enter into an underwriting
agreement in customary form with the underwriter or
underwriters. Such underwriter or underwriters shall be
selected by a majority in interest of the Requesting Holders
and shall be approved by the Company, which approval shall not
be unreasonably withheld; provided, that all of the
representations and warranties by, and the other agreements on
the part of, the Company to and for the benefit of such
underwriters shall also be made to and for the benefit of such
Holders and that any or all of the conditions precedent to the
obligations of such underwriters under such underwriting
agreement shall be conditions precedent to the obligations of
such Holders; and provided further, that no Holder shall be
required to make any representations or warranties to or
agreements with the Company or the underwriters other than
representations, warranties or agreements regarding such
Holder, the Registrable Stock of such Holder and such Holder's
intended method of distribution and any other representation
required by law or reasonably required by the underwriter.
(c) In any registration pursuant to this Section 2, the
Company shall include in such registration (i) first, the
Registrable Stock of the Holders, (ii) second, the securities
the Company proposes to sell, if any, (iii) third, the
securities of any other securityholder of the Company who has
demand registration rights pursuant to an agreement with the
Company, and (iv) fourth, other securities requested to be
included in such registration. Notwithstanding the foregoing
or any other provision of this Section 2 to the contrary, if
the managing underwriter of an underwritten offering of the
Registrable Stock requested to be registered pursuant to this
Section
-3-
<PAGE>
2 (or, in the case of a non-underwritten offering, in the
written opinion of the placement agent, or if there is none,
the Company), advises the Requesting Holders in writing that
in its opinion marketing factors require a limitation of the
number of Registrable Stock to be underwritten, the number of
shares of Registrable Stock that may be included in such
underwritten offering shall be allocated among all Holders,
including the Requesting Holders, in proportion (as nearly as
practicable) to the amount of Registrable Stock requested to
be included in such registration by each Holder at the time of
filing the registration statement; provided, that in the event
of such limitation of the number of shares of Registrable
Stock to be underwritten, no other securities of the Company
shall be included in such registration and the Holders shall
be entitled to an additional demand registration pursuant to
this Section 2. If any Holder of Registrable Stock disapproves
of the terms of the underwriting, such Holder may elect to
withdraw by written notice to the Company, the managing
underwriter and the Requesting Holders. The securities so
withdrawn shall also be withdrawn from registration.
(d) Notwithstanding any provision of this Agreement to
the contrary, the Company shall not be required to effect a
registration pursuant to this Section 2 during the period
starting with the fourteenth (14th) day immediately preceding
the date of an anticipated filing by the Company of, and
ending on a date ninety (90) days following the effective date
of, a registration statement pertaining to a public offering
of securities for the account of the Company; provided, that
the Company shall actively employ in good faith all reasonable
efforts to cause such registration statement to become
effective; and provided further, that the Company's estimate
of the date of filing such registration statement shall be
made in good faith.
(e) The Company shall be obligated to effect and pay
for a total of only one (1) registration pursuant to this
Section 2, unless increased pursuant to Section 2(c) hereof;
provided, that a registration requested pursuant to this
Section 2 shall not be deemed to have been effected for
purposes of this Section 2(e), unless (i) it has been declared
effective by the Commission, (ii) the offering of Registrable
Stock pursuant to such registration is not subject to any stop
order, injunction or other order or requirement of the
Commission (other than any such action prompted by any act or
omission of the Holders), and (iii) no limitation of the
number of shares of Registrable Stock to be underwritten has
been required pursuant to Section 2(c) hereof.
3. Obligations of the Company. Whenever required under Section
2 to use its best efforts to effect the registration of any Registrable Stock,
the Company shall, as expeditiously as possible:
-4-
<PAGE>
(a) prepare and file with the Commission, not later
than sixty (60) days after receipt of a request to file a
registration statement with respect to such Registrable Stock,
a registration statement on any form for which the Company
then qualifies or which counsel for the Company shall deem
appropriate and which form shall be available for the sale of
such issue of Registrable Stock in accordance with the
intended method of distribution thereof, and use its best
efforts to cause such registration statement to become
effective as promptly as practicable thereafter; provided,
that before filing a registration statement or prospectus or
any amendments or supplements thereto, the Company will (i)
furnish to one (1) counsel selected by the Requesting Holders
copies of all such documents proposed to be filed at least
five (5) days prior to filing, and (ii) notify each such
Holder of any stop order issued or threatened by the
Commission and take all reasonable actions required to prevent
the entry of such stop order or to remove it if entered;
(b) prepare and file with the Commission such
amendments and supplements to such registration statement (and
any prospectus used in connection therewith) as may be
necessary to keep such registration statement effective for a
period of not less than eighteen (18) months or such shorter
period which will terminate when all Registrable Stock covered
by such registration statement has been sold (but not before
the expiration of the forty (40) or ninety (90) day period
referred to in Section 4(3) of the 1933 Act and Rule 174
thereunder, if applicable) or ceases to be Registrable Stock,
and comply with the provisions of the 1933 Act with respect to
the disposition of all securities covered by such registration
statement during such period in accordance with the intended
methods of disposition by the sellers thereof set forth in
such registration statement;
(c) furnish to each Holder and any underwriter of
Registrable Stock to be included in a registration statement
copies of such registration statement as filed and each
amendment and supplement thereto (in each case including all
exhibits thereto), the prospectus included in such
registration statement (including each preliminary prospectus)
and such other documents as such Holder may reasonably request
in order to facilitate the disposition of the Registrable
Stock owned by such Holder;
(d) use its best efforts to register or qualify such
Registrable Stock under such other securities or blue sky laws
of such jurisdictions as any selling Holder or any underwriter
of Registrable Stock reasonably requests, and do any and all
other acts which may be reasonably necessary or advisable to
enable such Holder to consummate the disposition in such
jurisdictions of the Registrable Stock owned by such Holder;
provided, that the Company will not be required to (i) qualify
generally to do business in any jurisdiction where it would
not otherwise be required to qualify but for this Section 3(d)
hereof, (ii) subject itself to taxation in any such
jurisdiction, or (iii) consent to general service of process
in any such jurisdiction;
-5-
<PAGE>
(e) use its best efforts to cause the Registrable Stock
covered by such registration statement to be registered with
or approved by such other governmental agencies or other
authorities as may be necessary by virtue of the business and
operations of the Company to enable the selling Holders
thereof to consummate the disposition of such Registrable
Stock;
(f) notify each selling Holder of such Registrable
Stock and any underwriter thereof, at any time when a
prospectus relating thereto is required to be delivered under
the 1933 Act (even if such time is after the period referred
to in Section 3(b)), of the happening of any event as a result
of which the prospectus included in such registration
statement contains 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 light of the
circumstances being made not misleading, and prepare a
supplement or amendment to such prospectus so that, as
thereafter delivered to the purchasers of such Registrable
Stock, such prospectus will not contain an untrue statement of
a material fact or omit to state any material fact required to
be stated therein or necessary to make the statements therein,
in light of the circumstances, being made not misleading;
(g) make available for inspection by any selling
Holder, any underwriter participating in any disposition
pursuant to such registration statement, and any attorney,
accountant or other agent retained by any such seller or
underwriter (collectively, the "Inspectors"), all financial
and other records, pertinent corporate documents and
properties of the Company (collectively, the "Records"), and
cause the Company's officers, directors and employees to
supply all information reasonably requested by any such
Inspector, as shall be reasonably necessary to enable them to
exercise their due diligence responsibility, in connection
with such registration statement. Records or other information
which the Company determines, in good faith, to be
confidential and which it notifies the Inspectors are
confidential shall not be disclosed by the Inspectors unless
(i) the disclosure of such Records or other information is
necessary to avoid or correct a misstatement or omission in
the registration statement, or (ii) the release of such
Records or other information is ordered pursuant to a subpoena
or other order from a court of competent jurisdiction. Each
selling Holder shall, upon learning that disclosure of such
Records or other information is sought in a court of competent
jurisdiction, give notice to the Company and allow the
Company, at the Company's expense, to undertake appropriate
action to prevent disclosure of the Records or other
information deemed confidential;
-6-
<PAGE>
(h) furnish, at the request of any Requesting Holder,
on the date that such shares of Registrable Stock are
delivered to the underwriters for sale pursuant to such
registration or, if such Registrable Stock is not being sold
through underwriters, on the date that the registration
statement with respect to such shares of Registrable Stock
becomes effective, (1) a signed opinion, dated such date, of
the legal counsel representing the Company for the purposes of
such registration, addressed to the underwriters, if any, and
if such Registrable Stock is not being sold through
underwriters, then to the Requesting Holders as to such
matters as such underwriters or the Requesting Holders, as the
case may be, may reasonably request and as would be customary
in such a transaction; and (2) a letter dated such date, from
the independent certified public accountants of the Company,
addressed to the underwriters, if any, and if such Registrable
Stock is not being sold through underwriters, then to the
Requesting Holders and, if such accountants refuse to deliver
such letter to such Holder, then to the Company (i) stating
that they are independent certified public accountants within
the meaning of the 1933 Act and that, in the opinion of such
accountants, the financial statements and other financial data
of the Company included in the registration statement or the
prospectus, or any amendment or supplement thereto, comply as
to form in all material respects with the applicable
accounting requirements of the 1933 Act, and (ii) covering
such other financial matters (including information as to the
period ending not more than five (5) business days prior to
the date of such letter) with respect to the registration in
respect of which such letter is being given as the Requesting
Holders may reasonably request and as would be customary in
such a transaction;
(i) enter into customary agreements (including if the
method of distribution is by means of an underwriting, an
underwriting agreement in customary form) and take such other
actions as are reasonably required in order to expedite or
facilitate the disposition of the Registrable Stock to be so
included in the registration statement;
(j) otherwise comply with all applicable rules and
regulations of the Commission, and make available to its
security holders, as soon as reasonably practicable, but not
later than ninety (90) days after the close of the period
covered thereby, an earnings statement covering the period of
at least twelve (12) months beginning not later than the first
day of the Company's fiscal quarter next following the
effective date of the Registration Statement; and
-7-
<PAGE>
(k) use its best efforts to cause all such Registrable
Stock to be listed on the Nasdaq SmallCap Market and/or any
other securities exchange on which similar securities issued
by the Company are then listed or traded.
The Company may require each selling Holder of Registrable
Stock as to which any registration is being effected to furnish to the Company
such information regarding the distribution of such Registrable Stock as the
Company may from time to time reasonably request in writing.
Each Holder agrees that, upon receipt of any notice from the
Company of the happening of any event of the kind described in Section 3(f)
hereof, such Holder will forthwith discontinue disposition of Registrable Stock
pursuant to the registration statement covering such Registrable Stock until
such Holder's receipt of the copies of the supplemented or amended prospectus
contemplated by Section 3(f) hereof, and, if so directed by the Company, such
Holder will deliver to the Company (at the Company's expense) all copies, other
than permanent file copies then in such Holder's possession, of the prospectus
covering such Registrable Stock current at the time of receipt of such notice.
In the event the Company shall give any such notice, the Company shall extend
the period during which such registration statement shall be maintained
effective pursuant to this Agreement (including the period referred to in
Section 3(b)) by the number of days during the period from and including the
date of the giving of such notice pursuant to Section 3(f) hereof to and
including the date when each selling Holder of Registrable Stock covered by such
registration statement shall have received the copies of the supplemented or
amended prospectus contemplated by Section 3(f) hereof.
4. Incidental Registration. Commencing December 30, 1999, if
the Company determines that it shall file a registration statement under the
1933 Act (other than a registration statement on a Form S-4 or S-8 or filed in
connection with an exchange offer or an offering of securities solely to the
Company's existing stockholders) on any form that would also permit the
registration of the Registrable Stock and such filing is to be on its behalf
and/or on behalf of selling holders of its securities for the general
registration of its Common Stock to be sold for cash, at each such time the
Company shall promptly give each Holder written notice of such determination
setting forth the date on which the Company proposes to file such registration
statement, which date shall be no earlier than forty (40) days from the date of
such notice, and advising each Holder of its right to have Registrable Stock
included in such registration. Upon the written request of any Holder received
by the Company no later than twenty (20) days after the date of the Company's
notice, the Company shall use its best efforts to cause to be registered under
the 1933 Act all of the Registrable Stock that each such Holder has so requested
to be registered. In any registration pursuant to this Section 4, the Company
shall include in such registration, (a) first, the securities the Company
proposes to sell (if the Company is filing such registration statement on its
own behalf) or the securities of the selling securityholders of the Company who
have demanded such registration, (b) second, the securities the Company proposes
to sell (if the Company is filing such registration statement on behalf of
selling securityholders of the Company) or the securities of other
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<PAGE>
securityholders of the Company who have demand registration rights, including
the Holders who have not as of such time exercised their demand rights as set
forth in Section 2 above (if the Company is filing such registration statement
on its own behalf), (c) third, the securities of securityholders of the Company
who have incidental registration rights, including any of the Registrable Stock
requested to be registered pursuant to this Section 4, and (d) fourth, other
securities of the Company requested to be registered. Notwithstanding the
foregoing, if, in the written opinion of the managing underwriter or
underwriters (or, in the case of a non-underwritten offering, in the written
opinion of the placement agent, or if there is none, the Company), the total
amount of securities to be registered pursuant to subsection (b) of this Section
4, including such Registrable Stock, will exceed the maximum amount of the
Company's securities which can be marketed (i) at a price reasonably related to
the then current market value of such securities, or (ii) without otherwise
materially and adversely affecting the entire offering, then the amount of
Registrable Stock to be offered for the accounts of Holders shall be reduced pro
rata to the extent necessary to reduce the total amount of securities to be
included in such offering to the recommended amount; provided, that if
securities are being offered for the account of other Persons as well as the
Company, such reduction shall not represent a greater fraction of the number of
securities intended to be offered by Holders than the fraction of similar
reductions imposed on such other Persons other than the Company over the amount
of securities they intended to offer.
5. Holdback Agreement - Restrictions on Public Sale by Holder.
(a) To the extent not inconsistent with applicable law,
each Holder whose Registrable Stock is included in a
registration statement agrees not to effect any public sale or
distribution of the issue being registered or a similar
security of the Company, or any securities convertible into or
exchangeable or exercisable for such securities, including a
sale pursuant to Rule 144 under the 1933 Act, during the
fourteen (14) days prior to, and during the one hundred eighty
(180) day period beginning on, the effective date of such
registration statement (except for Registrable Stock included
as part of the registration), if and to the extent requested
by the Company in the case of a non-underwritten public
offering or if and to the extent requested by the managing
underwriter or underwriters in the case of an underwritten
public offering.
(b) Restrictions on Public Sale by the Company and
Others. The Company agrees (i) not to effect any public sale
or distribution of any securities similar to those being
registered, or any securities convertible into or exchangeable
or exercisable for such securities, during the fourteen (14)
days prior to, and during the ninety (90) day period beginning
on, the effective date of any registration statement in which
Holders are participating (except as part of such
registration), if and to the extent requested by the Holders
in the case of a non-underwritten public offering or if and to
the extent requested by the managing underwriter or
underwriters in the case of an underwritten public offering;
and (ii) that any
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agreement entered into after the date of this Agreement
pursuant to which the Company issues or agrees to issue any
securities convertible into or exchangeable or exercisable for
such securities (other than pursuant to an effective
registration statement) shall contain a provision under which
holders of such securities agree not to effect any public sale
or distribution of any such securities during the periods
described in (i) above, in each case including a sale pursuant
to Rule 144 under the 1933 Act.
6. Expenses of Registration. The Company agrees to pay all
expenses incurred in connection with each registration pursuant to Sections 2
and 4 of this Agreement, excluding underwriter's discounts and commissions, but
including, without limitation, all registration, filing and qualification fees,
word processing, duplicating, printers' and accounting fees (including the
expenses of any special audits or "cold comfort" letters required by or incident
to such performance and compliance), exchange listing fees or National
Association of Securities Dealers fees, messenger and delivery expenses, all
fees and expenses of complying with securities or blue sky laws, and fees and
disbursements of counsel for the Company. The selling Holders shall bear and pay
the underwriting commissions and discounts and broker commissions applicable to
the Registrable Stock offered for their account in connection with any
registrations, filings and qualifications made pursuant to this Agreement.
7. Indemnification and Contribution.
(a) Indemnification by the Company. The Company agrees
to indemnify, to the full extent permitted by law, each
Holder, its officers, directors and agents and each Person who
controls such Holder (within the meaning of the 1933 Act)
against all losses, claims, damages, liabilities and expenses
caused by any untrue or alleged untrue statement of material
fact contained in any registration statement, prospectus or
preliminary prospectus or any omission or alleged omission to
state therein a material fact required to be stated therein or
necessary to make the statement therein (in the case of a
prospectus or preliminary prospectus, in the light of the
circumstances under which they were made) not misleading. The
Company will also indemnify any underwriters of the
Registrable Stock, their officers and directors and each
Person who controls such underwriters (within the meaning of
the 1933 Act) to the same extent as provided above with
respect to the indemnification of the selling Holders.
(b) Indemnification by Holders. In connection with any
registration statement in which a Holder is participating,
each such Holder will furnish to the Company in writing such
information with respect to such Holder as the Company
reasonably requests for use in connection with any such
registration statement or prospectus and agrees to indemnify,
to the extent permitted by law, the Company, its directors and
officers and each Person who controls the Company (within the
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meaning of the 1933 Act) against any losses, claims, damages,
liabilities and expenses resulting from any untrue or alleged
untrue statement of material fact or any omission or alleged
omission of a material fact required to be stated in the
registration statement, prospectus or preliminary prospectus
or any amendment thereof or supplement thereto or necessary to
make the statements therein (in the case of a prospectus or
preliminary prospectus, in the light of the circumstances
under which they were made) not misleading, to the extent, but
only to the extent, that such untrue statement or omission was
made in reliance upon and in conformity with any information
with respect to such Holder so furnished in writing by such
Holder. Notwithstanding the foregoing, the liability of each
such Holder under this Section 7(b) shall be limited to an
amount equal to the public offering price of the Registrable
Stock sold by such Holder, unless such liability arises out of
or is based on willful misconduct of such Holder.
(c) Conduct of Indemnification Proceedings. Any Person
entitled to indemnification hereunder agrees to give prompt
written notice to the indemnifying party after the receipt by
such Person of any written notice of the commencement of any
action, suit, proceeding or investigation or threat thereof
made in writing for which such Person will claim
indemnification or contribution pursuant to this Agreement
and, unless in the reasonable judgment of such indemnified
party a conflict of interest may exist between such
indemnified party and the indemnifying party with respect to
such claim, permit the indemnifying party to assume the
defense of such claims with counsel reasonably satisfactory to
such indemnified party. Whether or not such defense is assumed
by the indemnifying party, the indemnifying party will not be
subject to any liability for any settlement made without its
consent (but such consent will not be unreasonably withheld).
Failure by such Person to provide said notice to the
indemnifying party shall itself not create liability except to
the extent of any injury caused thereby. No indemnifying party
will consent to entry of any judgment or enter into any
settlement which does not include as an unconditional term
thereof the giving by the claimant or plaintiff to such
indemnified party of a release from all liability in respect
of such claim or litigation. If the indemnifying party is not
entitled to, or elects not to, assume the defense of a claim,
it will not be obligated to pay the fees and expenses of more
than one (1) counsel with respect to such claim, unless in the
reasonable judgment of any indemnified party a conflict of
interest may exist between such indemnified party and any
other such indemnified parties with respect to such claim, in
which event the indemnifying party shall be obligated to pay
the fees and expenses of such additional counsel or counsels.
(d) Contribution. If for any reason the indemnity
provided for in this Section 7 is unavailable to, or is
insufficient to hold harmless, an indemnified party, then the
indemnifying party shall contribute to the amount paid or
payable by the
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<PAGE>
indemnified party as a result of such losses, claims, damages,
liabilities or expenses (i) in such proportion as is
appropriate to reflect the relative benefits received by the
indemnifying party on the one hand and the indemnified party
on the other, or (ii) if the allocation provided by clause (i)
above is not permitted by applicable law, or provides a lesser
sum to the indemnified party than the amount hereinafter
calculated, in such proportion as is appropriate to reflect
not only the relative benefits received by the indemnifying
party on the one hand and the indemnified party on the other
but also the relative fault of the indemnifying party and the
indemnified party as well as any other relevant equitable
considerations. The relative fault of such indemnifying party
and indemnified parties shall be determined by reference to,
among other things, whether any action in question, including
any untrue or alleged untrue statement of a material fact or
omission or alleged omission to state a material fact, has
been made by, or relates to information supplied by, such
indemnifying party or indemnified parties; and the parties'
relative intent, knowledge, access to information and
opportunity to correct or prevent such action. The amount paid
or payable by a party as a result of the losses, claims,
damages, liabilities and expenses referred to above shall be
deemed to include, subject to the limitations set forth in
Section 7(c), any legal or other fees or expenses reasonably
incurred by such party in connection with any investigation or
proceeding.
The parties hereto agree that it would not be just and
equitable if contribution pursuant to this Section 7 (d) were
determined by pro rata allocation or by any other method of
allocation which does not take account of the equitable
considerations referred to in the immediately preceding
paragraph. No Person guilty of fraudulent misrepresentation
(within the meaning of Section 11(f) of the 1933 Act) shall be
entitled to contribution from any Person who was not guilty of
such fraudulent misrepresentation.
If indemnification is available under this Section 7,
the indemnifying parties shall indemnify each indemnified
party to the full extent provided in Sections 7(a) and (b)
without regard to the relative fault of said indemnifying
party or indemnified party or any other equitable
consideration provided for in this Section 7.
8. Participation in Underwritten Registrations. No Holder may
participate in any underwritten registration hereunder unless such Holder (a)
agrees to sell such Holder's securities on the basis provided in any
underwriting arrangements approved by the Holders entitled hereunder to approve
such arrangements, and (b) completes and executes all questionnaires, powers of
attorney, indemnities, underwriting agreements and other documents reasonably
required under the terms of such underwriting arrangements.
9. Rule 144. The Company covenants that it will file the
reports required to be filed by it under the 1933 Act and the Securities
Exchange Act of 1934, as amended, and the rules
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and regulations adopted by the Commission thereunder; and it will take such
further action as any Holder may reasonably request, all to the extent required
from time to time to enable such Holder to sell Registrable Stock without
registration under the 1933 Act within the limitation of the exemptions provided
by (a) Rule 144 under the 1933 Act, as such Rule may be amended from time to
time, or (b) any similar rule or regulation hereafter adopted by the Commission.
Upon the request of any Holder, the Company will deliver to such Holder a
written statement as to whether it has complied with such requirements.
10. Transfer of Registration Rights. The registration rights
of any Holder under this Agreement with respect to any Registerable Stock may be
transferred to any transferee of such Registrable Stock; provided, that such
transfer may otherwise be effected in accordance with applicable securities
laws; provided further, that the transferring Holder shall give the Company
written notice at or prior to the time of such transfer stating the name and
address of the transferee and identifying the securities with respect to which
the rights under this Agreement are being transferred; provided further, that
such transferee shall agree in writing, in form and substance satisfactory to
the Company, to be bound as a Holder by the provisions of this Agreement; and
provided further, that such assignment shall be effective only if immediately
following such transfer the further disposition of such securities by such
transferee is restricted under the 1933 Act. Except as set forth in this Section
10, no transfer of Registrable Stock shall cause such Registrable Stock to lose
such status.
11. Mergers, Etc. The Company shall not, directly or
indirectly, enter into any merger, consolidation or reorganization in which the
Company shall not be the surviving corporation unless the proposed surviving
corporation shall, prior to such merger, consolidation or reorganization, agree
in writing to assume the obligations of the Company under this Agreement, and
for that purpose references hereunder to "Registrable Stock" shall be deemed to
be references to the securities which the Holders would be entitled to receive
in exchange for Registrable Stock under any such merger, consolidation or
reorganization; provided, however, that the provisions of this Section 11 shall
not apply in the event of any merger, consolidation or reorganization in which
the Company is not the surviving corporation if each Holder is entitled to
receive in exchange for its Registrable Stock consideration consisting solely of
(i) cash, (ii) securities of the acquiring corporation which may be immediately
sold to the public without registration under the 1933 Act, or (iii) securities
of the acquiring corporation which the acquiring corporation has agreed to
register within ninety (90) days of completion of the transaction for resale to
the public pursuant to the 1933 Act.
12. Miscellaneous.
(a) No Inconsistent Agreements. The Company will not
hereafter enter into any agreement with respect to its
securities which is inconsistent with the rights granted to
the Holders in this Agreement.
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<PAGE>
(b) Amendments and Waivers. The provisions of this
Agreement may not be amended, modified or supplemented, and
waivers or consents to departures from the provisions hereof
may not be given unless the Company has obtained the written
consent of the Holders of at least a majority of the
Registrable Stock then outstanding affected by such amendment,
modification, supplement, waiver or departure.
(c) Successors and Assigns. Except as otherwise
expressly provided herein, the terms and conditions of this
Agreement shall inure to the benefit of and be binding upon
the respective successors and assigns of the parties hereto.
Nothing in this Agreement, express or implied, is intended to
confer upon any Person other than the parties hereto or their
respective successors and assigns any rights, remedies,
obligations, or liabilities under or by reason of this
Agreement, except as expressly provided in this Agreement.
(d) Governing Law. This Agreement shall be governed by
and construed in accordance with the internal laws of the
State of New York applicable to contracts made and to be
performed wholly within that state, excluding only its
conflicts of laws principles that would defer to the
substantive laws of another jurisdiction.
(e) Counterparts. This Agreement may be executed in two
or more counterparts, each of which shall be deemed an
original, but all of which together shall constitute one and
the same instrument.
(f) Headings. The headings in this Agreement are used
for convenience of reference only and are not to be considered
in construing or interpreting this Agreement.
(g) Notices. Any notice required or permitted under
this Agreement shall be given in writing and shall be
delivered in person or by telecopy or by overnight courier
guaranteeing no later than second business day delivery,
directed to (i) the Company at the address set forth below its
signature hereof (with a copy, which copy shall not constitute
notice, to Camhy Karlinsky & Stein LLP, 1740 Broadway, New
York, New York 10019, Attention: Daniel I. DeWolf, Esq.) or
(ii) a Holder at the address set forth below its signature
hereof. Any party may change its address for notice by giving
ten (10) days advance written notice to the other parties.
Every notice or other communication hereunder shall be deemed
to have been duly given or served on the date on which
personally delivered, or on the date actually received, if
sent by telecopy or overnight courier service, with receipt
acknowledged.
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<PAGE>
(h) Severability. In the event that any one or more of
the provisions contained herein, or the application thereof in
any circumstances, is held invalid, illegal or unenforceable
in any respect for any reason, the validity, legality and
enforceability of any such provision in every other respect
and of the remaining provisions contained herein shall not be
in any way impaired thereby, it being intended that all of the
rights and privileges of the Holders shall be enforceable to
the fullest extent permitted by law.
(i) Entire Agreement. This Agreement is intended by the
parties as a final expression of their agreement and intended
to be a complete and exclusive statement of the agreement and
understanding of the parties hereto in respect of the subject
matter contained herein. There are no restrictions, promises,
warranties or undertakings other than those set forth or
referred to herein. This Agreement supersedes all prior
agreements and understandings between the parties with respect
to such subject matter.
(j) Enforceability. This Agreement shall remain in full
force and effect notwithstanding any breach or purported
breach of, or relating to, the Merger Agreement.
(k) Recitals. The recitals are hereby incorporated in
this Agreement as if fully set forth herein.
[SIGNATURE PAGE FOLLOWS]
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IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the date first above written.
PREDICT IT INC.
By:
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Name:
Title:
Address:
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Telecopy No.:
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Gary Cheng
Address:
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Telecopy No.:
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Howard Yen
Address:
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Telecopy No.:
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Scott Appleby
Address:
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Telecopy No.:
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<PAGE>
August 13, 1999
Board of Directors
Predict It Inc.
41 E. 11th Street
New York, NY 10003
Re: Predict It Inc.--Registration Statement on Form SB-2
Gentlemen:
You have requested our opinion as counsel for Predict It Inc., a Delaware
corporation (the "Company"), in connection with the registration statement (the
"Registration Statement") on Form SB-2 filed by the Company with the Securities
and Exchange Commission (the "Commission") under the Securities Act of 1933, as
amended (the "Act"), with respect to the registration of (i) 9,000,000 shares of
common stock, par value $.01 per share, of the Company (the "Common Stock");
(ii) 1,000,000 shares of Common Stock (the "Series A Shares") underlying
1,000,000 shares of Series A Preferred Stock, par value $.01 per share, of the
Company (the "Series A Preferred Stock"); and (iii) 206,750 shares of Common
Stock (the "Option Shares") underlying stock options previously granted by the
Company.
In rendering our opinion hereafter, we have relied upon such documents and
instruments as we have deemed appropriate.
In conducting our examination, we have assumed, without investigation, the
genuineness of all signatures, the correctness of all certificates, the
authenticity of all documents submitted to us as originals, the conformity to
original documents of all documents submitted to us as certified or photostatic
copies and the authenticity of the originals of such copies, and the accuracy
and completeness of all records made available to us by the Company.
The opinions hereafter expressed are subject to the following
qualifications:
A. Our opinions below are limited to the matters expressly set forth in
this opinion letter, and no opinion is to be implied or may be inferred beyond
the matter expressly so stated.
B. We disclaim any obligation to update this opinion letter for events
occurring after the date of this opinion.
C. We are members of the Bar of the State of New York. Our opinions below
are limited to the effect of the laws of the State of New York and of the
federal laws of the United States.
Based upon and subject to the foregoing, we are of the opinion that:
1. The Common Stock is legally issued, fully paid and non-assessable.
2. The Series A Shares, when issued upon proper conversion of the Series A
Preferred Stock, will be legally issued, fully paid and non-assessable.
3. The Option Shares when issued upon proper exercise of the options, will
be legally issued, fully paid and non-assessable.
Please be advised that an attorney affiliated with this firm may be deemed
to have beneficial ownership of 2,415,152 shares of Common Stock, although such
beneficial ownership is disclaimed.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement. In giving this consent, we do not thereby admit that we
are in the category of persons whose consent is required pursuant to Section 7
of the Act or the rules and regulations of the Commission promulgated
thereunder.
<PAGE>
Board of Directors
August 13, 1999
Page 1
This opinion letter is rendered solely for the benefit of the addressee.
Without our prior written consent, this opinion letter may not be: (i) relied
upon by any other party or for any other purpose; (ii) quoted in whole or in
part or otherwise referred to in any report or document; or (iii) furnished (the
original or copies thereof) to any other party.
Very truly yours,
CAMHY KARLINSKY & STEIN LLP
<PAGE>
WDC DEVELOPMENT, INC.
1999 Incentive and Compensation Plan
1. Purpose. The purpose of this 1999 Incentive Compensation Plan (the
"Plan") is to assist WDC Development, Inc., a Delaware corporation (the
"Corporation"), and its subsidiaries in attracting, retaining, and rewarding
high-quality executives, employees, directors and other persons who provide
services to the Corporation and/or its subsidiaries, enabling such persons to
acquire or increase a proprietary interest in the Corporation to strengthen the
mutuality of interests between such persons and the Corporation's shareholders,
and providing such persons with annual and long-term performance incentives to
expend their maximum efforts in the creation of shareholder value. The Plan is
also intended to qualify certain compensation awarded under the Plan for tax
deductibility under Code Section 162(m) (as hereafter defined) to the extent
deemed appropriate by the Committee (or any successor committee) of the Board of
Directors of the Corporation.
2. Definitions. For purposes of the Plan, the following terms shall be
defined as set forth below, in addition to such terms defined in Section 1
hereof:
(a) "Annual Incentive Award" means a conditional right granted
to a Participant under Section 8(c) hereof to receive a cash payment, Stock or
other Award, unless otherwise determined by the Committee, after the end of a
specified fiscal year.
(b) "Award" means any Option, SAR (including Limited SAR),
Restricted Stock, RSU, Stock granted as a bonus or in lieu of another award,
Dividend Equivalent, Other Stock-Based Award, Performance Award or Annual
Incentive Award, together with any other right or interest granted to a
Participant under the Plan.
(c) "Beneficiary" means the person, persons, trust or trusts
which have been designated by a Participant in his or her most recent written
beneficiary designation filed with the Committee to receive the benefits
specified under the Plan upon such Participant's death or to which Awards or
other rights are transferred if and to the extent permitted under Section 11 (b)
hereof. If, upon a Participant's death, there is no designated Beneficiary or
surviving designated Beneficiary, then the term Beneficiary means person,
persons, trust or trusts entitled by will or the laws of descent and
distribution to receive such benefits.
(d) "Beneficial Owner" shall have the meaning ascribed to such
term in Rule 13d-3 under the Exchange Act and any successor to such Rule.
(e) "Board" means the Corporation's Board of Directors.
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<PAGE>
(f) "Change in Control" means Change in Control as defined
with related terms in Section 9 of the Plan.
(g) "Change in Control Price" means the amount calculated in
accordance with Section 9(c) of the Plan.
(h) "Code" means the Internal Revenue Code of 1986, as amended
from time to time, including regulations thereunder and successor provisions and
regulations thereto.
(i) "Committee" means a committee of two or more directors
designated by the Board to administer the Plan; provided, however, that, unless
otherwise determined by the Board, the Committee shall consist solely of two or
more directors, each of whom shall be (i) a "non employee director" within the
meaning of Rule 16b-3 under the Exchange Act, unless administration of the Plan
by "non-employee directors" is not then required in order for exemptions under
Rule 16b-3 to apply to transactions under the Plan, and (ii) an "outside
director" as defined under Code Section 162(m), unless administration of the
Plan by "outside directors" is not then required to qualify for tax
deductibility under Code Section 162(m).
(j) "Covered Employee" means an Eligible Person who is a
Covered Employee as specified in Section 8(e) of the Plan.
(k) "Dividend Equivalent" means a right, granted to a
Participant under Section 6(g), to receive cash, Stock, other Awards or other
property equal in value to dividends paid with respect to a specified number of
shares of Stock, or other periodic payments.
(l) "Effective Date" means April 12, 1999.
(m) "Eligible Person" means each Executive Officer and other
officers and employees of the Corporation or of any subsidiary, and other
persons who provide services to the Corporation or any of its subsidiaries
including directors of the Corporation. An employee on leave of absence may be
considered as still in the employ of the Corporation or a subsidiary for
purposes of eligibility for participation in the Plan.
(n) "Exchange Act" means the Securities Exchange Act of 1934,
as amended from time to time, including rules thereunder and successor
provisions and rules thereto.
(o) "Executive Officer" means an executive officer of the
Corporation as defined under the Exchange Act.
(p) "Fair Market Value" means the fair market value of Stock,
Awards or other property as determined by the Committee or under procedures
established by the Committee. Unless otherwise determined by the Committee, the
Fair Market Value of Stock shall be the closing price of a share of Stock, as
quoted on the composite transactions table on the New York Stock Exchange,
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<PAGE>
on the date on which the determination of fair market value is being made, or if
no shares of Stock were traded on such date, then the last trading date prior
thereto.
(q) "Incentive Stock Option" or "ISO" means any Option
Intended to be and designated as an Incentive Stock Option within the meaning of
Code Section 422 or any successor provision thereto.
(r) "Limited SAR" means a right granted to a Participant under
Section 6(c) hereof.
(s) "Option" means a right, granted to a Participant under
Section 6(b) hereof, to purchase Stock or other Awards at a specified price
during specified time periods.
(t) "Other Stock-Based Awards" means Awards granted to a
Participant under Section 6(h) hereof.
(u) "Participant" means a person who has been granted an Award
under the Plan which remains outstanding, including a person who is no longer an
Eligible Person.
(v) "Performance Award" means a right, granted to a
Participant under Section 8 hereof, to receive Awards based upon performance
criteria specified by the Committee.
(w) "Person" shall have the meaning ascribed to such term in
Section 3(a)(9) of the Exchange Act and used in Sections 13(d) and 14(d)
thereof, and shall include a "group" as defined in Section 13(d) thereof.
(x) "Qualified Member" means a member of the Committee who is
a "Non-Employee Director" within the meaning of Rule I Bb-3(b)(3) and an
"outside director" within the meaning of Regulation 1. 162-27 under Code Section
162(m).
(y) "Restricted Stock" means Stock granted to a Participant
under Section 6(d) hereof, that is subject to certain restrictions and to a risk
of forfeiture.
(z) "Restricted Stock Unit" or "RSU" means a right, granted to
a Participant under Section 6(e) hereof, to receive Stock, cash or a combination
thereof at the end of a specified deferral period.
(aa) "Rule 16b-3" means Rule 16b-3, as from time to time in
effect and applicable to the Plan and Participants, promulgated by the
Securities and Exchange Commission under Section 16 of the Exchange Act
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(bb) "Stock" means the Corporation's Common Stock, $0.01 par
value per share, and such other securities as may be substituted (or
resubstituted) for Stock pursuant to Section 10(c) hereof.
(cc) "Stock Appreciation Rights" or "SAR" means a right
granted to a Participant under Section 6(c) hereof.
3. Administration.
(a) Authority of the Committee. The Plan shall be administered
by the Committee except to the extent the Board elects to administer the Plan,
in which case references herein to the "Committee" shall be deemed to include
references to the "Board." The Committee shall have full and final authority, in
each case subject to and consistent with the provisions of the Plan, to select
Eligible Persons to become Participants, grant Awards, determine the type,
number and other terms and conditions of, and all other matters relating to,
Awards, prescribe Award agreements (which need not be identical for each
Participant) and rules and regulations for the administration of the Plan,
construe and interpret the Plan and Award agreements and correct defects, supply
omissions or reconcile inconsistencies therein, and to make all other decisions
and determinations as the Committee may deem necessary or advisable for the
administration of the Plan.
(b) Manner of Exercise of Committee Authority. At any time
that a member of the Committee is not a Qualified Member, any action of the
Committee relating to an Award granted or to be granted to a Participant who is
then subject to Section 16 of the Exchange Act in respect of the Corporation, or
relating to an Award intended by the Committee to qualify as "performance-based
compensation" within the meaning of Code Section 162(m) and regulations
thereunder, may be taken either (i) by a subcommittee, designated by the
Committee, composed solely of two or more Qualified Members, or (ii) by the
Committee but with each such member who is not a Qualified Member abstaining or
recusing himself or herself from such action; provided, however, that, upon such
abstention or recusal, the Committee remains composed solely of two or more
Qualified Members. Such action, authorized by such a subcommittee or by the
Committee upon the abstention or recusal of such non-Qualified Member(s), shall
be the action of the Committee for purposes of the Plan. Any action of the
Committee shall be final, conclusive and binding on all persons, including the
Corporation, its subsidiaries, Participants, Beneficiaries, transferees or other
persons claiming rights from or through a Participant, and shareholders. The
express grant of any specific power to the Committee, and the taking of any
action by the Committee, shall not be construed as limiting any power or
authority of the Committee. The Committee may delegate to officers or managers
of the Corporation or any subsidiary or committees thereof, the authority,
subject to such terms as the Committee shall determine, to perform such
functions, including administrative functions as the Committee may determine to
the extent that such delegation will not result in the loss of an exemption
under Rule 16b-3(d)(1) for Awards granted to Participants subject to Section 16
of the Exchange Act in respect of the Corporation and will not cause Awards
intended to qualify as "performance-based compensation" under Code Section
162(m) to fail to so qualify. The Committee may appoint agents to assist it in
administering the Plan.
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(c) Limitation of Liability. The Committee and each member
thereof shall be entitled to, in good faith, rely or act upon any report or
other information furnished to him or her by any executive officer, other
officer or employee of the Corporation or a subsidiary, the Corporation's
independent auditors, consultants or any other agents assisting in the
administration of the Plan. Members of the Committee and any officer or employee
of the Corporation or a subsidiary acting at the direction or on behalf of the
Committee shall not be personally liable for any action or determination taken
or made in good faith with respect to the Plan, and shall, to the extent
permitted by law, be fully indemnified and protected by the Corporation with
respect to any such action or determination.
4. Stock Subject to Plan.
(a) Overall Number of Shares Available for Delivery. Subject
to adjustment as provided in Section 1o(c) hereof, the total number of shares of
Stock reserved and available for delivery in connection with Awards under the
Plan shall be 500,000. Any shares of Stock delivered under the Plan shall
consist of authorized and unissued shares or treasury shares.
(b) Application of Limitation to Grants of Awards. No Award
may be granted if the number of shares of Stock to be delivered in connection
with such Award or, in the case of an Award relating to shares of Stock but
settleable only in cash (such as cash-only SARs), the number of shares to which
such Award relates, exceeds the number of shares of Stock remaining available
under the Plan minus the number of shares of Stock issuable in settlement of or
relating to then-outstanding Awards. The Committee may adopt reasonable counting
procedures to ensure appropriate counting, avoid double counting (as, for
example, in the case of tandem or substitute awards) and make adjustments if the
number of shares of Stock actually delivered differs from the number of shares
previously counted in connection with an Award.
(c) Availability of Shares Not Delivered under Awards. Shares
of Stock subject to an Award under the Plan that are canceled, expired,
forfeited, settled in cash or otherwise terminated without a delivery of shares
to the Participant, including (i) the number of shares withheld in payment of
any exercise or purchase price of an Award or award or taxes relating to Awards
or awards, and (ii) the number of shares surrendered in payment of any exercise
or purchase price of an Award or award or taxes relating to any Award or award,
will again be available for Awards under the Plan, except that if any such
shares could not again be available for Awards to a particular Participant under
any applicable law or regulation, such shares shall be available exclusively for
Awards to Participants who are not subject to such limitation.
5. Eligibility; Per Person Award Limitations. Awards may be granted
under the Plan only to Eligible Persons. The maximum cash amount that may be
earned under the Plan as a final Annual Incentive Award or other cash annual
Award in respect of any fiscal year by any one Participant shall be $1,000,000,
and the maximum cash amount that may be earned under the Plan as a final
Performance Award or other cash Award in respect of a performance period other
than an annual period by any one Participant on an annualized basis shall be
$1,000,000.
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6. Specific Terms of Awards.
(a) General. Awards may be granted on the terms and conditions
set forth in this Section 6. In addition, the Committee may impose on any Award
or the exercise thereof, at the date of grant or thereafter (subject to Section
10(e)), such additional terms and conditions, not inconsistent with the
provisions of the Plan, as the Committee shall determine, including terms
requiring forfeiture of Awards In the event of termination of employment by the
Participant and terms permitting a Participant to make elections relating to his
or her Award. The Committee shall retain full power and discretion to
accelerate, waive or modify, at any time, any term or condition of an Award that
is not mandatory under the Plan; provided, however, that the Committee shall not
have any discretion to accelerate, waive or modify any term or condition of an
Award that is intended to qualify as "performance-based compensation" for
purposes of Code Section 162(m) if such discretion would cause the Award not to
so qualify. Except in cases in which the Committee is authorized to require
other forms of consideration under the Plan, or to the extent other forms of
consideration must by paid to satisfy the requirements of state law, no
consideration other than services may be required for the grant (but not the
exercise) of any Award.
(b) Options. The Committee is authorized to grant Options to
Participants on the following terms and conditions:
(i) Exercise Price. The exercise price per share of
Stock purchasable under an Option shall be determined by the
Committee, provided that such exercise price shall be not less
than the Fair Market Value of a share of Stock on the date of
grant of such Option except as provided under Section 7(s)
hereof.
(ii) Time and Method of Exercise. The Committee shall
determine the time or times at which or the circumstances
under which an Option may be exercised in whole or in part
(including based on achievement of performance goals and/or
future service requirements), the methods by which such
exercise price may be paid or deemed to be paid, the form of
such payment including, without limitation, cash, Stock, other
Awards or awards granted under other plans of the Corporation
or any subsidiary, or other property (including notes or other
contractual obligations of Participants to make payment on a
deferred basis), and the methods by or forms in which Stock
will be delivered or deemed to be delivered to Participants.
In no event may an Option remain exercisable more than ten
years following the date of grant.
(iii) ISOs. The terms of any ISO granted under the
Plan shall comply in all respects with the provisions of Code
Section 422. Anything in the Plan to the contrary
notwithstanding, no term of the Plan relating to ISOs
(including any SAR in tandem therewith) shall be interpreted,
amended or altered, nor shall any discretion or authority
granted under the Plan be exercised, so as to disqualify
either the Plan or any ISO under Code Section 422, unless the
Participant has first requested the change that will result in
such disqualification.
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(c) Stock Appreciation Rights. The Committee is authorized to
grant SAR's to Participants on the following terms and conditions:
(i) Right to Payment. A SAR shall confer on the
Participant to whom it is granted a right to receive, upon
exercise thereof, the excess of (A) the Fair Market Value of
one share of Stock on the date of exercise (or, in the case of
a "Limited SAR," the Fair Market Value determined by reference
to the Change in Control Price, as defined under Section 9(c)
hereof) over (B) the grant price of the SAR as determined by
the Committee provided that such grant price shall not be less
than the Fair Market Value of a share of Stock on the date of
grant of such SAR except as provided under Section 7(a)
hereof.
(ii) Other Terms. The Committee shall determine at
the date of grant or thereafter, the time or times at which
and the circumstances under which a SAR may be exercised in
whole or in part (including based on achievement of
performance goals and/or future service requirements), the
method of exercise, method of settlement, form of
consideration payable in settlement, method by or forms in
which Stock will be delivered or deemed to be delivered to
Participants, whether or not a SAR shall be in tandem or in
combination with any other Award, and any other terms and
conditions of any SAR. Limited SARs that may only be exercised
in connection with a Change in Control or other event as
specified by the Committee may be granted on such terms, not
inconsistent with this Section 6(c), as the Committee may
determine. SARs and Limited SARs may be either freestanding or
in tandem with other Awards.
(d) Restricted Stock. The Committee is authorized to grant
Restricted Stock to Participants on the following terms and conditions:
(i) Grant and Restrictions. Restricted Stock shall be
subject to such restrictions on transferability, risk of
forfeiture and other restrictions, if any, as the Committee
may impose, which restrictions may lapse separately or in
combination at such times, under such circumstances (including
based on achievement of performance goals and/or future
service requirements), in such installments or otherwise, as
the Committee may determine at the date of grant or
thereafter. Except to the extent restricted under the terms of
the Plan and any Award agreement relating to the Restricted
Stock, a Participant granted Restricted Stock shall have all
of the rights of a shareholder, including the right to vote
the Restricted Stock and the right to receive dividends
thereon (subject to any mandatory reinvestment or other
requirement imposed by the Committee). During the restricted
period applicable to the Restricted Stock, subject to Section
10(b) below, the Restricted Stock may not be sold,
transferred, pledged, hypothecated, margined or otherwise
encumbered by the Participant.
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(ii) Forfeiture. Except as otherwise determined by
the Committee, upon termination of employment during the
applicable restriction period, Restricted Stock that is at
that time subject to restrictions shall be forfeited and
reacquired by the Corporation; provided that the Committee may
provide, by rule or regulation or in any Award agreement, or
may determine in any individual case, that restrictions or
forfeiture conditions relating to Restricted Stock shall be
waived in whole or in part in the event of terminations
resulting from specified causes, and the Committee may in
other cases waive in whole or in part the forfeiture of
Restricted Stock.
(iii) Certificates for Stock. Restricted Stock
granted under the Plan may be evidenced in such manner as the
Committee shall determine. If certificates representing
Restricted Stock are registered in the name of the
Participant, the Committee may require that such certificates
bear an appropriate legend referring to the terms, conditions
and restrictions applicable to such Restricted Stock, that the
Corporation retain physical possession of the certificates,
and that the Participant deliver a stock power to the
Corporation, endorsed in blank, relating to the Restricted
Stock.
(iv) Dividends and Splits. As a condition to the
grant of an Award of Restricted Stock, the Committee may
require or permit a Participant to elect that any cash
dividends paid on a share of Restricted Stock be automatically
reinvested in additional shares of Restricted Stock or applied
to the purchase of additional Awards under the Plan. Unless
otherwise determined by the Committee, Stock distributed in
connection with a Stock split or Stock dividend, and other
property distributed as a dividend, shall be subject to
restrictions and a risk of forfeiture to the same extent as
the Restricted Stock with respect to which such Stock or other
property has been distributed.
(e) RSUs. The Committee is authorized to grant RSUs to
Participants, which are rights to receive Stock, cash, or a combination thereof
at the end of a specified deferral period, subject to the following terms and
conditions:
(i) Award and Restrictions. Satisfaction of an Award
of RSUs shall occur upon expiration of the deferral period
specified for such RSUs by the Committee (or, if permitted by
the Committee, as elected by the Participant). In addition,
RSUs shall be subject to such restrictions (which may include
a risk of forfeiture) as the Committee may impose, if any,
which restrictions may lapse at the expiration of the deferral
period or at earlier specified times (including based on
achievement of performance goals and/or future service
requirements), separately or in combination, in installments
or otherwise, as the Committee may determine. RSUs may be
satisfied by delivery of Stock, cash equal to the Fair Market
Value of the specified number of shares of Stock covered by
the RSUs, or a combination thereof, as determined by the
Committee at the date of grant or thereafter.
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(ii) Forfeiture. Except as otherwise determined by
the Committee, upon termination of employment during the
applicable deferral period or portion thereof to which
forfeiture conditions apply (as provided in the Award
agreement evidencing the RSUs), all RSUs that are at that time
subject to deferral (other than a deferral at the election of
the Participant) shall be forfeited; provided that the
Committee may provide, by rule or regulation or in any Award
agreement or may determine in any individual case, that
restrictions or forfeiture conditions relating to, RSUs shall
be waived in whole or in part in the event of terminations
resulting from specified causes, and the Committee may in
other cases waive in whole or in part the forfeiture of RSUs.
(iii) Dividend Equivalents. Unless otherwise
determined by the Committee at date of grant, Dividend
Equivalents on the specified number of shares of Stock covered
by an Award of RSUs shall be either (A) paid with respect to
such RSUs at the dividend payment date in cash or in shares of
unrestricted Stock having a Fair Market Value equal to the
amount of such dividends, or (B) deferred with respect to such
RSUs and the amount or value thereof automatically deemed
reinvested in additional RSUs, other Awards or other
investment vehicles, as the Committee shall determine or
permit the Participant to elect.
(f) Bonus Stock and Awards in Lieu of Obligations. The
Committee is authorized to grant Stock as a bonus, or to grant Stock or other
Awards in lieu of obligations to pay cash or deliver other property under the
Plan or under other plans or compensatory arrangements, provided that, in the
case of Participants subject to Section 16 of the Exchange Act, the amount of
such grants remains within the discretion of the Committee to the extent
necessary to ensure that acquisitions of Stock or other Awards are exempt from
liability under Section 16(b) of the Exchange Act Stock or Awards granted
hereunder shall be subject to such other terms as shall be determined by the
Committee.
(g) Dividend Equivalents. The Committee is authorized to grant
Dividend Equivalents to a Participant, entitling the Participant to receive
cash, Stock, other Awards, or other property equal in value to dividends paid
with respect to a specified number of shares of Stock, or other periodic
payments. Dividend Equivalents may be awarded on a free-standing basis or in
connection with another Award. The Committee may provide that Dividend
Equivalents shall be paid or distributed when accrued or shall be deemed to have
been reinvested in additional Stock, Awards, or other investment vehicles, and
subject to such restrictions on transferability and risks of forfeiture, as the
Committee may specify.
(h) Annual Incentive and Performance Awards. The Committee is
authorized to make Annual Incentive Awards and Performance Awards payable in
cash, Shares, or other Awards, on terms and conditions established by the
Committee, subject to Section 8 in the event of Annual Incentive Awards or
Performance Awards intended to qualify as "performance-based compensation" for
purposes of Code Section 162(m).
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(i) Other Stock-Based Awards. The Committee is authorized,
subject to limitations under applicable law, to grant to Participants such other
Awards that may be denominated or payable in, valued in whole or in part by
reference to, or otherwise based on, or related to, Stock, as deemed by the
Committee to be consistent with the purposes of the Plan, including, without
limitation, convertible or exchangeable debt securities, other rights
convertible or exchangeable into Stock, purchase rights for Stock, Awards with
value and payment contingent upon performance of the Corporation or any other
factors designated by the Committee, and Awards valued by reference to the book
value of Stock or the value of securities of or the performance of specified
subsidiaries. The Committee shall determine the terms and conditions of such
Awards. Stock delivered pursuant to an Award in the nature of a purchase right
granted under this Section 6(h) shall be purchased for such consideration, paid
for at such times, by such methods, and in such forms, including, without
limitation, cash, Stock, other Awards, or other property, as the Committee shall
determine. Cash awards, as an element of or supplement to any other Award under
the Plan, may also be granted pursuant to this Section 6(h).
7. Certain Provisions Applicable to Awards.
(a) Stand-Alone, Additional, Tandem, and Substitute Awards.
Awards granted under the Plan may, in the discretion of the Committee, be
granted either alone or in addition to, in tandem with, or in substitution or
exchange for, any other Award or any award granted under another plan of the
Corporation, any subsidiary, or any business entity to be acquired by the
Corporation or a subsidiary, or any other right of a Participant to receive
payment from the Corporation or any subsidiary. Such additional, tandem, and
substitute or exchange Awards may be granted at any time. If an Award is granted
in substitution or exchange for another Award or award, the Committee shall
require the surrender of such other Award or award in consideration for the
grant of the new Award. In addition, Awards may be granted in lieu of cash
compensation, including in lieu of cash amounts payable under other plans of the
Corporation or any subsidiary, in which the value of Stock subject to the Award
is equivalent in value to the cash compensation (for example, RSUs or Restricted
Stock), or in which the exercise price, grant price or purchase price of the
Award in the nature of a right that may be exercised is equal to the Fair Market
Value of the underlying Stock minus the value of the cash compensation
surrendered (for example, Options granted with an exercise price "discounted" by
the amount of the cash compensation surrendered).
(b) Term of Awards. The term of each Award shall be for such
period as may be determined by the Committee; provided that in no event shall
the term of any Option or SAR exceed a period of ten years (or such shorter term
as may be required in respect of an ISO under Code Section 422).
(c) Form and Timing of Payment under Awards; Deferrals.
Subject to the terms of the Plan and any applicable Award agreement, payments to
be made by the Corporation or a subsidiary upon the exercise of an Option or
other Award or settlement of an Award may be made in such forms as the Committee
shall determine, including, without limitation, cash, Stock, other Awards or
other property, and may be made in a single payment or transfer, in
installments, or on
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a deferred basis. The settlement of any Award may be accelerated, and cash paid
in lieu of Stock in connection with such settlement, in the discretion of the
Committee or upon occurrence of one or more specified events (in addition to a
Change in Control). Installment or deferred payments may be required by the
Committee (subject to Section 10(a) of the Plan, including the consent
provisions thereof in the case of any deferral of an outstanding Award not
provided for in the original Award agreement) or permitted at the election of
the Participant on terms and conditions established by the Committee. Payments
may include, without limitation, provisions for the payment or crediting of
reasonable interest on installment or deferred payments or the grant or
crediting of Dividend Equivalents or other amounts In respect of installment or
deferred payments denominated in Stock.
(d) Exemptions from Section 16(b) Liability. It is the intent
of the Corporation that the grant of any Awards to or other transaction by a
Participant who is subject to Section 16 of the Exchange Act shall be exempt
from Section 16 pursuant to an applicable exemption (except for transactions
acknowledged in writing to be non-exempt by such Participant). Accordingly, if
any provision of this Plan or any Award agreement does not comply with the
requirements of Rule 16b-3 as then applicable to any such transaction, such
provision shall be construed or deemed amended to the extent necessary to
conform to the applicable requirements of Rule 16b-3 so that such Participant
shall avoid liability under Section 16(b).
8. Performance and Annual Incentive Awards.
(a) Performance Conditions. The right of a Participant to
exercise or receive a grant or settlement of any Award, and the timing thereof
may be subject to such performance conditions as may be specified by the
Committee. The Committee may use such business criteria and other measures of
performance as it may deem appropriate in establishing any performance
conditions, and may exercise its discretion to reduce or increase the amounts
payable under any Award subject to performance conditions, except as limited
under Sections 8(b) and 8(c) hereof in the case of a Performance Award or Annual
Incentive Award intended to qualify under Code Section 162(m).
(b) Performance Awards Granted to Designated Covered
Employees. If the Committee determines that a Performance Award to be granted to
an Eligible Person who is designated by the Committee as likely to be a Covered
Employee should qualify as "performance-based compensation" for purposes of Code
Section 162(m), the grant, exercise and/or settlement of such Performance Award
shall be contingent upon achievement of preestablished performance goals and
other terms set forth in this Section 8(b).
(i) Performance Goals Generally. The performance
goals for such Performance Awards shall consist of one or more
business criteria and a targeted level or levels of
performance with respect to each of such criteria, as
specified by the Committee consistent with this Section 8(b).
Performance goals shall be objective and shall otherwise meet
the requirements of Code Section 162(m) and regulations
thereunder (including Regulation 1.162-27 and successor
regulations
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thereto), including the requirement that the level or levels
of performance targeted by the Committee result in the
achievement of performance goals being "substantially
uncertain." The Committee may determine that such Performance
Awards shall be granted, exercised and/or settled upon
achievement of any one performance goal or that two or more of
the performance goals must be achieved as a condition to
grant, exercise and/or settlement of such Performance Awards.
Performance goals may differ for Performance Awards granted to
any one Participant or to different Participants.
(ii) Business Criteria. One or more of the following
business criteria for the Corporation, on a consolidated
basis, and/or for specified subsidiaries or business or
geographical units of the Corporation (except with respect to
the total shareholder return and earnings per share criteria),
shall be used by the Committee in establishing performance
goals for such Performance Awards: (1) earnings per share: (2)
increase in revenues or margin: (3) increase in cash flow, (4)
operating margin; (5) return on net assets, return on assets,
return on investment, return on capital, return on equity; (6)
economic value added; (7) direct contribution; (8) net income;
pretax earnings: pretax earnings before interest; depredation
and amortization (EBITA): pretax earnings after interest
expense and before extraordinary or special items; operating
income; income before interest income or expense, unusual
items and income taxes (local, state or federal) and excluding
budgeted and actual bonuses which might be paid under any
ongoing bonus plans of the Corporation; (9) working capital;
(10) management of fixed costs or variable costs; (11)
identification or consummation of investment opportunities or
completion of specified projects in accordance with corporate
business plans, including strategic mergers, acquisitions or
divestitures; (12) total shareholder return; (13) debt
reduction: and (14) any of the above goals determined on an
absolute or relative basis or as compared to the performance
of a published or special index deemed applicable by the
Committee including, but not limited to, the Standard & Poors
500 Stock Index or a group of comparator companies. One or
more of the foregoing business criteria shall also be
exclusively used in establishing performance goals for Annual
Incentive Awards granted to a Covered Employee under Section
8(c) hereof.
(iii) Performance Period; Timing for Establishing
Performance Goals. Achievement of performance goals in respect
of such Performance Awards shall be measured over a
performance period of up to ten years, as specified by the
Committee. Performance goals shall be established not later
than 90 days after the beginning of any performance period
applicable to such Performance Awards, or at such other date
as may be required or permitted for "performance-based
compensation" under Code Section 162(m).
(iv) Performance Award Pool. The Committee may
establish a Performance Award pool, which shall be an unfunded
pool, for purposes of
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measuring performance of the Corporation in connection with
Performance Awards. The amount of such Performance Award pool
shall be based upon the achievement of a performance goal or
goals based on one or more of the business criteria set forth
in Section 8(b)(ii) hereof during the given performance
period, as specified by the Committee in accordance with
Section 8(b)(iii) hereof. The Committee may specify the amount
of the Performance Award pool as a percentage of any of such
business criteria, a percentage thereof in excess of a
threshold amount, or as another amount which need not bear a
strictly mathematical relationship to such business criteria.
(v) Settlement of Performance Awards, Other Terms.
After the end of each performance period, the Committee shall
determine the amount, if any, of (A) the Performance Award
pool, and the maximum amount of potential Performance Award
payable to each Participant in the Performance Award pool, or
(B) the amount of potential Performance Award otherwise
payable to each Participant. Settlement of such Performance
Awards shall be in cash, Stock, other Awards or other
property, in the discretion of the Committee. The Committee
may, in Its discretion, reduce the amount of a settlement
otherwise to be made in connection with such Performance
Awards, but may not exercise discretion to increase any such
amount payable to a Covered Employee in respect of a
Performance Award subject to this Section 8(b). The Committee
shall specify the circumstances in which such Performance
Awards shall be paid or forfeited in the event of termination
of employment by the Participant prior to the end of a
performance period or settlement of Performance Awards.
(c) Annual Incentive Awards Granted to Designated Covered
Employees. If the Committee determines that an Annual Incentive Award to be
granted to an Eligible Person who is designated by the Committee as likely to be
a Covered Employee should qualify as "performance-based compensation" for
purposes of Code Section 162(m), the exercise and/or settlement of such Annual
Incentive Award shall be contingent upon achievement of preestablished
performance goals and other terms set forth in this Section 8(c).
(i) Annual Incentive Award Pool. The Committee may
establish an Annual Incentive Award pool, which shall be an
unfunded pool, for purposes of measuring performance of the
Corporation in connection with Annual Incentive Awards. The
amount of such Annual Incentive Award pool shall be based upon
the achievement of a performance goal or goals based on one or
more of the business criteria set forth in Section 8(b)(ii)
hereof during the given performance period, as specified by
the Committee in accordance with Section 8(b)(iii) hereof. The
Committee may specify the amount of the Annual Incentive Award
pool as a percentage of any of such business criteria, a
percentage thereof in excess of a threshold amount, or as
another amount which need not bear a strictly mathematical
relationship to such business criteria.
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(ii) Potential Annual Incentive Awards. Not later
than the end of the 90th day of each fiscal year, or at such
other date as may be required or permitted in the case of
Awards Intended to be "performance-based compensation" under
Code Section 162(m), the Committee shall determine the
Eligible Persons who will potentially receive Annual Incentive
Awards, and the amounts potentially payable thereunder, for
that fiscal year, either out of an Annual Incentive Award pool
established by such date under Section 8(c)(i) hereof or as
individual Annual Incentive Awards. In the case of individual
Annual Incentive Awards intended to qualify under Code Section
162(m), the amount potentially payable shall be based upon the
achievement of a performance goal or goals based on one or
more of the business criteria set forth in Section 8(b) hereof
in the given performance year, as specified by the committee;
in other cases, such amount shall be based on such criteria as
shall be established by the Committee. In all cases, the
maximum Annual Incentive Award of any Participant shall be
subject to the limitation set forth in Section 5 hereof.
(iii) Payout of Annual Incentive Awards. After the
end of each fiscal year, the Committee shall determine the
amount, if any, of (A) the Annual Incentive Award pool, and
the maximum amount of potential Annual Incentive Award payable
to each Participant in the Annual Incentive Award pool, or (B)
the amount of potential Annual Incentive Award otherwise
payable to each Participant. The Committee may, in its
discretion, determine that the amount payable to any
Participant as a final Annual Incentive Award shall be
increased or reduced from the amount of his or her potential
Annual Incentive Award, including a determination to make no
final Award whatsoever, but may not exercise discretion to
increase any such amount in the case of an Annual Incentive
Award intended to qualify under Code Section 162(m). The
Committee shall specify the circumstances in which an Annual
Incentive Award shall be paid or forfeited in the event of
termination of employment by the Participant prior to the end
of a fiscal year or settlement of such Annual Incentive Award.
(d) Written Determinations. All determinations by the
Committee as to the establishment of performance goals, the amount of any
Performance Award pool or potential individual Performance Awards and as to the
achievement of performance goals relating to Performance Awards under Section
8(b), and the amount of any Annual Incentive Award pool or potential individual
Annual Incentive Awards and the amount of final Annual Incentive Awards under
Section 8(c), shall be made in writing in the case of any Award intended to
qualify under Code Section 162(m). The Committee may not delegate any
responsibility relating to such Performance Awards or Annual Incentive Awards.
(e) Status of Section 8(b) and Section 8(c) Awards under Code
Section 162(m). It is the intent of the Corporation that Performance Awards and
Annual Incentive Awards under Sections 8(b) and 8(c) hereof granted to persons
who are designated by the Committee as likely to
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<PAGE>
be Covered Employees within the meaning of Code Section 162(m) and regulations
thereunder (including Regulation 1.162-27 and successor regulations thereto)
shall, if so designated by the Committee, constitute "performance-based
compensation" within the meaning of Code Section 162(m) and regulations
thereunder. Accordingly, the terms of Sections 8(b), (c), (d) and (e), including
the definitions of Covered Employee and other terms used therein, shall be
interpreted in a manner consistent with Code Section 162(m) and regulations
thereunder. The foregoing notwithstanding, because the Committee cannot
determine with certainty whether a given Participant will be a Covered Employee
with respect to a fiscal year that has not yet been completed, the term Covered
Employee as used herein shall mean only a person designated by the Committee, at
the time of grant of Performance Awards or an Annual Incentive Award, as likely
to be a Covered Employee with respect to that fiscal year. If any provision of
the Plan as in effect on the date of adoption or any agreements relating to
Performance Awards or Annual Incentive Awards that are designated as intended to
comply with Code Section 162(m) does not comply or is inconsistent with the
requirements of Code Section 182(m) or regulations thereunder, such provision
shall be construed or deemed amended to the extent necessary to conform to such
requirements.
9. Change In Control.
(a) Effect of "Change In Control." In the event of a "Change
in Control," the following provisions shall apply unless otherwise provided in
the Award agreement:
(i) Any Award carrying a right to exercise that was
not previously exercisable and vested shall become fully
exercisable and vested as of the time of the Change in Control
and shall remain exercisable and vested for the balance of the
stated term of such Award without regard to any termination of
employment by the Participant, subject only to applicable
restrictions set forth in Section 10(a) hereof;
(ii) Any optionee who holds an Option shall be
entitled to elect, during the 60 day period immediately
following a Change in Control, in lieu of acquiring the shares
of Stock covered by such Option, to receive, and the
Corporation shall be obligated to pay, in cash the excess of
the Change In Control Price over the exercise price of such
Option, multiplied by the number of shares of Stock covered by
such Option;
(iii) The restrictions, deferral of settlement, and
forfeiture conditions applicable to any other Award granted
under the Plan shall lapse and such Awards shall be deemed
fully vested as of the time of the Change In Control, except
to the extent of any waiver by the Participant and subject to
applicable restrictions set forth in Section 10(a) hereof.
With respect to any outstanding Award subject to achievement
of performance goals and conditions under the Plan, such
performance goals and other conditions shall be deemed to be
met if and to the extent so provided in the Award agreement
relating to such Award.
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<PAGE>
(b) Definition of "Change in Control." A Change in Control
shall be deemed to have occurred if:
(i) any Person (other than the Corporation, any
trustee or other fiduciary holding securities under any
employee benefit plan of the Corporation, or any company
owned, directly or indirectly, by the stockholders of the
Corporation immediately prior to the occurrence with respect
to which the evaluation is being made in substantially the
same proportions as their ownership of the common stock of the
Corporation) acquires securities of the Corporation and
immediately thereafter is the Beneficial Owner (except that a
Person shall be deemed to be the Beneficial Owner of all
shares that any such Person has the right to acquire pursuant
to any agreement or arrangement or upon exercise of conversion
rights, warrants or options or otherwise, without regard to
the sixty day period referred to in Rule 13d-3 under the
Exchange Act), directly or indirectly, of securities of the
Corporation representing 30% or more of the combined voting
power of the Corporation's then outstanding securities (except
that an acquisition of securities directly from the
Corporation shall not be deemed an acquisition for purposes of
this clause (i));
(ii) during any period of two consecutive years,
individuals who at the beginning of such period constitute the
Board, and any new director (other than a director designated
by a person who has entered into an agreement with the
Corporation to effect a transaction described in clause (i),
(iii), or (iv) of this paragraph) whose election by the Board
or nomination for election by the Corporation's stockholders
was approved by a vote of at least two-thirds of the directors
then still in office who either were directors at the
beginning of the two-year period or whose election or
nomination for election was previously so approved but
excluding for this purpose any such new director whose initial
assumption of office occurs as a result of either an actual or
threatened election contest (as such terms are used in Rule
14a-11 of Regulation 14A promulgated under the Exchange Act)
or other actual or threatened solicitation of proxies or
consents by or on behalf of an individual, corporation,
partnership, group, associate or other entity or Person other
than the Board, cease for any reason to constitute at least a
majority of the Board;
(iii) the consummation of a merger or consolidation
of the Corporation with any other entity, other than (I) a
merger or consolidation which would result in the voting
securities of the Corporation outstanding immediately prior
thereto confining to represent (either by remaining
outstanding or by being converted into voting securities of
the surviving or resulting entity) more than 50% of the
combined voting power of the surviving or resulting entity
outstanding immediately after such merger or consolidation or
(II) a merger or consolidation in which no premium is intended
to be paid to any shareholder participating in the merger or
consolidation;
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<PAGE>
(iv) the stockholders of the Corporation approve a
plan or agreement for the sale or disposition of all or
substantially all of the consolidated assets of the
Corporation (other than such a sale or disposition immediately
after which such assets will be owned directly or indirectly
by the stockholders of the Corporation in substantially the
same proportions as their ownership of the common stock of the
Corporation immediately prior to such sale or disposition) in
which case the Board shall determine the effective date of the
Change in Control resulting therefrom; or
(v) any other event occurs which the Board
determines, in its discretion, would materially alter the
structure of the Corporation or its ownership.
For purposes of this definition:
(A) The term "Beneficial Owner" shall have
the meaning ascribed to such term in Rule
13d-3 under the Exchange Act (including any
successor to such Rule).
(B) The term "Exchange Act" means the
Securities Exchange Act of 1934, as amended
from time to time, or any successor act
thereto.
(C) The term "Person" shall have the meaning
ascribed to such term in Section 3(a)(9) of
the Exchange Act and used in Sections 13(d)
and 14(d) thereof, Including "group" as
defined in Section 13(d) thereof.
(c) Definition of "Change in Control Price." The "Change in
Control Price" means an amount in cash equal to the higher of (i) the amount of
cash and fair market value of property that is the highest price per share paid
(including extraordinary dividends) in any transaction triggering the Change in
Control or any liquidation of shares following a sale of substantially all
assets of the Corporation, or (ii) the highest Fair Market Value per share at
any time during the 60-day period preceding and 60-day period following the
Change in Control.
10. General Provisions.
(a) Compliance with Legal and Other Requirements. The
Corporation may, to the extent deemed necessary or advisable by the Committee,
postpone the issuance or delivery of Stock or payment of other benefits under
any Award until completion of such registration or qualification of such Stock
or other required action under any federal or state law, rule or regulation,
listing or other required action with respect to any stock exchange or automated
quotation system upon which the Stock or other securities of the Corporation are
listed or quoted, or compliance with any other obligation of the Corporation, as
the Committee may consider appropriate, and may require any Participant to make
such representations, furnish such information and comply with or be subject to
such other conditions as it may consider appropriate in connection with the
issuance or delivery
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<PAGE>
of Stock or payment of other benefits in compliance with applicable laws, rules,
and regulations, listing requirements, or other obligations.
(b) Limits on Transferability; Beneficiaries. No Award or
other right or interest of a Participant under the Plan shall be pledged,
hypothecated or otherwise encumbered or subject to any lien, obligation or
liability of such Participant to any party (other than the Corporation or a
subsidiary), or assigned or transferred by such Participant otherwise than by
will or the laws of descent and distribution or to a Beneficiary upon the death
of a Participant, and such Awards or rights that may be exercisable shall be
exercised during the lifetime of the Participant only by the Participant or his
or her guardian or legal representative, except that Awards and other rights
(other than ISOs and SARs in tandem therewith) may be transferred to one or more
Beneficiaries or other transferees during the lifetime of the Participant, and
may be exercised by such transferees in accordance with the terms of such Award,
but only if and to the extent such transfers are permitted by the Committee
pursuant to the express terms of an Award agreement (subject to any terms and
conditions which the Committee may impose thereon). A Beneficiary, transferee,
or other person claiming any rights under the Plan from or through any
Participant shall be subject to all terms and conditions of the Plan and any
Award agreement applicable to such Participant, except as otherwise determined
by the Committee, and to any additional terms and conditions deemed necessary or
appropriate by the Committee.
(c) Adjustments. In the event that any dividend or other
distribution (whether in the form of cash, Stock, or other property),
recapitalization, forward or reverse split, reorganization, merger,
consolidation, spin-off, combination, repurchase, share exchange, liquidation,
dissolution or other similar transaction or event affects the Stock such that an
adjustment is determined by the Committee to be appropriate under the Plan, then
the Committee shall, in such manner as it may deem equitable, adjust any or all
of (i) the number and kind of shares of Stock which may be delivered in
connection with Awards granted thereafter, (ii) the number and kind of shares of
Stock by which annual per-person Award limitations are measured under Section 5
hereof, (iii) the number and kind of shares of Stock subject to or deliverable
in respect of outstanding Awards and (iv) the exercise price, grant price or
purchase price relating to any Award and/or make provision for payment of cash
or other property in respect of any outstanding Award. In addition, the
Committee is authorized to make adjustments in the terms and conditions of, and
the criteria included in, Awards (including Performance Awards and performance
goals, and Annual Incentive Awards and any Annual Incentive Award pool or
performance goals relating thereto) in recognition of unusual or nonrecurring
events (including, without limitation, events described in the preceding
sentence, as well as acquisitions and dispositions of businesses and assets)
affecting the Corporation, any subsidiary or any business unit, or the financial
statements of the Corporation or any subsidiary, or in response to changes in
applicable laws, regulations, accounting principles, tax rates and regulations
or business conditions or in view of the Committee's assessment of the business
strategy of the Corporation, any subsidiary or business unit thereof,
performance of comparable organizations, economic and business conditions,
personal performance of a Participant, and any other circumstances deemed
relevant; provided that no such adjustment shall be authorized or made if and to
the extent that such authority or the making of such adjustment would cause
Options, SARs,
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<PAGE>
Performance Awards granted under Section 8(b) hereof or Annual Incentive Awards
granted under Section 8(c) hereof to Participants designated by the Committee as
Covered Employees and intended to qualify as "performance-based compensation"
under Code Section 162(m) and regulations thereunder to otherwise fail to
qualify as "performance-based compensation" under Code Section 162(m) and
regulations thereunder.
(d) Taxes. The Corporation and any subsidiary is authorized to
withhold from any Award granted, any payment relating to an Award under the
Plan, including from a distribution of Stock, or any payroll or other payment to
a Participant, amounts of withholding and other taxes due or potentially payable
in connection with any transaction involving an Award, and to take such other
action as the Committee may deem advisable to enable the Corporation and
Participants to satisfy obligations for the payment of withholding taxes and
other tax obligations relating to any Award. This authority shall include
authority to withhold or receive Stock or other property and to make cash
payments in respect thereof In satisfaction of a Participants tax obligations,
either on a mandatory or elective basis in the discretion of the Committee.
(e) Changes to the Plan and Awards. The Board may amend,
alter, suspend, discontinue or terminate the Plan or the Committee's authority
to grant Awards under the Plan without the consent of shareholders or
Participants, except that any amendment or alteration to the Plan shall be
subject to the approval of the Corporation's shareholders not later than the
annual meeting next following such Board action if such shareholder approval is
required by any federal or state law or regulation or the rules of any stock
exchange or automated quotation system on which the Stock may then be listed or
quoted, and the Board may otherwise, in its discretion, determine to submit
other such changes to the Plan to shareholders for approval; provided that,
without the consent of an affected Participant, no such Board action may
materially and adversely affect the rights of such Participant under any
previously granted and outstanding Award. The Committee may waive any conditions
or rights under, or amend, alter, suspend, discontinue or terminate any Award
theretofore granted and any Award agreement relating thereto, except as
otherwise provided in the Plan; provided that, without the consent of an
affected Participant, no such Committee action may materially and adversely
affect the rights of such Participant under such Award. Notwithstanding anything
in the Plan to the contrary, if any right under this Plan would cause a
transaction to be ineligible for pooling of interest accounting that would, but
for the right hereunder, be eligible for such accounting treatment, the
Committee may modify or adjust the right so that pooling of interest accounting
shall be available, including the substitution of Stock having a Fair Market
Value equal to the cash otherwise payable hereunder for the-right which caused
the transaction to be ineligible for pooling of interest accounting. In
addition, the Board shall also have the authority to modify the Plan, to the
extent it deems necessary or desirable in its sole discretion, to minimize the
taxes incurred by either the Company or any Participant relating to any Award.
(f) Limitation on Rights Conferred under Plan. Neither the
Plan nor any action taken hereunder shall be construed as (i) giving any
Eligible Person or Participant the right to continue as an Eligible Person or
Participant or in the employ or service of the Corporation or a subsidiary, (ii)
interfering in any way with the right of the Corporation or a subsidiary to
terminate
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<PAGE>
any Eligible Person's or Participants employment or service at any time, (iii)
giving an Eligible Person or Participant any claim to be granted any Award under
the Plan or to be treated uniformly with other Participants and employees, or
(iv) conferring on a Participant any of the rights of a shareholder of the
Corporation unless and until the Participant is duty issued or transferred
shares of Stock in accordance with the terms of an Award.
(g) Unfunded Status of Awards; Creation of Trusts. The Plan is
intended to constitute an "unfunded" plan for certain incentive awards and
deferred compensation. With respect to any payments not yet made to a
Participant or obligation to deliver Stock pursuant to an Award, nothing
contained in the Plan or any Award shall give any such Participant any rights
that are greater than those of a general creditor of the Corporation.
(h) Nonexclusivity of the Plan. Neither the adoption of the
Plan by the Board nor its submission to the shareholders of the Corporation for
approval shall be construed as creating any limitations on the power of the
Board or a committee thereof to adopt such other incentive arrangements as it
may deem desirable including incentive arrangements and awards which do not
qualify under Code Section 162(m).
(i) Payments in the Event of Forfeitures; Fractional Shares.
Unless otherwise determined by the Committee. In the event of a forfeiture of an
Award with respect to which a Participant paid cash or other consideration, the
Participant shall be repaid the amount of such cash or other consideration. No
fractional shares of Stock shall be issued or delivered pursuant to the Plan or
any Award. The Committee shall determine whether cash, other Awards or other
property shall be issued or paid in lieu of such fractional shares or whether
such fractional shares or any rights thereto shall be forfeited or otherwise
eliminated.
(j) Governing Law. The validity, construction and effect of
the Plan, any rules and regulations under the Plan, and any Award agreement
shall be determined in accordance with the laws of the State of Delaware,
without giving effect to principles of conflicts of laws, and applicable federal
law.
(k) Plan Effective Date and Shareholder Approval. The Plan has
been adopted by the Board effective April 12, 1999 subject to approval by the
shareholders of the Corporation.
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<PAGE>
EMPLOYMENT AGREEMENT
by and between
PREDICT IT, INC.
and
ANDREW P. MERKATZ
THIS EMPLOYMENT AGREEMENT this ("Agreement"), effective as of
May 19, 1999, is entered into by and between Andrew P. Merkatz ("Employee") and
Predict It, Inc., a Delaware corporation (the "Company"). This Employment
Agreement, the Non-Competition Agreement (defined below), and the Non-Disclosure
and Developments Agreement (defined below) are herein collectively referred to
as this "Agreement."
WHEREAS, the Company desires to establish its right to the
services of Employee in the capacity described below, on the terms and
conditions, and subject to the rights of termination hereinafter set forth, and
Employee is willing to accept such employment on such terms and conditions;
NOW, THEREFORE, in consideration of the mutual agreements
hereinafter set forth, and intending to be legally bound hereby, Employee and
the Company have agreed and do hereby agree as follows:
1. Duties. The Company does hereby employ, engage and hire the
Employee as President of the Company and the Employee does hereby accept and
agree to such hiring, engagement and employment. Employee agrees to perform any
and all duties and to assume any and all responsibilities that may be reasonably
assigned to him from time to time by the Board of Directors of the Company.
During the Employment Term (as hereinafter defined) and as long as the Company
shall not be in default of a material obligation, excluding any periods of
vacation and sick leave to which the Employee is entitled, the Employee will
devote his full time (at least 40 hours per week), energy and skill to the
performance of his duties for the Company and for the benefit of the Company.
Furthermore, the Employee will exercise his due diligence and care in the
performance of his duties to the Company under this Agreement.
2. Compensation.
(a) Base Salary. During the Employment Term, the
Company shall pay Employee, and Employee agrees to accept from the Company, in
full payment for his services and promises to the Company (specifically
including the promises set forth in (i) the Non-Competition Agreement, attached
hereto as Exhibit A and by this reference incorporated herein in its entirety
(the "Non-Competition Agreement"), and (ii) the Non-Disclosure and Developments
Agreement, attached hereto as Exhibit B and by this reference incorporated
herein in its entirety (the "Non-Disclosure and Developments Agreement")) a
base salary (the "Base Salary") at a rate of One Hundred Forty Thousand Dollars
($140,000) per year, payable not less than once per month in accordance with the
Company's payroll practices. The Base Salary will be subject to review by
management and any merit increases will be subject to Company policy.
<PAGE>
(b) Bonus Plan Participation. In addition to his base
salary, Employee shall also be eligible to receive annual bonus compensation at
the sole discretion of the Compensation Committee of the Board of Directors of
the Company.
3. Benefits. Employee shall be entitled to participate in any
benefit programs adopted from time to time by the Company for the benefit of its
employees commensurate with Employee's position and Employee shall receive such
other benefits as may be granted to him from time to time by the Company's Board
of Directors.
4. Vacation. Employee is entitled to fifteen (15) days paid
vacation or sick leave per year after six (6) months of employment, with any
such vacation to be scheduled and taken in accordance with the Company's
standard vacation policies.
5. Options.
(a) Employee shall receive, upon execution hereof
(the "Execution Date"), five year options to purchase 537,198 shares of Common
Stock of the Company, which shall represent 5% of the total outstanding capital
stock of the Company on a fully-diluted basis as of the date of such grant,
after giving effect to the grant of such options (the "5% Options"). The 5%
Options shall vest in six equal portions over three years as follows: the first
two portions (for a total of one-third of the 5% Options) shall vest one year
following the Execution Date, and one portion (one-sixth of the 5% Options)
shall vest every six months thereafter. The 5% Options shall have an exercise
price of $2.00 per share and shall include a provision for a cashless exercise.
The 5% Options shall be considered, at the Company's option, to be part of the
Company's Stock Option Plan in the event that such a plan is approved by the
Company's Board of Directors and Shareholders, and to the extent possible, shall
be considered as incentive stock options.
(b) (i) If at any time commencing on the Execution
Date and ending two years following the Execution Date, the Company has issued
any additional shares of its Common Stock or has issued any securities
convertible into its Common Stock, in connection with an acquisition of assets
or securities or other similar corporate transaction (each, a "Transaction"),
then, as of the close of business on the day of the closing of such Transaction,
the Company shall issue to Employee additional options (which shall expire on
the fifth anniversary of the Execution Date) to purchase such number of
additional shares of Common Stock as shall be necessary so that all options
issued to Employee pursuant to Section 5(a) and this Section 5(b) (including any
shares issued upon exercise of any such options) shall then equal an equity
holding in the Company of 5% of the then outstanding capital stock of the
Company on a fully-diluted basis, after giving effect to the issuance of such
options.
(ii) If during any three month period
commencing on the Execution Date and ending two years following the Execution
Date, the Company has issued any securities convertible into its Common Stock to
an employee, director, consultant, or advisor, whether under any option plan or
otherwise, then, as of the close of business on the last day of each three month
period, the Company shall issue to Employee additional options (which shall
expire on the fifth anniversary of the Execution Date) to purchase such number
of additional shares of Common Stock
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<PAGE>
as shall be necessary so that all options issued to Employee pursuant to Section
5(a) and this Section 5(b) (including any shares issued upon exercise of any
such options) shall then equal an equity holding in the Company of 5% of the
then outstanding capital stock of the Company on a fully-diluted basis, after
giving effect to the issuance of such options (referred to collectively herein
with the options granted to Employee pursuant to Section 5(b)(i), the
"Anti-Dilution Options").
(iii) The Anti-Dilution Options shall vest
in accordance and along with the 5% Options as if they had been granted (for
vesting purposes only) at the same time as the 5% Options. Any Anti-Dilution
Options shall be similar in form to the options granted pursuant to Section 5(a)
above and shall have an exercise price equal to the fair market value of the
Company's Common Stock on the date of grant.
(c) In addition, on the Execution Date, Employee
shall be granted five year options to purchase 2% of the outstanding Common
Stock of the Company on a fully-diluted basis as of the date of such grant,
without giving effect to the issuance of such options (the "Performance
Options"). The Performance Options shall vest in accordance with the
performance-based goals set forth below. The Performance Options shall be
similar in form to the options granted pursuant to Section 5(a) above and shall
have an exercise price equal to the fair market value of the Company's Common
Stock on the date of grant. The Performance Options shall not be subject to the
anti-dilution protection set forth is Section 5(b) above.
The performance based goals are as follows:
(i) 50% of the Performance Options shall vest on May
1, 2000 if the number of registered users of the Company exceeds 312,500 by such
date and the page views of the Company for April 2000 exceeds 25,000,000.
(ii) The remaining 50% of the Performance Options
shall vest on May 1, 2001 if the number of registered users of the Company
exceeds 937,500 by such date and the page views of the Company for April 2001
exceeds 85,714,275.
(iii) In the event that the performance based goals
for the May 1, 2000 vesting are not met by such date, then if by May 1, 2001,
the number of registered users of the Company exceeds 1,125,000 and the page
views of the Company for April 2001 exceed 102,857,130, then all of the
Performance Options shall vest as of May 1, 2001.
(d) Notwithstanding the foregoing, the 5% Options,
the Anti-Dilution Options, and to the extent not previously forfeited, the
Performance Options, in each case to the extent not then vested, shall vest
immediately as of the close of business on the day immediately prior to the
occurrence of a sale of all or substantially all of the Company's outstanding
securities or assets (a "Corporate Sale"). In addition, in the event that an
entity who does not presently hold more than 50% of the outstanding securities
of the Company gains control of more than 50% of the outstanding securities of
the Company, and Employee's employment hereunder is terminated within one year
of such change of control, then the 5% Options, the Anti-Dilution Options, and
to the extent not previously forfeited, the Performance Options, in each case to
the extent not then vested,
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<PAGE>
shall vest immediately as of the close of business on the day immediately prior
to the occurrence of such change of control (a "50% Control Event" and
collectively with a Corporate Sale, a "Change of Control Event").
(e) Notwithstanding anything contained herein to the
contrary, the Company shall file and have declared effective a registration
statement on Form S-8 covering the shares of Common Stock underlying all of the
options granted hereunder (the "Underlying Shares") as soon as practicable after
such time as it is eligible for filing a registration statement on such form;
provided, that such registration statement may cover a stock option plan or
other employee benefit plan which includes such options.
(f) Commencing on the date in which the Company files
its next registration statement registering shares of its Common Stock, whether
for its own account or for the account of others, and ending on the earlier date
of (i) Employee has sold all of the Underlying Shares and (ii) Employee is able
to sell all of the remaining Underlying Shares pursuant to Rule 144 of the
Securities Act of 1933, as amended, at one time, the Company shall notify
Employee at least ten (10) days prior to the time that it intends to register
shares of its Common Stock for sale (other than pursuant to a Registration
Statement on Forms S-4 or S-8), and Employee shall have ten (10) days from the
date of such notice to inform the Company that it wishes to have some or all of
its Underlying Shares included in such Registration Statement. If such
registration of shares is to be made pursuant to an underwritten registration
statement, the number of Underlying Shares which Employee wishes to register
shall be subject to a pro-rata reduction (when compared to other shareholders of
the Company who are selling pursuant to similar rights) at the option of the
underwriter. No notice delivered pursuant to this section shall obligate the
Company to complete any proposed registration.
6. Business Expenses. The Company will reimburse Employee for
any and all necessary, customary, and usual expenses, properly receipted in
accordance with Company policies, incurred by Employee in performing his duties
hereunder.
7. Employment Period. The Company shall employ the Employee
for the duties as set forth in Section 1 for a three (3) year period commencing
as of the date hereof (the "Employment Term"), unless sooner terminated in
accordance with the provisions of this Employment Agreement.
8. Representation and Warranty of Employee. Employee
represents and warrants to the Company that Employee is under no contractual or
other restriction or obligation which is inconsistent with the execution of this
Agreement, the performance of his duties hereunder, or the other rights of the
Company hereunder.
9. Termination of Employment.
(a) Notwithstanding anything to the contrary herein
contained, on or after the date hereof and prior to the end of the Employment
Term, the Company or the Employee, as the case may be, shall have the right to
terminate Employee's services under this Agreement.
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<PAGE>
Termination of Employee's employment shall be deemed termination for "cause" if
on account of: (i) Employee's voluntary resignation (other than as a result of
Employee's death or disability, or for the reasons set forth in subparagraphs
(x) and (y)); (ii) the failure by Employee to materially perform his duties and
obligations under this Agreement; (iii) refusal by Employee to implement, or
adhere to, reasonable policies or directives of the Board of Directors; (iv)
Employee is convicted of or pleads guilty to a felony crime; (v) conduct by
Employee which is in material violation of Employee's common law duty of loyalty
to the Company; (vi) Employee commits any act of fraud against the Company or
Employee engages in fraudulent conduct in connection with the business affairs
of the Company; (vii) conduct by Employee which is in material violation of any
provision of this Agreement; (viii) Employee is in breach of a representation or
warranty under this Agreement which breach is not cured within ten (10) business
days from receipt of written notice of such breach from the Company; and (ix)
Employee commits any act or omits to take any action in bad faith and to the
detriment of the Company. For the purposes of subsection (viii) above with
respect to non-competition agreements, only in the event that there is a
judicial determination or an arbitration ruling that Employee has violated any
non-competition agreement, or an injunction is placed on Employee's employment
hereunder, such determination, ruling, or injunction shall be considered a
breach of Employee's representation and warranty made hereunder. Cessation of
the employment relationship between Employee and the Company by reason of
Employee's death or permanent disability, or Employee's resignation because of
(x) the assignment to him of duties materially inconsistent with respect to his
position as contemplated by this Agreement, or (y) any material failure by the
Company to comply with the provisions of this Agreement, shall be deemed
termination without "cause."
(b) Termination because of Disabilities. Employee
shall be considered to be "disabled" for purposes of this Section 9 if Employee
is unable to perform his customary duties under this Agreement, with or without
reasonable accommodation, for a continuous period of two (2) months because of
physical or mental impairment, in which event this Agreement shall terminate in
accordance with the provisions of Section 9(d) hereof.
(c) Termination because of Death. In the event that
Employee shall die, then this Agreement shall terminate on the date of
Employee's death, and no further compensation shall be payable to Employee,
except as may otherwise be provided in Section 5(d) hereof or under any
insurance policy or similar instrument.
(d) Effect of Termination Without "Cause". If
Employee's employment is terminated without "cause," he shall be entitled to
thirty (30) days advance written notice of the termination. Employee shall, in
addition to salary earned during the notice period listed in the previous
sentence, be entitled to receive the equivalent of Employee's salary for an
additional six (6) months. Employee shall be entitled to any compensation
actually earned and vested (including, but not limited to, vesting in accordance
with the provisions of Section 5(d) above), but not paid, before the date of
termination. Additional compensation (bonuses) shall not be deemed earned until
the date when the particular target is reached or bonus triggering event occurs.
(e) Effect of Termination for "Cause". If Employee's
employment is terminated by the Company for "cause," the Company shall have the
option to terminate Employee
-5-
<PAGE>
with or without notice and the right to give notice of termination of Employee's
services hereunder as of a date to be specified in such notice and this
Agreement shall terminate on the date so specified (the "Termination Date").
Employee shall be entitled to receive only his base salary at the rate provided
in Section 2 through the Termination Date and Employee shall not be entitled to
any other compensation or benefits not already earned and vested on the
Termination Date.
(f) If Employee's employment is terminated by
Employee's voluntary resignation, Employee agrees to provide the Company with
thirty (30) days' advance written notice of such termination.
(g) Nothing contained in this Section 9 shall be
deemed to limit any other right the Company or the Employee may have to
terminate Employee's employment hereunder upon any ground permitted by law.
10. Indemnification. Employee shall be indemnified and held
harmless by the Company to the fullest extent authorized under Delaware law for
any claims, actions, suits, or proceedings (each, a "Proceeding") to which
Employee is a party by reason of the fact that Employee is or was a director or
officer of the Company; provided, however, that such indemnification shall not
apply for any Proceedings which are based on grossly negligent actions or
intentional misconduct of Employee.
11. Entire Agreement. This Agreement terminates and supercedes
any and all prior agreements and understandings between the Company and the
Employee (written, oral, or otherwise) with respect to employment or with
respect to the compensation of Employee by the Company. No other
representations, oral or written, have been made regarding the subject matter
hereof, other than those explicitly provided herein. Employee acknowledges that
he has not relied on any oral or written representations not explicitly
contained herein in executing this Agreement.
12. Assignment. This Agreement is personal in its nature and
neither of the parties hereto shall, without the consent of the other, assign or
transfer this Agreement or any rights or obligations hereunder; provided that,
in the event of a merger or consolidation of the Company with any other entity,
this Agreement shall, subject to the provisions hereof, be binding upon and
inure to the benefit of such successor and such successor shall discharge and
perform all the promises, covenants, duties and obligations of the Company
hereunder. In addition, the Company will require any purchaser of all, or
substantially all, of its assets to assume and agree to perform this Agreement
in the same manner and to the same extent that the Company would be required to
perform it if no sale of its assets had taken place.
13. Governing Law. This Agreement shall be governed in all
respects, whether as to validity, construction, capacity, performance, or
otherwise, by the laws of the State of New York, excluding only its conflicts of
laws principles.
14. Amendments and Modifications. This Agreement may be
modified only in writing executed by the Company and Employee.
-6-
<PAGE>
15. Waiver. Failure to insist upon strict compliance with any
of the terms, covenants or conditions hereof shall not be deemed a waiver of
such term, covenant or condition, nor shall any waiver or relinquishment of, or
failure to insist upon strict compliance with, any right or power hereunder at
any one or more times be deemed a waiver or relinquishment of such right or
power at any other time or times.
16. Severability. In the event that a court of competent
jurisdiction determines that any portion of this Agreement is in violation of
any statute or public policy, then only the portions of this Agreement which
violate such statute or public policy shall be stricken. All portions of this
Agreement which do not violate such statute or public policy continue in full
force and effect. Further, any court order striking any portion of this
Agreement shall modify the stricken terms to give as much effect as possible to
the intentions of the parties under this Agreement.
17. Notices. Any notice, consent, or other communication
required or permitted to be given hereunder shall be in writing and shall be
deemed to have been given three (3) days after the date sent if sent by United
States certified mail, return receipt requested, with proper postage thereon,
one (1) day after the date sent if sent by overnight courier of national
recognition, or when transmitted, if sent by facsimile, and shall be addressed
as follows:
If to the Company: If to Employee:
Predict It, Inc. Andrew P. Merkatz
41 East 11th Street, 11th Floor 45 West 67th Street, Apt. 21B
New York, New York 10003 New York, New York 10023
Phone No: (212) 331-1120 Phone No.: (212) 769-9146
Facsimile No.: (212) 331-1128
or at such other address or addresses as the party addressed may from time to
time designate.
18. Headings; Counterparts. The headings in this Agreement are
solely for the convenience of reference and shall be given no effect in the
construction or interpretation of this Agreement. This Agreement may be executed
in any number of counterparts, each of which shall be deemed an original, but
all of which together shall constitute one and the same instrument.
IN WITNESS WHEREOF, the undersigned have set their signatures
to this Employment Agreement as of the date first written above.
EMPLOYEE PREDICT IT, INC.
________________________________ By: _______________________________
Andrew P. Merkatz Name:
Title:
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<PAGE>
EXHIBIT A
NON-COMPETITION AGREEMENT
May __, 1999
Dear Employee:
In consideration and as a condition of your employment by
Predict It, Inc., a Delaware corporation (the "Company"), you hereby covenant
and agree with the Company as follows:
1. The term of this Agreement shall be for a period commencing
on May__, 1999, the date of your initial employment on behalf of the Company,
and ending twelve (12) months following the date on which your employment with
the Company terminates for any reason, whether voluntarily or involuntarily.
2. During the period of your employment with the Company and
during the term hereof, you will not, without the Company's prior written
consent, directly or indirectly, alone or as a partner, joint venturer, officer,
director, employee, consultant, agent, independent contractor or stockholder of
any company or business, solicit engagements with any business entity in the
business of developing, marketing, distributing, or maintaining products or
services competitive with the products or services being developed, marketed,
distributed, planned, sold or otherwise provided by the Company at such time.
The ownership by you of not more than three percent (3%) of the shares of stock
of any corporation having a class of equity securities actively traded on a
national securities exchange or on the NASDAQ Stock Market shall not be deemed,
in and of itself, to violate the prohibitions of this paragraph.
3. During the term hereof, you will not, without the Company's
prior written consent, directly or indirectly, employ, or knowingly permit (to
the extent possible) any other company or business organization which employs
you or is directly or indirectly controlled by you to employ, any person who is
employed by the Company at any time during the term hereof, or in any manner
seek to induce any such person to leave his or her employment with the Company.
4. During the term hereof, you will not, without the Company's
prior written consent, solicit or do business with, directly or indirectly, any
present or past customer of the Company, or any prospective customer of the
Company with whom you have had contact, in connection with any business activity
which would violate any other provision of this Agreement.
5. You hereby represent that, except as attached hereto or as
you have disclosed in writing to the Company, you are not a party to, or bound
by the terms of, any agreement with any previous employer or other party to
refrain from using or disclosing any trade secret or confidential or proprietary
information in the course of your employment with the Company or to refrain from
competing, directly or indirectly, with the business of such previous employer
or any other party.
<PAGE>
You further represent that your performance of all the terms of this Agreement,
and as an employee of the Company, does not and will not breach any agreement to
keep in confidence proprietary information, knowledge or data acquired by you in
confidence or in trust prior to your employment with the Company, and you will
not disclose to the Company or induce the Company to use any confidential or
proprietary information or material belonging to any previous employer, or
others.
6. You agree that the breach of this Agreement by you may
cause irreparable damage to the Company and that in the event of such breach the
Company shall have, in addition to any and all remedies of law, the right to an
injunction, specific performance or other equitable relief to prevent the
violation of your obligations hereunder.
7. You understand that this Agreement does not create an
obligation on the Company or any other person or entity to continue your
employment.
8. Any amendment to or modification of this Agreement, and any
waiver of any provision hereof, shall be in writing, executed by both parties.
Any waiver by the Company of a breach of any provision of this Agreement shall
not operate or be construed as a waiver of any subsequent breach hereof.
9. You hereby agree that each provision herein shall be
treated as a separate and independent clause, and the unenforceability of any
one clause shall in no way impair the enforceability of any of the other clauses
herein. Moreover, if one or more of the provisions contained in this Agreement
shall for any reason be held to be excessively broad as to scope, activity, or
subject so as to be unenforceable at law, such provision or provisions shall be
construed by the appropriate judicial body by limiting and reducing it or them,
so as to be enforceable to the maximum extent compatible with the applicable law
as it shall then appear.
10. This Agreement shall be governed by and construed in
accordance with the laws of the State of New York, excluding only its conflicts
of laws principles.
11. The term "Company" shall include Predict It, Inc. and any
of its subsidiaries, subdivisions or affiliates. The Company shall have the
right to assign this Agreement to its successors and assigns, and all covenants
and agreements hereunder shall inure to the benefit of and be enforceable by
said successors or assigns.
12. The provisions of this Agreement will not be deemed to
have been violated in the event you participate in, or become an employee of,
any affiliate of the Company. The provisions of this Agreement will not be
deemed to have been violated as a result of any actions taken by you within the
authorized scope of your involvement with any such affiliate.
A-2
<PAGE>
Please indicate your acceptance of the foregoing by signing
and returning one copy to the undersigned.
Very truly yours,
PREDICT IT, INC.
By:
----------------------------
Name:
Title:
AGREED TO AND ACCEPTED as of
the date first above written:
EMPLOYEE
- -------------------------------
Andrew P. Merkatz
A-3
<PAGE>
EXHIBIT B
NON-DISCLOSURE AND DEVELOPMENTS AGREEMENT
In consideration and as a condition of my employment or
continued employment by Predict It, Inc. (the "Company"), I hereby agree with
the Company as follows:
1. I will not at any time, whether during or after the
termination of my employment, reveal to any person or entity any of the trade
secrets or confidential information concerning the organization, business or
finances of the Company which the Company considers to be proprietary and is
able to be protected as a trade secret or confidential information under
applicable law, or of any third party which the Company is under an obligation
to keep confidential (including, but not limited to, trade secrets or
confidential information respecting inventions, products, designs, methods,
know-how, techniques, systems, processes, software programs, application codes,
works of authorship, formulas, algorithms, customer lists, projects, plans and
proposals), except as may be required in the ordinary course of performing my
duties as an employee of the Company, and I shall keep secret all matters
entrusted to me and shall not use or attempt to use any such information in any
manner which may injure or cause loss or may be calculated to injure or cause
loss whether directly or indirectly to the Company or any third party. The
foregoing will not be deemed to prevent my disclosure of information regarding
the Company to the extent such disclosure is required by law or legal process.
In the event I reasonably determine I have a legal obligation to disclose any
information regarding the Company, I agree to immediately notify the Company in
writing, and in any event notify the Company prior to making any such
disclosure. I further agree to cooperate with the Company, at the Company's
request and expense, to seek a protective order or other arrangement protecting
the confidentiality of any information so disclosed.
Further, I agree that during my employment I shall not make,
use or permit to be used any notes, memoranda, reports, lists, records,
drawings, sketches, specifications, software programs, data, documentation or
other materials of any nature relating to any matter within the scope of the
immediately preceding paragraph otherwise than for the benefit of the Company. I
further agree that I shall not, after the termination of my employment, use or
permit to be used any such notes, memoranda, reports, lists, records, drawings,
sketches, specifications, software programs, data, documentation or other
materials, it being agreed that all of the foregoing shall be and remain the
sole and exclusive property of the Company and that immediately upon the
termination of my employment I shall deliver all of the foregoing, and all
copies thereof, to the Company, at its main office.
2. If at any time or times during my employment, I shall
(either alone or with others) make, conceive, create, discover, invent or reduce
to practice any invention, modification, discovery, design, development,
improvement, process, software program, application code, work of authorship,
documentation, formula, algorithm, data, technique, know-how, trade secret or
intellectual property right whatsoever or any interest therein (whether or not
patentable or registrable under copyright, trademark or similar statutes
(including but not limited to the Semiconductor Chip Protection Act) or subject
to analogous protection) (herein called "Developments") that (a) relates
<PAGE>
to the business of the Company or any customer of or supplier to the Company or
any of the products or services being developed, manufactured or sold by the
Company or (b) results from tasks assigned to me by the Company, such
Developments and the benefits thereof are and shall immediately become the sole
and exclusive property of the Company and its assigns, as works made for hire or
otherwise, and I shall promptly disclose to the Company (or any persons
designated by it) each such Development and, as may be necessary to ensure the
Company's ownership of such Developments, I hereby assign any rights (including,
but not limited to, any copyrights and trademarks) I may have or acquire in the
Developments and benefits and/or rights resulting therefrom to the Company and
its assigns without further compensation and shall communicate, without cost or
delay, and without disclosing to others the same, all available information
relating thereto (with all necessary plans and models) to the Company.
I understand and am hereby notified that local law may, if
applicable, limit or render inapplicable the preceding provisions in situations
where the Company is not permitted to require that rights be assigned to it.
I will, during my employment and at any time thereafter, at
the request and cost of the Company, promptly sign, execute, make and do all
such deeds, documents, acts and things as the Company and its duly authorized
agents may reasonably require:
(a) to apply for, obtain, register and vest in the name of the
Company alone (unless the Company otherwise directs) letters
patent, copyrights, trademarks or other analogous protection
relating to a Development in any country throughout the world
and when so obtained or vested to renew and restore the same;
and
(b) to defend any judicial, opposition or other proceedings in
respect of such applications and any judicial, opposition or
other proceedings or petitions or applications for revocation
of such letters patent, copyright, trademark or other
analogous protection.
In the event the Company is unable, after reasonable effort,
to secure my signature on any application for letters patent, copyright or
trademark registration or other documents regarding any legal protection
relating to a Development, whether because of my physical or mental incapacity
or for any other reason whatsoever, I hereby irrevocably designate and appoint
the Company and its duly authorized officers and agents as my agent and
attorney-in-fact, to act for and on my behalf and stead to execute and file any
such application or applications or other documents and to do all other lawfully
permitted acts to further the prosecution and issuance of letters patent,
copyright or trademark registrations or any other legal protection thereon with
the same legal force and effect as if executed by me.
3. I agree that any breach of this Agreement by me may cause
irreparable damage to the Company and that in the event of such breach the
Company shall have, in addition to any and all remedies of law, the right to an
injunction, specific performance or other equitable relief to prevent the
violation of my obligations hereunder.
B-2
<PAGE>
4. I understand that this Agreement does not create an
obligation on the Company or any other person or entity to continue my
employment.
5. I represent that the Developments identified in the pages,
if any, attached hereto comprise all the unpatented and unregistered
copyrightable Developments which I have made, conceived or created prior to my
employment by the Company, which Developments are excluded from this Agreement.
I understand that it is only necessary to list the title and purpose of such
Developments but not details thereof.
I further represent that my performance of all of the terms of
this Agreement and as an employee of the Company does not and will not breach
any agreement to keep in confidence proprietary information acquired by me in
confidence or in trust prior to my employment by the Company. I have not entered
into, and I agree I will not enter into, any agreement either written or oral in
conflict herewith.
6. Any waiver by the Company of a breach of any provision of
this Agreement shall not operate or be construed as a waiver of any subsequent
breach of such provision or any other provision hereof.
7. I hereby agree that each provision herein shall be treated
as a separate and independent clause, and the unenforceability of any one clause
shall in no way impair the enforceability of any of the other clauses herein.
Moreover, if one or more of the provisions contained in this Agreement shall for
any reason be held to be excessively broad as to scope, activity, subject or
otherwise so as to be unenforceable at law, such provision or provisions shall
be construed by the appropriate judicial body by limiting or reducing it or
them, so as to be enforceable to the maximum extent compatible with the
applicable law as it shall then appear.
8. My obligations under this Agreement shall survive the
termination of my employment regardless of the manner of such termination and
shall be binding upon my heirs, executors, administrators and legal
representatives.
9. The term "Company" means Predict It, Inc. and, for purposes
of Section 1, shall also mean and include any of its subsidiaries, subdivisions
or affiliates. The Company shall have the right to assign this Agreement to its
successors and assigns, and all covenants and agreements hereunder shall inure
to the benefit of and be enforceable by said successors or assigns.
10. I understand that provisions of this Agreement will not be
deemed to have been violated in the event I participate in, or become an
employee of, any affiliate of the Company and I am reasonably required in
connection with my involvement with such affiliate to use or disclose trade
secrets or confidential information of the Company protected under this
Agreement.
11. This Agreement shall be governed by and construed in
accordance with the laws of the State of New York, excluding only its conflicts
of laws principles.
B-3
<PAGE>
IN WITNESS WHEREOF, the undersigned has executed this
Non-Disclosure and Developments Agreement as of May __, 1999.
Name: Andrew P. Merkatz
Address:
------------------------------------------
Signature
B-4
<PAGE>
EMPLOYMENT AGREEMENT
by and between
PREDICT IT, INC.
and
HOWARD YEN
THIS EMPLOYMENT AGREEMENT this ("Agreement"), effective as of
June 30, 1999, is entered into by and between Howard Yen ("Employee") and
Predict It, Inc., a Delaware corporation (the "Company"). This Employment
Agreement, the Non-Competition Agreement (as defined below), and the
Non-Disclosure and Developments Agreement (as defined below) are herein
collectively referred to as this "Agreement."
WHEREAS, the Company desires to establish its right to the
services of Employee in the capacity described below, on the terms and
conditions, and subject to the rights of termination hereinafter set forth, and
Employee is willing to accept such employment on such terms and conditions;
NOW, THEREFORE, in consideration of the mutual agreements
hereinafter set forth, and intending to be legally bound hereby, Employee and
the Company have agreed and do hereby agree as follows:
1. Duties. The Company does hereby employ, engage and hire the
Employee as Director of Technology of the Company and the Employee does hereby
accept and agree to such hiring, engagement and employment. Employee agrees to
perform any and all other duties and to assume any and all responsibilities that
may be reasonably assigned to him from time to time by the President or Chief
Technology Officer of the Company. The Employee will devote his full time (at
least 40 hours per week) and skill to the performance of his duties for the
Company and for the benefit of the Company. Furthermore, the Employee will
exercise his due diligence and care in the performance of his duties to the
Company under this Agreement.
2. Compensation.
(a) Base Salary. The Company shall pay Employee, and
Employee agrees to accept from the Company, in full payment for his services and
promises to the Company (specifically including the promises set forth in (i)
the Non-Competition Agreement, attached hereto as Exhibit A and by this
reference incorporated herein in its entirety (the "Non-Competition Agreement"),
and (ii) the Non-Disclosure and Developments Agreement, attached hereto as
Exhibit B and by this reference incorporated herein in its entirety (the
"Non-Disclosure and Developments Agreement") a base salary (the "Base Salary")
at a rate of Seventy-Five Thousand Dollars ($75,000.00) per year, payable in
accordance with the Company's payroll practices, but no less often
<PAGE>
than bi-weekly. The Base Salary will be subject to review by management and any
merit increases will be subject to Company policy.
(b) Bonus Compensation. In addition to his Base
Salary, Employee shall also be eligible to receive annual bonus compensation in
the amount of Fifteen Thousand Dollars ($15,000.00). Such bonus shall be deemed
to be earned only if the Employee has been in the continuous employ of the
Company through the end of each 12 month period during the Employment Term (as
such term is defined below) and shall be payable within 10 business days of the
date on which the bonus is earned.
3. Benefits. Employee shall be entitled to participate in any
benefit programs adopted from time to time by the Company for the benefit of its
employees commensurate with Employee's position and Employee shall receive such
other benefits as may be granted to him from time to time by the Company's Board
of Directors.
4. Vacation. Employee is entitled to fifteen (15) days paid
vacation or sick leave per year after six (6) months of employment, with such
vacation to be scheduled and taken in accordance with the Company's standard
vacation policies.
5. Options. Employee shall not be eligible to participate in
any Company employee stock option plan until January 1, 2001. Following such
date, Employee shall be entitled to participate in any such employee stock
option plan at the sole discretion of the Board of Directors or such other
entity charged with the administration and discretion over such plan.
6. Business Expenses. The Company will reimburse Employee for
any and all necessary, customary, and usual out-of-pocket expenses, properly
receipted in accordance with Company policies, incurred by Employee in
performing his duties hereunder.
7. Employment Period. The Company shall employ the Employee
for the duties as set forth in Section 1 for a three (3) year period commencing
as of the date hereof (the "Employment Term"), unless sooner terminated in
accordance with the provisions of this Employment Agreement.
8. Representation and Warranty of Employee. Employee
represents and warrants to the Company that Employee is under no contractual or
other restriction or obligation which is inconsistent with the execution of this
Agreement, the performance of his duties hereunder, or the other rights of the
Company hereunder.
9. Termination of Employment.
(a) Subject to the provisions herein contained, on or
after the date hereof and prior to the end of the Employment Term, the Company
or the Employee, as the case may be, shall have the right to terminate
Employee's services under this Agreement. Termination of
-2-
<PAGE>
Employee's employment shall be deemed termination for "cause" if on account of:
(i) Employee's voluntary resignation (other than as a result of Employee's death
or disability, or for the reasons set forth in subparagraphs (x) and (y)); (ii)
the failure by Employee to materially perform his duties and obligations under
this Agreement which is not cured within ten (10) business days from receipt of
written notice of such failure from the Company; (iii) refusal by Employee to
implement, or adhere to, reasonable policies or directives of the Board of
Directors which is not cured within ten (10) business days from receipt of
written notice of such refusal from the Company; (iv) Employee is convicted of
or pleads guilty to a felony crime; (v) conduct by Employee which is in material
violation of Employee's common law duty of loyalty to the Company (as determined
by a majority of the independent directors of the Company (the "Independent
Directors")); (vi) Employee commits any act of fraud against the Company or
Employee engages in fraudulent conduct in connection with the business affairs
of the Company (as determined by a majority of the Independent Directors); (vii)
conduct by Employee which is in material violation of any provision of this
Agreement; (viii) Employee is in breach of a representation or warranty under
this Agreement which breach is not cured within ten (10) business days from
receipt of written notice of such breach from the Company; and (ix) Employee
commits any act or omits to take any action in bad faith and to the detriment of
the Company (as determined by a majority of the Independent Directors).
Cessation of the employment relationship between Employee and the Company by
reason of Employee's death or permanent disability, or Employee's resignation
because of (x) the assignment to him of duties materially inconsistent with
respect to his position as contemplated by this Agreement, or (y) any material
failure by the Company to comply with the provisions of this Agreement, shall be
deemed termination without "cause."
(b) Termination because of Disabilities. Employee
shall be considered to be "disabled" for purposes of this Section 9 if Employee
is unable to perform his customary duties under this Agreement (as determined by
a majority of the Independent Directors), with or without reasonable
accommodation, for a continuous period of sixty (60) days because of physical or
mental impairment, in which event this Agreement shall terminate in accordance
with the provisions of Section 9(d) hereof.
(c) Termination because of Death. In the event that
Employee shall die, then this Agreement shall terminate on the date of
Employee's death, and no further compensation shall be payable to Employee,
except as may otherwise be provided under any insurance policy or similar
instrument.
(d) Effect of Termination Without "Cause". If
Employee's employment is terminated without "cause," he shall be entitled to
thirty (30) days advance written notice of the termination. Employee shall, in
addition to salary earned during the notice period listed in the previous
sentence, be entitled to receive the equivalent of Employee's salary for an
additional six (6) months; provided, that, no bonus shall be earned during the
notice period or on the additional salary payable pursuant to this section.
Employee shall be entitled to any compensation actually earned and vested, but
not paid, before the date of termination. Additional compensation (bonuses)
-3-
<PAGE>
shall not be deemed earned until the date when the particular target is reached
or bonus triggering event occurs.
(e) Effect of Termination for "Cause". If Employee's
employment is terminated by the Company for "cause," the Company shall have the
option to terminate Employee with or without notice and the right to give notice
of termination of Employee's services hereunder as of a date to be specified in
such notice and this Agreement shall terminate on the date so specified (the
"Termination Date"). Employee shall be entitled to receive only his Base Salary
at the rate provided in Section 2 to the Termination Date and Employee shall not
be entitled to any other compensation or benefits not already earned and vested
on the Termination Date.
(f) If Employee's employment is terminated by
Employee's voluntary resignation, Employee agrees to provide the Company with
thirty (30) days' advance written notice of such termination.
(g) Nothing contained in this Section 9 shall be
deemed to limit any other right the Company or the Employee may have to
terminate Employee's employment hereunder upon any ground permitted by law.
10. Entire Agreement. This Agreement terminates and supercedes
any and all prior agreements and understandings between the Company and the
Employee (written, oral, or otherwise) with respect to employment or with
respect to the compensation of Employee by the Company. No other
representations, oral or written, have been made regarding the subject matter
hereof, other than those explicitly provided herein. Employee acknowledges that
he has not relied on any oral or written representations not explicitly
contained herein in executing this Agreement.
11. Assignment. This Agreement is personal in its nature and
neither of the parties hereto shall, without the consent of the other, assign or
transfer this Agreement or any rights or obligations hereunder; provided that,
in the event of a merger or consolidation of the Company with any other entity,
this Agreement shall, subject to the provisions hereof, be binding upon and
inure to the benefit of such successor and such successor shall discharge and
perform all the promises, covenants, duties and obligations of the Company
hereunder. In addition, the Company will require any purchaser of all, or
substantially all, of its assets to assume and agree to perform this Agreement
in the same manner and to the same extent that the Company would be required to
perform it if no sale of its assets had taken place.
12. Governing Law. This Agreement shall be governed in all
respects, whether as to validity, construction, capacity, performance, or
otherwise, by the laws of the State of New York, excluding only its conflicts of
laws principles, that would defer to the substantive laws of another
jurisdiction.
13. Amendments and Modifications. This Agreement may be
modified only in writing executed by the Company and Employee.
-4-
<PAGE>
14. Waiver. Failure to insist upon strict compliance with any
of the terms, covenants or conditions hereof shall not be deemed a waiver of
such term, covenant or condition, nor shall any waiver or relinquishment of, or
failure to insist upon strict compliance with, any right or power hereunder at
any one or more times be deemed a waiver or relinquishment of such right or
power at any other time or times.
15. Severability. In the event that a court of competent
jurisdiction determines that any portion of this Agreement is in violation of
any statute or public policy, then only the portions of this Agreement which
violate such statute or public policy shall be stricken. All portions of this
Agreement which do not violate such statute or public policy continue in full
force and effect. Further, any court order striking any portion of this
Agreement shall modify the stricken terms to give as much effect as possible to
the intentions of the parties under this Agreement.
16. Notices. Any notice, consent, or other communication
required or permitted to be given hereunder shall be in writing and shall be
deemed to have been given three (3) days after the date sent if sent by United
States certified mail, return receipt requested, with proper postage thereon,
one (1) day after the date sent if sent by overnight courier of national
recognition, or when transmitted, if sent by facsimile, and shall be addressed
as follows:
(a) If to the Company:
Predict It, Inc.
41 East 11th Street, 11th Floor
New York, New York 10003
Phone Number: (212) 331-1120
Facsimile Number: (212) 331-1128
(b) If to Employee:
Howard Yen
182 East 95th Street, Apt. 18C
New York, New York 10128
Phone Number:
----------------------
Facsimile Number:
------------------
or at such other address or addresses as the party addressed may from time to
time designate.
17. Headings; Counterparts. The headings in this Agreement are
solely for the convenience of reference and shall be given no effect in the
construction or interpretation of this Agreement. This Agreement may be executed
in any number of counterparts, each of which shall be deemed an original, but
all of which together shall constitute one and the same instrument.
[SIGNATURE PAGE FOLLOWS]
-5-
<PAGE>
EMPLOYEE PREDICT IT, INC.
________________________________ By: _______________________________
Howard Yen Name:
Title:
-6-
<PAGE>
EXHIBIT A
NON-COMPETITION AGREEMENT
June 30, 1999
Dear Employee:
In consideration and as a condition of your employment by
Predict It, Inc., a Delaware corporation (the "Company"), you hereby covenant
and agree with the Company as follows:
1. The term of this Agreement shall be for a period commencing
on June 30, 1999, the date of your initial employment on behalf of the Company,
and ending twelve (12) months following the date on which your employment with
the Company terminates for any reason, whether voluntarily or involuntarily.
2. During the period of your employment with the Company and
during the term hereof, you will not, without the Company's prior written
consent, directly or indirectly, alone or as a partner, joint venturer, officer,
director, employee, consultant, agent, independent contractor or stockholder of
any company or business, solicit engagements with any business entity in the
business of developing, marketing, distributing, or maintaining products or
services competitive with the products or services being developed, marketed,
distributed, planned, sold or otherwise provided by the Company at such time.
The ownership by you of not more than three percent (3%) of the shares of stock
of any corporation having a class of equity securities actively traded on a
national securities exchange or on the NASDAQ Stock Market shall not be deemed,
in and of itself, to violate the prohibitions of this paragraph.
3. During the term hereof, you will not, without the Company's
prior written consent, directly or indirectly, employ, or knowingly permit, to
the extent possible any other company or business organization which employs you
or is directly or indirectly controlled by you to employ, any person who is
employed by the Company at any time during the term hereof, or in any manner
seek to induce any such person to leave his or her employment with the Company.
4. During the term hereof, you will not, without the Company's
prior written consent, solicit or do business with, directly or indirectly, any
present or past customer of the Company, or any prospective customer of the
Company with whom you have had contact, in connection with any business activity
which would violate any other provision of this Agreement.
5. You hereby represent that, except as attached hereto or as
you have disclosed in writing to the Company, you are not a party to, or bound
by the terms of, any agreement with any previous employer or other party to
refrain from using or disclosing any trade secret or confidential or proprietary
information in the course of your employment with the Company or to refrain from
<PAGE>
competing, directly or indirectly, with the business of such previous employer
or any other party. You further represent that your performance of all the terms
of this Agreement, and as an employee of the Company, does not and will not
breach any agreement to keep in confidence proprietary information, knowledge or
data acquired by you in confidence or in trust prior to your employment with the
Company, and you will not disclose to the Company or induce the Company to use
any confidential or proprietary information or material belonging to any
previous employer, or others.
6. You agree that the breach of this Agreement by you may
cause irreparable damage to the Company and that in the event of such breach the
Company shall have, in addition to any and all remedies of law, the right to an
injunction, specific performance or other equitable relief to prevent the
violation of your obligations hereunder.
7. You understand that this Agreement does not create an
obligation on the Company or any other person or entity to continue your
employment.
8. Any amendment to or modification of this Agreement, and any
waiver of any provision hereof, shall be in writing, executed by both parties.
Any waiver by the Company of a breach of any provision of this Agreement shall
not operate or be construed as a waiver of any subsequent breach hereof.
9. You hereby agree that each provision herein shall be
treated as a separate and independent clause, and the unenforceability of any
one clause shall in no way impair the enforceability of any of the other clauses
herein. Moreover, if one or more of the provisions contained in this Agreement
shall for any reason be held to be excessively broad as to scope, activity, or
subject so as to be unenforceable at law, such provision or provisions shall be
construed by the appropriate judicial body by limiting and reducing it or them,
so as to be enforceable to the maximum extent compatible with the applicable law
as it shall then appear.
10. This Agreement shall be governed by and construed in
accordance with the laws of the State of New York, excluding only its conflicts
of laws principles, that would defer to the substantive laws of another
jurisdiction.
11. The term "Company" shall include Predict It, Inc. and any
of its subsidiaries, subdivisions or affiliates. The Company shall have the
right to assign this Agreement to its successors and assigns, and all covenants
and agreements hereunder shall inure to the benefit of and be enforceable by
said successors or assigns.
12. The provisions of this Agreement will not be deemed to
have been violated in the event you participate in, or become an employee of,
any affiliate of the Company. The provisions of this Agreement will not be
deemed to have been violated as a result of any actions taken by you within the
authorized scope of your involvement with any such affiliate.
A-2
<PAGE>
Please indicate your acceptance of the foregoing by signing
and returning one copy to the undersigned.
Very truly yours,
PREDICT IT, INC.
By:____________________________
Name:
Title:
AGREED TO AND ACCEPTED as of
the date first above written:
EMPLOYEE
- -------------------------------
Howard Yen
A-3
<PAGE>
EXHIBIT B
NON-DISCLOSURE AND DEVELOPMENTS AGREEMENT
In consideration and as a condition of my employment or
continued employment by Predict It, Inc. (the "Company"), I hereby agree with
the Company as follows:
1. I will not at any time, whether during or after the
termination of my employment, reveal to any person or entity any of the trade
secrets or confidential information concerning the organization, business or
finances of the Company which the Company considers to be proprietary and is
able to be protected as a trade secret or confidential information under
applicable law, or of any third party which the Company is under an obligation
to keep confidential (including, but not limited to, trade secrets or
confidential information respecting inventions, products, designs, methods,
know-how, techniques, systems, processes, software programs, application codes,
works of authorship, formulas, algorithms, customer lists, projects, plans and
proposals), except as may be required in the ordinary course of performing my
duties as an employee of the Company, and I shall keep secret all matters
entrusted to me and shall not use or attempt to use any such information in any
manner which may injure or cause loss or may be calculated to injure or cause
loss whether directly or indirectly to the Company or any third party. The
foregoing will not be deemed to prevent my disclosure of information regarding
the Company to the extent such disclosure is required by law or legal process.
In the event I reasonably determine I have a legal obligation to disclose any
information regarding the Company, I agree to immediately notify the Company in
writing, and in any event notify the Company prior to making any such
disclosure. I further agree to cooperate with the Company, at the Company's
request and expense, to seek a protective order or other arrangement protecting
the confidentiality of any information so disclosed.
Further, I agree that during my employment I shall not make,
use or permit to be used any notes, memoranda, reports, lists, records,
drawings, sketches, specifications, software programs, data, documentation or
other materials of any nature relating to any matter within the scope of the
immediately preceding paragraph otherwise than for the benefit of the Company. I
further agree that I shall not, after the termination of my employment, use or
permit to be used any such notes, memoranda, reports, lists, records, drawings,
sketches, specifications, software programs, data, documentation or other
materials, it being agreed that all of the foregoing shall be and remain the
sole and exclusive property of the Company and that immediately upon the
termination of my employment I shall deliver all of the foregoing, and all
copies thereof, to the Company, at its main office.
2. If at any time or times during my employment, I shall
(either alone or with others) make, conceive, create, discover, invent or reduce
to practice any invention, modification, discovery, design, development,
improvement, process, software program, application code, work of authorship,
documentation, formula, algorithm, data, technique, know-how, trade secret or
intellectual property right whatsoever or any interest therein (whether or not
patentable or registrable under copyright, trademark or similar statutes
(including but not limited to the Semiconductor Chip
<PAGE>
Protection Act) or subject to analogous protection) (herein called
"Developments") that (a) relates to the business of the Company or any customer
of or supplier to the Company or any of the products or services being
developed, manufactured or sold by the Company or (b) results from tasks
assigned me by the Company, such Developments and the benefits thereof are and
shall immediately become the sole and exclusive property of the Company and its
assigns, as works made for hire or otherwise, and I shall promptly disclose to
the Company (or any persons designated by it) each such Development and, as may
be necessary to ensure the Company's ownership of such Developments, I hereby
assign any rights (including, but not limited to, any copyrights and trademarks)
I may have or acquire in the Developments and benefits and/or rights resulting
therefrom to the Company and its assigns without further compensation and shall
communicate, without cost or delay, and without disclosing to others the same,
all available information relating thereto (with all necessary plans and models)
to the Company.
I understand and am hereby notified that local law may, if
applicable, limit or render inapplicable the preceding provisions in situations
where the Company is not permitted to require that rights be assigned to it.
I will, during my employment and at any time thereafter, at
the request and cost of the Company, promptly sign, execute, make and do all
such deeds, documents, acts and things as the Company and its duly authorized
agents may reasonably require:
(a) to apply for, obtain, register and vest in the name of the
Company alone (unless the Company otherwise directs) letters
patent, copyrights, trademarks or other analogous protection
relating to a Development in any country throughout the world
and when so obtained or vested to renew and restore the same;
and
(b) to defend any judicial, opposition or other proceedings in
respect of such applications and any judicial, opposition or
other proceedings or petitions or applications for revocation
of such letters patent, copyright, trademark or other
analogous protection.
In the event the Company is unable, after reasonable effort,
to secure my signature on any application for letters patent, copyright or
trademark registration or other documents regarding any legal protection
relating to a Development, whether because of my physical or mental incapacity
or for any other reason whatsoever, I hereby irrevocably designate and appoint
the Company and its duly authorized officers and agents as my agent and
attorney-in-fact, to act for and on my behalf and stead to execute and file any
such application or applications or other documents and to do all other lawfully
permitted acts to further the prosecution and issuance of letters patent,
copyright or trademark registrations or any other legal protection thereon with
the same legal force and effect as if executed by me.
B-2
<PAGE>
3. I agree that any breach of this Agreement by me may cause
irreparable damage to the Company and that in the event of such breach the
Company shall have, in addition to any and all remedies of law, the right to an
injunction, specific performance or other equitable relief to prevent the
violation of my obligations hereunder.
4. I understand that this Agreement does not create an
obligation on the Company or any other person or entity to continue my
employment.
5. I represent that the Developments identified in the pages,
if any, attached hereto comprise all the unpatented and unregistered
copyrightable Developments which I have made, conceived or created prior to my
employment by the Company, which Developments are excluded from this Agreement.
I understand that it is only necessary to list the title and purpose of such
Developments but not details thereof.
I further represent that my performance of all of the terms of
this Agreement and as an employee of the Company does not and will not breach
any agreement to keep in confidence proprietary information acquired by me in
confidence or in trust prior to my employment by the Company. I have not
entered-into, and I agree I will not enter into, any agreement either written or
oral in conflict herewith.
6. Any waiver by the Company of a breach of any provision of
this Agreement shall not operate or be construed as a waiver of any subsequent
breach of such provision or any other provision hereof.
7. I hereby agree that each provision herein shall be treated
as a separate and independent clause, and the unenforceability of any one clause
shall in no way impair the enforceability of any of the other clauses herein.
Moreover, if one or more of the provisions contained in this Agreement shall for
any reason be held to be excessively broad as to scope, activity, subject or
otherwise so as to be unenforceable at law, such provision or provisions shall
be construed by the appropriate judicial body by limiting or reducing it or
them, so as to be enforceable to the maximum extent compatible with the
applicable law as it shall then appear.
8. My obligations under this Agreement shall survive the
termination of my employment regardless of the manner of such termination and
shall be binding upon my heirs, executors, administrators and legal
representatives.
9. The term "Company" means Predict It, Inc. and, for purposes
of Section 1, shall also mean and include any of its subsidiaries, subdivisions
or affiliates. The Company shall have the right to assign this Agreement to its
successors and assigns, and all covenants and agreements hereunder shall inure
to the benefit of and be enforceable by said successors or assigns.
10. I understand that provisions of this Agreement will not be
deemed to have been violated in the event I participate in, or become an
employee of, any affiliate of the Company
B-3
<PAGE>
and I am reasonably required in connection with my involvement with such
affiliate to use or disclose trade secrets or confidential information of the
Company protected under this Agreement.
11. This Agreement shall be governed by and construed in
accordance with the laws of the State of New York, excluding only its conflicts
of laws principles, that would defer to the substantive laws of another
jurisdiction.
IN WITNESS WHEREOF, the undersigned has executed this
Non-Disclosure and Developments Agreement as of June 30, 1999.
Name: Howard Yen
Address:
------------------------------------------
Signature
B-4
<PAGE>
TRANSITION AGREEMENT
THIS TRANSITION AGREEMENT (the "Agreement") is being made this
____ day of April, 1999 by and between PREDICT IT CORP., a Delaware corporation
with offices located at 41 East 11th Street, New York, New York 10003 ("PIC"),
and TOM COURTS ("Courts" or "Employee").
WHEREAS, PIC and Courts previously entered into an employment
agreement (the "Employment Agreement"), dated August 15, 1998, pursuant to which
Courts has acted as President and Chief Executive Officer of PIC, and PIC and
Courts previously entered into a Termination by Resignation Agreement
represented in a letter dated January 11, 1999 ("Resignation Agreement");
WHEREAS, PIC entered into an Agreement and Plan of Merger by
and between PIC and WDC Development, Inc. ("WDC"), pursuant to which PIC will
merge (the "Merger") into WDC to form a surviving company known as Predict It,
Inc. ("Surviving Company");
WHEREAS, the Board of Directors of PIC pursuant to their
rights under the Resignation Agreement have informed Courts that it is their
desire that Courts resign his position as President and Chief Executive Officer
of the Company; provided, however, that the effective date of such termination
shall be May 15, 1999 ("Effective Date"), and not within "five (5) business
days" of request for resignation as outlined in the Resignation Agreement;
WHEREAS, the Board of Directors of PIC have duly elected
Courts to serve as Chairman of the Board of Directors of PIC for a term of not
less than six (6) months;
<PAGE>
WHEREAS, in anticipation of Courts' resignation, PIC and
Courts have agreed to enter into this Agreement.
NOW, THEREFORE, in consideration of the mutual premises and
agreements contained herein, and intending to be legally bound hereby, the
parties hereto agree as follows:
1. Termination of Employment. Courts hereby agrees to resign
as of the Effective Date as the President and Chief Executive Officer of the
PIC, and PIC hereby acknowledges that the termination of Courts' employment has
occurred other than for cause, as defined in Section 9(a) of the Employment
Agreement.
2. Severance. As of the Effective Date and as a result of
Courts' resignation from PIC, and in full satisfaction of PIC's obligations
under the Employment Agreement, Courts shall be entitled to receive the
following:
(a) Courts' salary, payable in equal semi-monthly
installments at the annual rate of $125,000 for a period of six months, pursuant
to Section 9(e) of the Employment Agreement.
3. Appointment to Board of Directors. Courts has been duly
elected to and shall serve as the Chairman of the Board of Directors of PIC,
upon the terms and conditions contained herein, for a term commencing as of the
Effective Date and ending six (6) months after the Effective Date (the "Term").
During the Term, Courts will fulfill all usual duties as the Chairman of the
Board of Directors of PIC. In consideration for Courts' service as Chairman of
the Board of Directors of PIC for the Term, Courts shall receive an option (the
"Option") to purchase one hundred thousand (100,000) shares of common stock, par
value $.01 per share, of the Surviving Company at an exercise price of $.60 per
share. The Option shall vest in quarterly amounts over a period of
2
<PAGE>
one (1) year from the Effective Date. In the event that Courts is removed as
Chairman for any reason during the Term, the Option shall immediately vest.
4. Consulting Services. Courts may on occasion be asked by PIC
to provide services beyond the scope of the Chairman position, ("Consulting
Services") upon mutually acceptable terms.
5. Expenses. Courts shall be entitled to reimbursement for
reasonable travel and other out-of-pocket expenses necessarily incurred in the
performance of his duties hereunder, upon submission and approval of written
statements and bills in accordance with the then regular procedures of PIC.
6. Assignment and Assumption. PIC and Courts acknowledge and
agree that the Employment Agreement and this Agreement and all terms and
provisions contained herein, shall be assigned to and assumed by the Surviving
Company.
7. Mutual Release from Claims.
(a) Courts hereby releases and discharges PIC from and
against any and all liabilities, claims, controversies, settlements, actions,
causes of action, demands, debts, damages, judgments and obligations of any
nature whatsoever, occurring, arising out of, or relating to any period of time
prior to the date of this Agreement, including any and all liabilities, claims,
controversies, settlements, actions, causes of action, demands, debts, damages,
judgments, obligations, rights or duties arising out of or relating to the
Employment Agreement, whether known or unknown, at law or in equity, that he had
or now has or hereinafter can, shall or may have. Notwithstanding the foregoing,
Courts does not release PIC from any liabilities that may occur, arise
3
<PAGE>
out of or relate to any period of time between the date of this Agreement and
the Effective Date with respect to (i) compensation due to Courts under Section
3(a) of the Employment Agreement; (ii) expenses that may be due Courts under
Section 4 of the Employment Agreement; or (iii) benefits due to Courts under
Section 3(b) of the Employment Agreement.
(b) PIC hereby releases and discharges Courts from
and against any and all liabilities, claims, controversies, settlements,
actions, causes of action, demands, debts, damages, judgments and obligations of
any nature whatsoever, including any and all liabilities, claims, controversies,
settlements, actions, causes of action, demands, debts, damages, judgments,
obligations, rights or duties arising out of or relating to the Employment
Agreement, occurring, arising, or relating to any period of time prior to the
date of this Agreement, whether known or unknown, at law or in equity, that he
had or now has or hereinafter can, shall or may have. Notwithstanding the
foregoing, PIC does not release Courts from any liabilities that may occur,
arise out of or relate to any period of time between the date of this Agreement
and the Effective Date with respect (i) Courts' obligations under (i) Section 6
of the Employment Agreement; (ii) Section 7 of the Employment Agreement; or
(iii) Section 8 of the Employment Agreement.
4
<PAGE>
IN WITNESS WHEREOF, the parties have duly executed this Agreement as of
the date first written above.
PREDICT IT CORP.
By:
-----------------------------------
Name:
Title:
---------------------------------------
Name: Tom Courts
5
<PAGE>
EMPLOYMENT AGREEMENT
by and between
PREDICT IT, INC.
and
GARY CHENG
THIS EMPLOYMENT AGREEMENT this ("Agreement"), effective as of
June 30, 1999, is entered into by and between Gary Cheng ("Employee") and
Predict It, Inc., a Delaware corporation (the "Company"). This Employment
Agreement, the Non-Competition Agreement (as defined below), and the
Non-Disclosure and Developments Agreement (as defined below) are herein
collectively referred to as this "Agreement."
WHEREAS, the Company desires to establish its right to the
services of Employee in the capacity described below, on the terms and
conditions, and subject to the rights of termination hereinafter set forth, and
Employee is willing to accept such employment on such terms and conditions;
NOW, THEREFORE, in consideration of the mutual agreements
hereinafter set forth, and intending to be legally bound hereby, Employee and
the Company have agreed and do hereby agree as follows:
1. Duties. The Company does hereby employ, engage and hire the
Employee as Vice President of Strategic Alliances of the Company and the
Employee does hereby accept and agree to such hiring, engagement and employment.
Employee agrees to perform any and all other duties and to assume any and all
responsibilities that may be reasonably assigned to him from time to time by the
President or the Senior Vice President of Business Development of the Company.
The Employee will devote his full time (at least 40 hours per week) and skill to
the performance of his duties for the Company and for the benefit of the
Company. Furthermore, the Employee will exercise his due diligence and care in
the performance of his duties to the Company under this Agreement.
2. Compensation.
(a) Base Salary. The Company shall pay Employee, and
Employee agrees to accept from the Company, in full payment for his services and
promises to the Company (specifically including the promises set forth in (i)
the Non-Competition Agreement, attached hereto as Exhibit A and by this
reference incorporated herein in its entirety (the "Non-Competition Agreement"),
and (ii) the Non-Disclosure and Developments Agreement, attached hereto as
Exhibit B and by this reference incorporated herein in its entirety (the
"Non-Disclosure and Developments Agreement")) a base salary (the "Base Salary")
at a rate of Seventy-Five Thousand Dollars ($75,000.00) per year, payable in
accordance with the Company's payroll practices, but no less often
<PAGE>
than bi-weekly. The Base Salary will be subject to review by management and any
merit increases will be subject to Company policy.
(b) Bonus Compensation. In addition to his Base
Salary, Employee shall also be eligible to receive annual bonus compensation in
the amount of Fifteen Thousand Dollars ($15,000.00). Such bonus shall be deemed
to be earned only if the Employee has been in the continuous employ of the
Company through the end of each 12 month period during the Employment Term (as
such term is defined below) and shall be payable within 10 business days of the
date on which the bonus is earned.
3. Benefits. Employee shall be entitled to participate in any
benefit programs adopted from time to time by the Company for the benefit of its
employees commensurate with Employee's position and Employee shall receive such
other benefits as may be granted to him from time to time by the Company's Board
of Directors.
4. Vacation. Employee is entitled to fifteen (15) days paid
vacation or sick leave per year after six (6) months of employment, with such
vacation to be scheduled and taken in accordance with the Company's standard
vacation policies.
5. Options. Employee shall not be eligible to participate in
any Company employee stock option plan until January 1, 2001. Following such
date, Employee shall be entitled to participate in any such employee stock
option plan at the sole discretion of the Board of Directors or such other
entity charged with the administration and discretion over such plan.
6. Business Expenses. The Company will reimburse Employee for
any and all necessary, customary, and usual out-of-pocket expenses, properly
receipted in accordance with Company policies, incurred by Employee in
performing his duties hereunder.
7. Employment Period. The Company shall employ the Employee
for the duties as set forth in Section 1 for a three (3) year period commencing
as of the date hereof (the "Employment Term"), unless sooner terminated in
accordance with the provisions of this Employment Agreement.
8. Representation and Warranty of Employee. Employee
represents and warrants to the Company that Employee is under no contractual or
other restriction or obligation which is inconsistent with the execution of this
Agreement, the performance of his duties hereunder, or the other rights of the
Company hereunder.
9. Termination of Employment.
(a) Subject to the provisions herein contained, on or
after the date hereof and prior to the end of the Employment Term, the Company
or the Employee, as the case may be, shall have the right to terminate
Employee's services under this Agreement. Termination of
-2-
<PAGE>
Employee's employment shall be deemed termination for "cause" if on account of:
(i) Employee's voluntary resignation (other than as a result of Employee's death
or disability, or for the reasons set forth in subparagraphs (x) and (y)); (ii)
the failure by Employee to materially perform his duties and obligations under
this Agreement which is not cured within ten (10) business days from receipt of
written notice of such failure from the Company; (iii) refusal by Employee to
implement, or adhere to, reasonable policies or directives of the Board of
Directors which is not cured within ten (10) business days from receipt of
written notice of such refusal from the Company; (iv) Employee is convicted of
or pleads guilty to a felony crime; (v) conduct by Employee which is in material
violation of Employee's common law duty of loyalty to the Company (as determined
by a majority of the independent directors of the Company (the "Independent
Directors")); (vi) Employee commits any act of fraud against the Company or
Employee engages in fraudulent conduct in connection with the business affairs
of the Company (as determined by a majority of the Independent Directors); (vii)
conduct by Employee which is in material violation of any provision of this
Agreement; (viii) Employee is in breach of a representation or warranty under
this Agreement which breach is not cured within ten (10) business days from
receipt of written notice of such breach from the Company; and (ix) Employee
commits any act or omits to take any action in bad faith and to the detriment of
the Company (as determined by a majority of the Independent Directors).
Cessation of the employment relationship between Employee and the Company by
reason of Employee's death or permanent disability, or Employee's resignation
because of (x) the assignment to him of duties materially inconsistent with
respect to his position as contemplated by this Agreement, or (y) any material
failure by the Company to comply with the provisions of this Agreement, shall be
deemed termination without "cause."
(b) Termination because of Disabilities. Employee
shall be considered to be "disabled" for purposes of this Section 9 if Employee
is unable to perform his customary duties under this Agreement (as determined by
a majority of the Independent Directors), with or without reasonable
accommodation, for a continuous period of sixty (60) days because of physical or
mental impairment, in which event this Agreement shall terminate in accordance
with the provisions of Section 9(d) hereof.
(c) Termination because of Death. In the event that
Employee shall die, then this Agreement shall terminate on the date of
Employee's death, and no further compensation shall be payable to Employee,
except as may otherwise be provided under any insurance policy or similar
instrument.
(d) Effect of Termination Without "Cause". If
Employee's employment is terminated without "cause," he shall be entitled to
thirty (30) days advance written notice of the termination. Employee shall, in
addition to salary earned during the notice period listed in the previous
sentence, be entitled to receive the equivalent of Employee's salary for an
additional six (6) months; provided, that, no bonus shall be earned during the
notice period or on the additional salary payable pursuant to this section.
Employee shall be entitled to any compensation actually earned and vested, but
not paid, before the date of termination. Additional compensation (bonuses)
-3-
<PAGE>
shall not be deemed earned until the date when the particular target is reached
or bonus triggering event occurs.
(e) Effect of Termination for "Cause". If Employee's
employment is terminated by the Company for "cause," the Company shall have the
option to terminate Employee with or without notice and the right to give notice
of termination of Employee's services hereunder as of a date to be specified in
such notice and this Agreement shall terminate on the date so specified (the
"Termination Date"). Employee shall be entitled to receive only his Base Salary
at the rate provided in Section 2 to the Termination Date and Employee shall not
be entitled to any other compensation or benefits not already earned and vested
on the Termination Date.
(f) If Employee's employment is terminated by
Employee's voluntary resignation, Employee agrees to provide the Company with
thirty (30) days' advance written notice of such termination.
(g) Nothing contained in this Section 9 shall be
deemed to limit any other right the Company or the Employee may have to
terminate Employee's employment hereunder upon any ground permitted by law.
10. Entire Agreement. This Agreement terminates and supercedes
any and all prior agreements and understandings between the Company and the
Employee (written, oral, or otherwise) with respect to employment or with
respect to the compensation of Employee by the Company. No other
representations, oral or written, have been made regarding the subject matter
hereof, other than those explicitly provided herein. Employee acknowledges that
he has not relied on any oral or written representations not explicitly
contained herein in executing this Agreement.
11. Assignment. This Agreement is personal in its nature and
neither of the parties hereto shall, without the consent of the other, assign or
transfer this Agreement or any rights or obligations hereunder; provided that,
in the event of a merger or consolidation of the Company with any other entity,
this Agreement shall, subject to the provisions hereof, be binding upon and
inure to the benefit of such successor and such successor shall discharge and
perform all the promises, covenants, duties and obligations of the Company
hereunder. In addition, the Company will require any purchaser of all, or
substantially all, of its assets to assume and agree to perform this Agreement
in the same manner and to the same extent that the Company would be required to
perform it if no sale of its assets had taken place.
12. Governing Law. This Agreement shall be governed in all
respects, whether as to validity, construction, capacity, performance, or
otherwise, by the laws of the State of New York, excluding only its conflicts of
laws principles, that would defer to the substantive laws of another
jurisdiction.
13. Amendments and Modifications. This Agreement may be
modified only in writing executed by the Company and Employee.
-4-
<PAGE>
14. Waiver. Failure to insist upon strict compliance with any
of the terms, covenants or conditions hereof shall not be deemed a waiver of
such term, covenant or condition, nor shall any waiver or relinquishment of, or
failure to insist upon strict compliance with, any right or power hereunder at
any one or more times be deemed a waiver or relinquishment of such right or
power at any other time or times.
15. Severability. In the event that a court of competent
jurisdiction determines that any portion of this Agreement is in violation of
any statute or public policy, then only the portions of this Agreement which
violate such statute or public policy shall be stricken. All portions of this
Agreement which do not violate such statute or public policy continue in full
force and effect. Further, any court order striking any portion of this
Agreement shall modify the stricken terms to give as much effect as possible to
the intentions of the parties under this Agreement.
16. Notices. Any notice, consent, or other communication
required or permitted to be given hereunder shall be in writing and shall be
deemed to have been given three (3) days after the date sent if sent by United
States certified mail, return receipt requested, with proper postage thereon,
one (1) day after the date sent if sent by overnight courier of national
recognition, or when transmitted, if sent by facsimile, and shall be addressed
as follows:
(a) If to the Company:
Predict It, Inc.
41 East 11th Street, 11th Floor
New York, New York 10003
Phone Number: (212) 331-1120
Facsimile Number: (212) 331-1128
(b) If to Employee:
Gary Cheng
347 West 57th Street, Apt. 41A
New York, New York 10019
Phone Number:
-------------------------
Facsimile Number:
---------------------
or at such other address or addresses as the party addressed may from time to
time designate.
17. Headings; Counterparts. The headings in this Agreement are
solely for the convenience of reference and shall be given no effect in the
construction or interpretation of this Agreement. This Agreement may be executed
in any number of counterparts, each of which shall be deemed an original, but
all of which together shall constitute one and the same instrument.
[SIGNATURE PAGE FOLLOWS]
-5-
<PAGE>
EMPLOYEE PREDICT IT, INC.
________________________________ By: _______________________________
Gary Cheng Name:
Title:
-6-
<PAGE>
EXHIBIT A
NON-COMPETITION AGREEMENT
June 30, 1999
Dear Employee:
In consideration and as a condition of your employment by
Predict It, Inc., a Delaware corporation (the "Company"), you hereby covenant
and agree with the Company as follows:
1. The term of this Agreement shall be for a period commencing
on June 30, 1999, the date of your initial employment on behalf of the Company,
and ending twelve (12) months following the date on which your employment with
the Company terminates for any reason, whether voluntarily or involuntarily.
2. During the period of your employment with the Company and
during the term hereof, you will not, without the Company's prior written
consent, directly or indirectly, alone or as a partner, joint venturer, officer,
director, employee, consultant, agent, independent contractor or stockholder of
any company or business, solicit engagements with any business entity in the
business of developing, marketing, distributing, or maintaining products or
services competitive with the products or services being developed, marketed,
distributed, planned, sold or otherwise provided by the Company at such time.
The ownership by you of not more than three percent (3%) of the shares of stock
of any corporation having a class of equity securities actively traded on a
national securities exchange or on the NASDAQ Stock Market shall not be deemed,
in and of itself, to violate the prohibitions of this paragraph.
3. During the term hereof, you will not, without the Company's
prior written consent, directly or indirectly, employ, or knowingly permit, to
the extent possible any other company or business organization which employs you
or is directly or indirectly controlled by you to employ, any person who is
employed by the Company at any time during the term hereof, or in any manner
seek to induce any such person to leave his or her employment with the Company.
4. During the term hereof, you will not, without the Company's
prior written consent, solicit or do business with, directly or indirectly, any
present or past customer of the Company, or any prospective customer of the
Company with whom you have had contact, in connection with any business activity
which would violate any other provision of this Agreement.
5. You hereby represent that, except as attached hereto or as
you have disclosed in writing to the Company, you are not a party to, or bound
by the terms of, any agreement with any previous employer or other party to
refrain from using or disclosing any trade secret or confidential or proprietary
information in the course of your employment with the Company or to refrain from
<PAGE>
competing, directly or indirectly, with the business of such previous employer
or any other party. You further represent that your performance of all the terms
of this Agreement, and as an employee of the Company, does not and will not
breach any agreement to keep in confidence proprietary information, knowledge or
data acquired by you in confidence or in trust prior to your employment with the
Company, and you will not disclose to the Company or induce the Company to use
any confidential or proprietary information or material belonging to any
previous employer, or others.
6. You agree that the breach of this Agreement by you may
cause irreparable damage to the Company and that in the event of such breach the
Company shall have, in addition to any and all remedies of law, the right to an
injunction, specific performance or other equitable relief to prevent the
violation of your obligations hereunder.
7. You understand that this Agreement does not create an
obligation on the Company or any other person or entity to continue your
employment.
8. Any amendment to or modification of this Agreement, and any
waiver of any provision hereof, shall be in writing, executed by both parties.
Any waiver by the Company of a breach of any provision of this Agreement shall
not operate or be construed as a waiver of any subsequent breach hereof.
9. You hereby agree that each provision herein shall be
treated as a separate and independent clause, and the unenforceability of any
one clause shall in no way impair the enforceability of any of the other clauses
herein. Moreover, if one or more of the provisions contained in this Agreement
shall for any reason be held to be excessively broad as to scope, activity, or
subject so as to be unenforceable at law, such provision or provisions shall be
construed by the appropriate judicial body by limiting and reducing it or them,
so as to be enforceable to the maximum extent compatible with the applicable law
as it shall then appear.
10. This Agreement shall be governed by and construed in
accordance with the laws of the State of New York, excluding only its conflicts
of laws principles, that would defer to the substantive laws of another
jurisdiction.
11. The term "Company" shall include Predict It, Inc. and any
of its subsidiaries, subdivisions or affiliates. The Company shall have the
right to assign this Agreement to its successors and assigns, and all covenants
and agreements hereunder shall inure to the benefit of and be enforceable by
said successors or assigns.
12. The provisions of this Agreement will not be deemed to
have been violated in the event you participate in, or become an employee of,
any affiliate of the Company. The provisions of this Agreement will not be
deemed to have been violated as a result of any actions taken by you within the
authorized scope of your involvement with any such affiliate.
A-2
<PAGE>
Please indicate your acceptance of the foregoing by signing
and returning one copy to the undersigned.
Very truly yours,
PREDICT IT, INC.
By:
----------------------------
Name:
Title:
AGREED TO AND ACCEPTED as of
the date first above written:
EMPLOYEE
- -------------------------------
Gary Cheng
A-3
<PAGE>
EXHIBIT B
NON-DISCLOSURE AND DEVELOPMENTS AGREEMENT
In consideration and as a condition of my employment or
continued employment by Predict It, Inc. (the "Company"), I hereby agree with
the Company as follows:
1. I will not at any time, whether during or after the
termination of my employment, reveal to any person or entity any of the trade
secrets or confidential information concerning the organization, business or
finances of the Company which the Company considers to be proprietary and is
able to be protected as a trade secret or confidential information under
applicable law, or of any third party which the Company is under an obligation
to keep confidential (including, but not limited to, trade secrets or
confidential information respecting inventions, products, designs, methods,
know-how, techniques, systems, processes, software programs, application codes,
works of authorship, formulas, algorithms, customer lists, projects, plans and
proposals), except as may be required in the ordinary course of performing my
duties as an employee of the Company, and I shall keep secret all matters
entrusted to me and shall not use or attempt to use any such information in any
manner which may injure or cause loss or may be calculated to injure or cause
loss whether directly or indirectly to the Company or any third party. The
foregoing will not be deemed to prevent my disclosure of information regarding
the Company to the extent such disclosure is required by law or legal process.
In the event I reasonably determine I have a legal obligation to disclose any
information regarding the Company, I agree to immediately notify the Company in
writing, and in any event notify the Company prior to making any such
disclosure. I further agree to cooperate with the Company, at the Company's
request and expense, to seek a protective order or other arrangement protecting
the confidentiality of any information so disclosed.
Further, I agree that during my employment I shall not make,
use or permit to be used any notes, memoranda, reports, lists, records,
drawings, sketches, specifications, software programs, data, documentation or
other materials of any nature relating to any matter within the scope of the
immediately preceding paragraph otherwise than for the benefit of the Company. I
further agree that I shall not, after the termination of my employment, use or
permit to be used any such notes, memoranda, reports, lists, records, drawings,
sketches, specifications, software programs, data, documentation or other
materials, it being agreed that all of the foregoing shall be and remain the
sole and exclusive property of the Company and that immediately upon the
termination of my employment I shall deliver all of the foregoing, and all
copies thereof, to the Company, at its main office.
2. If at any time or times during my employment, I shall
(either alone or with others) make, conceive, create, discover, invent or reduce
to practice any invention, modification, discovery, design, development,
improvement, process, software program, application code, work of authorship,
documentation, formula, algorithm, data, technique, know-how, trade secret or
intellectual property right whatsoever or any interest therein (whether or not
patentable or registrable under copyright, trademark or similar statutes
(including but not limited to the Semiconductor Chip
<PAGE>
Protection Act) or subject to analogous protection) (herein called
"Developments") that (a) relates to the business of the Company or any customer
of or supplier to the Company or any of the products or services being
developed, manufactured or sold by the Company or (b) results from tasks
assigned me by the Company, such Developments and the benefits thereof are and
shall immediately become the sole and exclusive property of the Company and its
assigns, as works made for hire or otherwise, and I shall promptly disclose to
the Company (or any persons designated by it) each such Development and, as may
be necessary to ensure the Company's ownership of such Developments, I hereby
assign any rights (including, but not limited to, any copyrights and trademarks)
I may have or acquire in the Developments and benefits and/or rights resulting
therefrom to the Company and its assigns without further compensation and shall
communicate, without cost or delay, and without disclosing to others the same,
all available information relating thereto (with all necessary plans and models)
to the Company.
I understand and am hereby notified that local law may, if
applicable, limit or render inapplicable the preceding provisions in situations
where the Company is not permitted to require that rights be assigned to it.
I will, during my employment and at any time thereafter, at
the request and cost of the Company, promptly sign, execute, make and do all
such deeds, documents, acts and things as the Company and its duly authorized
agents may reasonably require:
(a) to apply for, obtain, register and vest in the name of the
Company alone (unless the Company otherwise directs) letters
patent, copyrights, trademarks or other analogous protection
relating to a Development in any country throughout the world
and when so obtained or vested to renew and restore the same;
and
(b) to defend any judicial, opposition or other proceedings in
respect of such applications and any judicial, opposition or
other proceedings or petitions or applications for revocation
of such letters patent, copyright, trademark or other
analogous protection.
In the event the Company is unable, after reasonable effort,
to secure my signature on any application for letters patent, copyright or
trademark registration or other documents regarding any legal protection
relating to a Development, whether because of my physical or mental incapacity
or for any other reason whatsoever, I hereby irrevocably designate and appoint
the Company and its duly authorized officers and agents as my agent and
attorney-in-fact, to act for and on my behalf and stead to execute and file any
such application or applications or other documents and to do all other lawfully
permitted acts to further the prosecution and issuance of letters patent,
copyright or trademark registrations or any other legal protection thereon with
the same legal force and effect as if executed by me.
B-2
<PAGE>
3. I agree that any breach of this Agreement by me may cause
irreparable damage to the Company and that in the event of such breach the
Company shall have, in addition to any and all remedies of law, the right to an
injunction, specific performance or other equitable relief to prevent the
violation of my obligations hereunder.
4. I understand that this Agreement does not create an
obligation on the Company or any other person or entity to continue my
employment.
5. I represent that the Developments identified in the pages,
if any, attached hereto comprise all the unpatented and unregistered
copyrightable Developments which I have made, conceived or created prior to my
employment by the Company, which Developments are excluded from this Agreement.
I understand that it is only necessary to list the title and purpose of such
Developments but not details thereof.
I further represent that my performance of all of the terms of
this Agreement and as an employee of the Company does not and will not breach
any agreement to keep in confidence proprietary information acquired by me in
confidence or in trust prior to my employment by the Company. I have not
entered-into, and I agree I will not enter into, any agreement either written or
oral in conflict herewith.
6. Any waiver by the Company of a breach of any provision of
this Agreement shall not operate or be construed as a waiver of any subsequent
breach of such provision or any other provision hereof.
7. I hereby agree that each provision herein shall be treated
as a separate and independent clause, and the unenforceability of any one clause
shall in no way impair the enforceability of any of the other clauses herein.
Moreover, if one or more of the provisions contained in this Agreement shall for
any reason be held to be excessively broad as to scope, activity, subject or
otherwise so as to be unenforceable at law, such provision or provisions shall
be construed by the appropriate judicial body by limiting or reducing it or
them, so as to be enforceable to the maximum extent compatible with the
applicable law as it shall then appear.
8. My obligations under this Agreement shall survive the
termination of my employment regardless of the manner of such termination and
shall be binding upon my heirs, executors, administrators and legal
representatives.
9. The term "Company" means Predict It, Inc. and, for purposes
of Section 1, shall also mean and include any of its subsidiaries, subdivisions
or affiliates. The Company shall have the right to assign this Agreement to its
successors and assigns, and all covenants and agreements hereunder shall inure
to the benefit of and be enforceable by said successors or assigns.
10. I understand that provisions of this Agreement will not be
deemed to have been violated in the event I participate in, or become an
employee of, any affiliate of the Company
B-3
<PAGE>
and I am reasonably required in connection with my involvement with such
affiliate to use or disclose trade secrets or confidential information of the
Company protected under this Agreement.
11. This Agreement shall be governed by and construed in
accordance with the laws of the State of New York, excluding only its conflicts
of laws principles, that would defer to the substantive laws of another
jurisdiction.
IN WITNESS WHEREOF, the undersigned has executed this
Non-Disclosure and Developments Agreement as of June 30, 1999.
Name: Gary Cheng
Address:
-----------------------------------------
Signature
B-4
<PAGE>
OFFER MEMORANDUM
The following are the terms under which Predict It, Inc. (the "Corporation")
offers to employ Geordie Pace as Senior Vice President, Product Development at
Predict It, Inc.
Responsibilities--Mr. Pace's responsibilities will include but not be limited to
managing the development of all creative and editorial content as it pertains to
the Corporation's internet properties. Mr. Pace will also be expected to
actively contribute to the Corporation's marketing, technology, and business
strategy functions. Mr. Pace will report to Andrew Merkatz, in his role as
President.
Base Salary--$115,000 with increases tied to position and annual reviews.
Annual Bonus--up to $30,000 conditioned on the following: $15,000 conditioned
upon the successful launch of Predict It 3.0 on or before September 30, 1999.
$15,000 conditioned upon Predict It's achievement of the following site traffic
statistics: May 1, 2000 Registered Users: 312,500; Page Views Monthly:
25,000,000. If achieved, these bonuses would each be paid after one full year of
employment, and are contingent upon Mr. Pace's election of continued employment
with the Corporation.
Stock--Options on 100,000 shares, vesting over three years, at an exercise price
equal to the fair market value of the common stock on the date of grant, which
shall occur within 30 days of Mr. Pace's employment commencement. The options
will vest over three years with 1/3 vesting after one full year of employment,
and 1/6 vesting every six months thereafter over the remaining two years.
Benefits--The Corporation maintains a benefit plan which includes health
insurance, dental insurance, life insurance, 401K, and Flex Spending. Mr. Pace
will be enrolled in this plan.
Vacation/Holidays--The Corporation has ten (10) paid holidays during the
calendar year. In addition, Mr. Pace will receive paid time off ("PTO") in
accordance with the Corporation's PTO policy. This policy, which combines
vacation and sick benefits, is designed in response to our employees' needs for
time off and allows for the payment of wages while off work. Each employee earns
10 hours of PTO every month. Accordingly, during a given calendar year, each
employee will earn 120 PTO hours, which is the equivalent of three weeks (15
business days) of paid time off. All new employees will begin to earn PTO on
their first day of employment. The amount of PTO may increase with tenure.
Confidentiality Agreement / At Will Employee--Mr. Pace will sign the
Corporation's standard Confidentiality Agreement, which all employees have
signed. Mr. Pace recognizes that he is an at will employee, like all new
employees. He will receive periodic performance reviews to know exactly where he
stands in the start-up phase. In the event that Mr. Pace is terminated by the
Corporation, other than for reasons of cause, the Corporation will agree to pay
to Mr. Pace severance in the amount equal to one month's salary at Mr. Pace's
then current base rate plus any accrued but unpaid bonuses.
Start Date--Mr. Pace will start full time work for the Corporation on or before
June 9, 1999.
By signing below, the Corporation and Mr. Pace accept and agree to these terms
of employment:
- -------------- ---------------------------------------------------
Date Andrew P. Merkatz, President, Predict It Inc.
- -------------- ---------------------------------------------------
Date Geordie Pace
<PAGE>
EXHIBIT 23.2
INDEPENDENT AUDITORS' CONSENT
We consent to the inclusion in this Registration Statement on Form SB-2 of our
report dated April 28, 1999 (June 9, 1999 as to Note H, June 30, 1999 as to Note
I and July 6, 1999 as to Note D) on the financial statements of Predict It Inc.
and of our report dated July 27, 1999 on the financial statements of Virtual
Stock Exchange, Inc. We also consent to the reference to our firm under the
caption "Experts" in the Prospectus.
RICHARD A. EISNER & COMPANY, LLP
New York, New York
August 11, 1999
