<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON NOVEMBER 7, 1996.
REGISTRATION NO. 333-14539
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 1
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
SKYMALL, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
NEVADA 5961 86-0651100
(State or other Jurisdiction (Primary Standard Industrial (I.R.S. Employer
of Incorporation or Organization) Classification Code Number) Identification No.)
</TABLE>
1520 EAST PIMA STREET
PHOENIX, ARIZONA 85034
(602) 254-9777
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
------------------------
ROBERT M. WORSLEY
PRESIDENT
SKYMALL, INC.
1520 EAST PIMA STREET
PHOENIX, ARIZONA 85034
(602) 254-9777
(Name, address, including zip code, and telephone number, including zip code, of
agent for service)
------------------------
Copies to:
<TABLE>
<S> <C>
CHRISTOPHER D. JOHNSON, ESQ. RUBI FINKELSTEIN, ESQ.
SQUIRE, SANDERS & DEMPSEY L.L.P. ORRICK, HERRINGTON & SUTCLIFFE LLP
40 NORTH CENTRAL AVENUE 666 FIFTH AVENUE
PHOENIX, ARIZONA 85004 NEW YORK, NEW YORK 10103
(602) 528-4000 (212) 506-5000
</TABLE>
------------------------
APPROXIMATE DATE OF PROPOSED SALE TO PUBLIC:
As soon as practicable after the effective date of this Registration Statement.
------------------------
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [X]
If this Form is filed to register additional securities 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 the delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box. [ ]
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
=======================================================================================================================
PROPOSED MAXIMUM
PROPOSED MAXIMUM AGGREGATE
TITLE OF EACH AMOUNT TO BE OFFERING PRICE OFFERING AMOUNT OF
CLASS OF SECURITIES TO BE REGISTERED REGISTERED PER SECURITY(1) PRICE(1) REGISTRATION FEE
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock ($.001 par value)...................... 2,300,000(2) $9.00 $20,700,000 $6,273
Representative's Warrants........................... 200,000(3) $.001 $200 $1
Common Stock Underlying Representative's Warrants... 200,000(4) $10.80 $2,160,000 $655
Common Stock........................................ 540,000(5) $9.00 $4,860,000 $1,473
Common Stock........................................ 180,000(6) $9.00 $1,620,000 $491
- ----------------------------------------------------------------------------------------------------------------------
TOTAL....................................................................................... $8,893
======================================================================================================================
</TABLE>
(1) Estimated solely for the purpose of computing the amount of the registration
fee pursuant to Rule 457(a).
(2) Includes 300,000 shares of Common Stock that the Underwriters have the
option to purchase to cover over-allotments, if any.
(3) To be issued to Josephthal Lyon & Ross Incorporated (a "Representative").
(4) Includes up to 200,000 shares of Common Stock issuable upon exercise of
warrants being issued to a Representative of the Underwriters. Pursuant to
Rule 416, there is also being registered hereunder a presently
undeterminable number of shares of Common Stock that may be issued pursuant
to the anti-dilution provisions of the Representative's Warrants.
(5) Represents shares of Common Stock issuable to certain shareholders of the
Registrant upon conversion of certain Preferred Stock upon completion of the
Registrant's underwritten public offering. Pursuant to Rule 416, there is
also being registered hereunder a presently undeterminable number of shares
of Common Stock that may be issued upon conversion of such Preferred Stock
in payment of accrued dividends.
(6) Represents shares of Common Stock issuable upon the exercise of certain
warrants issued by the Company in connection with a private placement.
Pursuant to Rule 416, there is also being registered hereunder a presently
undeterminable number of shares of Common Stock that may be issued pursuant
to the anti-dilution provisions of such warrants.
------------------------
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 THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
================================================================================
<PAGE> 2
[This page includes a photograph of covers of seven SkyMall catalogs.
Depicted on the various covers are Mickey Mouse, Minnie Mouse, a sailboat, a
sweatshirt, a gothic clock and glassware. Below the SkyMall catalog covers are
the names and logos of United Airlines, Delta Air Lines, America West Airlines,
TWA, Continental Airlines and Southwest Airlines.]
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK AT
A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH
STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
The Company intends to furnish its shareholders with annual reports
containing financial statements audited by independent public accountants and
quarterly reports for the first three quarters of each year containing unaudited
summary financial information.
2
<PAGE> 3
EXPLANATORY NOTE
This registration statement (the "Registration Statement") contains two
prospectuses. The first prospectus relates to the underwritten public offering
of 2,000,000 shares of Common Stock by SkyMall, Inc. (the "Company") and 300,000
shares of Common Stock offered by certain selling shareholders (the "Selling
Shareholders") to cover over-allotments, if any (the "Prospectus"). The form of
Prospectus in the exact form in which it is to be used after the effective date
will be filed with the Securities and Exchange Commission pursuant to Rule
424(b) of the General Rules and Regulations under the Securities Act of 1933, as
amended. The second prospectus (the "Selling Securityholder Prospectus") relates
to the offering of 540,000 shares of Common Stock, which upon consummation of
this Offering, will be issued to certain shareholders of the Company (the
"Selling Securityholders") upon conversion of certain shares of Preferred Stock
held by such Selling Securityholders and 180,000 shares of Common Stock, which
may be acquired upon the exercise of certain warrants held by such Selling
Securityholders. This Common Stock may be offered by the Selling Securityholders
from time to time following the Company's underwritten public offering.
Following the Prospectus are certain substitute pages of the Selling
Securityholder Prospectus, including alternate front outside and back outside
cover pages, an alternate "The Offering" section of the "Prospectus Summary" and
sections entitled "Concurrent Offering," "Selling Securityholders" and "Plan of
Distribution." Each of the alternate pages for the Selling Securityholder
Prospectus included herein is labeled "Alternate Page for Selling Securityholder
Prospectus." All other sections of the Prospectus, other than "Underwriting" and
"Concurrent Offering," are to be used in the Selling Securityholder Prospectus.
In addition, cross-references in the Prospectus will be adjusted in the Selling
Securityholder Prospectus to refer to the appropriate sections.
<PAGE> 4
SKYMALL, INC.
CROSS REFERENCE SHEET BETWEEN ITEMS OF FORM S-1 AND
PROSPECTUS PURSUANT TO ITEM 501(b) OF REGULATION S-K
<TABLE>
<CAPTION>
FORM S-1
ITEM NO. ITEM CAPTION CAPTION OR LOCATION IN PROSPECTUS
- -------- -------------------------------------------------- --------------------------------------
<C> <S> <C>
1. Forepart of the Registration Statement and Outside
Front Cover Page of Prospectus.................... Outside Front Cover Page
2. Inside Front and Outside Back Cover Pages of
Prospectus........................................ Inside Front Cover Page; Outside Back
Cover Page
3. Summary Information, Risk Factors and Ratio of
Earnings to Fixed Charges......................... Prospectus Summary; Risk Factors; not
applicable as to Ratio of Earnings to
Fixed Charges
4. Use of Proceeds................................... Prospectus Summary; Use of Proceeds;
Management's Discussion and Analysis
of Financial Condition and Results of
Operations
5. Determination of Offering Price................... Outside Front Cover Page;
Underwriting*
6. Dilution.......................................... Dilution
7. Selling Security Holders.......................... Principal Shareholders*
8. Plan of Distribution.............................. Outside Front Cover Page; Inside Front
Cover Page; Underwriting*
9. Description of Securities to be Registered........ Outside Front Cover Page; Prospectus
Summary; Description of Capital Stock;
Shares Eligible for Future Sale
10. Interests of Named Experts and Counsel............ Not Applicable
11. Information with Respect to the Registrant........ Outside and Inside Front Cover Page;
Prospectus Summary; The Company; Risk
Factors; Dividend Policy; Dilution;
Capitalization; Selected Financial
Data; Management's Discussion and
Analysis of Financial Condition and
Results of Operations; Business;
Management; Certain Transactions;
Principal Shareholders; Shares
Eligible for Future Sale; Financial
Statements
12. Disclosure of Commission Position on
Indemnification for Securities Act Liabilities.... Management
</TABLE>
- ---------------
* Will appear under caption "Plan of Distribution" in the Selling Securityholder
Prospectus.
<PAGE> 5
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS
OF ANY SUCH STATE.
SUBJECT TO COMPLETION, DATED NOVEMBER 7, 1996
PROSPECTUS
2,000,000 SHARES
LOGO
COMMON STOCK
SkyMall, Inc. ("SkyMall" or the "Company") hereby offers 2,000,000 shares
of common stock, $.001 par value per share (the "Common Stock"). Prior to this
offering (the "Offering"), there has been no public market for the Common Stock
and there can be no assurance that such a market will develop after the
completion of this Offering or, if developed, that it will be sustained. It is
anticipated that the initial public offering price will be between $8.00 and
$9.00 per share. For information regarding the factors considered in determining
the initial public offering price, see "Underwriting." The Common Stock has been
approved for quotation on the Nasdaq National Market under the symbol "SKYM."
Concurrently, 720,000 shares of Common Stock are being registered at the
Company's expense for sale by certain selling securityholders (the "Selling
Securityholders") pursuant to a separate prospectus (the "Selling Securityholder
Prospectus"). See "Concurrent Offering."
THE SECURITIES OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK AND IMMEDIATE
SUBSTANTIAL DILUTION. SEE "RISK FACTORS," BEGINNING ON
PAGE 7 HEREOF, AND "DILUTION."
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES AGENCY NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
========================================================================================================
UNDERWRITING PROCEEDS TO
PRICE TO PUBLIC DISCOUNT(1) COMPANY(2)
<S> <C> <C> <C>
- -------------------------------------------------------------------------------------------------------
Per Share............................. $ $ $
- -------------------------------------------------------------------------------------------------------
Total................................. $ $ $
=======================================================================================================
</TABLE>
(1) Excludes the value of warrants to purchase up to 200,000 shares of Common
Stock (the "Representative's Warrants") granted to Josephthal Lyon & Ross
Incorporated ("Josephthal"), which together with Cruttenden Roth
Incorporated are the representatives of the several Underwriters (the
"Representatives"). The Company has agreed to indemnify the Underwriters
against certain liabilities under the Securities Act of 1933, as amended
(the "Securities Act"), in connection with this Offering. See
"Underwriting."
(2) Before deducting estimated expenses of $810,000 payable by the Company,
including the non-accountable expense allowance payable to the
Representatives. See "Underwriting."
(3) Certain shareholders of the Company (the "Selling Shareholders") have
granted to the Underwriters an option (the "Over-Allotment Option"),
exercisable for 45 days after the date of this Prospectus, to purchase up to
300,000 additional shares of Common Stock, upon the same terms and
conditions set forth above, solely to cover over-allotments, if any. The
Company will not receive any of the proceeds from the sale of the Common
Stock by the Selling Shareholders. See "Principal Shareholders" and
"Underwriting." If such option is exercised in full, the total Price to
Public, Underwriting Discount, Proceeds to Company and Proceeds to Selling
Shareholders will be $ , $ , $ and $ ,
respectively.
------------------------
The shares of Common Stock are offered by the Underwriters, subject to
prior sale, when, as and if delivered to and accepted by the Underwriters and,
subject to the approval of certain legal matters by their counsel and to certain
other conditions. The Underwriters reserve the right to withdraw, cancel or
modify this Offering without notice and to reject any order in whole or in part.
It is expected that delivery of the Common Stock offered hereby will be made
against payment therefor at the offices of Josephthal Lyon & Ross Incorporated,
New York, New York, on or about , 1996.
------------------------
JOSEPHTHAL LYON & ROSS CRUTTENDEN ROTH
INCORPORATED INCORPORATED
, 1996
<PAGE> 6
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK AT
A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH
STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
The Company intends to furnish its shareholders with annual reports
containing financial statements audited by independent public accountants and
quarterly reports for the first three quarters of each year containing unaudited
summary financial information.
2
<PAGE> 7
PROSPECTUS SUMMARY
The following is a summary of certain information contained elsewhere in
this Prospectus. Reference is made to, and this summary is qualified in its
entirety by, the more detailed information and financial statements, including
the notes thereto, contained elsewhere in this Prospectus. Unless otherwise
indicated, all information contained herein (i) assumes no exercise of the
Over-Allotment Option granted to the Underwriters, the Representative's Warrants
or any other stock options or warrants issued by the Company; (ii) reflects the
conversion of shareholder notes in the aggregate principal amount of $5.0
million into 5,000 shares of Convertible Preferred Stock and the conversion of
such shares and 3,000 additional shares of Convertible Preferred Stock issued in
the Private Placement into 1,440,000 shares of Common Stock on the closing date
of this Offering; and (iii) reflects the receipt of $4.0 million in proceeds
from a loan that was used by the Company to repay $4.0 million in debt and
accrued interest of certain shareholders (the conversion of the shareholder
notes, the consummation of the Private Placement, the conversion of the
Convertible Preferred Stock, and the receipt and application of the loan are
hereinafter collectively referred to as the "Recapitalization Transactions").
See "The Company -- Private Placement", "Concurrent Offering," "Management --
Stock Option Plans," "Certain Transactions" and "Underwriting." Investors should
carefully consider the information set forth under the heading "Risk Factors."
THE COMPANY
SkyMall(R) is the largest in-flight catalog company in the United States
that makes high-quality products and services available to more than 350.0
million airline passengers per year. The Company markets and sells a broad
selection of premium merchandise provided by participating merchants, including
major catalog companies and specialty retailers, such as Disney, Hammacher
Schlemmer and The Sharper Image(R). The merchandise of each participating
merchant is presented in a separate section of the SkyMall catalog to allow
browsing from "store to store," providing the convenience and variety of an
upscale shopping mall environment. Substantially all of the merchandise sold by
the Company is shipped directly to customers by participating merchants, thus
avoiding significant inventory risk. The Company has exclusive agreements to
place its catalogs in aircraft seat pockets on 15 airlines, which carried
approximately 70% of all domestic passengers in 1995, including Delta, United,
USAir, Continental, TWA, America West and Southwest. As a result, the Company
believes that the SkyMall catalog is available to over 960,000 domestic airline
passengers each day. SkyMall has experienced substantial growth since the
Company began operations in 1990. Total revenues have increased from
approximately $5.4 million in fiscal 1991 to approximately $43.1 million in
fiscal 1995, for a compound annual growth rate of 68%. The Company's revenue per
passenger enplanement on flights carrying the SkyMall catalog has increased from
approximately $0.038 in 1991 to approximately $0.084 for the year ended December
31, 1995, for a compound annual growth rate of 22%.
Business Strategy. The Company's foundation is built on its relationships
with its customers, airline partners and participating merchants. The Company's
customers enjoy the convenience of being able to shop for a wide variety of
innovative products while traveling. The Company offers a fair price guarantee
under which the Company will refund the price difference if the customer finds
the same item advertised elsewhere at a lower price. In order to enhance the
ongoing appeal of its product offerings, the Company produces four new catalogs
per year. The Company maintains a toll-free 24-hour telephone ordering service
(from air and ground phones) and an in-house staff of customer service
representatives who are trained to provide exemplary service in order to build
strong customer loyalty and increase revenue from repeat and referral business.
In exchange for placement of its catalogs in aircraft seat pockets, the
Company pays each airline partner a monthly commission based on net merchandise
revenues generated by the Company from sales to that airline's passengers. Some
of the Company's airline agreements also require payment of minimum monthly
fees. The Company's airline partners benefit from this additional revenue and
from being able to enhance the in-flight experience of their passengers by
providing the Company's catalog as an additional amenity.
Participating merchants obtain exposure for their products and services to
a demographically diverse group of potential customers with strong economic
profiles, generate additional revenues and acquire new customers to add to their
own proprietary mailing lists. Under contracts with participating merchants, the
3
<PAGE> 8
Company earns percentages of revenues generated by the Company's sales,
placement fees for inclusion of the merchants' products in the SkyMall catalog,
or a combination thereof. Among the more than 60 merchants currently included in
the SkyMall catalog are: Brookstone(R), Compaq Computer, The Disney Catalog,
Frontgate(R), Hammacher Schlemmer, The Safety Zone, Hello Direct(R), Johnston &
Murphy, Mattel(R), The Metropolitan Museum of Art, Norm Thompson Solutions(R),
Pepperidge Farm(R), SelfCare(R), The Sharper Image(R), Successories(R),
SyberVision(R), Thomas Cook and The Wine Enthusiast(R).
Growth Strategy. The Company's growth strategies are to increase its
revenue per passenger enplanement and to increase circulation of the SkyMall
catalog. The Company plans to increase its revenue per passenger enplanement
through innovative marketing programs, some of which are modeled after
successful "duty-free" in-flight sales programs offered on international
flights, which some airlines have reported to have produced revenues in excess
of $5.00 per passenger enplanement. The Company also plans to expand its
distribution to travelers and other potential customers by securing agreements
from additional airlines to carry the Company's catalogs, including both
domestic and foreign airlines. The Company also plans to implement additional
distribution channels outside of its airline franchise, including direct
marketing "mail-to-home" programs, magazine inserts and catalog placement in
hotels, railways, rental cars and other locations where travelers may be
reached. SkyMall recently entered into an agreement with its first foreign
airline, Japan-based JAL, to test market the SkyMall concept. In addition, in
1994, Amtrak began carrying the Company's catalog on selected routes. The
Company is currently employing advanced database management techniques to
utilize its rapidly growing customer database of over one million names for the
development of direct targeted marketing programs and to generate additional
revenues from database list rentals.
The Company's principal executive offices are located at and its mailing
address is 1520 East Pima Street, Phoenix, Arizona 85034. The telephone number
of the Company is (602) 254-9777.
4
<PAGE> 9
THE OFFERING
<TABLE>
<S> <C>
Common Stock offered............................... 2,000,000 shares
Common Stock outstanding prior to this Offering.... 6,590,000 shares of Common Stock(1)
Common Stock to be outstanding after the completion
of this Offering................................. 8,590,000 shares of Common Stock(1)
Use of proceeds.................................... For implementing marketing and promotional
programs, developing additional circulation
media, capital expenditures and working
capital requirements. See "Use of Proceeds."
Risk factors....................................... The Common Stock offered hereby involves a
high degree of risk and immediate and
substantial dilution. See "Risk Factors" and
"Dilution."
Nasdaq National Market Symbol...................... "SKYM"
</TABLE>
- ---------------
(1) Does not include (i) 438,080 shares of Common Stock issuable upon exercise
of stock options issued pursuant to the Company's stock option plans, which
have a weighted average exercise price of $6.13 per share, and an additional
311,920 shares of Common Stock reserved for issuance thereunder, including
20,000 shares reserved for issuance to non-employee directors upon
completion of this Offering, (ii) 180,000 shares of Common Stock issuable
upon the exercise of Warrants issued by the Company in connection with the
Private Placement, which are exercisable at the initial public offering
price, and (iii) 58,824 shares of Common Stock issuable by the Company upon
the exercise of a warrant issued to a vendor, which is exercisable at the
initial public offering price. See "The Company -- Private Placement" and
"Management -- Stock Option Plans."
5
<PAGE> 10
SUMMARY FINANCIAL AND OPERATING DATA
(IN THOUSANDS, EXCEPT SHARE, PER SHARE AND OPERATING DATA)
<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED DECEMBER 31, ENDED SEPTEMBER 30,(1)
------------------------------------------------------------------- -------------------------
1991 1992 1993 1994 1995 1995 1996
----------- ----------- ----------- ----------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS DATA:
Merchandise sales, net........ $5,422 $15,875 $24,507 $22,062 $26,883 $18,379 $18,906
Placement fees and other...... 13 178 2,560 8,241 16,198 11,904 8,631
------- ------- ------- -------- ------- ------- -------
Total revenues................ 5,435 16,053 27,067 30,303 43,081 30,283 27,537
------- ------- ------- -------- ------- ------- -------
Costs of goods sold........... 3,370 10,364 13,691 16,266 24,564 17,100 14,725
Total operating expenses...... 6,776 14,589 18,855 25,535 17,009 12,479 11,171
Interest expense and other
income (expense) net........ (364) (740) (287) (688) (750) (588) (550)
------- ------- ------- -------- ------- ------- -------
Net income (loss)............. $(5,075) $(9,640) $(5,766) $(12,186) $758 $116 $1,091
------- ------- ------- -------- ------- ------- -------
------- ------- ------- -------- ------- ------- -------
Pro forma net income (loss)
per common share............ $(1.04) $(1.95) $(1.59) $(3.19) $.21 $.09 $.27
Pro forma weighted average
shares outstanding.......... 4,877,399 4,946,867 3,630,559 3,775,274 5,648,824 5,648,824 5,648,824
OPERATING DATA:
Number of domestic
enplanements(2)............. 417,867,000 436,310,000 448,647,000 481,755,000 498,611,000 373,047,000 397,709,000
Domestic enplanement
percentage(3)............... 34% 74% 76% 72% 64% 65% 61%
Revenue per passenger
enplanement(4).............. $0.038 $0.049 $0.072 $0.064 $0.084 $0.076 $0.078
Number of airlines at end of
period(5)................... 10 11 15 21 20 20 15
Number of catalogs
produced(6)................. 4,513,000 11,915,000 15,661,000 15,747,000 17,162,000 12,838,000 11,421,000
Average number of pages per
catalog(7).................. 60 80 102 133 137 134 141
Revenue per catalog
produced(8)................. $1.20 $1.33 $1.56 $1.40 $1.57 $1.43 $1.66
</TABLE>
<TABLE>
<CAPTION>
SEPTEMBER 30, 1996(1)
----------------------------------
DECEMBER 31, PRO FORMA
------------------------------------------------------ PRO AS
1991 1992 1993 1994 1995 ACTUAL FORMA(9) ADJUSTED(10)
----------- ------- -------- -------- -------- -------- -------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents...... $ 560 $ 1,797 $ 171 $ 896 $ 775 $ 1,013 $ 1,013 $ 16,013
Working capital (deficit)...... (264) (1,506) (3,580) (7,540) (4,734) (5,485) (2,885 ) 12,115
Total assets................... 5,902 8,757 10,394 5,913 4,726 5,590 5,590 20,590
Long-term debt................. 6,701 40 2,978 8,082 10,818 9,943 4,943 4,943
Shareholders' equity $ 1,941 $ (3,603) $(15,791) $(15,033) $(13,942) $(6,342 )
(deficit).................... $(3,946) $ 8,658
</TABLE>
- ---------------
(1) The audited financial statements of the Company as of and for the six month
period ended June 30, 1996 are contained in the Financial Statements
included elsewhere herein.
(2) Represents the number of revenue passengers flown on scheduled domestic
airlines in the given period.
(3) Represents the passenger enplanements on domestic airlines that carried the
SkyMall catalog during the period as a percentage of total domestic
passenger enplanements in the period by all scheduled domestic airlines.
(4) Revenue per passenger enplanement is net merchandise sales for the period
divided by the number of domestic enplanements during the period on all
scheduled domestic airlines that carried the SkyMall catalog.
(5) Represents the number of airlines at end of period with which the Company
had an agreement to carry the SkyMall catalog. During the nine month period
ended September 30, 1996, the Company eliminated unprofitable circulation
of the SkyMall catalog by eliminating routes on certain airlines and
terminating agreements with certain smaller regional airlines. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
(6) Represents the number of catalogs produced by the Company during the period
for distribution to airlines.
(7) Represents the average number of pages in the SkyMall catalog during the
period.
(8) Represents net merchandise sales for the period divided by the number of
catalogs produced by the Company during the period.
(9) Pro forma to give effect to the Recapitalization Transactions. See
"Prospectus Summary," "The Company -- Private Placement," "Concurrent
Offering" and "Certain Transactions."
(10) Pro forma as adjusted to give effect to the Recapitalization Transactions
and to reflect the sale of 2,000,000 shares of Common Stock offered hereby
(assuming an initial public offering price of $8.50 per share) and the
initial application of the net proceeds therefrom. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations,"
"Use of Proceeds" and "Underwriting."
6
<PAGE> 11
RISK FACTORS
An investment in the securities offered hereby involves a high degree of
risk. Prospective investors, prior to making an investment in the securities,
should carefully consider the following risk factors, among others, relating to
the Company and this Offering.
LIMITED HISTORY OF PROFITABLE OPERATIONS; NO ASSURANCE OF CONTINUED
PROFITABILITY
The Company commenced operations in late 1990. Except for fiscal 1995 and
the first nine months of fiscal 1996, the Company has incurred substantial
losses, resulting in an accumulated deficit of approximately $32.4 million at
September 30, 1996. There can be no assurance that the Company's operations will
remain profitable. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
NO ASSURANCE OF CONTINUED GROWTH
Since its inception, SkyMall has rapidly expanded its operations, growing
from total revenues of $200,000 in fiscal 1990 to total revenues of $43.1
million in fiscal 1995. The Company's continued growth will depend to a
significant degree on its ability to increase revenue per passenger, broaden its
customer base by entering into relationships with new domestic and foreign
airlines and implement other programs that increase the circulation of the
SkyMall catalog. The Company's ability to implement its growth strategy will
also depend on a number of other factors, many of which are or may be beyond the
Company's control, including: (i) the ability of the Company to select products
for its catalog that appeal to its customer base; (ii) sustained or increased
levels of airline travel, particularly in domestic airline markets; (iii) the
continued perception by participating merchants that the Company offers an
effective marketing channel for their products and services; (iv) the Company's
ability to attract, train and retain qualified employees and management; and (v)
the continued profitability of existing operations. There can be no assurance
that the Company will be able to successfully implement its growth strategy or
that its planned expansion will be profitable. See "Business -- Growth
Strategy."
AIRLINE RELATIONSHIPS
The Company's business depends significantly on its relationships with
airlines and its ability to have its catalogs placed on a substantial portion of
domestic airline flights. The Company's agreements with its airline partners
typically have one-year terms, but generally permit the airline to terminate the
relationship on 60 to 180 days' advance notice. In 1993, one major airline
declined to renew its contract with the Company. There can be no assurance that
the Company's airline partners will continue their relationships with the
Company and the loss of one or more of the Company's significant airline
partners could have a material adverse affect on the Company's financial
condition and results of operations. See "Business -- Airline Relationships" and
Note 11 of the Financial Statements included elsewhere in this Prospectus.
INCREASES IN PAPER COSTS AND AIRLINE FUEL PRICES
The cost of paper used to print the Company's catalogs and the fees paid to
airlines to reimburse them for the increased fuel costs associated with carrying
the Company's catalogs are significant expenses of the Company's operations.
Historically, paper and airline fuel prices have fluctuated significantly from
time to time. In 1995 and the first six months of 1996, the Company experienced
a significant increase in paper costs, and although paper prices have declined
during the third and fourth quarters of 1996, prices in the paper market remain
volatile. Any significant increases in paper or airline fuel costs reimbursable
by the Company could have a material adverse effect on the Company's financial
condition and results of operations. See "Management's Discussion and Analysis
of Results of Operations and Financial Condition."
CREDIT RISK
Some participating merchants agree to pay a placement fee to the Company
for inclusion of their merchandise in the SkyMall catalog. The Company records
an account receivable from the merchant for the placement fee ratably for each
month of the catalog issue. In some cases, the Company collects the placement
fee either from the merchant or by withholding it from amounts due to the
merchant for merchandise sold. To
7
<PAGE> 12
the extent that the placement fee receivable exceeds the sales of the merchant's
products and the merchant is unable or unwilling to pay the difference to the
Company, the Company may experience credit losses which could have a material
adverse effect on the Company's financial condition and results of operations.
See "Management's Discussion and Analysis of Results of Operations and Financial
Condition."
COMPETITION
The Company faces competition for customers from airport-based retailers,
duty-free retailers, specialty stores, department stores and specialty and
general merchandise catalogs, many of which have greater financial and marketing
resources than the Company. In addition, the Company competes for customers with
other in-flight marketing media, such as airline-sponsored in-flight magazines,
airline video programming, and, to a lesser extent, seatback video shopping
services. All of the products and services offered by the Company can also be
found in other retail stores and catalogs. See "Business -- Competition."
INFORMATION AND TELECOMMUNICATIONS SYSTEMS
The Company processes a large volume of relatively small orders.
Consequently, the Company's success depends to a significant degree on the
effective operation of its information and telecommunications systems. Any
extended failure of the Company's information and telecommunications systems
could have a material adverse effect on the Company's financial condition and
results of operations. See "Business -- Business Operations."
SEASONALITY
The Company's business is seasonal in nature, with its sales peak typically
occurring during the holiday selling season of the fourth quarter. During fiscal
1995, approximately 33% of the Company's product sales were generated in the
fourth quarter. Any substantial decrease in sales for the fourth quarter could
have a material adverse effect on the Company's results of operations. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Seasonality."
PRODUCT LIABILITY
The Company's catalog typically features over 1,000 products and services
from more than 60 participating merchants. Generally, the Company's agreements
with its participating merchants require the merchants to indemnify the Company
for any losses arising from product liability claims made by customers,
including the costs of defending any such claims, and to carry product liability
insurance that names SkyMall as an additional insured. In addition, the Company
maintains product liability insurance in the aggregate amount of $2.0 million
and $1.0 million per occurrence. To the extent that a merchant was unable or
unwilling to indemnify the Company as required, and any such losses exceeded the
Company's insurance coverage or were not covered by the Company's insurer, the
Company's financial condition and results of operations could be materially
adversely affected. See "Business -- Business Operations."
RELIANCE ON KEY PERSONNEL
The Company is dependent on the services of Robert M. Worsley, its
Chairman, President and Chief Executive Officer, and on the services of certain
other executive officers. The Company has entered into an employment agreement
with Mr. Worsley and the Company is the beneficiary of $1.0 million of key-man
life insurance on the life of Mr. Worsley. However, the loss of Mr. Worsley's
services or of the services of certain other executive officers would have a
material adverse effect on the Company. See "Management."
CONTROL BY SHAREHOLDER
Immediately upon completion of this Offering, Mr. Worsley and his wife (the
"Worsleys") will directly own approximately 26.4% of the Company's outstanding
Common Stock. In addition, following this Offering, the Worsleys will have
certain options to purchase an additional 37.2% of the Company's Common Stock
(33.7% if the Over-Allotment Option is exercised in full) from two of the
Company's existing shareholders.
8
<PAGE> 13
The Worsleys will also have an irrevocable proxy to vote the shares of Common
Stock subject to one of these options for the 12 month period following this
Offering. Accordingly, upon the closing of this Offering, the Worsleys will
beneficially own 63.7% of the Company's Common Stock (60.2% if the
Over-Allotment Option is exercised in full) and will have the ability to control
the affairs of the Company and matters requiring a shareholder vote, including
the election of the Company's directors, the amendment of the Company's charter
documents, the merger or dissolution of the Company and the sale of all or
substantially all of the Company's assets. The voting power of the Worsleys may
also discourage or prevent any proposed takeover of the Company pursuant to a
tender offer. See "Principal Shareholders" and "Certain Transactions."
NO PRIOR PUBLIC MARKET; ARBITRARY DETERMINATION OF OFFERING PRICE; VOLATILITY OF
PRICE
Prior to this Offering, there has been no public market for the Common
Stock and there can be no assurance that an active public market for the Common
Stock will develop or, if developed, be sustained after this Offering, or that
the market price of the Common Stock will not decline below the initial public
offering price. The initial public offering price of the Common Stock has been
arbitrarily determined by negotiation between the Company and the
Representatives, does not necessarily bear any relationship to the Company's
assets, book value, revenues or other established criteria of value, and should
not be considered indicative of the actual value of the Common Stock.
The trading prices of the Common Stock could be subject to wide
fluctuations in response to variations in the Company's operating results,
announcements by the Company or others, developments affecting the Company or
its competitors and other events and factors. In addition, the stock market has
experienced extreme price and volume fluctuations in recent years. These
fluctuations have had a substantial effect on the market prices for many
companies, often unrelated to their performance, and may adversely affect the
market price for the Common Stock. See "Underwriting."
REPRESENTATIVES' POTENTIAL INFLUENCE ON THE MARKET
A significant number of shares of Common Stock offered hereby may be sold
to customers of the Representatives. Such customers subsequently may engage in
transactions for the sale or purchase of shares of Common Stock through or with
the Representatives. Although they have no obligation to do so, the
Representatives intend to make a market in the Common Stock and may otherwise
effect transactions in the Common Stock. If they participate in such market, the
Representatives may influence the market, if one develops, for the Common Stock.
Such market-making activity may be discontinued at any time. Moreover, if
Josephthal sells the securities issuable upon exercise of the Representative's
Warrants, it may be required under the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), to temporarily suspend its market-making
activities. The prices and liquidity of the Common Stock may be significantly
affected by the degree, if any, of the Representatives' participation in such
market. See "Underwriting."
IMMEDIATE SUBSTANTIAL DILUTION
Purchasers of the Common Stock offered hereby will experience immediate and
substantial dilution in pro forma net tangible book value of $7.51 (88%) per
share of Common Stock from the initial public offering price. See "Dilution."
BROAD DISCRETION IN APPLICATION OF PROCEEDS
All of the estimated net proceeds from this Offering have been allocated to
the funding of the Company's growth strategy and working capital requirements.
Accordingly, the Company will have broad discretion as to the application of the
proceeds of this Offering. See "Use of Proceeds."
NO DIVIDENDS
The Company has not paid dividends on its Common Stock since its inception
and does not expect to pay cash or stock dividends on its Common Stock in the
foreseeable future. See "Dividend Policy."
9
<PAGE> 14
ISSUANCE OF PREFERRED STOCK; BARRIERS TO TAKEOVER
The Board of Directors may issue one or more series of Preferred Stock,
without any action on the part of the shareholders of the Company, the terms of
which may adversely affect the rights of holders of Common Stock. Further, the
issuance of Preferred Stock may be used as an "anti-takeover" device without
further action on the part of the shareholders. Issuance of Preferred Stock,
which may be accomplished through a public offering or a private placement to
parties favorable to current management, may dilute the voting power of holders
of Common Stock (such as by issuing Preferred Stock with super-voting rights)
and may render more difficult the removal of current management, even if such
removal may be in the shareholders' best interests. Any such issuance of
Preferred Stock could prevent the holders of Common Stock from realizing a
premium on their shares. See "Description of Securities -- Preferred Stock." The
Company's Articles of Incorporation and Bylaws also contain a certain number of
provisions which could deter takeover attempts. See "Certain Charter and Bylaw
Provisions."
SHARES ELIGIBLE FOR FUTURE SALE
Sales of substantial amounts of the Company's securities in the public
market after this Offering or the perception that such sales may occur could
materially adversely affect the market price of the Common Stock. Of the
8,590,000 shares of Common Stock to be outstanding upon completion of this
Offering, the 2,000,000 shares of Common Stock offered hereby will be
immediately freely transferable without restriction under the Securities Act of
1933, as amended (the "Securities Act") except for any shares of Common Stock
purchased by an "affiliate" of the Company (as that term is defined under the
rules and regulations of the Securities Act), which will be subject to certain
of the resale limitations of Rule 144 under the Securities Act. Eight thousand
shares of Preferred Stock will convert into 1,440,000 shares of Common Stock
upon the closing of this Offering, of which 540,000 shares of Common Stock and
180,000 shares of Common Stock that may be acquired upon the exercise of the
Warrants will be freely tradeable. However, the holders of these securities have
executed agreements pursuant to which they have agreed not to sell, transfer,
assign, pledge or otherwise dispose of their securities for a 12-month period
from the effective date of this Prospectus.
The remaining 6,050,000 shares of Common Stock outstanding prior to
consummation of this Offering, including 900,000 shares of Common Stock issuable
on conversion of certain shares of Preferred Stock, are "restricted" securities
within the meaning of Rule 144 under the Securities Act. The holders of all
these "restricted" shares, including each officer, director and principal
shareholder of the Company, have executed agreements pursuant to which they have
agreed not to sell, transfer, assign, pledge or otherwise dispose of their
shares for a 12 month period from the date of this Prospectus without the prior
consent of Josephthal. Taking into consideration the restrictions of Rule 144
and the lock-up agreements, commencing 12 months after the date of this
Prospectus, 5,150,000 shares of Common Stock held by existing shareholders will
become eligible for sale under Rule 144, subject to compliance with the volume
limitations and other requirements of Rule 144. The remaining 900,000 shares of
Common Stock held by existing shareholders will become eligible for sale under
Rule 144 in October 1998, subject to compliance with the volume limitations and
other requirements of Rule 144. The sale or availability for sale of significant
quantities of Common Stock could materially adversely affect the market price of
the Common Stock and could impair the ability of the Company to raise capital in
the future through an offering of its equity securities. See "Shares Eligible
for Future Sale."
FORWARD-LOOKING STATEMENTS AND ASSOCIATED RISK
This prospectus contains forward-looking statements within the meaning of
Section 27A of the Securities Act and Section 21E of the Exchange Act, including
statements regarding, among other items, the Company's growth strategy and
anticipated trends in the Company's business. These forward-looking statements
are based largely on the Company's expectations and are subject to a number of
risks and uncertainties, certain of which are beyond the Company's control.
Actual results could differ materially from these forward-looking statements as
a result of the factors described herein, including, among others, regulatory or
economic influences. In light of these risks and uncertainties, there can be no
assurance that the forward-looking information contained in this Prospectus will
in fact transpire or prove to be accurate.
10
<PAGE> 15
THE COMPANY
SkyMall was incorporated in Arizona in 1989. The Company began its
operations in late 1990 and, in 1991, the Company acquired the operations of its
principal competitor, GiftMaster, Inc. ("GiftMaster"). The Company was
reincorporated in Nevada in 1996. Except as otherwise specified, all references
in this Prospectus to the "Company" or "SkyMall" refer to SkyMall, Inc., which
has no subsidiaries. The Company's principal executive offices are located at
and its mailing address is 1520 East Pima Street, Phoenix, Arizona 85034. The
telephone number of the Company is (602) 254-9777.
PRIVATE PLACEMENT
On October 20, 1996, the Company completed a private placement (the
"Private Placement") pursuant to which it sold 3,000 shares of 6% Dividend
Paying Convertible Redeemable Preferred Stock (the "Convertible Preferred
Stock") to certain investors including certain affiliates of the Company. In
connection with the Private Placement, the Company issued warrants (the
"Warrants") to acquire up to 180,000 shares of Common Stock to investors in the
Private Placement. The Warrants are exercisable for three years following this
Offering at an exercise price equal to the initial public offering price at
which shares of Common Stock are offered hereby. The net proceeds from the
Private Placement were approximately $2.6 million (after commissions and
expenses). The Company used the net proceeds of the Private Placement to pay
certain indebtedness and to meet working capital requirements. Simultaneously
with the closing of the Private Placement, certain shareholders of the Company
converted an aggregate of $5.0 million of indebtedness of the Company into 5,000
shares of Convertible Preferred Stock. See "Certain Transactions."
The terms of the Convertible Preferred Stock provide that each share of
Convertible Preferred Stock will automatically be converted into Common Stock
upon the closing of this Offering. The rate at which the Convertible Preferred
Stock converts into Common Stock is the greater of (i) 180 shares of Common
Stock per share of Convertible Preferred Stock, or (ii) 1,000 divided by
(66 2/3% multiplied by the initial public offering price per share of Common
Stock). Assuming an initial public offering price of $8.50 per share, the 8,000
shares of Convertible Preferred Stock issued in the Private Placement and upon
the conversion of certain shareholder debt will convert into 1,440,000 shares of
Common Stock upon the closing of this Offering.
CONCURRENT OFFERING
The Company agreed to register the shares of Common Stock issuable upon
conversion of the Convertible Preferred Stock sold in the Private Placement and
the shares of Common Stock underlying the Warrants upon the Company's initial
public offering. Accordingly, the registration statement of which this
Prospectus forms a part also includes a prospectus (the "Selling Securityholder
Prospectus") with respect to an offering of 540,000 shares of Common Stock that
are issuable upon such conversion and 180,000 shares of Common Stock underlying
the Warrants (the "Concurrent Offering"), all of which may be sold in the open
market, in privately negotiated transactions or otherwise, directly by the
holders thereof. These shareholders have agreed with Josephthal, not to sell or
otherwise transfer any of such securities for 12 months from the date of this
Prospectus. The Company will not receive any proceeds from the sale of such
Common Stock. Expenses of the Concurrent Offering, other than fees and expenses
of counsel to these shareholders and selling commissions, will be paid by the
Company. Sales of such shares of Common Stock by the holders thereof or the
potential for such sales may have an adverse effect on the market price of the
shares offered hereby. See "Risk Factors -- Shares Eligible for Future Sale."
11
<PAGE> 16
USE OF PROCEEDS
The net proceeds to the Company from the sale of the 2,000,000 shares of
Common Stock offered hereby, assuming an initial public offering price of $8.50
per share, and after deducting underwriting discounts and commissions and the
estimated offering expenses, are estimated to be approximately $15.0 million.
The Company intends to apply such net proceeds as follows:
<TABLE>
<CAPTION>
APPROXIMATE
AMOUNT APPROXIMATE
OF PERCENTAGE OF
NET PROCEEDS(1) NET PROCEEDS
------------------ -------------
<S> <C> <C>
Marketing and Promotional Programs(2)................. $ 5.0 33.3%
Development of Additional Circulation Media(3)........ 5.0 33.3%
Capital Expenditures.................................. 1.0 6.7%
Working Capital....................................... 4.0 26.7%
----- -----
Total....................................... $ 15.0 100.0%
===== =====
</TABLE>
- ---------------
(1) In millions.
(2) To increase its revenue per passenger, the Company plans to implement or
expand a number of marketing and promotional programs, including offering
various incentives to participating airlines and flight attendants,
conducting various gate, jetway, in-flight and frequent flier promotions and
expanding in-flight video shopping services. See "Business -- Growth
Strategy."
(3) To increase circulation of the SkyMall catalog, the Company plans to develop
or expand new marketing channels, including developing new airline
partnerships with both foreign and domestic airlines, implementing a
mail-to-home program, placing the SkyMall catalog in hotels, railways and
rental cars and developing magazine inserts for in-flight magazines
sponsored by various airlines. See "Business -- Growth Strategy."
The allocation of the use of net proceeds represents management's estimates
based upon current business and economic conditions. Although the Company does
not contemplate material changes in the proposed allocation of the use of
proceeds, to the extent the Company finds that adjustment is required by reason
of existing business conditions, the amounts shown may be reallocated among the
uses indicated above or put to new uses. The Company believes that the net
proceeds of this Offering and cash generated from operations will be sufficient
for the Company to implement its growth strategy and otherwise conduct its
operations for at least the 12 month period following this Offering. The net
proceeds of this Offering that are not expended immediately will be deposited in
interest bearing accounts, or invested in government obligations, certificates
of deposit or similar short-term, low risk investments. See "Risk
Factors -- Broad Discretion in Application of Proceeds."
The Company will not receive any of the proceeds from the exercise of the
Over-Allotment Option and the sale of any of the securities being offered by the
certain shareholders in the Concurrent Offering. See "Principal Shareholders"
and "The Company -- Private Placement" and "Concurrent Offering."
DIVIDEND POLICY
The Company has never paid a dividend on its Common Stock and does not
anticipate paying dividends on its Common Stock in the foreseeable future. It is
the current policy of the Company's Board of Directors to retain any earnings to
finance operations and expansion of the Company's business. The payment of
future dividends is within the discretion of the Board of Directors and will
depend upon the Company's future earnings, if any, its capital requirements,
financial condition and other relevant factors.
12
<PAGE> 17
DILUTION
The pro forma net tangible book value (deficit) of the Company's Common
Stock at September 30, 1996, was approximately $(6.5 million), or $(0.99) per
share. Pro forma net tangible book value per common share represents the book
value of the Company's tangible assets less total liabilities divided by the
number of shares of Common Stock outstanding, after giving effect on a pro forma
basis to the Recapitalization Transactions. Dilution per share to new investors
represents the difference between the amount per share paid by purchasers of
Common Stock of the Company pursuant to this Offering and the pro forma net
tangible book value per share of Common Stock immediately after completion of
this Offering. After giving effect to the sale of the 2,000,000 shares of Common
Stock offered hereby (at an assumed initial public offering price of $8.50 per
share) and the application of the net proceeds therefrom, the as adjusted pro
forma net tangible book value of the Common Stock at September 30, 1996, would
have been $8.5 million, or $0.99 per share. This represents an immediate
increase in pro forma net tangible book value of $1.98 per share of Common Stock
to existing shareholders and an immediate dilution of $7.51 (88%) per share of
Common Stock to new investors purchasing Common Stock pursuant to this Offering.
The following table illustrates the per share effect of this dilution on an
investor's purchase of shares:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share of Common Stock..... $8.50
Pro forma net tangible book value per share of Common Stock
before this Offering........................................... $(0.99)
Increase in pro forma net tangible book value per share of
Common Stock attributable to new investors..................... $1.98
-----
As adjusted pro forma net tangible book value per share of Common Stock
after this Offering........................................................ $0.99
Dilution per share of Common Stock to new investors.......................... $7.51
====
</TABLE>
The following table summarizes, as of September 30, 1996, the difference
between the number of shares of Common Stock purchased from the Company, the
total consideration paid, and the average price per share paid by existing
shareholders and by new investors purchasing shares of Common Stock pursuant to
this Offering, after giving effect on a pro forma basis to the Recapitalization
Transactions.
<TABLE>
<CAPTION>
TOTAL CONSIDERATION
SHARES PURCHASED PAID AVERAGE
--------------------- ----------------------- PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
--------- ------- ----------- ------- ---------
<S> <C> <C> <C> <C> <C>
Existing shareholders(1).............. 6,590,000 76.7% $26,843,000 61.2% $4.07
New investors......................... 2,000,000 23.3% $17,000,000 38.8% $8.50
--------- ----- ----------- ----- -----
Total....................... 8,590,000 100.0% $43,843,000 100.0%
========= ===== =========== =====
</TABLE>
- ---------------
(1) Does not include (i) 438,080 shares of Common Stock issuable upon exercise
of stock options issued pursuant to the Company's stock option plans, which
have a weighted average exercise price of $6.13 per share, and an additional
311,920 shares of Common Stock reserved for issuance thereunder, including
20,000 shares reserved for issuance to non-employee directors upon
completion of this Offering, (ii) 180,000 shares of Common Stock issuable
upon the exercise of Warrants issued by the Company in connection with the
Private Placement, which are exercisable at the initial public offering
price, and (iii) 58,824 shares of Common Stock issuable by the Company upon
the exercise of a warrant issued to a vendor, which is exercisable at the
initial public offering price. See "The Company -- Private Placement" and
"Management -- Stock Option Plans."
13
<PAGE> 18
CAPITALIZATION
The following table sets forth the capitalization of the Company at
September 30, 1996 (i) on an actual basis, (ii) on a pro forma basis after
giving effect to the Recapitalization Transactions and (iii) on a pro forma as
adjusted basis to give effect to the Recapitalization Transactions and the sale
of 2,000,000 shares of Common Stock offered hereby at an assumed initial public
offering price of $8.50 per share and the initial application of the estimated
net proceeds therefrom. This table should be read in conjunction with, and is
qualified by, the Financial Statements and notes thereto included elsewhere in
this Prospectus.
<TABLE>
<CAPTION>
SEPTEMBER 30, 1996
--------------------------------------
(IN THOUSANDS)
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
-------- --------- -----------
<S> <C> <C> <C>
Long-term notes payable and capital lease obligations
excluding current portion............................... $ 9,943 $ 4,943 $ 4,943
======== ======== ========
Shareholders' Equity:
Preferred Stock $.001 par value, 10,000,000 shares
authorized; no shares issued and outstanding......... -- -- --
Common Stock $.001 par value, 50,000,000 shares
authorized; 5,150,000 shares issued and outstanding
actual; 6,590,000 shares issued and outstanding pro
forma; and 8,590,000 shares issued and outstanding
pro forma as adjusted(1)............................. 5 7 9
Additional paid-in capital.............................. 18,438 (6,349) 8,649
Retained earnings (deficit)(2).......................... (32,385) -- --
-------- -------- --------
Total shareholders' equity (deficit)................. (13,942) (6,342) 8,658
======== ======== ========
Total capitalization (deficiency).................... $ (3,999) $ (1,399) $ 13,601
======== ======== ========
</TABLE>
- ---------------
(1) Does not (i) include 438,080 shares of Common Stock issuable upon exercise
of stock options issued pursuant to the Company's stock option plans, which
have a weighted average exercise price of $6.13 per share, and an additional
311,920 shares of Common Stock reserved for issuance thereunder, including
20,000 shares reserved for issuance to non-employee directors upon
completion of this Offering, (ii) 180,000 shares of Common Stock issuable
upon the exercise of Warrants issued by the Company in connection with the
Private Placement, which are exercisable at the initial public offering
price, and (iii) 58,824 shares of Common Stock issuable by the Company upon
the exercise of a warrant issued to a vendor, which is exercisable at the
initial public offering price. See "The Company -- Private Placement" and
"Management -- Stock Option Plans."
(2) The Company's accumulated deficit, which was $32.4 million at September 30,
1996, was reclassified into additional paid-in capital in the Pro Forma
amounts upon the termination of the Company's S corporation status. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
14
<PAGE> 19
SELECTED FINANCIAL AND OPERATING DATA
(IN THOUSANDS, EXCEPT SHARE, PER SHARE AND OPERATING DATA)
The selected financial data as of and for the years ended December 31,
1991, 1992, 1993, 1994 and 1995 are derived from the Financial Statements of the
Company which have been audited by Arthur Andersen LLP, independent public
accountants, and should be read in conjunction with the Financial Statements
included elsewhere in this prospectus and the related notes thereto and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations." The selected financial data as of and for the nine months ended
September 30, 1995 and 1996 have been derived from unaudited financial
statements, which in the opinion of management, have been prepared on a basis
consistent with the audited information and include all adjustments, consisting
of only normal recurring adjustments, necessary to present fairly the
information set forth therein. Results of operations for the nine month periods
ended September 30, 1995 and 1996 may not necessarily be indicative of the
results to be expected for the full fiscal year or any other period.
<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED DECEMBER 31, ENDED SEPTEMBER 30,(1)
------------------------------------------------------------------- -------------------------
1991 1992 1993 1994 1995 1995 1996
----------- ----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Merchandise sales, net.......... $5,422 $15,875 $24,507 $ 22,062 $26,883 $18,379 $18,906
Placement fees and other........ 13 178 2,560 8,241 16,198 11,904 8,631
------- ------- ------- -------- ------- ------- -------
Total revenues.................. 5,435 16,053 27,067 30,303 43,081 30,283 27,537
Cost of goods sold.............. 3,370 10,364 13,691 16,266 24,564 17,100 14,725
------- ------- ------- -------- ------- ------- -------
Gross margin.................... 2,065 5,689 13,376 14,037 18,517 13,183 12,812
Catalog expenses................ 2,445 4,071 6,890 9,644 9,532 7,043 5,705
Selling expenses................ 773 2,116 2,921 2,754 2,229 1,594 1,665
Customer service and fulfillment
expenses...................... 1,266 3,618 4,514 2,919 2,136 1,534 1,511
General and administrative
expenses...................... 2,292 4,784 4,530 5,886 3,112 2,308 2,290
Restructure charges............. -- -- -- 4,332 -- -- --
------- ------- ------- -------- ------- ------- -------
Total operating expenses........ 6,776 14,589 18,855 25,535 17,009 12,479 11,171
------- ------- ------- -------- ------- ------- -------
Interest expense and other
income (expense), net......... (364) (740) (287) (688) (750) (588) (550)
------- ------- ------- -------- ------- ------- -------
Net income (loss)............... $(5,075) $(9,640) $(5,766) $(12,186) $ 758 $ 116 $ 1,091
------- ------- ------- -------- ------- ------- -------
------- ------- ------- -------- ------- ------- -------
Pro forma net income (loss) per
common share.................. $(1.04) $(1.95) $(1.59) $(3.19) $.21 $.09 $.27
Pro forma weighted average
shares outstanding............ 4,877,399 4,946,867 3,630,559 3,775,274 5,648,824 5,648,824 5,648,824
SELECTED OPERATING DATA:
Number of domestic
enplanements(2)............... 417,867,000 436,310,000 448,647,000 481,755,000 498,611,000 373,047,000 397,709,000
Domestic enplanement
percentage(3)................. 34% 74% 76% 72% 64% 65% 61%
Revenue per passenger
enplanement(4)................ $0.038 $0.049 $0.072 $0.064 $0.084 $0.076 $0.078
Number of airlines at end of
period(5)..................... 10 11 15 21 20 20 15
Number of catalogs
produced(6)................... 4,513,000 11,915,000 15,661,000 15,747,000 17,162,000 12,838,000 11,421,000
Average number of pages per
catalog(7).................... 60 80 102 133 137 134 141
Revenue per catalog
produced(8)................... $1.20 $1.33 $1.56 $1.40 $1.57 $1.43 $1.66
</TABLE>
<TABLE>
<CAPTION>
SEPTEMBER 30, 1996(1)
---------------------------------
PRO
DECEMBER 31, FORMA
----------------------------------------------------- PRO AS
1991 1992 1993 1994 1995 ACTUAL FORMA(9) ADJUSTED(10)
----------- ------- ------- -------- -------- -------- -------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents............. $ 560 $ 1,797 $ 171 $ 896 $ 775 $ 1,013 $ 1,013 $16,013
Working capital (deficit)............. (264) (1,506) (3,580) (7,540) (4,734) (5,485) (2,885 ) 12,115
Total assets.......................... 5,902 8,757 10,394 5,913 4,726 5,590 5,590 20,590
Long-term debt........................ 6,701 40 2,978 8,082 10,818 9,943 4,943 4,943
Shareholders' equity (deficit)........ $(3,946) $ 1,941 $(3,603) $(15,791) $(15,033) $(13,942) $(6,342 ) $ 8,658
</TABLE>
(footnotes on following page)
15
<PAGE> 20
SELECTED FINANCIAL AND OPERATING DATA -- CONTINUED
- ---------------
(1) The audited financial statements of the Company as of and for the six month
period ended June 30, 1996 are contained in the Financial Statements
included elsewhere herein.
(2) Represents the number of revenue passengers flown on scheduled domestic
airlines in the given period.
(3) Represents the passenger enplanements on domestic airlines that carried the
SkyMall catalog during the period as a percentage of total domestic
passenger enplanements in the period by all scheduled domestic airlines.
(4) Revenue per passenger enplanement is net merchandise sales for the period
divided by the number of domestic enplanements during the period on all
scheduled domestic airlines that carried the SkyMall catalog.
(5) Represents the number of airlines at end of period with which the Company
had an agreement to carry the SkyMall catalog. During the nine month period
ended September 30, 1996, the Company eliminated unprofitable circulation
of the SkyMall Catalog by eliminating routes on certain airlines and
terminating agreements with certain smaller regional airlines. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
(6) Represents the number of catalogs produced by the Company during the period
for distribution to airlines.
(7) Represents the average number of pages in the SkyMall catalog during the
period.
(8) Represents net merchandise sales for the period divided by the number of
catalogs produced by the Company during the period.
(9) Pro forma to give effect to the Recapitalization Transactions. See
"Prospectus Summary," "The Company -- Private Placement," "Concurrent
Offering" and "Certain Transactions."
(10) Pro forma as adjusted to give effect to the Recapitalization Transactions
and to reflect the sale of 2,000,000 shares of Common Stock offered hereby
(assuming an initial offering price of $8.50 per share) and the initial
application of the net proceeds therefrom. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations," "Use of
Proceeds" and "Underwriting."
16
<PAGE> 21
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis provides information regarding the
Company's financial condition as of December 31, 1994 and 1995 and September 30,
1996, and its results of operations for the years ended December 31, 1993, 1994
and 1995 and the nine-month periods ended September 30, 1995 and 1996. This
discussion should be read in conjunction with the preceding "Selected Financial
and Operating Data" and the Company's Financial Statements and related Notes
thereto and other financial data appearing elsewhere in this Prospectus. For
information relating to factors that could affect future operating results, see
"Risk Factors." Any forward-looking statements included in this Prospectus
should be considered in light of such factors, as well as the information set
forth below.
GENERAL
The Company commenced operations in late 1990 with an initial business
strategy of establishing exclusive relationships with major United States
airlines, delivering merchandise ordered by passengers at the airport upon
landing and offering concierge services. In 1991, the Company acquired its only
major competitor, which resulted in the addition of five new airline partners
for the Company. Since its first full year of operations in 1991, the Company
has experienced rapid growth. From 1991 to 1994, the Company devoted its
resources to increasing revenue per passenger enplanement and expanding
circulation of the SkyMall catalog. During this period, the Company gained
market share by acquiring exclusive contracts with airline partners, developing
relationships with participating merchants and gaining knowledge about its
consumer market. Total revenue increased from $5.4 million in 1991 to $30.3
million in 1994 and revenue per passenger enplanement grew from $0.038 to $0.064
in the same period.
In late 1994, management focused its emphasis on translating the Company's
growth into profitability. Beginning in late 1994, the Company implemented
increases in placement fees charged to participating merchants for inclusion of
their merchandise in the SkyMall catalog. As a result of these increases,
placement fees and other revenues increased from $2.6 million in fiscal 1993 to
$16.2 million in fiscal 1995. During late 1994, the Company also simplified its
business strategy by outsourcing its merchandise fulfillment operations to
participating merchants. Through its market research and experience, the Company
determined that while customers valued the convenience of in-flight shopping,
most passengers preferred delivery at home rather than at the airport. Although
airport delivery and concierge services were essential in attracting new airline
partners to the program, they were no longer necessary to maintain the Company's
airline relationships. Accordingly, the Company discontinued its airport
delivery service and began its current practice of forwarding merchandise orders
to participating merchants for fulfillment. Thus, the Company no longer
maintains any significant inventory and has eliminated from its business
operations the costs and risks associated with managing inventory and a complex
airport delivery system. The Company also began significantly reducing its
operating expenses in late 1994, including outsourcing its concierge operation,
reducing its work force, requiring merchants to provide their own creative
catalog materials and eliminating unprofitable circulation. These actions
substantially reduced the Company's operating costs, from $25.5 million in
fiscal 1994 (including a $4.3 million restructure charge) to $17.0 million in
fiscal 1995. As a result of these changes in placement fees and operating
expenses, the Company's results of operations improved from a net loss of $12.2
million in fiscal 1994 to $0.8 million net income in fiscal 1995.
In the nine-month period ended September 30, 1996, the Company's principal
sources of revenues were merchandise sales (69% of total revenues) and placement
fees from participating merchants (29% of total revenues). The Company also
rented its customer database to direct marketing companies (2% of total
revenues), which was included in placement fees and other revenues in the
Company's statement of operations. Merchandise sales represent the Company's
total fulfilled sales at retail sales prices, net of returns and allowances,
from products displayed in the Company's catalog. Placement fees are charged to
participating merchants for inclusion of their merchandise in the SkyMall
catalog. These fees are designed to cover catalog expenses and to stabilize the
Company's revenues by reducing the impact of fluctuations in merchandise sales.
In exchange for placement fees, the Company offers the participating merchants'
products in the Company's catalogs and performs order taking and processing
services. The placement fees are
17
<PAGE> 22
recognized ratably over the life of the catalog (currently quarterly). Order
taking and processing service expenses are recognized in the period incurred.
Customers place their order by telephone, mail or facsimile to the
Company's call center. The Company forwards customers' order information to
participating merchants who then ship products directly to the Company's
customers. Upon notification from a participating merchant of the shipment of
goods, the Company recognizes the merchandise sale and the related cost of goods
sold, and establishes a reserve for anticipated returns. The cost of goods sold
represents the amount paid by the Company to participating merchants in
connection with the sale of merchandise included in the SkyMall catalog. The
percentage of sales which the Company pays to participating merchants varies
from agreement to agreement; generally, the higher the placement fee paid by a
participating merchant, the higher percentage of sales paid by the Company to
the merchant, and vice versa. The Company believes that a combination of
placement fees with a variable percentage of sales component, together with the
payment of sales commissions to its airline partners, creates a situation in
which SkyMall, participating merchants and the airlines all benefit from and
have incentives to promote growth in merchandise sales.
The Company's major costs include costs of goods sold; catalog expenses,
which include paper, printing and catalog production costs; selling expenses,
which are primarily sales commissions to airlines and airline fuel reimbursement
costs; customer service and fulfillment costs, which include a full-service call
center and a drop-ship and order-processing coordination center; and general and
administrative expenses, which include corporate salaries, employee benefits,
facilities, legal and accounting expenses.
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, the percentage
relationships that certain items bear in relation to total revenues of the
Company.
<TABLE>
<CAPTION>
FOR THE
NINE-MONTH
PERIOD
ENDED
YEAR ENDED SEPTEMBER
DECEMBER 31, 30,
------------------ -----------
1993 1994 1995 1995 1996
---- ---- ---- ---- ----
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net merchandise sales.................................... 91% 73% 62% 61% 69%
Placement fees and other................................. 9% 27% 38% 39% 31%
---- ---- ---- ---- ----
Total revenues........................................... 100% 100% 100% 100% 100%
---- ---- ---- ---- ----
Gross margin............................................. 49% 46% 43% 44% 47%
---- ---- ---- ---- ----
Catalog expenses......................................... 25% 32% 22% 23% 21%
Selling expenses......................................... 11% 9% 5% 5% 6%
Customer service and fulfillment expenses................ 17% 10% 5% 5% 5%
General and administrative expenses...................... 17% 19% 7% 8% 8%
</TABLE>
NINE-MONTH PERIOD ENDED SEPTEMBER 30, 1996 COMPARED TO THE NINE-MONTH PERIOD
ENDED SEPTEMBER 30, 1995 (UNAUDITED)
Revenue and Gross Margin. Net merchandise sales increased slightly from
$18.4 million for the nine-month period ended September 30, 1995 to $18.9
million for the nine-month period ended September 30, 1996, or 3%. Placement
fees and other revenues decreased from $11.9 million for the nine-month period
ended September 30, 1995 to $8.6 million for the nine-month period ended
September 30, 1996, or 28%. Beginning in the first quarter of fiscal 1996, the
Company began changing the mix of agreements with participating merchants to
reduce placement fees and to increase the percentages of sales revenues retained
by the Company in order to position the Company to benefit from anticipated
sales increases in the fourth quarter. In addition, a significant participating
merchant, which had previously paid only placement fees to the Company,
decreased its number of pages in the SkyMall catalog. SkyMall replaced the
merchant on these pages with new participating merchants, most of which had
arrangements with lower placement fees and a significantly
18
<PAGE> 23
higher percentage of sales retained by the Company. As a result, due to the
decrease in total revenues, gross margin as a percentage of total revenues
increased from 44% for the nine-month period ended September 30, 1995, to 47%
for the nine-month period ended September 30, 1996.
Operating Expenses. Total operating expenses decreased from $12.5 million
for the nine-month period ended September 30, 1995 to $11.2 million for the
nine-month period ended September 30, 1996, or 10%, due primarily to a $1.3
million reduction in catalog expenses. This reduction resulted from elimination
of unprofitable circulation of the SkyMall catalog by eliminating routes on
certain airlines and terminating agreements with certain regional airlines and
lower pricing on the Company's printing contract. These reductions were
partially offset by $0.4 million higher paper costs in the first three quarters
of fiscal 1996 compared to the same period of fiscal 1995 due to the Company's
average cost of paper increasing to $61.41 per hundred weight (cwt) for the
nine-month period ended September 30, 1996 compared to $55.15 (cwt) for the
period ended September 30, 1995. As a result of the elimination of unprofitable
circulation, revenue per catalog increased from $1.43 for the nine-month period
ended September 30, 1995 to $1.66 for the nine-month period ended September 30,
1996, or 16%.
Net Income from Operations. Net income from operations increased from $0.7
million at September 30, 1995 to $1.6 million at September 30, 1996, primarily
due to the $1.3 million reduction in the Company's total operating expenses,
which was partially offset by a slight decrease in gross margin.
FISCAL YEAR ENDED DECEMBER 31, 1995 COMPARED TO FISCAL YEAR ENDED DECEMBER 31,
1994
Revenue and Gross Margin. Net merchandise sales increased from $22.1
million in 1994 to $26.9 million in fiscal 1995, or 22%, due primarily to better
fulfillment of orders in 1995. Due to a lack of working capital in 1994 and
certain order fulfillment problems due to a computer conversion, the Company was
unable to purchase adequate inventory to fulfill many orders. With restructured
operations in place in 1995, order fulfillment percentages returned to normal
levels, which are approximately 90% of all orders received by the Company.
Placement fees and other revenues also increased from $8.2 million in fiscal
1994 to $16.2 million in fiscal 1995, or 98%, due primarily to the Company's
decision in late 1994, effective for the fourth quarter 1994 catalog, to change
its revenue mix to emphasize placement fees, which provide a more stable revenue
base. Gross margin as a percentage of total revenues decreased from 46% to 43%
due to higher total revenues which were the result of the shift to higher
placement fees and a higher cost of sales under its agreements with
participating merchants.
Operating Expenses. Total operating expenses, exclusive of the Company's
one-time restructure charge, decreased from $21.2 million in fiscal 1994 to
$17.0 million in fiscal 1995, or 20%. This decrease was due principally to the
Company's implementation of cost containment initiatives beginning in the fourth
quarter of fiscal 1994. Catalog costs decreased 1% from $9.6 million in fiscal
1994 to $9.5 million in fiscal 1995. Despite a 48% increase in average paper
prices and a 12% increase in pages printed, the Company realized offsetting cost
reductions from requiring participating merchants to provide their own creative
materials, lower printing prices and the elimination of fees that had been paid
by the Company to some merchants to participate in the program. Although net
merchandise sales increased substantially, selling expenses decreased by 21%
from $2.8 million in fiscal 1994 to $2.2 million in fiscal 1995 because SkyMall
began to require merchants to reimburse SkyMall for credit card processing
expenses. Likewise, customer service and fulfillment expenses decreased by 28%
from $2.9 million in fiscal 1994 to $2.1 million in fiscal 1995 due to the
Company's decision in the fourth quarter of 1994 to require participating
merchants to drop ship merchandise to the Company's customers rather than
maintain its own inventory. General and administrative expenses decreased by 47%
from $5.9 million in fiscal 1994 to $3.1 million in fiscal 1995. In connection
with the Company's 1994 restructuring, personnel in merchandise fulfillment
operations, merchandising, purchasing and concierges services were eliminated,
saving the Company nearly $1.0 million in payroll expenses. The Company closed
its fulfillment operations in seven cities which resulted in savings of $0.4
million in facilities expenses. Administrative expenses decreased by $0.8
million from fiscal 1994 to fiscal 1995 due to simplification of the business
and a reduction in professional fees.
19
<PAGE> 24
Restructure Charge. In 1994, the Company incurred a one-time charge of
$4.3 million relating to the restructure of the business. The costs associated
with the restructure included:
(i) Losses on a long-term major vendor contract ($3.6 million). In
September 1994, the Company entered into a series of contracts with a
participating merchant. The contractual arrangements provided the working
capital which allowed the Company to continue operations, but is estimated
to cost the Company approximately $3.6 million between September 1994 and
mid-1997 when this contract is expected to expire.
(ii) Abandoned facilities and equipment ($1.0 million). The Company
abandoned leasehold improvements and equipment in its merchandise
fulfillment operations requiring the Company to write-off assets that would
no longer be used in the business. The Company also had long-term lease
commitments for two warehouse facilities which the Company continued to pay
in fiscal 1995 and fiscal 1996 for which the associated loss was recorded
in fiscal 1994.
(iii) Uncollectible accounts receivable ($0.8 million). Many
receivables from pre-restructure placement fees, which would have been
offset against inventory purchases, became uncollectible after the
restructure.
(iv) Severance and outsourcing expenses ($0.2 million). The Company
incurred severance costs as part of the reductions in its workforce. The
Company also paid a one-time fee to outsource its concierges services.
The foregoing costs were partially offset by a benefit of $1.3 million in
debt forgiveness from participating merchants and vendors.
Net Income (Loss) From Operations. The Company earned income from
operations of $1.5 million in fiscal 1995 compared to a loss from operations of
$11.5 million in fiscal 1994. This improvement was due primarily to the positive
impact in 1995 of the 1994 restructure, the effect of implementation of cost
containment measures in late 1994 and the recognition of the restructure charge
in fiscal 1994.
FISCAL YEAR ENDED DECEMBER 31, 1994 COMPARED TO FISCAL YEAR ENDED DECEMBER 31,
1993
Revenue and Gross Margin. Net merchandise sales decreased from $24.5
million in fiscal 1993 to $22.1 million in fiscal 1994, or 10%. This decrease
was due to a lack of working capital to finance the Company's inventory
requirements and certain order fulfillment problems due to a computer
conversion, which caused the Company's order fulfillment rate to drop to as low
as 40% in October 1994. In addition, the Company and a major airline carrier
mutually decided not to renew their contract because the Company could no longer
provide this carrier with a custom catalog on a profitable basis. The major
carrier accounted for nearly 20% of the Company's net merchandise sales in 1993.
In 1993, SkyMall began charging participating merchants placements fees for
inclusion of their products in the SkyMall catalog in order to help stabilize
the Company's revenues. As a result, placement fees increased from $2.6 million
in fiscal 1993 to $8.2 million in 1994.
Gross margin as a percentage of total revenues decreased from 49% in fiscal
1993 to 46% in fiscal 1994. As management implemented placement fee arrangements
with participating merchants, the percentage of sales retained by the Company
decreased. Management believes that receiving higher fixed placement fees and
reducing reliance upon revenues from percentages of sales was a less risky
profit strategy during the post-restructure stabilization period.
Operating Expenses. Total operating expenses increased from $18.9 million
in fiscal 1993 to $25.5 million in fiscal 1994, or 35%. Catalog expenses
increased by 39% from $6.9 million in fiscal 1993 to $9.6 million in fiscal
1994, primarily because the Company produced six catalogs in 1994 compared to
three in 1993, added circulation in order to maximize placement fees and printed
31% more pages in 1994 than in 1993. Selling expenses declined slightly in 1994
compared to 1993 due to the termination of an agreement with a major airline in
April 1994 and declines in net merchandise sales and corresponding airline sales
commissions in 1994. Customer service and fulfillment expenses decreased in 1994
due to the restructure plan
20
<PAGE> 25
implemented in the fourth quarter of 1994 when the Company outsourced its
fulfillment operations. General and administrative costs increased by 31% from
$4.5 million in 1993 to $5.9 million in 1994, primarily due to costs associated
with certain unsuccessful financing efforts in 1994.
Net Income (Loss) From Operations. The Company incurred a net loss from
operations in fiscal 1994 of $11.5 million as compared to a net loss from
operations of $5.5 million in fiscal 1993. The increase in the net loss from
fiscal 1993 to fiscal 1994 was due primarily to the restructure charge.
LIQUIDITY AND CAPITAL RESOURCES
While the Company was developing and executing its original inventory-based
business plan from start-up to late 1994, the Company had a significant need for
capital to fund investment in facilities and equipment, inventory, working
capital and start-up operating losses. At December 31, 1994, the Company had an
accumulated deficit of $34.2 million and a working capital deficit of $7.5
million. During this period, the Company's primary sources of cash included debt
and equity financing from shareholders, a bank loan guaranteed by a shareholder,
credit from suppliers and cash flow from operations. The Company also financed
its operations through the restructure and deferral of accounts payable in
connection with the Company's 1994 restructure.
In fiscal 1995 and three quarters of 1996, the Company's principal
requirements for cash were to fund working capital needs and to pay debt
obligations to vendors. The Company no longer needed significant capital to fund
inventory and warehouse facilities. The Company's primary sources of cash during
this period were cash flow from operations, vendor credit supported by
shareholder guarantees and loans from shareholders. Cash flow from operations
was sufficient to fund operating expenses, but was not adequate to also fund
debt service to vendors relating to the 1994 restructure. The Company made its
debt payments to vendors in 1995 but became delinquent in 1996. As of September
30, 1996, the Company had a current ratio of .40:1 and negative working capital
of $5.5 million.
In order to finance its working capital shortfalls, subsequent to September
30, 1996, management and certain shareholders took steps to strengthen the
Company's financial condition and improve the Company's liquidity. These steps
included (i) issuing approximately $2.6 million of Convertible Preferred Stock,
net of offering expenses, the proceeds of which were used to pay past due debts
and notes payable to vendors and (ii) converting notes and other obligations to
shareholders of $5.0 million to 5,000 shares of Convertible Preferred Stock
(which will be converted into 900,000 shares of Common Stock upon closing of the
Offering).
The Company believes it will generate sufficient cash flow from operations
to adequately fund its operations over the next twelve months and liquidate its
remaining notes payable to vendors and other liabilities as they come due.
Additionally, management believes that the working capital provided by this
Offering will allow the Company to further reduce its operating costs by taking
advantage of trade discounts.
Cash provided by operating activities was $1.1 million for the nine months
ended September 30, 1996 compared to $0.5 million for the same period in 1995.
Cash provided by (used for) operating activities was ($5.3) million, ($2.2)
million and $1.1 million in fiscal 1993, 1994 and 1995, respectively. The
improvement in fiscal 1994 compared to fiscal 1993 was largely due to reductions
in inventory in connection with the 1994 restructure. The improvements in fiscal
1995 compared to fiscal 1994 was due primarily to higher placement fees and
lower operating costs resulting from the 1994 restructure and continuing cost
reduction activities thereafter.
Cash used for investing activities was $0.2 million for the nine months
ended September 30, 1996 compared to $0.1 million for the nine months ended
September 30, 1995. The 1996 increase was primarily due to the Company's
investment in software and computer equipment upgrades for the Company's call
center. Cash used for investing activities was $0.2 million, $0.4 million, and
$0.2 million in fiscal 1993, 1994 and 1995, respectively. These investments were
primarily for computer equipment and furniture and fixtures.
21
<PAGE> 26
Cash used for financing activities was $0.7 million for the nine months
ended September 30, 1996 compared to $0.1 million for the nine months ended
September 30, 1995. In the nine month period ended September 30, 1995, the
Company received a $0.9 million loan from a shareholder and paid $1.0 million on
notes payable to vendors. In the nine month period ended September 30, 1996, the
Company paid $1.3 million on notes payable to vendors and accrued $0.6 million
of interest on loans from shareholders. Cash provided by (used for) financing
activities was $3.9 million, $3.3 million, and ($1.0) million in fiscal years
1993, 1994 and 1995, respectively. Cash provided of $3.9 million in 1993 was
primarily from a $4.0 million bank loan which was guaranteed by a shareholder.
Cash provided of $3.3 million in 1994 was primarily from $3.0 million in loans
from shareholders. Cash used for financing activities of $1.0 million for fiscal
1995 resulted from approximately $2.2 million in payments on notes payable to
vendors which was partially offset by loans and accrued interest of $1.2 million
provided by shareholders.
FLUCTUATIONS IN QUARTERLY RESULTS
The Company's operating results may fluctuate from period to period as a
result of the seasonal nature of the retail industry. The Company recognizes its
highest sales levels during the fourth quarter holiday season, and the fourth
quarter typically accounts for approximately 33% of the Company's annual
merchandise sales.
The following table sets forth certain unaudited information about the
Company's revenue and results of operations on a quarterly basis for 1994, 1995
and the nine months ended September 30, 1996.
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED NINE MONTHS ENDED
DECEMBER 31, 1994 DECEMBER 31, 1995 SEPTEMBER 30, 1996
------------------------------------- ------------------------------------- ---------------------------
1ST QTR 2ND QTR 3RD QTR 4TH QTR 1ST QTR 2ND QTR 3RD QTR 4TH QTR 1ST QTR 2ND QTR 3RD QTR
------- ------- ------- ------- ------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Merchandise sales,
net............... $5,635 $5,270 $3,731 $7,426 $6,299 $5,956 $6,123 $8,504 $5,882 $6,550 $6,474
Placement fees and
other............. 1,230 1,351 1,184 4,476 4,466 3,829 3,609 4,294 3,073 2,720 2,838
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Total revenues...... 6,865 6,621 4,915 11,902 10,765 9,785 9,732 12,798 8,955 9,270 9,312
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Gross margin........ (1 ) (1 ) (1 ) (1 ) 4,958 3,982 4,242 5,334 4,259 4,414 4,139
------ ------ ------ ------ ------ ------ ------
Catalog expenses.... (1 ) (1 ) (1 ) (1 ) 2,336 2,397 2,310 2,489 2,151 1,828 1,726
Selling expenses.... (1 ) (1 ) (1 ) (1 ) 514 534 546 635 514 620 531
Customer service and
fulfillment....... (1 ) (1 ) (1 ) (1 ) 526 495 513 602 457 515 539
General and
administrative.... (1 ) (1 ) (1 ) (1 ) 887 702 718 804 753 695 842
------ ------ ------ ------ ------ ------ ------
Total operating
expenses.......... (1 ) (1 ) (1 ) (1 ) 4,263 4,128 4,087 4,530 3,875 3,658 3,638
====== ====== ====== ====== ====== ====== ======
</TABLE>
- ---------------
(1) Figures for this period are not presented because the Company's
restructuring in fiscal 1994 significantly changed the Company's business
operations and thus are not meaningful for comparison.
NET OPERATING LOSSES IN SUB S CORPORATION -- CONVERSION TO C CORPORATION FOR TAX
PURPOSES
Prior to October 1, 1996, the Company had elected to be taxed under
Subchapter S of the Internal Revenue Code and corresponding provisions of
Arizona tax laws. As a result of the election, federal and state income taxes on
the net income of the Company were payable personally by the shareholders.
Accordingly, the statements of income for all prior years do not include a
provision for federal and state income taxes. Had the Company been a C
corporation for these periods, no federal or state income taxes would have been
due as a result of net operating loss carry-forwards from the earlier years. In
the fourth quarter of fiscal 1996 and thereafter, the Company will become
subject to federal and state income taxes as a result of its conversion from an
S corporation to a C corporation.
22
<PAGE> 27
INFLATION
Management does not believe that inflation has had a material effect on the
Company's operations during the past several years with the exception of
unusually significant increases in paper prices in 1995 and the first six months
of 1996 and a subsequent significant decrease in the third and fourth quarters
of 1996. The Company's average paper price increased 48% from fiscal 1994 to
fiscal 1995 from $38.91 cwt to $57.61 cwt, costing the Company an additional
$1.7 million in 1995 compared to costs at 1994 prices. The average paper price
increased to $61.41 for the nine-month period ended September 30, 1996, 58%
higher than the 1994 average price, costing the Company an additional $1.4
million compared to costs at the 1994 level. The Company's cost for paper which
has been purchased for the three-month period ended December 31, 1996 decreased
to $42.13 cwt, which is only 8% higher than the 1994 level. The Company's paper
costs are expected to be approximately $40.00 cwt in the first quarter of 1997.
Increases in labor, aircraft fuel, paper, printing, shipping, or merchandise
costs could adversely affect the Company's operations. See "Risk Factors." In
the past, except for paper price increases, the Company has been able to modify
its operating procedures or increase its prices to substantially offset
increases in its costs.
23
<PAGE> 28
BUSINESS
GENERAL
SkyMall is the largest in-flight catalog company in the United States that
makes high-quality products and services available to more than 350.0 million
airline passengers per year. The Company markets and sells a broad selection of
premium merchandise provided by participating merchants, including major catalog
companies and specialty retailers, such as Disney, Hammacher Schlemmer and The
Sharper Image. The merchandise of each participating merchant is presented in a
separate section of the SkyMall catalog to allow browsing from "store to store,"
providing the convenience and variety of an upscale shopping mall environment.
Substantially all of the merchandise sold by the Company is shipped directly to
customers by participating merchants, thus avoiding significant inventory risk.
The Company has exclusive agreements to place its catalogs in aircraft seat
pockets on 15 airlines, which carried approximately 70% of all domestic
passengers in 1995, including Delta, United, USAir, Continental, TWA, America
West and Southwest. As a result, the Company believes that the SkyMall catalog
is available to over 960,000 domestic airline passengers each day. SkyMall has
experienced substantial growth since the Company began operations in 1990. Total
revenues have increased from approximately $5.4 million in fiscal 1991 to
approximately $43.1 million in fiscal 1995, for a compound annual growth rate of
68%. The Company's revenue per passenger enplanement on flights carrying the
SkyMall catalog has increased from approximately $0.038 in 1991 to approximately
$0.084 for the year ended December 31, 1995, for a compound annual growth rate
of 22%.
Business Strategy. The Company's foundation is built on its relationships
with its customers, airline partners and participating merchants. The Company's
customers enjoy the convenience of being able to shop for a wide variety of
innovative products while traveling. The Company offers a fair price guarantee
under which the Company will refund the price difference if the customer finds
the same item advertised elsewhere at a lower price. In order to enhance the
ongoing appeal of its product offerings, the Company produces four new catalogs
per year. The Company maintains a toll free 24-hour telephone ordering service
(from air and ground phones) and an in-house staff of customer service
representatives who are trained to provide exemplary service in order to build
strong customer loyalty and increase revenue from repeat and referral business.
In exchange for placement of its catalogs in aircraft seat pockets, the
Company pays each airline partner a monthly commission based on net merchandise
revenues generated by the Company from sales to that airline's passengers. Some
of the Company's airline agreements also require payment of minimum monthly
fees. The Company's airline partners benefit from additional revenue and from
being able to enhance the in-flight experience of their passengers by providing
the Company's catalog as an additional amenity.
Participating merchants obtain exposure for their products and services to
a demographically diverse group of potential customers with strong economic
profiles, generate additional revenues and acquire new customers to add to their
own proprietary mailing lists. Under contracts with participating merchants, the
Company earns percentages of revenues generated by the Company's sales,
placement fees for inclusion of the merchants' products in the SkyMall catalog,
or a combination thereof. Among the more than 60 merchants currently included in
the SkyMall catalog are: Brookstone(@), Compaq Computer, The Disney Catalog,
Frontgate(R), Hammacher Schlemmer, The Safety Zone, Hello Direct(R), Johnston &
Murphy, Mattel(R), The Metropolitan Museum of Art, Norm Thompson Solutions(R),
Pepperidge Farm(R), SelfCare(R), The Sharper Image(R), Successories(R),
SyberVision(R), Thomas Cook and The Wine Enthusiast(R).
Growth Strategy. The Company's growth strategies are to increase its
revenue per passenger enplanement and to increase circulation of the SkyMall
catalog. The Company plans to increase its revenue per passenger enplanement
through innovative marketing programs, some of which are modeled after
successful "duty-free" in-flight sales programs offered on international
flights, which some airlines have reported to have produced revenues in excess
of $5.00 per passenger enplanement. The Company also plans to expand its
distribution to travelers and other potential customers by securing agreements
from additional airlines to carry the Company's catalogs, including both
domestic and foreign airlines. The Company also plans to implement additional
distribution channels outside of its airline franchise, including direct
marketing "mail-to-home" programs, magazine inserts and catalog placement in
hotels, railways, rental cars and other
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locations where travelers may be reached. SkyMall recently entered into an
agreement with its first foreign airline, Japan-based JAL, to test market the
SkyMall concept. In addition, in 1994, Amtrak began carrying the Company's
catalog on selected routes. The Company is currently employing advanced database
management techniques to utilize its rapidly growing customer database of over
one million names for the development of direct targeted marketing programs and
to generate additional revenues from database list rentals.
MARKET OVERVIEW
A broad spectrum of companies market their goods and services to airline
passengers. Over 55% of domestic airline passengers had household incomes in
excess of $40,000 per year, while only 23% of people with household incomes of
$40,000 or less travel on airlines. A significant portion of in-flight marketing
consists of "direct-response" marketing, where the merchant seeks to entice the
passenger to take immediate action in response to viewing the advertisement or
marketing materials, such as placing a telephone call to obtain the goods or
services offered. By contrast, "image" marketing, which is also conducted
in-flight, seeks to build brand awareness and foster a favorable image of
products or services and the company offering them. Although the primary goal of
the SkyMall catalog is to elicit a direct-response from passengers, merchants
that offer goods and services in the SkyMall catalog also build their brand
awareness and image.
Although many products and services are offered to passengers while
in-flight through a number of media, the SkyMall catalog is unique in the
airline marketing industry because it is the only publication available to
passengers on major domestic airlines that is exclusively devoted to catalog
shopping. Most airlines provide their passengers with airline-sponsored
"in-flight" magazines, which are placed in airline seatpockets along with the
SkyMall catalog, as well as other magazines and periodicals. Many of the
in-flight magazines contain pages devoted exclusively to marketing products and
services. None of these in-flight magazines, however, is devoted solely to
shopping.
Video marketing is also conducted while passengers are in-flight in the
form of video promotions played on monitors located at the front of or
interspersed throughout passenger cabins and on seatback video displays. Video
marketing on the monitors frequently consists of various in-flight programming
that is prepared by the airline and sponsored by companies that are targeting
the favorable economic profiles of airline passengers. Much of the video
advertising included in this programming consists of image marketing; however,
some airlines, particularly on longer flights, make video shopping services
available to their passengers while in-flight. Seatback video screens that are
available to passengers on certain airlines offer movies, information,
entertainment and in-flight shopping. The Company believes that the current
quality of most seatback video screens does not make them the most effective
method of marketing products and services; however, as the quality of seatback
video screens improves, more shopping services will likely become available.
Pursuant to various nonexclusive agreements with certain of its airline
partners, the Company offers video shopping services on both video monitors and
seatback video displays on selected flights. Although video shopping has not
historically been a significant source of revenue for the Company, the Company
plans to take advantage of new opportunities in this market when appropriate,
including opportunities resulting from enhancements in the quality of video
monitors and systems. See "-- Growth Strategy."
On many international flights, airlines offer passengers duty-free products
while in-flight through their flight attendants who deliver the merchandise to
passengers at the time of purchase. Duty-free shopping revenues in excess of
$5.00 per passenger enplanement on each flight where duty free shopping was
available have been reported by some airlines. Because airlines carry the
merchandise on the plane, the product selections are somewhat limited,
consisting principally of spirits, tobacco, liquor, perfume and gift items.
Of the various media employed by merchants to market goods and services to
airline passengers, the Company believes that the SkyMall catalog is among the
most effective, due in part to the increasing popularity of catalog shopping in
general. Over the past 15 years, consumers have increasingly relied on catalogs
and direct mail to purchase goods and services. According to the Direct
Marketing Association, 52.5% of the adult population in the United States
ordered merchandise by mail or phone in 1994 (compared to 36.2% in 1983)
generating approximately $78.0 billion in sales. If current trends continue, the
Company
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believes in-flight catalog shopping will gain increasing acceptance by airline
passengers, particularly those who appreciate the time-saving convenience of
catalog shopping.
CUSTOMER RELATIONSHIPS
The Company's primary target customers are frequent business travelers with
medium-to-high incomes. The Company's targeted customer spends approximately
$1,200 annually for merchandise while traveling. According to the Company's
market research, passengers who shop from the SkyMall catalog while traveling do
so because they have limited time to shop and the SkyMall catalog offers a
convenient alternative to shopping in retail stores. In addition, the Company's
research indicates that many customer purchases are "impulse" purchases, as well
as purchases for gifts. The key elements of the Company's strategy to cater to
the needs of its targeted customers are:
Offer Premium Merchandise. The Company offers high-quality
merchandise from leading catalog and retail suppliers at competitive
prices. The Company maintains close working relationships with
participating merchants and carefully studies the buying patterns of its
customers to ensure that catalog space is devoted to products and services
that have proven appeal to the Company's customers. In order to enhance the
ongoing appeal of its product offerings, the Company produces four new
catalogs per year.
Offer Competitive Pricing and a Fair Price Guarantee. SkyMall offers
its customers the convenience of in-flight shopping at prices that are
competitive with those of merchants offering the same or similar products.
To emphasize its competitive pricing strategy, SkyMall offers its customers
a fair price guarantee under which the Company will refund the price
difference to the customer if the customer finds the same item advertised
elsewhere at a lower price. SkyMall usually obtains reimbursement from
participating merchants for expenses incurred in connection with the fair
price guarantee.
Appeal to a Broad Consumer Base. Airline travelers represent a
diverse cross-section of the public. Accordingly, the Company's catalogs
are designed to have a much broader appeal than most catalogs. The Company
offers a wide variety of products, including health and beauty aids,
children's toys, executive gifts, educational foreign language tapes,
gourmet cooking aids, exercise equipment, luggage, travel aids and stylish
home accessories. Many of the Company's products are luxury items,
therefore, they are particularly well-suited to the diverse demographics of
airline passengers who have higher than average disposable incomes.
Provide Customers with a Convenient One-Stop Shopping
Service. SkyMall is a "one-stop" shopping source for customers who may
purchase a variety of merchandise offered by many participating merchants
with a single phone call. Although most of the merchandise offered in the
SkyMall catalog is available from other catalog and retail companies, each
of these companies typically has its own policies with respect to shipping
and handling charges, merchandise returns, sales taxes and price
guarantees, and each company generally also has different customer service
hours and credit and payment policies. In addition, few of these companies
offer frequent flier credit for purchases. By compiling the merchandise of
its various participating merchants into a single catalog, the Company
affords its customers access to more than 1,000 products offered by more
than 60 participating merchants and the convenience of uniform customer
service policies.
Provide Outstanding Customer Service and Toll-Free Ordering. The
Company maintains an in-house staff of customer service representatives who
are trained to solve customer problems and who are friendly and helpful
with customers and knowledgeable about the products sold by the Company.
The Company's customer service representatives encourage customers to
purchase additional products with each order to increase the Company's
average revenue per order. The Company believes that the customer goodwill
developed by its customer service representatives builds strong customer
loyalty and increases revenue from repeat and referral business. The
Company also offers services designed to maximize convenience to the
traveler, including 24-hour telephone and facsimile ordering, toll-free
ordering from airline seatphones and a 60-day "no questions asked" return
or exchange policy.
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AIRLINE RELATIONSHIPS
SkyMall has exclusive relationships with its airline partners, which are a
vital component of the Company's business strategy. The SkyMall program offers
airlines a low-risk means of incrementally increasing their earnings. Since
commencing operations in 1991, the Company has grown from a single airline
partner to 15 airline partners, including most of the major domestic airlines.
In exchange for placement of its catalogs in aircraft seat pockets, the Company
pays each airline partner a monthly commission based on net merchandise revenues
generated by the Company from sales to that airline's passengers. Some
agreements also require payment of a minimum monthly commission or a boarding
cost that reimburses the airline for the increased fuel costs attributable to
the weight of the catalogs. In addition to increasing airline earnings, the
Company's airline partners also benefit from being able to enhance the in-flight
experience of their passengers by providing the Company's catalog as an
additional amenity. SkyMall's agreements with its airline partners generally
have a term of at least one year and thereafter are automatically renewable on
an annual basis subject to termination on 60 to 180 days' advance notice by
either SkyMall or the airline. SkyMall believes its relations with each of its
airline partners are good.
The SkyMall catalog is currently available on all domestic and selected
international flights of the following air carriers:
<TABLE>
<CAPTION>
1995 DOMESTIC
ENPLANEMENTS INITIAL
CARRIERS(1) (IN MILLIONS)(2) CATALOG(3)
------------------------------------------------- ---------------- ----------
<S> <C> <C>
Delta............................................ 80.7 July 1991
United........................................... 68.4 June 1992
USAir............................................ 56.7 July 1991
Southwest........................................ 44.8 July 1996
Continental...................................... 35.0 April 1991
TWA.............................................. 21.6 Feb 1991
America West..................................... 16.8 Feb 1994
Alaska........................................... 10.1 July 1991
Hawaiian......................................... 4.8 Feb 1994
Horizon.......................................... 3.8 July 1991
Atlantic Southeast............................... 3.1 July 1991
Sun Country...................................... 2.6 Jan 1995
SkyWest.......................................... 2.2 July 1991
Midway........................................... 1.8 June 1994
Jet Train........................................ .3 Nov 1995
-----
Total.................................. 352.7
=====
</TABLE>
- ---------------
(1) The Company's catalog carries the SkyMall name on all participating airlines
except United, where the Company's catalog carries the name "High Street
Emporium."
(2) Source: United States Department of Transportation and Air Transport World
magazine.
(3) The Company's catalog has been available on these airlines continuously from
the date that the initial catalog was placed on the airline, except for
USAir which suspended carrying the SkyMall catalog on July 1, 1996 but
resumed carrying the SkyMall catalog effective November 1, 1996.
MERCHANT RELATIONSHIPS
Merchant Agreements. The Company enters into agreements with merchants who
supply the products and services offered in the Company's catalog. Under its
contracts with participating merchants, the Company earns percentages of
revenues generated by the Company's sales or placement fees for inclusion of the
merchants' products in the SkyMall catalog or a combination thereof. In
addition, most participating merchants are required to reimburse the Company for
certain paper, printing and distribution costs to the
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extent they exceed certain budgeted amounts. Participating merchants agree to
maintain sufficient levels of inventory to satisfy customer demand and to ship
all orders within 72 hours unless the merchandise is out of stock. Generally,
the Company's agreements with participating merchants provide that the prices of
products included in the SkyMall catalog will be honored by the merchant for as
long as SkyMall receives orders from that edition of the catalog. The agreements
typically have an initial term consisting of a single quarterly catalog and
thereafter automatically renew for successive catalog editions unless either the
Company or the merchant gives 60 days' advance notice of termination. The
merchants typically agree to indemnify the Company for any losses associated
with injuries caused to customers from the use of such merchant's product, to
carry product liability insurance that names SkyMall as an additional insured,
and to indemnify the Company against claims that their products infringe on the
intellectual property rights of third parties.
Name Brand Stores in the SkyMall Catalog. SkyMall's catalogs assemble
premium, name brand merchandise and are formatted to allow the traveling
customer to browse from "store-to-store," providing the convenience and variety
of an upscale shopping mall environment. Its largest "stores" are generally
well-known catalog and retail companies that have chosen to participate in the
SkyMall program in order to generate an additional source of revenue, build name
recognition and brand awareness and acquire new customers to add to their own
proprietary mailing lists. The major catalog and retail companies currently
featured in the SkyMall catalog and those who have participated in recent
editions of the catalog include:
Brookstone(R)
Chef's Catalog(R)
Compaq Computer
Competitive Edge Golf(R)
Frontgate(R)
Hammacher Schlemmer
Health Rider(R)
Hello Direct(R)
Huntington Clothiers(R)
Johnston & Murphy
Mattel(R)
Neiman Marcus' Trifles
Nightingale Conant
Norm Thompson Solutions(R)
Orvis(R)
Official Airline Guide
Paul Frederick MenStyle(TM)
Pepperidge Farm(R)
SelfCare(R)
Successories(R)
Syber Vision(R)
The Disney Catalog
The Metropolitan Museum of Art
The Safety Zone
The Sharper Image(R)
The Wine Enthusiast(R)
Thomas Cook
Merchandise Selection. The Company responds to inquiries from
approximately 50 merchants each week who inquire about showcasing their products
or services in the SkyMall catalog. As a result, the Company has been able to
identify and offer to its customers the unique products they desire at
competitive prices. Products are selected for each catalog by the Company's
merchandising staff with the help of each of the major participating merchants.
Approximately one-third of the products in each new edition of the SkyMall
catalog have not been previously featured in the SkyMall catalog.
Products Offered. The Company typically offers more than 1,000 products in
each of its catalogs, which consist of approximately 140 pages. In order to
enhance the ongoing appeal of its product offerings, the Company produces four
new catalogs per year and regularly replaces the products in its catalogs. The
Company seeks out new and unique items that may not be available in ordinary
retail stores, with an emphasis on upscale merchandise selling for $29.95 or
more. During fiscal 1995, the Company's more popular product categories included
household items, electronics, personal care items, clothing, luggage, multimedia
items, and telephones.
GROWTH STRATEGY
Increase Revenue Per Passenger. One of the Company's primary growth
strategies is to increase its revenue per passenger enplanement. The Company's
revenue per passenger enplanement on flights carrying the SkyMall catalog has
increased from $0.038 in 1991 to approximately $0.084 for the year ended
December 31, 1995, for a compound annual growth rate of 22%. To increase revenue
per passenger enplanement, the Company recently has implemented or plans to
implement the following programs:
Marketing and Promotional Programs. The Company has developed several
innovative marketing and promotional programs, some of which will be
facilitated through the unique relationships between the Company and its
airline partners. Some of these programs are modeled after successful
"duty-free" in-
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flight sales programs offered on international flights, which have been
reported by some airlines to have generated revenues of more than $5.00 per
passenger enplanement. Among the plans under consideration or recently
implemented by the Company to increase the use of SkyMall catalogs are: (i)
enhancing promotion of the Company's shopping services through on-board
flight attendant announcements supported by videotape and audio
programming; (ii) awarding airline passengers frequent flier miles for
purchases and permitting customers to redeem frequent flier miles as
payment for product purchases; (iii) mailing inserts in frequent flyer
statements in order to promote awareness of the Company's products and
services; (iv) offering airlines and flight attendants incentives for
promoting the use of the Company's catalogs among airline passengers; (v)
establishing an in-flight "video shopping channel" and advertisements for
the Company's products and services on in-flight videos; (vi) conducting
in-flight, gate and jetway promotions, such as gift certificates, discount
certificates and special offers to passengers who order while in-flight;
and (vii) making the Company's catalogs available in airport gate areas and
lounges. The Company believes the foregoing programs will increase revenue
per passenger enplanement and will also increase the awareness of the
SkyMall catalog generally so that airline passengers will be more likely to
make purchases from the SkyMall catalog.
Video Shopping and Other New Technologies. Although video shopping is
available on some airlines, including video shopping offered by the
Company, several companies have recently begun making interactive video
systems available to the airline industry that have greater capabilities
than those currently available. As more sophisticated interactive video
systems become available, the Company plans to explore opportunities to
provide shopping services on these systems and has developed a prototype,
multi-media catalog offering SkyMall products on interactive video. In
order to become proficient in this new medium, in January of 1996, the
Company began offering its products and services on the Internet at
http://www.skymall.com.
Increase Catalog Circulation. To expand its catalog circulation and
thereby increase its customer base, the Company has implemented or plans to
implement a number of programs designed to increase the circulation of the
SkyMall catalog and reach new customers, including the following:
Expanding Domestic Airline Partnerships. The Company will seek to
expand its catalog circulation by securing agreements from additional
domestic airlines to carry the SkyMall catalog. In addition, the Company
plans to pursue opportunities to include a small selection of its products
and services in in-flight magazine inserts to give new airlines the
opportunity to test the Company's services and to make the Company's
products and services available on smaller airlines where a full-length
catalog is not cost effective. The in-flight magazine of Northwest
Airlines, which is not presently an airline partner of the Company, will
contain an eight page SkyMall insert in its November and December 1996
editions to test the SkyMall program.
Developing International Airline Partnerships. According to the Air
Transport Association, in 1995, there were over 780 million international
airline passenger enplanements (excluding the U.S.), including 373.9
million in Europe, 306.4 million in Asia and 71.5 million airline passenger
enplanements in North and South America. Although some duty-free
merchandise is available on international flights, the Company believes
that this market is substantially underserved. The Company believes that
controlled and carefully planned expansion into the larger international
markets through cooperative ventures with potential foreign partners offers
a significant growth opportunity. The Company is in the process of
evaluating potential foreign markets and developing catalogs in foreign
languages with products and services designed to appeal to targeted
international travelers. Consistent with its growth strategy, SkyMall
entered into an agreement in August 1996 with its first foreign airline,
Japan-based JAL, to test certain merchandise from the SkyMall catalog on a
trial basis.
Direct Marketing Program. Through its data management system, the
Company maintains a database of customer information, including customer
names, addresses and product purchases. From this database, the Company
obtains information about customer buying patterns and preferences. The
Company strives to develop customer loyalty, and repeat customer purchases
have been an increasing source of revenue for the Company. In 1995, 29% of
the Company's customers had placed at least one
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<PAGE> 34
additional order with the Company within the preceding 24 months. To
increase the number of repeat customer purchases, the Company plans to
implement a direct marketing "mail-to-home" program to its customers,
particularly those who make several purchases during the year. Using
information from its customer database, the Company initiated its first
direct marketing "mail-to-home" program in August 1996. The Company plans
to expand its direct marketing efforts to selected customer groups and to
tailor the marketing materials to the preferences of those groups as
demonstrated by their prior purchasing history.
Expanding Into Other Travel Related Markets. The Company believes
that its shopping services will appeal to travelers in locations other than
airlines, such as in hotels and rental cars and while traveling by rail.
There are over three million hotel rooms in the United States, providing a
market that the Company believes could be larger than its current airline
market. In addition, rail passengers in both in the United States and
abroad may present a significant market for the Company's services. In
furtherance of this strategy, the Company entered into an agreement with
Amtrak in 1994 under which Amtrak began carrying the Company's catalogs
under the TravelMall name on selected routes, which serve approximately two
million passengers annually. The Company is considering a program to make
its catalogs available to travel agents to distribute to their customers
when delivering travel documents. The Company is evaluating other
opportunities to reach travelers, and plans to implement additional non-
airline based travel programs when appropriate.
BUSINESS OPERATIONS
Customer Service Center; Order Processing and Fulfillment. The Company
maintains a well-trained, in-house staff of customer service representatives and
outsources "overflow" calls to an independent call center. The Company recently
entered into an agreement with a major hotel chain under which the hotel chain's
call processing center will accept the Company's overflow calls during the peak
holiday ordering season, which is typically a slower season for the hotel
industry. The Company believes this arrangement will result in more cost
effective processing of its overflow calls during the holiday peak. The Company
monitors the quality of its customer service operations closely and regularly
implements improvements in its customer service operations.
The Company's customer service representatives are located in its customer
service center in Phoenix, Arizona, where the Company accepts orders 24 hours
per day. The Company's telephone equipment distributes calls to the sales
representatives and provides detailed call reporting and analysis, which assists
the Company with its order processing and marketing efforts. The Company
maintains no significant inventory. Therefore, once the Company receives a
customer order, it is transmitted to the appropriate merchant who ships the
merchandise directly to the Company's customers. Most orders are delivered to
customers within seven to ten days. The Company's average order size was $85,
$90 and $96, respectively, per customer in fiscal 1993, 1994 and 1995. The
Company's customer service representatives are given incentives for outstanding
service. At August 31, 1996, the Company employed more than 96 customer service
representatives.
Over 85% of the Company's daily orders are received on "toll-free" numbers,
including 5% from toll-free seatphones. Airline seatphones offer customers a
convenient way to order goods and services from the Company while in-flight.
Some airline passengers who have access to seatphones may place orders with the
Company while in-flight by using a "speed dial" number programmed into the
seatphone. When SkyMall began operations in 1990, seatphones were available to
less than 5% of all domestic airline passengers. Today, the Company estimates
that seatphones are available to approximately 86% of all domestic airline
passengers. The Company believes that airlines will continue to equip their
planes with seatphones and that passengers will be more accustomed to using them
as they are made more available and the quality of service continues to improve.
Credit Sales. Of the more than 353,000 customer orders received by the
Company during fiscal 1995, approximately 92% of them were billed to customer
credit cards. The remaining customers generally paid for their purchases by
personal check. To minimize credit loses, the Company obtains approval from the
customer's credit card company prior to processing each order. In addition, when
the customer requests that
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<PAGE> 35
his or her merchandise be shipped to an address that is different than the
customer's billing address, the Company typically verifies the charge
authorization directly with the credit card holder at his or her billing
address. The Company verifies personal bank checks received from customers with
an independent service bureau prior to processing the customer's order. Although
the Company's credit losses are generally immaterial, under its agreements with
participating merchants, the Company has the right to obtain reimbursement from
the merchants for any reasonable credit losses it incurs.
Information Systems. The Company maintains an information system that is
used primarily to capture and process customer orders. The Company typically
receives approximately 2,000 calls per day in off-peak seasons and approximately
6,000 calls per day during the peak of the holiday season. The Company's
information system is designed to process in excess of 10,000 calls per day,
which the Company believes will provide sufficient capacity for the foreseeable
future.
Once the Company processes an order in its information system, the order is
forwarded to a merchant to be filled. Currently, the Company transmits
approximately half of all orders to merchants electronically through various
electronic data transmission systems maintained by the merchants, and the
remaining orders are sent by facsimile or overnight delivery. The Company is in
the process of establishing a uniform electronic transmission system that will
allow the Company to transmit all customer orders to merchants electronically,
which the Company believes will reduce delivery times to the Company's
customers. Under a contract that begins in January of 1997, once the Company
receives an order through its information system, the order data will be
forwarded to a third party, the LitleNet Direct Commerce Network(SM) (the
"Network"), for further processing. The Network will deliver order information
to the merchants, manage order information relationships and enable shipment
confirmation according to individual merchant capabilities. The Company will
contract for access to the Network on a per transaction basis, permitting the
Company to expand its information systems without additional infrastructure
development, maintenance and upgrade expense. See "Certain Transactions."
Catalog Production and Distribution. Catalog design and layout for each
section of SkyMall's catalog is generally provided directly by the participating
merchant but must be within SkyMall's design guidelines. After the catalog is
designed, the Company submits its catalog to each of its airline partners for
approval. The cover and some of the pages of the airline catalogs are customized
to achieve a look and feel unique to that airline, although the products
featured and the balance of the basic content are common to all of the Company's
catalogs. After the catalogs are printed, the Company ships the catalogs to its
airline partners who distribute the catalogs to the cities in which they operate
and place the catalogs on their aircraft. Each catalog has a source code that
permits the Company to track catalog distribution and sales attributable to
catalogs carried by its airline's partners.
HOUSE FILE
The Company maintains a customer database or "house file" that contains a
variety of information about the more than one million customers who have
purchased merchandise or services from the Company. In addition to the
customer's name and address, the Company's house file also contains a detailed
history of all purchases made by SkyMall's customer with SkyMall. This
information serves as a useful tool for the Company in evaluating the
effectiveness of its marketing efforts and in identifying its best customers.
Like other catalog companies, the Company "rents" its house file to other
catalog, retail and direct marketing companies for a fee. By renting its house
file, the Company is able to generate additional incremental revenues without
incurring significant costs. The Company updates its house file on a daily basis
as orders are received, which increases the value of the house file. In
addition, in connection with its growth strategy, the Company plans to implement
a direct marketing "mail-to-home" program to certain targeted customers and will
use its house files as the primary source of information for implementing the
mail-to-home program.
Direct marketing, credit card and other companies that have large databases
containing customer information have begun sharing database information in order
to obtain more detailed information about customers. Enhancements in computer
technology have made storing large amounts of data more feasible and cost
effective, and have permitted such companies to accumulate more information
about customer buying
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patterns and preferences. This information has become increasingly important to
companies that seek to cost effectively target customers and improve customer
response rates. The Company plans to explore opportunities to combine its house
files with the files of other companies when appropriate to improve its direct
marketing efforts and increase the value of its customer database.
COMPETITION
In-Flight Shopping. SkyMall believes that its long standing relationships
with its airline partners and participating merchants and its customer service
standards create substantial barriers to entry into the in-flight catalog
shopping business. Although several companies have attempted to enter the
in-flight catalog shopping market, none has been successful. Nevertheless,
competitors, some of which may have greater financial, marketing and other
resources than the Company, may seek to enter the in-flight catalog shopping
market in competition with the Company.
In-Flight Marketing. The Company competes with other companies who market
products and services to passengers while in-flight, including those who
advertise in in-flight magazines and other periodicals, sponsor airline video
and audio programming and offer in-flight video shopping services. Several
companies have announced plans to develop seatback interactive video shopping
services, each of which has greater resources than the Company. As seatback
interactive video shopping services become more available to airline passengers,
competition in the in-flight marketing business may increase.
General Catalog and Retail Sales. The catalog sales and retail markets are
both highly fragmented and highly competitive. The Company competes for
customers to some degree with all retailers and catalog companies, including
airport retailers, duty-free retailers, specialty stores, department stores,
specialty catalog companies and general merchandise catalog companies, many of
which have significantly greater financial, marketing and other resources than
the Company. However, because many of the Company's competitors target people
with strong economic profiles, a number of the Company's competitors are also
participants in the SkyMall catalog program.
REGULATION
The Company's operations are subject to various federal, state and local
laws and regulations, including state sales tax laws and various Federal Trade
Commission regulations governing the sale of merchandise by mail. The Company
collects applicable sales taxes from its customers on all merchandise sales and
remits the sales taxes to state taxing authorities. The Federal Trade Commission
regulations applicable to the Company's operations impose various requirements
on the processing of customer orders, including shipping deadlines, delay
notices, order cancellations and refunds. The Company believes that these
regulations do not have a material impact on its business operations.
FACILITIES
The Company's executive offices are located in Phoenix, Arizona, where the
Company leases approximately seven acres of land under long-term leases expiring
in 2012, with an option to extend to 2062. Aggregate annual rental expense on
this land is approximately $37,000 per year. The improvements to this land
include offices, warehouses and storage facilities aggregating approximately
50,000 square feet, which are owned by the Company.
EMPLOYEES
At August 31, 1996, the Company had 132 employees, including 8 employed in
its executive offices, 3 in management positions, 12 in sales and marketing, 9
in accounting and administrative positions, 4 in information management and 96
in customer service capacities. Approximately 90% of the Company's employees are
full-time employees. The Company makes significant use of temporary and
part-time employees to process orders during the holiday season. The Company
believes its has good relations with its employees.
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<PAGE> 37
TRADEMARKS AND TRADE NAMES
SkyMall is a registered trademark of the Company. The loss of the SkyMall
trademark could have a material adverse effect on the Company. In addition, the
Company uses a number of other trademarks and trade names in its business, none
of which the Company believes are material to its overall operations.
LEGAL PROCEEDINGS
The Company is not party to any pending or threatened legal proceedings
that it believes will have a material impact on the Company's business.
33
<PAGE> 38
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
Information concerning the Company's current director and executive
officers, and persons nominated to become directors upon the closing of this
Offering, is set forth below.
<TABLE>
<CAPTION>
NAME AGE POSITION
- ------------------------------ --- -------------------------------------------------------------
<S> <C> <C>
Robert M. Worsley............. 40 Chairman of the Board, President and Chief Executive Officer
Jonathan T. Davis............. 42 Vice President of Marketing -- Customers
Andrea Fox.................... 51 Vice President of Marketing -- Airlines
John H. Hurley................ 32 Vice President of Operations
Martin F. Smith............... 39 Vice President of Marketing -- Merchants
David A. Wirthlin............. 35 Vice President of Finance, Chief Financial Officer, Treasurer
and Secretary
Alan C. Ashton................ 52 Director-Nominee
Lyle R. Knight................ 50 Director-Nominee
Thomas J. Litle............... 56 Director-Nominee
Randy Petersen................ 42 Director-Nominee
</TABLE>
ROBERT M. WORSLEY has been the Chairman of the Board, President and Chief
Executive Officer of the Company since it was founded in 1989. Mr. Worsley is a
co-founder of the Company and has been a director and the Chief Executive
Officer of the Company since the Company's incorporation in 1989. From 1985 to
1989, Mr. Worsley was a principal of ExecuShare, Inc., an executive services
firm that provided time-shared financial executives for small companies. From
1980 to 1985, Mr. Worsley was an Audit Manager with Price Waterhouse, a public
accounting firm. Mr. Worsley received a bachelor's degree in accounting from
Brigham Young University in 1980. Mr. Worsley is a Certified Public Accountant.
JONATHAN T. DAVIS has served as SkyMall's Vice President of
Marketing -- Customers since August 1996. Prior to joining the Company in 1996,
Mr. Davis served as the Vice President of Marketing for Merchants Square, Inc.,
a television home shopping network for catalog companies, from 1995 until 1996.
Mr. Davis has also served as Director of Marketing for a children's merchandise
catalog company, The Right Start, Inc., from 1992 until 1995, and as Customer
Marketing Manager for L.L. Bean, an outdoor clothing and equipment catalog
retailer, from 1989 until 1991. Mr. Davis was the Mail Order Manager for
Brookstone, a specialty goods retailer, from 1984 until 1989. Mr. Davis received
a bachelor's degree from Amherst College in 1975 and an M.B.A. from Columbia
University Graduate School of Business in 1980.
ANDREA FOX has served as SkyMall's Vice President of Marketing -- Airlines
since August 1996. Prior to joining the Company, Ms. Fox served as President of
A. Fox Communications, a marketing company, from March 1995 until August 1996.
Ms. Fox was Director of Communications and Public Affairs for the American Heart
Association from 1993 until 1995, and Ms. Fox was the owner and President of Fox
& Associates, a marketing and creative development services provider in Illinois
from 1989 until 1993. Ms. Fox was the Director of Direct Response Marketing for
Callaghan & Company, a publisher of legal and tax materials, from 1987 until
1988. Ms. Fox was an Assistant Vice President of Citicorp Diners Club, a credit
card company, from 1984 until 1987 where she worked with various divisions,
including cardmember services, creative development and cardmember acquisitions.
Ms. Fox received a bachelor's degree from Barat College in 1975.
JOHN H. HURLEY has served as the Vice President of Operations since June
1996. Mr. Hurley joined the Company in December 1991 as a Call Center Sales
Agent and was promoted to various positions, including Call Center Sales Manager
and Call Center Sales Director, before becoming SkyMall's Vice President of
Direct Marketing in December 1995. Before joining the Company, Mr. Hurley held
positions in customer relations and sales at Cellular One from 1984 until 1991.
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<PAGE> 39
MARTIN F. SMITH has served as SkyMall's Vice President of
Marketing -- Merchants since November 1994. Prior to joining the Company, Mr.
Smith served as Director of Sales, Marketing and Advertising for Fulton Homes
from 1992 until 1994 and for Tradewinds Homes, from 1985 until 1990, both of
which are new home construction firms. Mr. Smith also was employed as District
Sales Manager for a chemical company, Huntsman Chemical Corp., from 1990 until
1992.
DAVID A. WIRTHLIN has served as the Chief Financial Officer of the Company
since 1994. Mr. Wirthlin is also the Company's Secretary and Treasurer. From
1989 until 1994, he was employed by Arthur Andersen LLP as a Manager in
operational consulting. From 1987 until 1989, Mr. Wirthlin was a student at the
University of Chicago Graduate School of Business, where he received an MBA.
Prior to attending business school, Mr. Wirthlin was a Senior Accountant with
Arthur Andersen LLP from 1985 to 1987. Mr. Wirthlin received a bachelor of arts
in accounting from the University of Utah in 1985. Mr. Wirthlin is a Certified
Public Accountant.
ALAN C. ASHTON, who was a co-founder of SkyMall, has agreed to become a
director of the Company upon the closing of this Offering. Dr. Ashton was a
co-founder of WordPerfect Corporation and, from its inception in 1978 until
December 31, 1993, served as its President. Dr. Ashton graduated magna cum laude
in mathematics from the University of Utah in 1966 and received a Ph.D. in
computer science from the same university in 1970. Dr. Ashton was professor of
computer science at Brigham Young University for 14 years from 1977 until 1991.
Dr. Ashton serves on the Board of Directors of Novell, Inc. and on the Board of
Directors of Fonix Corporation.
LYLE R. KNIGHT has agreed to become a director of the Company upon the
closing of this Offering. In 1992, Mr. Knight became President and Chief
Executive Officer of Caliber Bank, an affiliate of BankAmerica Corporation. From
1993 until 1995, Mr. Knight served as President of Caliber Bank, a wholly owned
subsidiary of Independent Banks of Arizona, which has subsequently merged with
Norwest Corporation, and Mr. Knight is currently Senior Vice President of
Norwest Banks Arizona. From 1989 and 1992, Mr. Knight was President and Chief
Executive Officer of Security Pacific Bank, Nevada. Mr. Knight graduated from
the University of Utah in 1968 with a bachelor of science degree in Banking and
Finance and, in 1982, graduated with honors from Pacific Coast Banking School.
THOMAS J. LITLE has agreed to become a director of the Company upon the
closing of this Offering. In 1985, Mr. Litle founded Litle & Company, Inc.,
which provides information sharing, payment processing and electronic network
services for the direct marketing industry. Mr. Litle was Chairman of Litle &
Company's Board of Directors and its Chief Executive Officer until 1995, when
the business was sold to First USA. In connection with the sale to First USA,
Mr. Litle retained the networking and non-payment processing part of the
business and formed LitleNet LLC, of which he is the Chairman, which also
provides direct commerce connection and information sharing services to the
direct marketing industry. Mr. Litle received an M.B.A. from Harvard Graduate
School of Business Administration in 1964 after graduating from California
Institute of Technology with a bachelor of science degree in 1962. Mr. Litle
also serves on the Board of Directors of the Direct Marketing Association, the
New York University Center for Direct Marketing, the Direct Marketing
Information Exchange, Foster & Gallagher, Kearsarge Capital Corp., Tessera, the
Catalog Systems Management Network and the National Catalog Operations Forum.
RANDY PETERSEN has agreed to become a director of the Company upon the
closing of this Offering. In 1986, Mr. Petersen founded and is currently the
President and Chairman of the Board of Frequent Flyer Services. Frequent Flyer
Services publishes a monthly frequent flyer magazine and an annual frequent
flyer guidebook, produces frequent traveler oriented merchandise and provides
various travel related services. Mr. Petersen is also a member of the
Association of Corporate Travel Executives and serves on the Advisory Board of
the International Airline Passenger Association. Mr. Petersen serves on the
Board of Directors of FlightPlan, Inc., TeleMiles, Inc. and Travel & Calling
Card, Inc.
35
<PAGE> 40
EXECUTIVE COMPENSATION
The following table sets forth certain information regarding annual and
long-term compensation for services rendered to the Company during the fiscal
year ended December 31, 1995 by Robert M. Worsley, the Chief Executive Officer
of the Company. No other executive officers of the Company had a total salary
and bonus in fiscal 1995 that exceeded $100,000.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
FISCAL ------------------- ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION
------------------------------------------- ------ -------- ------ ------------
<S> <C> <C> <C> <C>
Robert M. Worsley.......................... 1995 $138,295 $7,500 $4,749(1)
Chairman of the Board and President
</TABLE>
- ---------------
(1) Includes a pro rata portion of premiums paid on a life insurance policy on
the life of Mr. Worsley for which a portion of the benefits payable under
the policy are payable to beneficiaries other than the Company.
STOCK OPTION PLANS
1994 Stock Option Plan. The Company has adopted the SkyMall 1994 Stock
Option Plan (the "Option Plan") pursuant to which incentive and nonqualified
stock options may be granted from time to time to directors, officers and other
key employees of the Company at an exercise price of not less than fair market
value on the date of grant, provided that for the one-year period following this
Offering no options may be granted at an exercise price less than the initial
public offering price of the Common Stock offered hereby. The recipients of
options, length of options, exercise price and other terms are determined by the
Board of Directors upon recommendation of the Compensation Committee. The
maximum number of shares of Common Stock subject to options that may be
outstanding at any time under the Option Plan is 650,000, subject to a
proportionate increase or decrease in the event of a stock split, reverse stock
split, stock dividend, or other adjustment to the Company's total number of
outstanding shares of Common Stock. The Company has granted options to employees
of the Company to purchase a total of 438,080 shares.
Non-Employee Plan. The Company has also adopted the SkyMall Non-Employee
Director Stock Option Plan (the "Non-Employee Plan"), which authorizes the Board
of Directors to grant options to non-employee directors of the Company to
purchase shares of Common Stock of the Company. Non-Employee directors of the
Company receive an automatic grant of options to purchase 5,000 shares of Common
Stock on appointment to the Board of Directors and thereafter receive an
automatic grant of options to purchase 3,000 shares annually. In general,
options granted under the Non-Employee Plan are not transferable and expire ten
years after the date of the grant. The per share exercise price of a stock
option granted under the Non-Employee Plan may not be less than the fair market
value of the Common Stock on the date of the grant. The maximum number of shares
of Common Stock that may be outstanding at any time under the Non-Employee Plan
is 100,000, subject to a proportionate increase or decrease in the event of a
stock split, reverse stock split, stock dividend, or other adjustment to the
Company's total number of outstanding shares of Common Stock. As of the date of
this Prospectus, no options to purchase shares of Common Stock have been granted
under the Non-Employee Plan; however, options to acquire an aggregate of 20,000
shares of Common Stock will be issued to the Company's non-employee directors on
the closing of this Offering.
401(K) PLAN
Under the Company's 401(k) plan, adopted in 1992, eligible employees may
direct that a portion of their compensation, up to a legally established
maximum, be withheld by the Company and contributed to their account. All 401(k)
plan contributions are placed in a trust fund to be invested by the 401(k)
plan's trustee, except that the 401(k) plan may permit participants to direct
the investment of their account balances among mutual or investment funds
available under the plan. The 401(k) plan provides a matching contribution of
25% of a participant's contributions up to a maximum of four percent of the
participant's annual salary.
36
<PAGE> 41
Amounts contributed to participant accounts under the 401(k) plan and any
earnings or interest accrued on the participant accounts are generally not
subject to federal income tax until distributed to the participant and may not
be withdrawn until death, retirement, or termination of employment.
EMPLOYMENT AGREEMENT
On September 30, 1996, the Company's Board of Directors approved an
employment agreement with Robert M. Worsley for services as Chairman of the
Board, Chief Executive Officer and President. This agreement requires Mr.
Worsley to devote his full time to the Company during normal business hours in
exchange for a base annual salary of $190,000, subject to annual increases at
the discretion of the Board of Directors. In addition, Mr. Worsley is entitled
to receive bonuses at the discretion of the Board of Directors in accordance
with the Company's bonus plans in effect from time to time, and the Company will
pay certain life and disability insurance premiums on behalf of Mr. Worsley. The
agreement has an initial three-year term and is automatically extended for
successive two-year renewal periods without any action of the Company or Mr.
Worsley unless the Company or Mr. Worsley provides written notice of termination
to the other party no less than 30 days prior to the expiration of the initial
term of the agreement or of any successive renewal period. Pursuant to the
agreement, Mr. Worsley may not compete with the Company anywhere in the United
States on the termination of Mr. Worsley's employment for a period of two years.
COMMITTEES OF THE BOARD OF DIRECTORS
Effective upon closing of this Offering, the Company will establish an
Audit Committee which will be comprised of non-employee directors. The Audit
Committee will be responsible for reviewing and making recommendations regarding
the Company's employment of independent auditors, the annual audit of the
Company's financial statements and the Company's internal accounting controls,
practices and policies. Additionally, the Company will establish a Compensation
Committee which will be comprised of a majority of non-employee directors. It
will be responsible for making recommendations to the Board of Directors
regarding compensation arrangements for executive officers of the Company,
including annual bonus compensation, and will consult with management of the
Company regarding compensation policies and practices. The Compensation
Committee will also make recommendations concerning the adoption of any
compensation plans in which management is eligible to participate, including the
granting of stock options or other benefits under such plans.
DIRECTORS' TERMS AND FEES
Effective upon the closing of this Offering, the Company's Board of
Directors will be comprised of five members. Each director is elected for a
period of one year at the Company's annual meeting of shareholders and serves
until his or her successor is duly elected and qualified. Directors who are not
employees of the Company will receive a quarterly retainer of $2,500, an option
to purchase 5,000 shares of the Company's Common Stock at its fair market value
on the date of grant upon appointment to the Board of Directors, and an annual
option to purchase 3,000 shares of the Company's Common Stock at its fair market
value on the date of grant provided they have attended a required minimum number
of board and committee meetings during the year. All directors will be
reimbursed for expenses incurred in connection with attendance at meetings of
the Board of Directors or committees thereof. Directors who are also officers of
the Company will not be compensated for their services as director.
37
<PAGE> 42
PRINCIPAL SHAREHOLDERS
The following table sets forth certain information as of October 31, 1996,
concerning the beneficial ownership of the Company's Common Stock by (i) each
beneficial owner of more than 5% of the Company's Common Stock, (ii) each
director and director-nominee of the Company, (iii) each Named Executive Officer
of the Company and (iv) all directors, director-nominees and executive officers
of the Company as a group. To the knowledge of the Company, all persons listed
below have sole voting and investment power with respect to their shares, except
to the extent that authority is shared by their respective spouses under
applicable law.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY
OWNED SHARES BENEFICIALLY
PRIOR TO THE OWNED AFTER
OFFERING(1) THE OFFERING(1)
--------------------- ---------------------
NAME AND ADDRESS OF BENEFICIAL OWNER(2) NUMBER PERCENT NUMBER PERCENT
- --------------------------------------------------- --------- ------- --------- -------
<S> <C> <C> <C> <C>
Robert M. and Christi M. Worsley(3)................ 5,470,895 83.0% 5,470,895 63.7%
Alan C. and Karen Ashton(4)(5)(6).................. 2,530,398 38.4 2,530,398 29.4
Bert A. Getz(4)(7)................................. 1,195,996 18.1 1,195,996 13.9
David A. Wirthlin(8)............................... 90,216 1.4 90,216 1.0
Martin F. Smith(9)................................. 48,108 * 48,108 *
Andrea Fox(10)..................................... 22,854 * 22,854 *
Jonathan T. Davis(11).............................. 21,654 * 21,654 *
John H. Hurley(12)................................. 2,000 * 2,000 *
Thomas J. Litle(6)(13)............................. 29,000 * 29,000 *
Lyle R. Knight(6)(13).............................. 29,000 * 29,000 *
Randy Petersen(6).................................. 5,000 * 5,000 *
All directors, director-nominees and executive
officers of the Company as a group (10
persons)......................................... 5,723,727 84.1% 5,723,727 65.0%
</TABLE>
- ---------------
* Less than 1%
(1) A person is deemed to be the beneficial owner of securities that can be
acquired within 60 days from the date set forth above through the exercise
of any option, warrant or right. Shares of Common Stock subject to options,
warrants or rights that are currently exercisable or exercisable within 60
days are deemed outstanding for computing the percentage of the person
holding such options, warrants or rights, but are not deemed outstanding
for computing the percentage of any other person. The amounts and
percentages are based upon 6,590,000 shares of Common Stock outstanding as
of September 30, 1996, after giving pro forma effect to the issuance of
1,440,000 shares of Common Stock in connection with the Recapitalization
Transactions, and 8,590,000 shares of Common Stock outstanding as of the
close of this Offering.
(2) The business address for all directors, director-nominees (except Alan
Ashton) and officers of the Company is c/o the Company, 1520 E. Pima
Street, Phoenix, Arizona 85034.
(3) Includes (i) 2,525,398 shares of Common Stock that the Worsleys have the
right to acquire during the two-year period commencing on the closing of
this Offering from Alan C. and Karen Ashton (the "Ashtons"); (ii) 672,999
shares of Common Stock that the Worsleys have the right to acquire during
the eighteen-month period commencing on the closing of this Offering from
Bert A. Getz; (iii) 2,700 shares of Common Stock issuable upon the
conversion of 15 shares of Preferred Stock purchased in the Private
Placement; and (iv) 900 shares of Common Stock issuable upon exercise of
the Warrant acquired in the Private Placement. See "Certain Transactions."
(4) The Ashtons and Bert Getz have granted an Over-Allotment Option to the
underwriters to purchase up to 150,000 of each of their shares of Common
Stock solely to cover over-allotments, if any, which is exercisable up to
45 days following this Offering at the initial public offering price, less
underwriting discounts. This table assumes that the Over-Allotment Option
will not be exercised by the Underwriters. See "Underwriting."
38
<PAGE> 43
(5) The address for the Ashtons is c/o Ralph Rasmussen, Esq., 261 E. 1200
South, Orem, Utah 84058.
(6) Includes 5,000 shares issuable upon exercise of certain stock options to be
granted upon the closing of this Offering pursuant to the Company's
Non-Employee Director Stock Option Plan.
(7) The address for Mr. Getz is c/o Globe Corporation, 3634 Civic Center Blvd.,
Scottsdale, Arizona 85251.
(8) Includes (i) 86,616 shares issuable upon exercise of stock options granted
to Mr. Wirthlin pursuant to the Option Plan; (ii) 2,700 shares of Common
Stock issuable upon the conversion of 15 shares of Preferred Stock
purchased in the Private Placement; and (iii) 900 shares of Common Stock
issuable upon exercise of the Warrant acquired in the Private Placement.
(9) Includes (i) 43,308 shares issuable upon exercise of stock options granted
to Mr. Smith pursuant to the Option Plan; (ii) 3,600 shares of Common Stock
issuable upon the conversion of 20 shares of Preferred Stock purchased in
the Private Placement; and (iii) 1,200 shares of Common Stock issuable upon
exercise of the Warrant acquired in the Private Placement.
(10) Includes (i) 21,654 shares issuable upon exercise of stock options granted
to Ms. Fox pursuant to the Option Plan; (ii) 900 shares of Common Stock
issuable upon the conversion of 5 shares of Preferred Stock purchased in
the Private Placement; and (iii) 300 shares of Common Stock issuable upon
exercise of the Warrant acquired in the Private Placment.
(11) Includes 21,654 shares issuable upon exercise of stock options granted to
Mr. Davis pursuant to the Option Plan.
(12) Includes 2,000 shares issuable upon exercise of stock options granted to
Mr. Hurley pursuant to the Option Plan.
(13) Includes (i) 18,000 shares of Common Stock issuable upon the conversion of
100 shares of Preferred Stock purchased in the Private Placement; and (ii)
6,000 shares of Common Stock issuable upon exercise of the warrant acquired
in the Private Placement.
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<PAGE> 44
CERTAIN TRANSACTIONS
To fund the Company's working capital requirements, on March 17, 1994, the
Company obtained loans (the "Working Capital Loans") of $2.0 million from the
Ashtons and $1.0 million from Globe Corporation, an affiliate of Bert Getz
(Globe Corporation and Bert Getz are collectively referred to as "Getz"). These
loans paid interest monthly at a rate of 8.5% and originally matured on July 15,
1994, which date was extended to January 1, 1996 pursuant to a loan modification
and pledge agreement by and between the Company, the Ashtons, the Worsleys and
Getz.
On June 30, 1995, the Ashtons loaned an additional $850,000 to the Company
pursuant to a loan and security agreement (the "Ashton Note"). The Note was due
on December 31, 1995 and carried an interest rate of prime plus 2%.
On March 10, 1995, the Company owed $4.0 million to Bank One Arizona, NA
pursuant to the terms of a Loan Agreement dated April 30, 1993 (the "Bank One
Loan"). The Bank One Loan had an interest rate of prime plus 1 1/2% and matured
on April 15, 1995. On March 11, 1995, Getz paid all principal due on the Bank
One Loan, which totalled $4.0 million, and the Company entered into a Loan and
Security Agreement with Getz pursuant to which it agreed to pay Getz $4.0
million (the "Getz Note"). The Getz Note was due on March 11, 1996 and carried
an interest rate of prime plus 1 1/2%.
On October 15, 1996, the Worsleys the Ashtons, Getz and the Company entered
into agreements (collectively, the "Shareholder Agreements") pursuant to which
the Ashtons and Getz agreed to convert shareholder loans of $1.425 million and
$3.575 million, respectively, into 1,425 and 3,575 shares of Preferred Stock,
respectively, effective upon the closing of the Private Placement. In addition,
under the Shareholder Agreements, effective on the closing date of this
Offering, the Worsleys will have an option (the "Ashton Option") to acquire all
of the Common Stock of the Company held by the Ashtons during the two-year
period following this Offering (exclusive of shares acquired by them in the open
market). The Worsleys have agreed to use their best efforts to obtain financing,
including pledging their shares of the Company's Common Stock, if necessary,
from a third party to permit them to exercise the Ashton Option in full as soon
as reasonably practicable following the expiration of their lock-up agreement
with Josephthal. In addition, the Worsleys will have an option (the "Getz
Option") to acquire one-half of all of the Common Stock of the Company held by
Getz during the 18-month period following this Offering (exclusive of shares
acquired by him in the open market). The exercise prices of the Ashton Option
and the Getz Option are $6.96 per share and $6.69 per share, respectively,
subject to adjustment in certain circumstances. If the Ashton Option is not
exercised during its two-year term, then following such term, the Worsleys will
have a right of first refusal to purchase all of the Common Stock held by the
Ashtons during the following five years. For twelve months following the
effective date of this Offering, the Ashtons have granted an irrevocable proxy
to the Worsleys to vote all shares of Common Stock owned by them. If the Getz
Option is not exercised during its 18-month term, then following such term, the
Worsleys will have a right of first refusal to purchase one-half of the shares
of Common Stock owned by Getz during the following 18 months. To the extent the
underwriters elect not to exercise the Over-Allotment Option, the Ashtons and
Getz have agreed to grant to the Worsleys options to acquire any shares of
Common Stock the underwriters fail to acquire at an exercise price equal to the
initial public offering price (less underwriting discounts and commissions) of
the Common Stock offered hereby. The terms of such options run concurrently with
the terms of the Ashton Option and the Getz Option, respectively.
In order to refinance $2.0 million of notes payable (and interest accrued
thereon) to each of the Ashtons and Getz, the Company entered into a loan
agreement for a $4.0 million line of credit with Merrill Lynch Business
Financial Services Inc. ("MLBFS") dated October 11, 1996. The loan, which
matures on December 31, 1998, bears interest at a variable annual rate of 2.6
percent plus the 30-Day Commercial Paper Rate as quoted in The Wall Street
Journal. Ashton and Getz have executed Financial Assets Security Agreements with
MLBFS, granting MLBFS a security interest in Merrill Lynch securities accounts
of at least $2.0 million each owned by Ashton and Getz, respectively.
In April 1993, the Company redeemed 2,268,898 shares of Common Stock held
by the Ashtons in exchange for certain intellectual property, including the
Company's principal trademarks and tradenames. The Company secured an exclusive
license to use the intellectual property acquired by the Ashtons in return for a
40
<PAGE> 45
1% royalty on the Company's sales commencing January 1, 1994. On October 1,
1994, the Ashtons exercised an option granted to them as part of the license,
terminated the Company's obligation to pay the royalty, transferred the
intellectual property back to the Company and were issued 2,268,898 shares of
Common Stock by the Company. At the time such option was exercised, the Company
owed the Ashtons approximately $180,000 pursuant to the license. The Ashtons
forgave approximately $72,000 of such amount and agreed to a payment schedule
for the remainder, of which amount approximately $70,000 is currently
outstanding.
In December 1995, Bert Getz executed a guarantee of certain indebtedness of
the Company in favor of Quad/Graphics, Inc., the Company's catalog printer and
paper supplier. The guarantee originally included obligations of the Company
incurred between December 1, 1995 and June 30, 1996, but was subsequently
extended by Quad/Graphics, Inc. and Mr. Getz until December 31, 1996. As of
September 30, 1996, the balance owed by the Company to Quad/Graphics, Inc. was
approximately $1.2 million.
On April 19, 1996, the Company entered into an agreement with LitleNet LLC,
a company in which Thomas Litle, a director-nominee of the Company, has a
controlling ownership interest, pursuant to which LitleNet LLC provides the
Company with credit card transaction management services. Under this agreement,
the Company pays LitleNet LLC fees of up to $20,700 per month. After the initial
12 month term of the agreement, the agreement is automatically renewed for an
additional 12 months unless terminated by either party.
On October 20, 1996, two of the Company's director-nominees, Lyle Knight
and Thomas Litle, each purchased 100 shares of Convertible Preferred Stock and
Warrants to purchase 6,000 shares of Common Stock in the Private Placement for
$100,000. Upon the closing of this Offering, the shares of Convertible Preferred
Stock of each of Mr. Knight and Mr. Litle will convert into 18,000 shares of
Common Stock. In addition, Robert Worsley, Martin Smith, David Wirthlin and
Andrea Fox purchased 15, 20, 15 and 5 shares of Convertible Preferred Stock,
respectively, and warrants to purchase 900, 1,200, 900, and 300 shares of Common
Stock, respectively, in the Private Placement for $15,000, $20,000, $15,000 and
$5,000, respectively. Upon closing of this Offering, the shares of Preferred
Stock of Mr. Worsley, Mr. Smith, Mr. Wirthlin and Ms. Fox will convert into
2,700, 3,600, 2,700 and 900 shares of Common Stock, respectively.
TAX INDEMNIFICATION
Since its inception, the Company has elected to be treated as an S
Corporation for federal tax purposes. Upon the closing of the Private Placement,
the Company terminated its S Corporation status and became become subject to
federal taxation as a C Corporation. In connection with the termination of its S
Corporation status, the Company and certain of its present shareholders have
entered into a Tax Indemnification Agreement (the "Tax Agreement"). Although the
Company became subject to corporate income taxation after the date on which it
ceased to be an S Corporation (the "Termination Date"), under applicable tax
laws, the existing shareholders will continue to be liable for any tax
deficiencies attributable to the Company's operations prior to the Termination
Date. Accordingly, the Tax Agreement generally provides that the existing
shareholders will be indemnified by the Company with respect to federal and
state taxes (plus interest and penalties, as well as any costs incurred in
contesting any dispute with a taxing authority) resulting from any adjustment to
S Corporation income for any taxable year that was taxed directly to the
existing shareholders. The right to indemnification is absolute and is not
conditioned upon realization by the Company of an offsetting adjustment to the
Company's tax liability in a year in which it is not an S Corporation. Any
payment made by the Company to the existing shareholders pursuant to the Tax
Agreement may be deemed by the Internal Revenue Service or state taxing
authorities to be nondeductible by the Company for income tax purposes.
Additionally, if a payment made under the Tax Agreement is determined to be
taxable to the existing shareholders, then the Company is further obligated to
make additional payments to the existing shareholders in amounts sufficient to
place the shareholders in the same net after-tax position that the shareholders
would have been in if the original indemnification had not been included in
income.
41
<PAGE> 46
DESCRIPTION OF CAPITAL STOCK
The Company is a Nevada corporation and its affairs are governed by its
Articles of Incorporation and Bylaws and the Nevada General Corporation Law. The
following description of the Company's capital stock, which is complete in all
material respects, is qualified in its entirety by reference to the provisions
of the Company's Articles of Incorporation and Bylaws, copies of which have been
filed as exhibits to the Registration Statement of which this Prospectus is a
part.
The authorized capital stock of the Company consists of 50,000,000 shares
of Common Stock, par value $.001 per share, and 10,000,000 shares of preferred
stock, par value $.001 per share (the "Preferred Stock"). As of the date hereof,
there were 6,590,000 shares of Common Stock issued and outstanding, after giving
pro forma effect to the Recapitalization Transactions, which were held of record
by 64 shareholders. No shares of Preferred Stock will be issued and outstanding
upon consummation of this Offering.
COMMON STOCK
Holders of shares of Common Stock are entitled to one vote per share on all
matters to be voted on by shareholders and do not have cumulative voting rights.
Subject to the rights of holders of outstanding shares of Preferred Stock, if
any, the holders of Common Stock are entitled to share ratably in dividends, if
any, as may be declared from time to time by the Board of Directors in its
discretion from funds legally available therefor. In the event of liquidation,
dissolution, or winding up of the Company, subject to the right of outstanding
Preferred Stock, if any, the holders of Common Stock are entitled to share
ratably in all assets available for distribution to the shareholders after
payment of the Company's liabilities. The Common Stock has no preemptive or
other subscription rights, and there are no conversion rights or redemption or
sinking fund provisions with respect to such shares. All of the outstanding
shares of Common Stock are, and the shares of Common Stock offered hereby will
be upon completion of this Offering, fully paid and nonassessable.
PREFERRED STOCK
Shares of Preferred Stock may be issued in one or more series and the Board
of Directors of the Company has the power to fix for each such series such
voting powers, full or limited, and such designations, preferences and relative,
participating, optional or other special rights and such qualifications,
limitations or restrictions thereof as the Board of Directors shall deem
appropriate, without any further vote or action by the shareholders of the
Company. Preferred Stock could be issued by the Board of Directors with voting
and conversion rights that could adversely affect the voting power of the
holders of the Common Stock. In addition, because the terms of the Preferred
Stock may be fixed by the Board of Directors of the Company without shareholder
action, the Preferred Stock could be issued quickly with terms calculated to
defeat or delay a proposed takeover of the Company, or to make the removal of
the management of the Company more difficult. Under certain circumstances, this
would have the effect of decreasing the market price of the Common Stock.
The Company's Articles of Incorporation designates a series of Convertible
Preferred Stock. The series consists of 8,000 shares, $.001 par value per share,
3,000 of which were issued by the Company in the Private Placement and 5,000 of
which were issued upon the conversion of an aggregate of $5.0 million of
indebtedness of the Company upon the closing of the Private Placement. Each
share of Convertible Preferred Stock will be converted into Common Stock upon
the closing of this Offering. See "The Company -- Private Placement" and
"Concurrent Offering."
OTHER SECURITIES
Upon the closing of this Offering, the Company will issue warrants to
Josephthal to purchase up to 200,000 shares of Common Stock at an exercise price
equal to 120% of the initial public offering price. See "Underwriting." In
addition, the Company has granted Warrants to purchase 180,000 shares of Common
Stock to investors in the Private Placement and warrants to a vendor to purchase
58,824 shares of Common Stock, all of which have an exercise price equal to the
initial public offering price of the Common Stock
42
<PAGE> 47
offered hereby. See "The Company -- Private Placement." Options to purchase
438,080 shares of Common Stock have been granted under the Company's Option
Plan. See "Management -- Stock Option Plans."
TRANSFER AGENT AND REGISTRAR
Continental Stock Transfer & Trust Company, located at 2 Broadway, New
York, New York 10004, has been appointed as the transfer agent and registrar for
the Common Stock.
CERTAIN CHARTER AND BYLAW PROVISIONS
The Company's Articles of Incorporation and Bylaws contain a number of
provisions relating to corporate governance and the rights of shareholders.
These provisions require the consent of the Board of Directors or the
"disinterested" members thereof and/or the affirmative vote of two-thirds of the
Company's voting stock, excluding stock owned by interested shareholders, to
effect certain business combinations with interested shareholders. An interested
shareholder for purposes of this provision means a person who, together with
affiliates or associates, beneficially owns, or beneficially owned within the
preceding two-year period, 10% or more of the Company's combined voting power.
The provisions included in the Company's Articles of Incorporation and certain
provisions in the Bylaws may not be amended or repealed without the affirmative
vote of two-thirds of the Company's voting stock, excluding, with respect to the
business combination provision, stock owned by interested shareholders. These
provisions could have the effect of deterring unsolicited takeovers or delaying
or preventing changes in control or management of the Company, including
transactions in which shareholders might otherwise receive a premium for their
shares over then-current market prices. In addition, these provisions may limit
the ability of shareholders to approve transactions that they may deem to be in
their best interest.
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this Offering, the Company will have outstanding
8,590,000 shares of Common Stock. Of these shares, the 2,000,000 shares of
Common Stock sold in the Offering (2,300,000 if the Underwriter's Over-Allotment
Option is exercised in full), will be freely tradable without restriction under
the Securities Act. See "Capitalization." Eight thousand shares of Preferred
Stock will convert into 1,440,000 shares of Common Stock upon the closing of
this Offering, of which 540,000 shares of Common Stock and 180,000 shares of
Common Stock underlying the Warrants issued in the Private Placement will be
freely tradeable. However, the holders of these securities have executed
agreements pursuant to which they have agreed not to sell, transfer, assign,
pledge or otherwise dispose of their securities for a 12 month period from the
effective date of this Prospectus.
The remaining 6,050,000 shares of Common Stock outstanding prior to
consummation of this Offering, including 900,000 shares of Common Stock issuable
on conversion of certain shares of Preferred Stock, are "restricted" securities
within the meaning of Rule 144 under the Securities Act. The holders of all
these "restricted" shares, including each officer, director and principal
shareholder of the Company, have executed agreements pursuant to which they have
agreed not to sell, transfer, assign, pledge or otherwise dispose of their
shares for a 12 month period from the date of this Prospectus without the prior
consent of Josephthal. Taking into consideration the restrictions of Rule 144
and the lock-up agreements, commencing 12 months after the date of this
Prospectus, 5,150,000 shares of Common Stock held by existing shareholders will
become eligible for sale under Rule 144, subject to compliance with the volume
limitations and other requirements of Rule 144. The remaining 900,000 shares of
Common Stock held by existing shareholders will become eligible for sale under
Rule 144 in October 1998, subject to compliance with the volume limitations and
other requirements of Rule 144.
In general, under Rule 144 as currently in effect, a person (or persons
whose shares are aggregated) who has beneficially owned "restricted" shares for
at least two years, including persons who may be deemed "affiliates" of the
Company, as the term is defined in Rule 144, would be entitled to sell (in
accordance with the provisions specified in the rule) within any three month
period a number of shares that does not exceed the greater of one percent of the
then outstanding shares of the Company's Common Stock (approximately 85,900
43
<PAGE> 48
shares immediately following the Offering) or the average weekly trading volume
of the Common Stock during the four calendar weeks preceding the date on which
notice of the sale is filed with the Securities and Exchange Commission. An
"affiliate" of the Company or of a business it has acquired within two years by
merger or share exchange may sell securities that are not "restricted" without
regard to the period of beneficial ownership but subject to the volume
limitations described above and other conditions of Rule 144. A person (or
persons whose shares are aggregated) who is not deemed an "affiliate" of the
Company (and has not been at any time during the three months immediately
preceding the sale), and who has beneficially owned his or her shares for at
least three years, would be entitled to sell such shares under Rule 144 without
regard to the volume limitations described above, manner of sale provisions,
notice requirements, or availability of public information. As defined in Rule
144, an "affiliate" of an issuer is a person that directly, or indirectly
through one or more intermediaries, controls, or is controlled by, or is under
common control with, such issuer.
Prior to the Offering, there has been no public market for the Common Stock
of the Company and no predictions can be made as to the effect, if any, that
market sales of shares or the availability of shares for sale will have on the
market price prevailing from time to time. Nevertheless, sales of substantial
amounts of the Common Stock in the public market could adversely affect
prevailing market conditions and could impair the Company's future ability to
raise capital through the sale of its equity securities. The Common Stock has
been approved for quotation on the Nasdaq National Market under the symbol
"SKYM."
UNDERWRITING
The Underwriters named below (the "Underwriters"), for whom Josephthal Lyon
& Ross Incorporated and Cruttenden Roth Incorporated are acting as the
Representatives (the "Representatives"), have severally agreed, subject to the
terms and conditions of the Underwriting Agreement (the "Underwriting
Agreement"), to purchase from the Company and the Company has agreed to sell to
the Underwriters on a firm commitment basis, the respective number of shares of
Common Stock set forth opposite their names:
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITER SHARES
---------------------------------------------------------- ---------
<S> <C>
Josephthal Lyon & Ross Incorporated.......................
Cruttenden Roth Incorporated..............................
---------
Total........................................... 2,000,000
=========
</TABLE>
The Underwriters are committed to purchase all shares of Common Stock
offered hereby, if any of such shares are purchased. The Underwriting Agreement
provides that the obligations of the several Underwriters are subject to
conditions precedent specified therein.
The Company and the Selling Shareholders have been advised by the
Representatives that the Underwriters propose initially to offer the Common
Stock to the public at the initial public offering price set forth on the cover
page of this Prospectus and to certain dealers at such price less concessions of
not in excess of $ per share of Common Stock. Such dealers may re-allow
a concession not in excess of $ per share of Common Stock to other
dealers. After the commencement of this Offering, the public offering price,
concession and reallowance may be changed by the Representatives.
The Representatives have advised the Company that they do not anticipate
sales to discretionary accounts by the Underwriters to exceed five percent of
the total number of shares of Common Stock offered hereby.
The Company and the Selling Shareholders have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act. The Company has also agreed to pay to the Representatives an
expense allowance on a non-accountable basis in the amount of $75,000 upon the
closing of this Offering.
The Underwriters have been granted an option by the Selling Shareholders,
exercisable within 45 days after the date of this Prospectus, to purchase up to
an additional 300,000 shares of Common Stock at the initial public offering
price per share of Common Stock offered hereby, less underwriting discounts.
Such option may be exercised only for the purpose of covering over-allotments,
if any, incurred in the sale of the
44
<PAGE> 49
shares offered hereby. To the extent such option is exercised in whole or in
part, each Underwriter will have a firm commitment, subject to certain
conditions, to purchase the number of the additional shares of Common Stock
proportionate to its initial commitment.
Holders of 6,590,000 shares of the Company's Common Stock, including each
officer, director and principal shareholder of the Company, have executed
agreements with Josephthal pursuant to which they have agreed not to sell,
transfer, assign, pledge or otherwise dispose of their shares for a 12 month
period from the date of this Prospectus, provided that holders of 6,050,000
shares may sell, transfer, assign, pledge or otherwise dispose of their shares
with the prior consent of Josephthal. An appropriate legend shall be marked on
the face of the certificates representing all of such securities.
The Company has agreed that, for five years after the effective date of
this Prospectus, Josephthal shall have the right to designate one person for
election to the Company's Board of Directors. If Josephthal does not designate a
person for election to the Company's Board of Directors, Josephthal may
designate one person to attend meetings of the Company's Board of Directors.
Such individual may be a director, officer, employee or affiliate of Josephthal.
In connection with this Offering, the Company has agreed to sell to
Josephthal, for nominal consideration, the Representative's Warrants to purchase
from the Company 200,000 shares of Common Stock. The Representative's Warrants
are initially exercisable at a price per share equal to 120% of the initial
public offering price for a period of four years commencing one year after the
date of this Prospectus and are restricted from sale, transfer, assignment or
hypothecation for a period of twelve months from the date hereof, except to
officers of Josephthal. The Representative's Warrants also provide for
adjustment in the number of shares of Common Stock issuable upon the exercise
thereof as a result of certain subdivisions and combinations of the Common
Stock. The Representative's Warrants grant to the holders thereof certain rights
of registration for the securities issuable upon exercise of the
Representative's Warrants.
In connection with the Private Placement, the Company paid Josephthal, as
placement agent, $265,500 in cash as commissions and a non-accountable expense
allowance of $15,000. Prior to this Offering, there has been no public market
for the Common Stock. Consequently, the initial public offering price for the
Common Stock has been determined by negotiations between the Company and the
Representatives and is not necessarily related to the Company's asset value, net
worth or other established criteria of value. The factors considered in such
negotiations, in addition to prevailing market conditions, included the history
of and prospects for the industry in which the Company competes, an assessment
of the Company's management, the prospects of the Company, its capital structure
and certain other factors as were deemed relevant.
The foregoing is a summary of the principal terms of the agreements
described above and does not purport to be compete. Reference is made to a copy
of each such agreement which is filed as an exhibit to the Registration
Statement. See "Additional Information."
LEGAL MATTERS
The validity of the Common Stock offered hereby will be passed upon for the
Company by Squire, Sanders & Dempsey L.L.P., Phoenix, Arizona. Orrick,
Herrington & Sutcliffe LLP, New York, New York has acted as legal counsel for
the Underwriters.
EXPERTS
The financial statements and related schedules of the Company as of
December 31, 1994 and 1995 and June 30, 1996 and for each of the years in the
three-year period ended December 31, 1995 and for the six-month period ended
June 30, 1996 included in this Prospectus and elsewhere in the Registration
Statement have been audited by Arthur Andersen LLP, independent public
accountants, as indicated in their report with respect thereto, and are included
herein in reliance upon the authority of said firm as experts in accounting and
auditing.
45
<PAGE> 50
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission") a registration statement on Form S-1 (the "Registration
Statement") under the Securities Act with respect to the Common Stock offered
hereby. This Prospectus constitutes a part of the Registration Statement and
does not contain all of the information set forth therein and in the exhibits
thereto. For further information with respect to the Company and the Common
Stock offered hereby, reference is hereby made to such Registration Statement
and exhibits. Statements contained in this Prospectus as to the contents of any
document are not necessarily complete and in each instance are qualified in
their entirety by reference to the copy of the appropriate document filed with
the Commission. The Registration Statement, including the exhibits thereto, may
be examined without charge at the Commission's public reference facility at Room
1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549. In
addition, copies of any or all part of the Registration Statement, including
such exhibits thereto, may be obtained from the Commission at its principal
office in Washington, D.C., upon payment of the fees prescribed by the
Commission. The Commission maintains a Web site (http://www.sec.gov) that
contains reports, proxy, and information statements and other information
regarding registrants, such as the Company, that file electronically with the
Commission.
The Registration Statement and the reports and other information to be
filed by the Company following the offering in accordance with the Securities
and Exchange Act of 1934, as amended, can be inspected and copied at the
principal office of the Commission at Room 1024, Judiciary Plaza, 450 Fifth
Street, N.W., Washington, D.C. 20549, and at the following regional offices of
the Commission: 7 World Trade Center, New York, NY 10048, and Northwestern
Atrium Center, 500 West Madison Street, Suite 1400, Chicago, IL 60601. Copies of
such material may be obtained from the Public Reference Section of the
Commission at its principal office at 450 Fifth Street, N.W., Washington, D.C.
20549, upon payment of the fees prescribed by the Commission.
46
<PAGE> 51
SKYMALL, INC.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Report of Independent Public Accountants.............................................. F-2
Balance Sheets as of December 31, 1994 and 1995, June 30, 1996 and September 30, 1996
(Unaudited)......................................................................... F-3
Statements of Operations for the Years Ended December 31, 1993, 1994 and 1995 and for
the Six Months Ended June 30, 1995 (Unaudited) and 1996 and for the Nine Months
Ended September 30, 1995 (Unaudited) and 1996 (Unaudited)........................... F-4
Statements of Shareholders' Equity (Deficit) for the Years Ended December 31, 1993,
1994 and 1995 and for the Six Months Ended June 30, 1996 and for the Nine Months
Ended September 30, 1996 (Unaudited)................................................ F-5
Statements of Cash Flows for the Years Ended December 31, 1993, 1994 and 1995 and for
the Six Months Ended June 30, 1995 (Unaudited) and 1996 and for the Nine Months
Ended September 30, 1995 (Unaudited) and 1996 (Unaudited)........................... F-6
Notes to Financial Statements......................................................... F-7
</TABLE>
F-1
<PAGE> 52
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders of SkyMall, Inc.:
We have audited the accompanying balance sheets of SkyMall, Inc. (a Nevada
corporation), as of December 31, 1994 and 1995 and June 30, 1996, and the
related statements of operations, shareholders' equity (deficit) and cash flows
for each of the three years in the period ended December 31, 1995 and the six
months ended June 30, 1996. 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 referred to above present fairly,
in all material respects, the financial position of SkyMall, Inc. as of December
31, 1994 and 1995 and June 30, 1996, and the results of its operations and its
cash flows for each of the three years in the period ended December 31, 1995 and
the six months ended June 30, 1996, in conformity with generally accepted
accounting principles.
ARTHUR ANDERSEN LLP
Phoenix, Arizona,
October 21, 1996.
F-2
<PAGE> 53
SKYMALL, INC.
BALANCE SHEETS
(AMOUNTS IN THOUSANDS, EXCEPT SHARES AND PAR VALUE)
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------- JUNE 30, SEPTEMBER 30,
1994 1995 1996 1996
-------- -------- -------- -------------
(UNAUDITED)
<S> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents..................... $ 896 $ 775 $ 455 $ 1,013
Accounts receivable, net...................... 1,066 892 963 1,232
Merchandise inventory, net.................... 204 22 21 4
Prepaid catalog costs......................... 1,672 1,242 1,806 1,360
-------- -------- -------- -------
Total current assets....................... 3,838 2,931 3,245 3,609
PROPERTY AND EQUIPMENT, net..................... 1,839 1,581 1,813 1,806
OTHER ASSETS, net............................... 236 214 182 175
-------- -------- -------- -------
Total assets.......................... $ 5,913 $ 4,726 $ 5,240 $ 5,590
======== ======== ======== =======
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES:
Accounts payable.............................. $ 4,354 $ 4,695 $ 5,390 $ 5,860
Accrued liabilities........................... 612 329 340 247
Current portion of notes payable and capital
leases..................................... 4,072 77 112 112
Current portion of notes payable to vendors... 2,340 2,564 2,973 2,875
-------- -------- -------- -------
Total current liabilities............. 11,378 7,665 8,815 9,094
RESERVE FOR RESTRUCTURE CHARGES................. 2,244 1,276 661 495
NOTES PAYABLE AND CAPITAL LEASES, net of current
portion....................................... 77 -- 129 119
NOTES PAYABLE TO VENDORS, net of current
portion....................................... 4,713 2,326 1,004 709
NOTES PAYABLE TO SHAREHOLDERS, including
interest...................................... 3,292 8,492 8,894 9,115
-------- -------- -------- -------
Total liabilities..................... 21,704 19,759 19,503 19,532
-------- -------- -------- -------
COMMITMENTS AND CONTINGENCIES
(Note 9)
SHAREHOLDERS' EQUITY (DEFICIT):
Common stock, $0.001 par value; 50,000,000
shares authorized; 5,150,000 shares issued
and outstanding each period................ 5 5 5 5
Additional paid-in capital.................... 18,438 18,438 18,438 18,438
Accumulated deficit........................... (34,234) (33,476) (32,706) (32,385)
-------- -------- -------- -------
Total shareholders' equity
(deficit)........................... (15,791) (15,033) (14,263) (13,942)
-------- -------- -------- -------
Total liabilities and shareholders'
equity (deficit).................... $ 5,913 $ 4,726 $ 5,240 $ 5,590
======== ======== ======== =======
</TABLE>
The accompanying notes are an integral part of these balance sheets.
F-3
<PAGE> 54
SKYMALL, INC.
STATEMENTS OF OPERATIONS
(AMOUNTS IN THOUSANDS, EXCEPT SHARES AND PER SHARE)
<TABLE>
<CAPTION>
FOR THE SIX MONTHS
FOR THE NINE
FOR THE YEAR ENDED ENDED MONTHS ENDED
DECEMBER 31, JUNE 30, SEPTEMBER 30,
------------------------------- ------------------- -------------------
1993 1994 1995 1996 1995 1996
------- -------- ------- 1995 ------- ------- -------
-------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
REVENUES:
Merchandise sales, net........ $24,507 $ 22,062 $26,883 $12,255 $12,432 $18,379 $18,906
Placement fees and other...... 2,560 8,241 16,198 8,295 5,793 11,904 8,631
------- -------- ------- ------- ------- ------- -------
Total revenues......... 27,067 30,303 43,081 20,550 18,225 30,283 27,537
COST OF GOODS SOLD.............. 13,691 16,266 24,564 11,610 9,553 17,100 14,725
------- -------- ------- ------- ------- ------- -------
Gross margin......... 13,376 14,037 18,517 8,940 8,672 13,183 12,812
------- -------- ------- ------- ------- ------- -------
OPERATING EXPENSES:
Catalog expenses.............. 6,890 9,644 9,532 4,733 3,979 7,043 5,705
Selling expenses.............. 2,921 2,754 2,229 1,048 1,134 1,594 1,665
Customer service and
fulfillment expenses........ 4,514 2,919 2,136 1,021 973 1,534 1,511
General and administrative
expenses.................... 4,530 5,886 3,112 1,589 1,448 2,308 2,290
Restructure charge............ -- 4,332 -- -- -- -- --
------- -------- ------- ------- ------- ------- -------
Total operating
expenses............. 18,855 25,535 17,009 8,391 7,534 12,479 11,171
------- -------- ------- ------- ------- ------- -------
INCOME (LOSS) FROM OPERATIONS... (5,479) (11,498) 1,508 549 1,138 704 1,641
Interest expense.............. (230) (600) (755) (351) (405) (551) (622)
Other income (expense)........ (57) (88) 5 (33) 37 (37) 72
------- -------- ------- ------- ------- ------- -------
NET INCOME (LOSS)............... $(5,766) $(12,186) $ 758 $ 165 $ 770 $ 116 $ 1,091
======= ======== ======= ======= ======= ======= =======
PRO FORMA NET INCOME (LOSS) PER
COMMON SHARE.................. $ (1.59) $ (3.19) $ .21 $ .06 $ .18 $ .09 $ .27
======= ======== ======= ======= ======= ======= =======
PRO FORMA WEIGHTED AVERAGE
SHARES OUTSTANDING............ 3,630,559 3,775,274 5,648,824 5,648,824 5,648,824 5,648,824 5,648,824
========= ========= ========= ========= ========= ========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE> 55
SKYMALL, INC.
STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT)
(AMOUNTS IN THOUSANDS, EXCEPT SHARES)
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL
--------------------- PAID-IN ACCUMULATED
SHARES AMOUNT CAPITAL DEFICIT TOTAL
---------- ------ ---------- ----------- --------
<S> <C> <C> <C> <C> <C>
BALANCE, January 1, 1993............ 4,657,211 $ 5 $ 18,340 $ (16,282) $ 2,063
Redemption of shares pursuant to
Stock Redemption and Royalty
Agreement...................... (2,268,898) (2) -- -- (2)
Issuance of shares for guarantee
of debt........................ 265,899 -- 100 -- 100
Net loss.......................... -- -- -- (5,766) (5,766)
---------- --- ------- -------- --------
BALANCE, December 31, 1993.......... 2,654,212 3 18,440 (22,048) (3,605)
Reissuance of shares pursuant to
Stock Redemption and Royalty
Agreement...................... 2,268,898 2 (2) -- --
Issuance of shares for guarantee
of debt........................ 226,890 -- -- -- --
Net loss.......................... -- -- -- (12,186) (12,186)
---------- --- ------- -------- --------
BALANCE, December 31, 1994.......... 5,150,000 5 18,438 (34,234) (15,791)
Net income........................ -- -- -- 758 758
---------- --- ------- -------- --------
BALANCE, December 31, 1995.......... 5,150,000 5 18,438 (33,476) (15,033)
Net income........................ -- -- -- 770 770
---------- --- ------- -------- --------
BALANCE, June 30, 1996.............. 5,150,000 5 18,438 (32,706) (14,263)
Net income........................ -- -- -- 321 321
---------- --- ------- -------- --------
BALANCE, September 30, 1996
(unaudited)....................... 5,150,000 $ 5 $ 18,438 $ (32,385) $(13,942)
========== === ======= ======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE> 56
SKYMALL, INC.
STATEMENTS OF CASH FLOWS
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE SIX MONTHS
FOR THE NINE
FOR THE YEAR ENDED ENDED MONTHS ENDED
DECEMBER 31, JUNE 30, SEPTEMBER 30,
---------------------------- ------------------- ----------------
1993 1994 1995 1996 1995 1996
------- -------- ------- 1995 ----- ------ -------
-----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)...................... $(5,766) $(12,186) $ 758 $ 165 $ 770 $ 116 $ 1,091
Adjustments to reconcile net income
(loss) to net cash provided by (used
for) operating activities-
Depreciation and amortization........ 822 197 244 120 141 183 212
Loss on abandonment of equipment and
other assets....................... 148 1,011 -- -- -- -- --
Reserve for restructure charge....... -- 3,321 -- -- -- -- --
Provision for merchandise
inventory.......................... -- 75 -- -- -- -- --
(Increase) decrease in:
Accounts receivable................ (806) (28) 174 364 (71) 169 (361)
Merchandise inventory.............. (2,779) 4,659 182 159 1 171 18
Prepaid catalog costs.............. (210) (380) 430 167 (564) 902 (118)
Other assets....................... -- 204 -- -- -- 4 (2)
(Decrease) increase in:
Accounts payable................... 1,497 2,902 341 146 696 (72) 1,165
Reserve for restructure............ -- (1,386) (768) (335) (616) (592) (781)
Accrued liabilities................ 1,749 (556) (283) (313) 11 (393) (82)
------- -------- ------- ------- ----- ------ -------
Net cash provided by (used for)
operating activities.......... (5,345) (2,167) 1,078 473 368 488 1,142
------- -------- ------- ------- ----- ------ -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment..... (216) (400) (164) (82) (175) (134) (210)
------- -------- ------- ------- ----- ------ -------
Net cash used for investing
activities.................... (216) (400) (164) (82) (175) (134) (210)
------- -------- ------- ------- ----- ------ -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payment of obligations under capital
leases............................... (52) -- -- -- (2) -- (11)
Notes payable to vendors............... -- -- (2,201) (1,059) (913) (1,058) (1,306)
Proceeds from notes payable............ 4,000 3,292 1,166 76 402 913 623
Payments of notes payable.............. (13) -- -- -- -- -- --
------- -------- ------- ------- ----- ------ -------
Net cash provided by (used for)
financing activities.......... 3,935 3,292 (1,035) (983) (513) (145) (694)
------- -------- ------- ------- ----- ------ -------
(DECREASE) INCREASE IN CASH AND CASH
EQUIVALENTS............................ (1,626) 725 (121) (592) (320) 209 238
CASH AND CASH EQUIVALENTS, beginning of
period................................. 1,797 171 896 896 775 896 775
------- -------- ------- ------- ----- ------ -------
CASH AND CASH EQUIVALENTS, end of
period................................. $ 171 $ 896 $ 775 $ 304 $ 455 $1,105 $ 1,013
======= ======== ======= ======= ===== ====== =======
Income taxes paid...................... $ -- $ -- $ -- $ -- $ -- $ -- $ --
======= ======== ======= ======= ===== ====== =======
Total interest paid.................... $ 206 $ 378 $ 356 $ 177 $ 6 $ 177 $ 8
======= ======== ======= ======= ===== ====== =======
Interest paid to shareholders.......... $ -- $ 25 $ 272 $ -- $ -- $ -- $ --
======= ======== ======= ======= ===== ====== =======
SUPPLEMENTAL DISCLOSURE OF NONCASH
ACTIVITY:
Conversion of accounts payable to notes
payable to vendors................... $ -- $ 5,564 $ -- $ -- $ -- $ -- $ --
======= ======== ======= ======= ===== ====== =======
Notes payable converted to notes
payable to shareholders.............. $ -- $ -- $ 4,000 $ 4,000 $ -- $4,000 $ --
======= ======== ======= ======= ===== ====== =======
Capital leases incurred................ $ -- $ -- $ -- $ -- $ 166 $ -- $ 166
======= ======== ======= ======= ===== ====== =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-6
<PAGE> 57
SKYMALL, INC.
NOTES TO FINANCIAL STATEMENTS
(INFORMATION AS OF AND FOR THE SIX-MONTHS ENDED JUNE 30, 1995
AND AS OF AND FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1995 AND 1996 IS
UNAUDITED)
(1) THE COMPANY:
Nature of Organization
SkyMall, Inc. ("Company") was incorporated in 1989 as an Arizona
corporation (and reincorporated in Nevada in October 1996). The Company
commenced operations in 1990 after signing an agreement with a major airline to
provide retail merchandise service through inflight catalogs. In 1991, the
Company purchased the assets of GiftMaster, Inc., which included contracts with
three major airlines and two regional airlines. At June 30, 1996, the Company
had agreements with 15 airlines to place its catalogs in the aircraft seat
pockets.
Management's Plans
As reflected in the accompanying financial statements, the Company has
incurred substantial operating losses from inception through 1994 as a result of
its start up and market development. Additionally, the accompanying balance
sheets as of June 30, 1996 and September 30, 1996, reflect a shareholder deficit
of approximately $14.3 and $13.9 million, respectively, and a working capital
deficiency of approximately $5.6 and $5.5 million, respectively.
Subsequent to September 30, 1996, the Company sold and issued approximately
$2.6 million of convertible preferred stock, net of offering expenses, and, in
addition, as discussed further in Note 12, management and certain shareholders
have taken steps to strengthen the Company's financial condition and improve the
Company's liquidity. These steps include: (1) obtaining a $4 million loan,
guaranteed by two principal shareholders, payable in 1998, (2) converting notes
to shareholders of $5 million to 5,000 shares of convertible preferred stock
(convertible into 900,000 additional shares of common stock upon the closing of
an initial public offering), and (3) using the net proceeds of $2.6 million from
the issuance of new preferred stock to pay past due debt and notes payable to
vendors, with which the Company was not in compliance at June 30, 1996.
In addition to the changes discussed above, the Company's projection of
operations and cash flows for the balance of calendar year 1996 and 1997, and
the terms to pay certain significant current payables over 60-90 days, indicate
the Company will generate sufficient profitability and cash flow to liquidate
its remaining liabilities in the ordinary course of its operations. However,
there can be no assurance that the Company will be able to generate sufficient
revenues to achieve or sustain profitability.
Also, as discussed further in Notes 2 and 10, upon the conversion of the
Company from an S corporation to a C corporation, for tax purposes, the
accumulated deficit ($32.7 million at June 30, 1996; $32.4 million at September
30, 1996) will be reclassified to paid-in capital.
F-7
<PAGE> 58
SKYMALL, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
The pro forma application of the net proceeds from the transactions
discussed above as applied to the historical balances are as follows (amounts in
thousands):
<TABLE>
<CAPTION>
JUNE 30, 1996 SEPTEMBER 30, 1996
---------------------- ----------------------
HISTORICAL PRO FORMA HISTORICAL PRO FORMA
---------- --------- ---------- ---------
<S> <C> <C> <C> <C>
Total current assets.......................... $ 3,245 $ 3,421 $ 3,609 $ 3,609
======== ======= ======== =======
Accounts payable and accrued liabilities...... $ 5,730 $ 4,130 $ 6,107 $ 4,507
Current portion of notes payable to vendors... 3,085 2,085 2,987 1,987
-------- ------- -------- -------
Total current liabilities........... 8,815 6,215 9,094 6,494
-------- ------- -------- -------
Long-term portion of notes payable to
vendors..................................... 1,004 1,004 709 709
Notes payable to shareholders, including
interest.................................... 8,894 70 9,115 115
Commercial loan............................... -- 4,000 -- 4,000
Reserve for restructure charges............... 661 661 495 495
Notes payable and capital leases, net of
current portion............................. 129 129 119 119
Preferred stock............................... -- -- -- --
Common stock.................................. 5 5 5 5
Additional paid-in capital.................... 18,438 (6,668) 18,438 (6,347)
Accumulated deficit........................... (32,706) -- (32,385) --
-------- ------- -------- -------
Total liabilities and shareholders'
equity............................ $ 5,240 $ 5,416 5,590 5,590
======== ======= ======== =======
</TABLE>
Initial Public Offering
The Company is contemplating an initial public offering (IPO) of 2 million
shares of common stock at an estimated price of $8 to $9 per share (Note 12).
Reincorporation and Restatement of Shares
In October, 1996, the Company reincorporated in the State of Nevada. In
connection with the reincorporation, the Company completed a 1,592 to 1 share
exchange, including treasury shares, resulting in 5,150,000 shares of common
stock outstanding, on a retroactive basis, at June 30, 1996 and September 30,
1996. The accompanying financial statements and footnotes have been restated for
the change in the number of shares of common stock outstanding for all periods
presented.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Use of Estimates in Preparation of Financial Statements
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,
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. In
management's opinion, methodologies used to determine estimates are adequate and
consistent with prior periods.
Revenue Recognition
Merchandise sales represent the Company's total fulfilled sales at retail
sales prices, net of returns and allowances, from products displayed in the
Company's catalog. The Company's agreements with participating vendors provide
that the vendor ship the products directly to the Company's customer upon
notification of the order to the vendor. Upon notification from the
participating vendors of the shipment of the goods, the
F-8
<PAGE> 59
SKYMALL, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Company recognizes the merchandise sale and related cost of goods sold, and
establishes a reserve for anticipated returns.
Under its contracts with participating vendors, the Company earns
percentages of revenues generated by the Company's sales, placement fees for
inclusion of the merchants' products in the SkyMall catalog, or a combination
thereof. Placement fees are designed to cover catalog expenses and to stabilize
the Company's revenue by reducing the impact of fluctuations in merchandise
sales. Catalogs are issued four times a year. The Company offers the
participating vendor's products in the Company's catalogs and performs order
taking and processing services. The placement fees are recognized ratably over
the life of the catalog. Order taking and processing service expenses are
recognized in the period incurred.
The cost of goods sold represents the amount paid by the Company to vendors
in connection with sales of their merchandise included in the vendor catalog,
which the Company is required to pay under certain of its merchant agreements.
The percentage of sales which the Company pays to the vendor varies from
agreement to agreement; generally, the higher the placement fee paid by a
participating merchant, the higher percentage of sales paid by the Company to
the merchant, and vice versa.
In addition, the Company generates revenue from the rental of its customer
list. List revenue is included in placement fees and other revenue in the
accompanying statements of operations.
Impairment of Long-Lived Assets
The Company assesses the recoverability of long-lived assets, including
equipment and leasehold improvements and purchased contracts by determining
whether the assets can be recovered from undiscounted future cash flows. The
amount of impairment, if any, is measured based on projected future cash flows
using a discount rate reflecting the Company's average costs of funds.
Recoverability of long-lived assets is dependent upon, among other things,
the Company's ability to continue to achieve profitability, so as to be able to
meet its obligations when they become due. In the opinion of management, based
upon current information and projections, long-lived assets will be recovered
over the period of benefit.
Cash and Cash Equivalents
Cash equivalents include investments purchased with an original maturity of
three months or less. As a result of the Company's restructure in 1994, the
Company is required to pay some vendors through a restricted escrow account.
Total restricted cash balances in such escrow accounts as of December 31, 1994
and 1995, June 30, 1996, and September 30, 1996 were approximately $539,000,
$618,000, $12,000 and $230,000 respectively.
Accounts Receivable
Accounts receivable at June 30, 1996, includes amounts due from credit card
companies and receivables from vendors for placement fees. The allowance for
doubtful accounts as of December 31, 1994 and 1995, June 30, 1996 and September
30, 1996 was $175,000 for each period.
Inventory
Inventory consists of finished goods purchased from vendors which are held
for sale and included in the Company's catalogs to consumers. Subsequent to
December 31, 1994, such inventory consists mainly of logo merchandise which
cannot be delivered via drop ship by vendors. Inventory is stated at the lower
of cost (first-in, first-out) or market. The Company typically has arrangements
whereby inventory items may be returned to vendors if not sold. The Company has
established a reserve of approximately $598,000, $8,000, $9,000 and
F-9
<PAGE> 60
SKYMALL, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
$10,000 at December 31, 1994 and 1995, June 30, 1996 and September 30, 1996,
respectively, for damaged, obsolete or discontinued merchandise that cannot be
returned to vendors.
Prepaid Catalog Costs
Prepaid catalog costs include primarily catalog production costs, which are
deferred and amortized on a straight-line basis over the period each catalog
issue is in use, currently three months.
Income Taxes
The Company since inception has been an S corporation and thus, is not
directly subject to income taxes. Accordingly, there is no provision or benefit
for income taxes reflected in the accompanying financial statements, as items of
taxable income and losses are reported in the individual returns of
shareholders.
Effective October 1996, the S status of the Company has terminated as a
result of the issuance of convertible preferred stock (Note 1). Subsequent to
the termination, the Company will be taxed as a C corporation. Net operating
losses (NOLs) calculated on a tax basis prior to the termination accrued to the
individual stockholders. Accordingly, such losses are not available to reduce
taxes payable by the Company as a C corporation.
Upon the termination of the S status, the Company is required to implement
Statement of Financial Accounting Standards No. 109 "Accounting for Income
Taxes" (SFAS No. 109), which requires the calculation of existing temporary
differences between the financial statement carrying amounts of existing assets
and liabilities and their respective tax bases. Management does not expect such
implementation to have a significant impact on the Company.
Had the Company been a C corporation prior to October, 1996, no federal or
state income taxes would have been provided as a result of the NOLs discussed
above. Accordingly, no pro forma provision for federal or state income taxes is
presented as if the Company were taxed as a C corporation for the entirety of
all periods presented. Additionally, the accumulated deficit at the time of the
S election termination, will be reclassified to additional paid-in capital.
Concentration of Credit Risk
Financial instruments that potentially subject the Company to
concentrations of credit risk consist of accounts receivable and accounts
payable and notes payable to shareholders, which were subsequently converted to
preferred stock.
Concentrations of credit risk with respect to accounts receivable and
accounts payable may be limited due to the large number of participating vendors
comprising the balances and the fact that certain receivable and payable
balances may be offset. The Company performs ongoing credit evaluations of its
merchants, but does not require collateral to support receivables. In addition,
the Company has a right of offset using the proceeds from future merchandise
sales. The Company has established an allowance for doubtful accounts based on
factors surrounding the credit risk of specific customers, historical trends,
and other information.
Pro Forma Net Income (Loss) Per Common Share
Pro forma net income (loss) per share is based on the weighted average
number of common shares outstanding during the periods, as restated for the
share exchange referred to in Note 1 and, as applicable, the dilutive effect of
options outstanding under the Company's stock option plan.
Pursuant to the rules of the Securities and Exchange Commission, certain
changes in common and common equivalent shares during the 12 months immediately
preceding the anticipated date of the Company's initial public offering (IPO)
have been included in the calculation of pro forma common and
F-10
<PAGE> 61
SKYMALL, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
common equivalent shares as if they were outstanding for all periods presented,
including loss years where the impact of incremental shares is otherwise
antidilutive.
The convertible preferred stock, issued subsequent to June 30, 1996, is
automatically convertible into approximately 1,440,000 common shares upon the
closing of an IPO, representing a discount of one-third from the estimated IPO
price. The dilutive impact of these shares for each period presented was 498,824
shares.
Interest related to notes payable to shareholders for the portion that was
converted into preferred stock was added back to the determination of net income
(loss) in the Pro Forma earnings per share computation.
Financial Instruments
The Company's financial instruments include cash, accounts receivable and
accounts payable. Due to the short-term nature of these instruments, the fair
value of these instruments approximates their recorded value. The Company does
not have material financial instruments with off-balance sheet risk.
The Company has notes payable to shareholders at varying terms which, based
upon the subsequent replacement by the new bank loan of $4 million and
conversion of $5 million to convertible preferred stock, the Company believes
are stated at their estimated fair market value.
Unaudited Interim Financial Statements
In the opinion of the Company's management, the June 30, 1995 and September
30, 1995 and 1996 unaudited interim financial statements include all
adjustments, consisting only of normal recurring adjustments, necessary for fair
presentation. The results of operations for the interim periods are not
necessarily indicative of the results for the entire year.
The accompanying interim financial statements have been prepared by the
Company without audit, pursuant to the rules and regulations of the Securities
and Exchange Commission. Certain information and footnote disclosures normally
included in financial statements prepared in accordance with generally accepted
accounting principles have been omitted pursuant to such rules and regulations.
The accompanying interim financial statements should be read in conjunction with
the Company's historical financial statements and related notes thereto.
F-11
<PAGE> 62
SKYMALL, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(3) PROPERTY AND EQUIPMENT:
Depreciation of property and equipment is provided over the estimated
useful lives of the respective assets using the straight-line method. Leasehold
improvements are amortized on a straight-line basis over their estimated useful
lives or the terms of the respective leases, whichever is shorter. The following
is a summary of property and equipment:
<TABLE>
<CAPTION>
ESTIMATED DECEMBER 31, JUNE
USEFUL ------------------- 30, SEPT. 30,
LIFE (YEARS) 1994 1995 1996 1996
------------ ------- ------- ------- -----------
(AMOUNTS IN THOUSANDS) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Equipment.................... 3-10 $ 1,873 $ 1,717 $ 2,031 $ 2,121
Buildings and leasehold
improvements............... 15-31 1,294 1,297 1,293 1,293
Furniture, fixtures and
other...................... 3-7 283 269 273 273
------- ------- ------- ------
3,450 3,283 3,597 3,687
Less -- Accumulated
depreciation............... (1,611) (1,702) (1,784) (1,881)
------- ------- ------- ------
$ 1,839 $ 1,581 $ 1,813 $ 1,806
======= ======= ======= ======
</TABLE>
(4) OTHER ASSETS:
Other assets include intangibles acquired in 1991 from the purchase of
GiftMaster, Inc., which are amortized using the straight-line method over their
estimated useful lives. The following is a summary of other assets:
<TABLE>
<CAPTION>
ESTIMATED DECEMBER 31,
USEFUL --------------- JUNE 30, SEPTEMBER 30,
LIFE (YEARS) 1994 1995 1996 1996
------------ ----- ----- -------- -------------
(AMOUNTS IN THOUSANDS) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Purchased airline contracts.... 10 $ 326 $ 326 $ 326 $ 326
Other, primarily deposits...... 21 19 21 21
----- ----- ----- -----
347 345 347 347
Less -- Accumulated
amortization................. (111) (131) (165) (172)
----- ----- ----- -----
$ 236 $ 214 $ 182 $ 175
===== ===== ===== =====
</TABLE>
F-12
<PAGE> 63
SKYMALL, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(5) NOTES PAYABLE AND CAPITAL LEASES:
Notes payable consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------- JUNE 30, SEPTEMBER 30,
1994 1995 1996 1996
------- ---- -------- -------------
(AMOUNTS IN THOUSANDS) (UNAUDITED)
<S> <C> <C> <C> <C>
Line of credit of $4 million, interest at
prime plus 1.5%, interest due monthly,
principal due April 1995, secured by all
assets of the Company and guarantee of a
shareholder............................... $ 4,000 $ -- $ -- $ --
Note payable, interest at 8%, due in monthly
installments (including interest) of
approximately $4,700 through June 1997,
secured by equipment and rents............ 149 77 77 76
Capital leases, interest at varying rates of
18% to 23%, due in monthly installments
(including interest) of approximately
$4,900 through May 2001, secured by
equipment................................. -- -- 164 155
------- ---- ----- -----
4,149 77 241 231
Less: current portion....................... (4,072) (77) (112) (112)
------- ---- ----- -----
$ 77 $ -- $ 129 $ 119
======= ==== ===== =====
</TABLE>
At June 30, 1996, aggregate annual maturities of notes payable and capital
leases were as follows:
<TABLE>
<CAPTION>
(AMOUNTS IN
THOUSANDS)
<S> <C>
1997...................................................... $ 112
1998...................................................... 39
1999...................................................... 39
2000...................................................... 25
2001...................................................... 26
----
$ 241
====
</TABLE>
On April 30, 1993, the Company entered into an agreement with a bank for a
$4 million line of credit. During 1993, 1994 and 1995, the maximum outstanding
on the line of credit was $4 million, the average balance outstanding was $2.7
million, $4 million and $.8 million, respectively, and the average interest rate
was 7.5%, 8.6% and 10.0%, respectively. The line of credit was guaranteed by a
shareholder who received 265,899 shares of the Company's common stock in
exchange for the guarantee. The Company recorded a charge of $100,000 related to
the guarantee provided by the shareholder. This amount was amortized over the
term of the line of credit. In 1994, the shareholder received an additional
226,890 shares related to the continued guarantee of the debt. In 1995, the
shareholder paid the line of credit on behalf of the Company and the Company
issued a promissory note payable to the shareholder for $4 million (Note 6).
F-13
<PAGE> 64
SKYMALL, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(6) NOTES PAYABLE TO SHAREHOLDERS:
Notes payable to shareholders consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------- JUNE 30, SEPT 30,
1994 1995 1996 1996
------ ------ -------- -----------
(AMOUNTS IN THOUSANDS) (UNAUDITED)
<S> <C> <C> <C> <C>
Note payable dated March 11, 1995, interest at prime
plus 1.5% (9.75% at June 30, 1996), secured by all
assets of the Company.............................. $ -- $4,000 $4,000 $ 4,000
Note payable dated March 17, 1994, interest at 8.5%,
interest due monthly, principal due upon completion
of an initial public offering of the Company's
common stock, secured by all assets of the
Company............................................ 2,000 2,000 2,000 2,000
Note payable dated March 17, 1994, interest at 8.5%,
interest due monthly, principal due upon completion
of an initial public offering of the Company's
common stock, unsecured............................ 1,000 1,000 1,000 1,000
Note payable dated June 30, 1995, interest at prime
plus 2%, interest due monthly, principal due at the
earlier of (i) sale of the Company's building in
Phoenix, Arizona, (ii) completion of an initial
public offering of the Company's common stock or
(iii) March 31, 1997............................... -- 850 850 850
Note payable for royalties (Note 8).................. 108 70 70 70
Accrued interest..................................... 184 572 974 1,195
------ ------ ------ ------
$3,292 $8,492 $8,894 $ 9,115
====== ====== ====== ======
</TABLE>
As of June 30, 1996 and September 30, 1996, the Company was in default of
principal and interest payments on all notes payable to shareholders. Subsequent
to September 30, 1996, the Company converted $5 million of notes payable to
shareholders to preferred stock (see Note 12) and obtained a bank loan for $4
million to pay accrued interest due under shareholders' notes and the remaining
principal balance due on notes payable to shareholders. The bank loan is due in
1998, bears interest at the 30 day commercial paper rate plus 2.6 percent and is
guaranteed by the shareholders whose notes and interest were paid from the
proceeds. As a result, all notes payable to shareholders and the related accrued
interest are classified as long-term in the accompanying balance sheets.
Shareholder Guarantees
A shareholder of the Company has guaranteed the payment of certain catalog
costs. In addition the shareholder has made other guarantees to other creditors
of the Company.
(7) RESTRUCTURE AND RECAPITALIZATION:
Financial and Operational Restructure
In the fourth quarter of 1994, the Company completed a major restructuring
of its business operations and relationships with its participating vendors. The
Company discontinued carrying inventory by outsourcing order fulfillment to its
vendors. Vendors currently drop ship directly to customers. The Company also
outsourced or discontinued its noncore, nonessential business activities, such
as concierge services and airport delivery of products. The Company focused on
its business of providing catalogs in airline seat pockets, producing a high
quality catalog, selecting quality merchandise for inclusion in its catalog, and
conducting customer order taking and processing services. Also, the Company
disposed of substantially all of its remaining inventory, closed its warehouses,
received concessions of amounts due to vendors, deferred the payment of its
other vendor payables, and significantly reduced the size of its workforce. In
addition, the Company entered
F-14
<PAGE> 65
SKYMALL, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
into agreements with one of its major participating vendors to provide the
Company with working capital, $1.0 million in cash and to provide services for
computer processing, catalog production, database management and other services
in exchange for inventory, trade names, the use of the Company's customer list
and placement fees at rates below cost for a substantial number of pages in its
catalogs.
All of these activities resulted in a restructure charge of approximately
$4.3 million in 1994, which included the following (amounts in millions):
<TABLE>
<S> <C>
Loss on long-term major vendor contract discussed above.............. $ 3.6
Losses on fixed asset abandonment and disposal of unneeded equipment
and facilities..................................................... 1.0
Employee termination, severance costs and other...................... .2
Uncollectible accounts receivable.................................... .8
Restructure of and reduction in accounts payable..................... (1.3)
-----
$ 4.3
=====
</TABLE>
Notes Payable to Vendors
In connection with the Company's restructuring, the Company negotiated
extended payment terms with its major vendors. In addition to agreeing to the
extended payment terms, certain vendors agreed to settlements of approximately
60% of the original balance owed at the time of the agreement. These amounts
were converted to notes payable, generally with payment terms of 36 months,
beginning January 1, 1995 and include interest at 8%. At June 30, 1996 and
September 30, 1996, the Company was in default on such notes. Subsequent to
September 30, 1996, the Company negotiated an agreement with one of the vendors
whereby the Company agreed to cure its default and issued to the vendor warrants
to purchase 58,824 shares of the Company's common stock at the IPO price or the
fair market value of the Company's common stock if the IPO is not completed as
of March 31, 1997. The proceeds received from the private placement were used to
cure this and other defaults. Thus, accounts due subsequent to June 30, 1997,
are classified as long-term. Other vendors were paid 50% of the balance owed to
them as full settlement by December 31, 1994. As of June 30, 1996, future
payments related to these notes are as follows (amounts in thousands):
<TABLE>
<CAPTION>
YEAR ENDING
JUNE 30,
--------------------------------------------------------------------
<S> <C>
1997................................................................ $2,973
1998................................................................ 1,074
------
$4,047
======
</TABLE>
(8) STOCK REDEMPTION AND ROYALTY AGREEMENT:
In April 1993, the Company redeemed 2,268,898 shares of common stock held
by a shareholder in exchange for certain intellectual property, including the
Company's principal trademarks and tradenames. The Company secured an exclusive
license to use the intellectual property acquired by the shareholder in return
for a 1% royalty on the Company's sales commencing January 1, 1994.
On October 1, 1994, the shareholder exercised an option to terminate the
Company's obligation to pay the royalty, transferred the intellectual property
back to the Company and was issued 2,268,898 shares of common stock by the
Company. At the time such option was exercised, the Company owed the shareholder
approximately $180,000 pursuant to the license. The shareholder forgave
approximately $72,000 of such amount and agreed to a payment schedule for the
remainder, of which amount $70,000 is outstanding as of June 30, 1996 and
September 30, 1996, and is included as notes payable to shareholders (Note 6).
F-15
<PAGE> 66
SKYMALL, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(9) COMMITMENTS AND CONTINGENCIES:
Litigation
The Company is from time-to-time subject to complaints and claims arising
in the ordinary course of business, including claims concerning infringement on
patent and trademark rights of others. In each instance, the Company's suppliers
had warranted that the products were not infringing and indemnified the Company
against any loss in connection with such claim. The Company believes that its
actions with respect to products offered for sale in its catalogs are reasonable
and in compliance with applicable contractual provisions. The Company further
believes that none of the claims and complaints of which it is currently aware
will materially affects its business, financial position or future operating
results, although no assurance can be given with respect to the ultimate outcome
of any such claims or with respect to the occurrence of any future claims.
Leases
The Company has entered into several operating leases for equipment and
facilities. As of June 30, 1996, the future minimum payments under these leases
are as follows (amounts in thousands):
<TABLE>
<CAPTION>
YEAR ENDING
JUNE 30,
--------------------------------------------------------------------
<S> <C>
1997................................................................ $ 84
1998................................................................ 80
1999................................................................ 64
2000................................................................ 37
2001................................................................ 37
Thereafter.......................................................... 738
------
$1,040
======
</TABLE>
Other equipment and property are leased on a monthly basis. Total lease
expense for the years ended December 31, 1993, 1994 and 1995, six months ended
June 30, 1995 and 1996, and the nine months ended September 30, 1995 and 1996
was approximately $174,000, $264,000, $193,000, $95,000, $99,000, $151,000 and
$132,000 respectively.
Lease Revenue
The Company leases certain of its facilities to others under noncancelable
leases and month to month agreements. Lease revenue of $79,000, $103,000,
$110,000, $52,000, $57,000, $82,000 and $94,000 for the years ended December 31,
1993, 1994 and 1995, the six months ended June 30, 1995 and 1996, and the nine
months ended September 30, 1995 and 1996, respectively, is included in other
income (expense) in the accompanying financial statements. As of June 30, 1996
future minimum lease payments to be received under noncancelable leases are as
follows (amounts in thousands):
<TABLE>
<CAPTION>
YEAR ENDING
JUNE 30,
----------------------------------------------------------------------
<S> <C>
1997.................................................................. $107
1998.................................................................. 79
1999.................................................................. 69
2000.................................................................. 68
2001.................................................................. 68
Thereafter............................................................ 56
----
$447
====
</TABLE>
F-16
<PAGE> 67
SKYMALL, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
401(k) Plan
Under the Company's 401(k) plan (the 401(k) Plan), adopted in 1992,
eligible employees may direct that a portion of their compensation, up to a
legally established maximum, be withheld by the Company and contributed to their
account. All contributions are placed in a trust fund which is invested by the
401(k) Plan's trustee. The 401(k) Plan permits participants to direct the
investment of their account balances among mutual or investment funds and the
Company provides a matching contribution of 25% of a participant's
contributions.
The total contributions made by the Company during the years ended December
31, 1993, 1994 and 1995 and the six months ended June 30, 1995 and 1996, and the
nine months ended September 30, 1995 and 1996, were not significant.
Stock Options
The Company has an incentive and nonqualified stock option plan, which
allows the Company to grant to officers and key employees, (the Officer and
Employee Plan) options covering up to 650,000 shares of common stock at an
exercise price of not less than fair market value at the date of grant.
The Company accounts for the stock options under APB Opinion No. 25, under
which no compensation cost has been recognized.
Under the Officer and Employee Plan, the option exercise price equals the
stock's fair market value on date of grant. The Plan options vest 40% upon
grant, and an additional 20% upon completion of each year of employment; options
expire ten years after the date of grant or three months after grantee's
employment termination.
A summary of the status of the Company's Plan at December 31, 1994 and 1995
and June 30, 1996, and changes during the years ended December 31, 1994 and 1995
and six months ended June 30, 1996, is presented in the table below:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------------------
1994 1995 JUNE 30, 1996
------------------ ------------------ ------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
SHARES EXERCISED SHARES EXERCISED SHARES EXERCISED
(000) PRICE (000) PRICE (000) PRICE
------ -------- ------ -------- ------ --------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of period....... 162 $ 7.39 271 $ 7.39 271 $ 7.39
Granted.................................. 433 7.39 -- -- -- --
Exercised................................ -- -- -- -- -- --
Forfeited................................ (324) 7.39 -- -- -- --
Expired.................................. -- -- -- -- -- --
---- ----- --- ----- --- -----
Outstanding at end of period............. 271 $ 7.39 271 $ 7.39 271 $ 7.39
==== ===== === ===== === =====
</TABLE>
(10) INCOME TAXES:
Concurrently with the change in tax status as discussed in Note 2, the
Company will adopt the provisions of SFAS No. 109. Under the asset and liability
method of SFAS No. 109, deferred tax assets and liabilities are recognized for
the future tax consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and their
respective tax bases and operating loss and tax credit carryforwards. Deferred
tax assets and liabilities are measured using enacted tax rates applied to
taxable income in the years in which those temporary differences are expected to
be recovered or settled. The effect on
F-17
<PAGE> 68
SKYMALL, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
the deferred tax assets and liabilities of a change in tax rates is recognized
in income in the period that includes the enactment date.
Management believes that the following estimated deferred tax assets and
liabilities would exist at June 30, 1996, if the date of tax status change was
effective on June 30, 1996. The Company would provide a valuation reserve for
the deferred tax asset because the Company has not sustained past taxable net
income at sufficient levels to assure realization:
<TABLE>
<S> <C>
Deferred tax assets --
Nondeductible reserves for bad debts and sales returns............. $ 250
Restructuring reserve.............................................. 265
Valuation reserve.................................................. (515)
-----
$ --
=====
</TABLE>
(11) MAJOR VENDORS:
The following table sets forth net merchandise sales, placement fees and
cost of sales as a percentage of the total of each category for the Company's
largest participating vendor:
<TABLE>
<CAPTION>
SIX MONTHS NINE MONTHS
ENDED ENDED
DECEMBER 31, JUNE 30, SEPTEMBER 30,
------------- ------------- -------------
1994 1995 1995 1996 1995 1996
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Net merchandise sales............. 21% 49% 48% 25% 57% 24%
Placement fees.................... 34% 44% 47% 13% 44% 12%
Cost of goods sold................ 25% 54% 50% 33% 61% 31%
== == == == == ==
</TABLE>
No other vendors accounted for greater than 10% of any category listed
above. The information for 1993 is not presented above due to the change in the
Company's business from 1993 to 1994.
Also, net merchandise sales of the Company's products on the five largest
airlines represent approximately 87%, 80%, 79%, 83%, 88% and 89% of total net
merchandise sales for the years ended December 31, 1994 and 1995, the six months
ended June 30, 1995 and 1996 and the nine months ended September 30, 1995 and
1996, respectively.
(12) EVENTS SUBSEQUENT TO JUNE 30, 1996:
Initial Public Offering
The Company intends to file an S-1 registration statement offering 2
million shares of common stock at an estimated price of $8 to $9 per share in an
IPO. Also, the Company intends to issue to the IPO's underwriter warrants which
enable the underwriter to acquire 200,000 shares of the Company's common stock
for 120% of the IPO price.
Sale of Convertible Preferred Stock
In October 1996, the Company received additional financing through the sale
and issuance of 3,000 shares of convertible preferred stock for approximately
$2.6 million, net of offering costs. The convertible preferred stock is
automatically convertible into common stock upon the completion of an IPO. Each
preferred share included a three-year warrant to purchase 60 shares of common
stock at the IPO price.
The convertible preferred stock converts at the greater of (i) 180 shares
of common stock per share of convertible preferred stock or (ii) $1,000 divided
by two-thirds of the IPO price of the common stock.
F-18
<PAGE> 69
SKYMALL, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Notes Payable to Shareholders Converted to Preferred Stock
In October 1996, two shareholders agreed to convert $5.0 million of their
notes payable to shareholders into preferred stock upon the closing of the
private placement discussed above. The preferred shares will automatically
convert into common stock of the Company upon an IPO. The conversion rate is
equal to that of the convertible preferred stock discussed above and will result
in the issuance of approximately 900,000 shares of common stock.
Loan
In October 1996, the Company received a $4.0 million loan, guaranteed by
two shareholders, with interest payable monthly and principal due December 1998.
Proceeds of the loan were used to pay interest accrued on notes payable to
shareholders ($1 million) with the balance paying principal on notes payable to
shareholders.
Employment Contract
In September 1996, the Company entered into an employment agreement with
Robert Worsley, its president and chief executive officer, which expires
September 30, 1999, at an annual compensation level of $190,000 and bonuses as
the Board of Directors may specify. The contract may be renewed for a two-year
period upon its initial expiration. The contract may be terminated earlier under
terms and circumstances described in the agreement. Under certain circumstances,
Mr. Worsley may receive up to two years of base salary upon termination.
Stock Options
Effective October 1996, the Company approved a Non-Employee Director Stock
Option Plan (the Director Plan), which allows the Company to grant nonemployee
directors options covering up to 100,000 shares of common stock at an exercise
price of not less than fair market value of the common stock at the date of
grant.
Under the Director Plan, each nonemployee Board member is granted an option
to purchase 5,000 common shares upon appointment to the Board and an option to
purchase 3,000 shares annually, subject to certain limitations. Options are 100%
vested upon grant and expire ten years after the date of issuance.
In September 1996, under the Officer and Employee Plan, the Company issued
options to purchase 167,405 shares of common stock at a price of $5.56 per share
to certain officers and employees of the Company. Also, options previously
issued to certain employees of the Company were repriced in September 1996 from
$7.39 per share to $5.56 per share.
F-19
<PAGE> 70
THE FOLLOWING PAGES CONTAIN A REPRODUCTION OF SELECTED PAGES OF THE
COMPANY'S HOLIDAY GIFT 1996 CATALOG. THESE PAGES ARE INTENDED TO PROVIDE A
REPRESENTATIVE SAMPLE OF THE COMPANY'S CATALOGS GENERALLY AND THE STATEMENTS
THEREIN SHOULD NOT BE RELIED ON BY POTENTIAL INVESTORS IN MAKING AN INVESTMENT
DECISION.
<PAGE> 71
[THIS IS THE OUTSIDE FRONT COVER PAGE OF THE SKYMALL CATALOG] P. 1
[The outside front cover page of the SkyMall Catalog contains a photograph of
two easels with paintings which are located in the center of the page. There is
a Christmas Tree ornament in the lower right corner of the page. Following is
the text that appears on this page.]
Holiday Gift 1996
Free Take Home Copy
Over 1000 Great Holiday Gifts!
SkyMall(R)
Easy Shopping From Your Favorite Catalogs(TM)
The Best Gifts from . . .
Successories
HealthRider
Magellan's
Frontgate(R)
Brookstone(R)
Hello Direct
The Orvis Company
Hammacher Schlemmer
The Metropolitan Museum of Art
SelfCare(R) Catalog
The Sharper Image
Solutions(R)
. . . and many more!
For Cover Items, see page 2
Unbeatable Prices Guaranteed!
Order by Dec 20th for Christmas Delivery
See Page 2
This Complimentary SkyMall(R) Catalog Is Yours To Keep
<PAGE> 72
[THIS IS THE SECOND PAGE OF THE SKYMALL CATALOG WHICH IS AN INDEX TO THE
CATALOG.] P. 2
SKYMALL HOLIDAY PROSPECTUS SAMPLER
1996
DIRECTORY
LesConcierges
HealthRider(R)
Hammacher Schlemmer
The Sharper Image(R)
Frontgate(R)
Compaq Computer Corp.
The Disney Catalog
Mattel
Pepperidge Farm
The Wine Enthusiast(R)
The Metropolitan Museum of Art
Red Rose Collections
Successories(R)
SyberVision
Brookstone(R)
DataCal(TM) Direct
Hello Direct(R)
Solutions(TM)
The American Historic Society
Johnston & Murphy
Huntington Clothiers
Travel Tools
The Orvis Company
Cellular Works
The Safety Zone
Improvements
Competitive Edge Golf(R)
British Links
Mach 1
Magellan's
Nightingale Conant
InteliQuest(TM)
SelfCare(R) Catalog
Personal Creations
The Cigar Enthusiast
ORDER FORM
<PAGE> 73
[SECOND PAGE OF SKYMALL CATALOG -- CONTINUED.] P. 2
MERCHANDISING INFORMATION
SkyMall is published by SkyMall, Inc., and is printed four times a year. SkyMall
distributes approximately 1,273,000 copies per month, reaching over 966,000
passengers each day. There are full page and partial page programs available to
merchants. For more information please call (602) 254-9777.
SKYMALL
Copyright 1996 SkyMall, Inc. All rights reserved. SkyMall and the SkyMall
diamond mark are registered trademarks of SkyMall, Inc., registered in the U.S.
Patent and Trademark office. SkyMall is not responsible for typographical
errors.
[In the upper left corner there is a photo of a wine bottle opener, two bottles
of wine, and wine glasses. Under the photo is the caption "THE WINE
ENTHUSIAST(@)." In the middle of the left side of the page there is a photo of
three shoes on a pillow. Under the photo is the caption "JOHNSTON & MURPHY." In
the lower left corner of the page there is a photo of a Winnie the Pooh toy bear
with a scarf and stocking. Under the photo is the caption "THE DISNEY CATALOG."
In the upper right corner of the page there is a photo of a child typing on a
computer keyboard in front of a monitor. Under the photo is the caption "FISHER
PRICE & COMPAQ." In the middle of the right side of the page there is a photo of
a tie and dress shirt. Under the photo is the caption "HUNTINGTON CLOTHIERS." In
the lower right corner of the page there is a photo of candlesticks, boxes of
candy and other food items. Under the photo is the caption "PEPPERIDGE FARM."]
<PAGE> 74
[THIS IS THE THIRD PAGE OF THE SKYMALL CATALOG, WHICH DEPICTS SEVERAL PRODUCTS
OFFERED BY SKYMALL. FOLLOWING IS THE TEXT THAT APPEARS ON THIS PAGE] P. 3
SKYMALL PRESENTS
HAMMACHER SCHLEMMER
WEATHER-RESISTANT BOOM BOX. When closed this portable stereo's waterproof
exterior resembles a tool box with a handle and Jeep(R) logo. Open the top and
inside there is a compact disc player with an LCD that shows track number and
time elapsed on the song, a cassette deck that tapes from CD player and radio,
and an AM/FM radio designed to resemble a Jeep's speedometer. Its three built-in
pockets carry your CDs. Ear and microphone jacks are included. Runs on eight D
batteries (included) or plugs into household outlet with AC adaptor (included).
Licensed by Jeep(R). 18" L x 7 1/2" W x 11" H. (10 lbs.) 63109 $169.95
GOLF CLUB DRINK DISPENSER. This unique cooler will keep up to 48 ounces of your
favorite beverage cold without the inconvenience of carrying bottles and cans.
With a dispensing head that resembles a three wood, this 33-inch long cooler
slips easily into your golf bag just like any of your clubs. To pour, just move
the pump lever back and forth. Spout folds back into the club head when you are
finished pouring. Comes with cleaning brush. 44" L. 64206 $39.95
ENCYCLOPAEDIA BRITANNICA CD(TM). This is the compact disc version of the
world's oldest (in continuous publication since 1868) and largest
English-language general encyclopedia. It contains all 32 volumes of the current
edition and includes text articles on over 65,000 subjects (more that 44 million
words) along with 2,500 graphics, including photographs, drawings, maps and
flag. In addition it includes the Tenth Edition of the Merriam-Webster
Collegiate(R) Dictionary and it has an index with over 400,000 references. To
use, simply type in a word or a question as it comes to mind, and its powerful
search engine searches and quickly finds all related articles (its "how to" and
"help" buttons also aid in your searches). Comes with a 96-page instructional
owner's manual. Available in PC and Macintosh versions. 63615 $295.95. This
Britannica CD offer is specially priced for Hammacher Schlemmer customers and is
for home use only.
BALL-SHOOTING "BURP" GUN. This classic toy is made using the same patented
design that kept children amused in the 1950s. It uses air-powered pump action
(instead of batteries) to safely fire up to 15 ping-pong balls (one at a time or
in multi-short bursts). Accurate up to 20 feet, each ball makes the famous
"burp" sound when shot. For adults and children over three years of age. Made of
ABS plastic. Includes 15 balls. 22" L. 46883 $19.95
Set of Ten Extra Balls 54577 $4.95
The Perfect Time to GIFT SHOP is NOW!
1-800-SKYMALL
CALL TOLL FREE 1-800-759-6255
[Next to the description of the Weather-Resistant Boom Box, there are two
pictures of the portable radio and compact disc player, one open and one closed.
The word "JEEP" is molded on one side of the unit. Above the description of the
Ball-Shooting "Burp" Gun is a photo of a toy gun with a transparent barrel and
ping-pong balls inside. In the top right corner of the page is a photo of golf
clubs in a golf bag. One of the woods shown in the picture has a nozzle, from
which water is flowing into a glass held by a person's hand. In the lower right
corner of the page is a photo of the carrying case for the Encyclopaedia
Britannica CD, a compact disc labelled "BRITANNICA CD," and a child with an open
encyclopedia and ten bound volumes of Encyclopaedia Britannica.]
<PAGE> 75
[THIS IS THE FOURTH PAGE OF THE SKYMALL CATALOG, WHICH DEPICTS SEVERAL PRODUCTS
OFFERED BY SKYMALL. FOLLOWING IS THE TEXT THAT APPEARS ON THIS PAGE.] P. 4
SKYMALL PRESENTS
FRONTGATE(R)
From light opera and ballet to popular tunes, this Swiss Music Box plays the
music you love best. A collector's masterpiece, this Music Box is a replica of
an antique disc player. The 40 note Swiss movement made by the renowned artisans
at Reuge produces a sweet lyric sound. The domed box is finished with an
exquisitely crafted veneer of burled walnut, rosewood, and ebony inlaid with an
intricate musical motif. Lara's Theme, Edelweiss, and the Magic Flute by Mozart
accompany each Music Box. Included below is a representative sampling of
additional discs that may be special ordered and kept in the six remaining
storage slots. 10 lbs. 12 1/2" L x 8" H x 8 1/2" D. Y2162 Swiss Disc Player
Music Box $995.00 Y2118 All I Ask of You from Phantom of the Opera (Webber)
$14.95 Y2167 Silent Night (Gruber) $14.95 Y2174 Swan Lake (Tchaikovsky)
$14.95
Bask in the warm glow of a crackling campfire right in your own backyard. Build
a blazing bonfire in our Outdoor Fireplace or warm your toes on the foot rail
next to smoldering embers. The ventilated bottom centerpiece ensures sufficient
airflow for easy lighting, and the deep-dish design radiates tremendous heat.
Built from 3/16 inch pressed steel, the Fireplace includes a heavy cooking grate
for open-pit barbecuing, a full dome spark screen, and a stoker. Available in a
generous 24 inch diameter and an impressive 30" diameter (shown) for larger
gatherings. USA. Y2520 Outdoor Fireplace (24", 70 lbs.)
$360.00 Y5970 Large Outdoor Fireplace (30", 120 lbs.) $495.00
Solid brass Stocking Hangers strong enough to hold Santa himself. Rather than
hammering nails in the mantel or draping Christmas stockings over the
firescreen, start a new holiday tradition with these decorative brass Stocking
Hangers. Cast from one pound of solid brass and hand polished to a lustrous
finish, each Hanger can support a stocking filled to the brim with Christmas
surprises. 4" deep with 4 1/2" overhang. Y2055 Angel Stocking Hanger
$21.95, Y2062 Snowman Stocking Hanger $21.95, Y2069 Santa Stocking
Hanger $21.95, Y2076 Tree Stocking Hanger $21.95 Set of any four Hangers
$79.95
1-800-SKYMALL
CALL TOLL FREE 1-800-759-6255
GUARANTEED UNBEATABLE PRICES!
[In the upper left corner of the page is a photo of an open music box that rests
on a table in front of a sofa. One music disc is under the music reader and two
discs are held upright in storage spaces. In the lower left corner of the page
is a photo of a man and woman sitting on a bench on a patio watching a fire burn
in a round container. There are trees and a lantern in the background. In the
lower right corner of the page is a photo of a stocking hanger with an
angel-shaped top. Just above the stocking hanger are four more stocking hangers
positioned on the edge of a mantle. From left to right, these stocking hangers
are topped by a snowman figure, a Santa figure, an angel figure and a Christmas
tree figure. Other Christmas decorations are contained in the background.]
<PAGE> 76
[THIS IS THE FIFTH PAGE OF THE SKYMALL CATALOG, WHICH DEPICTS SEVERAL PRODUCTS
OFFERED BY SKYMALL. FOLLOWING IS THE TEXT THAT APPEARS ON THIS PAGE.] P. 5
SKYMALL PRESENTS
GUARANTEED UNBEATABLE PRICES!
ORVIS TRAVEL
ORVIS(R)
Grundig Traveler II Shortwave Clock/Radio Tunes in to the World.
Hear the BBC news wherever you are. Small and lightweight, the Grundig provides
amazing reception. Features seven bands (captures all shortwave broadcasts
5.8-12.05 MHz) and AM/FM tuning, an LCD digital alarm clock, and a world-time
select switch. Built-in two-inch speaker and stereo headphones. Includes
Shortwave Frequency Guide. Three AAA batteries included. One-year warranty.
3 1/2" x 5 1/2" x 1 1/4" ( 3/4 lb.) CX761G $99.95
EASY FITTING TRAVELER'S VEST
With squared armholes, concealed buttons, quilted detail with trapunto-like
accents. All cotton, fully lined. In 18-sage, 10-black. Sizes XS (6-8), S (10),
M (12), L(14), XL (16-18). Washable. Imported CX2725 $79
- - Two inner pockets for your passport and tickets
- - Pleated front pockets with flaps and zippers
USE THIS GOKEY(R) LEATHER BRIEFCASE FOR THE REST OF YOUR CAREER . . .THEN PASS
IT ON TO YOUR KIDS
Our best-selling brief. It's made of our exclusive Gokey 1850s Series waxed
cowhide that takes on a wonderful patina with age. Full-envelope pocket inside
with additional built-in pockets for calculator, glasses, pens, business cards.
Outside flap has secure two-buckle closure with new speed-release turnbuckle for
fast access. Even holds legal-size papers comfortably. Leather luggage tag
included. Leather shoulder strap sold separately. 18" x 10" x 5". USA.
CX4032-01 Leather Briefcase $205
CX096K-00 Leather Shoulder Strap $29
- - Features six inner pockets for pen, calculator and address book
- - Large, divided leather compartment to keep important papers separate
PERFECT ALL-LEATHER PACK
Handsome enough to use as a carryall or a business briefcase. Five zippered
compartments hold everything needed for day or even overnight trips. Durable yet
buttery soft tan cowhide. Sturdy carrying handle and removable shoulder strap
included. 1" x 10" x 7". Imported
CX0467 $125
1-800-SKYMALL
CALL TOLL FREE 1-800-759-6255
<PAGE> 77
[FIFTH PAGE OF SKYMALL CATALOG -- CONTINUED.] P. 5
[In the upper left corner of the page is a photo of the Grundig radio.
Below the description of the Traveler's Vest is photo of a woman wearing a vest
holding a camera ready to take a photograph. A depiction of the inside of the
Traveler's Vest is in the lower left corner of the page. Above the description
of the Gokey briefcase is a photo of a briefcase on a rug. A carrying strap lies
in front of the briefcase and a small close-up of a fastener. A drawing of the
interior of the briefcase is located in the center of the page. In the lower
middle portion of the page is a photo of a carrying pack with two zippered
containers and a hand strap and shoulder strap. A checkbook and pen lie next to
the pack. A closeup of one pocket of the pack with cards labelled "ORVIS" and
two pens is in the lower right corner.]
<PAGE> 78
[THIS IS THE SIXTH PAGE OF THE SKYMALL CATALOG, WHICH DEPICTS SEVERAL PRODUCTS
OFFERED BY SKYMALL. FOLLOWING IS THE TEXT THAT APPEARS ON THIS PAGE.] P. 6
SKYMALL PRESENTS
GUARANTEED UNBEATABLE PRICES! THE DISNEY CATALOG
A GIFT FOR EVERY WISH - - -
DISNEY GOLF POCKET WATCH SET
These three timepieces, will suite both the avid golfer and Disney fan to a tee.
They feature scenes from classic Disney animation shorts devoted to golf:
Donald's Golf Game (1938), Canine Caddie (1941) starring Mickey, and How to Play
Golf (1944) starring Goofy. Each 2" diameter watch is elegantly cased in plated
silver or gold, comes with its own sturdy 14" chain fob, and is embossed with
our Par Excellence golf logo. The set is packaged in a logo collector's
leatherette box with a Certificate of Authenticity. Quartz movement, 2-year
warranty. Limited edition of 2,500. Catalog Exclusive. #14067MJ Set of Three
$250
TIGGER HOODED JACKET
Irrepressible outerwear in waterproof nylon taffeta, fully lined in heathered
polyester/cotton fleece. Heavy-duty zipper front with wind flap for weather
protection. Two zippered slant pockets. Shirred elastic cuffs and waistband.
Oversized cut and deep armholes for easy layering, easy moving. Machine
washable. Imported. Adult's S, M, L, XL, XXL #37297MJ $78
AVIATOR PLUSH
Our aeronautical trio in true aviator attire are the perfect companions to fly
with or to add to your collection. Poseable and free standing 12" high. Aviator
Mickey #13861MJ $20. Flight Attendant Minnie #13862MJ $20. Captain Mickey
#13863MJ $20
EXPRESSION SWEATSHIRT
Gift of thoughtfulness and triple delight! Disney heavyweight cotton, polyester
fleece with embroidered four-pose Mickey art. Crew Neck. Imported. White, red
and ash. Adult's S, M, XL, XXL #72050MJ $48
Receive a Complimentary Disney Catalog with Your Order
1-800-SKYMALL
CALL TOLL FREE 1-800-759-6255
DISNEY EMBROIDERED TEE
Our Magnificent Seven Dwarfs line up on 100% cotton. Embroidered characters.
Short sleeves. Crew Neck. USA. Adult's M, L, XL, XXL #71921MJ $28
<PAGE> 79
[SIXTH PAGE OF SKYMALL CATALOG -- CONTINUED.] P.6
[In the upper left corner of the page is a photo of three pocket watches
with pictures of Mickey Mouse, Goofy and Donald Duck, respectively. In the lower
left corner of the page is a photo of a sweatshirt with four Mickey Mouses
embroidered on its front. To the immediate right of the sweatshirt is a photo of
the cover of the Disney Catalog, depicting Mickey and Minnie Mouse, Goofy and
Donald Duck in front of a snow-covered house. In the lower right corner of the
page is a photo of a shirt with the label "MAGNIFICENT SEVEN," pictures of the
Seven Dwarfs, and each Dwarf's name embroidered on the front. In the middle of
the right side of the page is a photo of three stuffed toys; Mickey Mouse with
aviator goggles, Minnie Mouse with a flight attendant uniform and Mickey Mouse
with a captain's hat, from left to right, respectively. In the upper right
corner of the page is a photo of a woman wearing a hat and a jacket with the
Tigger emblem and name on the front. To the left of that picture is the
posterior of the jacket with the word "TIGGER."]
<PAGE> 80
[THIS IS THE SEVENTH PAGE OF THE SKYMALL CATALOG, WHICH DEPICTS SEVERAL PRODUCTS
OFFERED BY SKYMALL. FOLLOWING IS THE TEXT THAT APPEARS ON THIS PAGE.] P. 7
SKYMALL PRESENTS
MATTEL(R)
Barbie COLLECTIBLES(TM)
BARBIE(R) AS SCARLETT IN GONE WITH THE WIND(TM)
It's Barbie as the legendary Scarlett O'Hara(TM), wearing the scandalous
burgundy velvet gown that Scarlett wore in shame to Ashley's birthday party. The
striking gown is trimmed with marabou feathers and adorned with 25 shimmering
faux garnets. Authentically replicated from the movie, every detail is fabulous.
Doll stand included. #12815 $75.00
1996 HAPPY HOLIDAYS(R) BARBIE(R)
Make your holidays sparkle with this Special Edition Barbie. She wears a velvet
gown, trimmed in gold and white. From snowy muff to golden snowflake adorning
her hat, she perfectly captures the holiday spirit. Doll stand included.
<TABLE>
<S> <C> <C>
#15816 white doll $34.99
#15647 black doll $34.99
</TABLE>
GODDESS OF THE SUN(TM) BARBIE(R)
Hollywood designer, Bob Mackie pays tribute to the sun with this dazzling
design. Her shimmering golden gown is covered with over 11,000 hand-sewn sequins
and beads to capture every ray of light. A Limited Edition, she arrives with a
doll stand and a copy of Mackie's original fashion illustration.
<TABLE>
<S> <C> <C>
#14056 $198.00
</TABLE>
(C)1996 Mattell, Inc.
GUARANTEED UNBEATABLE PRICES!
AUTUMN GLORY(TM) BARBIE(R)
A stunning tribute to the colors of fall. Barbie doll shimmers in hues of copper
and burgundy. Adorned with fall leaves and accented with hints of purple and
gold, her gown flows around her like an autumn breeze. Auburn hair and dark wine
hat add the final touch to this autumn portrait. Doll stand included.
<TABLE>
<S> <C> <C>
#15204 $79.00
</TABLE>
SODA FOUNTAIN SWEETHEART(TM) BARBIE(R)
They're two American icons, together for the first time. It's Barbie as the
Coca-Cola lady from years ago. Every detail is lovingly recreated from a 1907
advertisement for Coca-Cola. Even her nostalgic Coca-Cola glass is authentic to
the times. Doll Stand included.
<TABLE>
<S> <C> <C>
#15762 $89.00
</TABLE>
1-800-SKYMALL
CALL TOLL FREE 1-800-759-6255
<PAGE> 81
[SEVENTH PAGE OF SKYMALL CATALOG -- CONTINUED.] P. 7
[In the upper left corner of the page is a photo of a Barbie Doll standing at
the end of a staircase. She is wearing a "Scarlett O'Hara" dress. In the lower
left corner of the page is a photo of a Barbie Doll in a velvet gown and white
hat. A picture of Barbie's face appears in a circle immediately below. A photo
of a Barbie Doll in a gold sequined gown occupies the center of this page. This
doll has a hat and sun rays behind it. In the lower right corner of the page is
a photo of a Barbie Doll in a white dress with polka dots holding an umbrella.
In the upper right corner of the page is a photo of a Barbie Doll wearing a
copper and burgundy colored dress and a large, plumed hat. The Coca Cola(R) logo
appears at the bottom of the page.]
<PAGE> 82
[THIS IS THE EIGHTH PAGE OF THE SKYMALL CATALOG, WHICH DEPICTS SEVERAL PRODUCTS
OFFERED BY SKYMALL. FOLLOWING IS THE TEXT THAT APPEARS ON THIS PAGE.] P. 8
SKYMALL PRESENTS
THE SHARPER IMAGE
A.
THE IDEAL BINOCULARS FOR THOSE ON A POWER TRIP.
Seeking ultimate power? Now you can buy it. Because with a push of the thumb
lever, these powerful compact 25mm binoculars zoom from a broad 8x to a
telescopic 27x -- and any power in between. You can see anything, peer almost
any distance -- the world is quite literally your oyster. Particulars: Equipped
with precise center-wheel focusing, diopter adjustment to your individual
vision, rubber eyecups that fold down for use with glasses, and durable rubber
armor to protect against jolts and impact. Only 4 1/2"L and an easy-to-carry
12oz. Come with lens caps, lens cleaning cloth, neck strap, carrying pouch, and
limited lifetime warranty.
Don't let these go to your head. They work much better on your eyes.
8-27x25 Compact Zoom Binoculars
$180 #YX701
B.
TALK ABOUT TAILORING YOUR ENVIRONMENT TO SUIT YOU.
It appears that you'll have to attempt sleep to the sound of your neighbor's
stereo. But with the press of a button, you're transported to a tropical cruise.
Press another button to hear rain falling in a lush forest full of exotic birds.
Other buttons allow you to lose yourself in rhythmic ocean waves and surf,
neutral white noise, a soothing heartbeat sound, and more. Quite literally, you
can create almost any sort of ambiance you require. Think of our exclusive Ultra
Heart and Sound Soother(TM) relaxation system as your own personal sound
environment.
Particulars: Ten built-in sounds, including Heartbeat, Rain, Brook, White
Noise, Summer Night, and Ocean. Plus four new nature sounds: North Woods,
California Coast, Rain Forest, and Tropical Cruise. An easy-to-use built-in
timer lets you select a sound (White Noise, for example) to lull you
continuously, or that will switch off automatically after 45 minutes. The
powerful 4" wide-range speaker, with adjustable volume, projects sound in all
directions, enveloping you in a relaxing soundscape. The handsome Burltech(TM)
finish has the look of polished natural burl. Powered by included AC adapter.
For portable use, runs on 6 AA alkaline batteries (not included). Weighs just
14oz., measures 3 3/4"H x 5 1/2" diameter. One-year warranty. Even though you
can't escape from reality, you can escape from its sounds. Ultra Heart and Sound
Soother(TM) with timer -- Burltech(TM) Finish
$139.95 #S1429
GUARANTEED UNBEATABLE PRICES!
<PAGE> 83
[EIGHTH PAGE OF SKYMALL CATALOG CONTINUED.] P. 8
C.
THE CREDIT CARD THAT CAN CLEAN A FISH -- OR OPEN A LETTER.
You may never go fly fishing in Wyoming. But you want to be sure of the exact
measurements of your paperclip sculpture. Handy for home, office, and travel,
Tool Logic Card offers the practical benefits of a multi-tool knife -- and
more -- all integrated compactly into an incredibly slim and lightweight 3 1/4"
x 1/4" card. Carry it in your wallet and you won't even know it's there.
Particulars: razor-sharp 2" blade, toothpick, tweezer, awl, can and bottle
opener, screwdriver, 8 power lens, compass, handy lanyard hole, and measuring
rulers. Each high-quality tool is precision crafted from Zytel(TM) and
mirror-polished stainless steel. Too bad it doesn't pay the bills.
Tool Logic Card $25 #OX300
1-800-SKYMALL
CALL TOLL FREE 1-800-759-6255
SOURCE CODE 6JGP
[At the top center of the page is a photo of a top view of a pair of binoculars.
A photo of a round device labelled "Ultra Heart and Sound Soother" is in the
center of the page. The top of this device has a volume knob and ten labelled
buttons arranged in a semicircle. In the bottom center of the page is a photo of
a rectangular device labelled "The Credit Card Companion: TOOL LOGIC." The
device is pictured with two of its components removed. One, a bottle opener,
rests above the device. The other, a jagged edged knife, is below the device. A
compass is pictured in the upper right corner of the device.]
<PAGE> 84
======================================================
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATION OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE
RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR ANY UNDERWRITER. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO
BUY ANY OF THE SECURITIES OFFERED HEREBY BY ANYONE IN ANY JURISDICTION IN WHICH
SUCH OFFER OR SOLICITATION IS NOT AUTHORIZED OR IN WHICH THE PERSON MAKING SUCH
OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO OR TO ANY PERSON TO WHOM IT IS
UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION IN SUCH JURISDICTION. NEITHER THE
DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY
CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THE INFORMATION HEREIN IS CORRECT AS
OF ANY TIME SUBSEQUENT TO THE DATE HEREOF OR THAT THERE HAS BEEN NO CHANGE IN
THE AFFAIRS OF THE COMPANY SINCE SUCH DATE.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary.................... 3
Risk Factors.......................... 7
The Company........................... 11
Concurrent Offering................... 11
Use of Proceeds....................... 12
Dividend Policy....................... 12
Dilution.............................. 13
Capitalization........................ 14
Selected Financial and Operating
Data................................ 15
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 17
Business.............................. 24
Management............................ 34
Principal Shareholders................ 38
Certain Transactions.................. 40
Description of Capital Stock.......... 42
Shares Eligible for Future Sale....... 43
Underwriting.......................... 44
Legal Matters......................... 45
Experts............................... 45
Additional Information................ 46
Index to Financial Statements......... F-1
</TABLE>
------------------------
UNTIL , 1996 (25 CALENDAR DAYS AFTER THE DATE OF THIS PROSPECTUS),
ALL DEALERS EFFECTING TRANSACTIONS IN THE REGISTERED SECURITIES, WHETHER OR NOT
PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS DELIVERY REQUIREMENT IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER
A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD
ALLOTMENTS OR SUBSCRIPTIONS.
======================================================
======================================================
LOGO
2,000,000 SHARES
COMMON STOCK
-----------------
PROSPECTUS
-----------------
JOSEPHTHAL LYON & ROSS
INCORPORATED
CRUTTENDEN ROTH
INCORPORATED
, 1996
======================================================
<PAGE> 85
[ALTERNATE PAGE FOR SELLING SECURITYHOLDER PROSPECTUS]
PROSPECTUS
720,000 SHARES
SKYMALL, INC.
COMMON STOCK
This Prospectus relates to 720,000 shares of common stock, $.001 par value
per share (the "Common Stock"), of SkyMall, Inc. ("SkyMall" or the "Company"),
which are held by certain shareholders of the Company (the "Selling
Securityholders"). The Company issued 540,000 shares of the Common Stock to the
Selling Securityholders upon conversion of a series of 6% Dividend Paying
Convertible Redeemable Preferred Stock (the "Convertible Preferred Stock")
issued by the Company in October, 1996 and converted upon effectiveness of the
Company's initial underwritten public offering. The remaining 180,000 shares of
Common Stock are issuable upon the exercise of certain warrants (the "Warrants")
issued by the Company in October, 1996. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Liquidity and
Capital Resources" and "The Company -- Private Placement." The Common Stock
offered by this Prospectus may be sold from time to time by the Selling
Securityholders, provided a current registration statement with respect to such
securities is then in effect commencing on , 1997. See "Concurrent
Offering," "Plan of Distribution" and "Selling Securityholders."
The distribution of the shares of Common Stock offered hereby by the
Selling Securityholders may be effected in one or more transactions that may
take place on the over-the-counter market, including ordinary broker's
transactions, privately-negotiated transactions or through sales to one or more
dealers for resale of such securities as principals, at market prices prevailing
at the time of sale, at prices related to such prevailing market prices or at
negotiated prices. Usual and customary or specifically negotiated brokerage fees
or commissions may be paid by the Selling Securityholders.
The Selling Securityholders and intermediaries through whom such securities
are sold may be deemed "underwriters" within the meaning of the Securities Act
of 1933, as amended (the "Securities Act"), with respect to the securities
offered, and any profits realized or commissions received may be deemed
underwriting compensation.
None of the proceeds of such sales will be received by the Company;
however, the Company will receive proceeds from the exercise, if any, of the
Warrants. Substantially all of the expenses in connection with the registration
of the Common Stock will be borne by the Company, except for any underwriter's,
brokers' and dealers' commissions and/or discounts. See "Plan of Distribution."
The Common Stock is traded on the Nasdaq-National Market under the symbol
"SKYM." [On , 1997 the last reported sale price for the Common Stock
as reported on the Nasdaq-National Market was $ .]
On the date of this Prospectus, a registration statement filed under the
Securities Act with respect to an underwritten public offering by the Company of
2,000,000 shares of Common Stock and up to 300,000 additional shares of Common
Stock offered by certain selling shareholders of the Company (the "Selling
Shareholders") to cover over-allotments, if any, was declared effective by the
Securities and Exchange Commission (the "Commission"). The Company will receive
net proceeds of $ from the sale of the shares included in the
underwritten public offering, and the Selling Shareholders will receive
approximately $ net proceeds if the over-allotment option is exercised
in full after payment of underwriting discounts and commissions and estimated
expenses of the underwritten public offering. Sales of securities by the Selling
Securityholders or even the potential of such sales, would likely have an
adverse effect on the market price of the Common Stock. See "Concurrent
Offering."
THE SECURITIES OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK.
SEE "RISK FACTORS" BEGINNING ON PAGE HEREOF.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
------------------------
The date of this Prospectus is , 199 .
<PAGE> 86
[ALTERNATE PAGE FOR SELLING SECURITYHOLDER PROSPECTUS]
THE OFFERING
Securities Offered Hereby(1)........ 720,000 shares of Common Stock.
Common Stock to be Outstanding after
the Offering(2)(3).................. 8,590,000 shares.
Use of Proceeds..................... None of the proceeds of this offering
will go to the Company. The net
proceeds from the concurrent offering
will be used by the Company for
implementing marketing and
promotional programs, developing
additional circulation media, capital
expenditures and working capital
requirements. See "Use of Proceeds."
Risk Factors........................ The securities offered hereby involve a
high degree of risk. See "Risk
Factors."
Proposed Nasdaq National Market
Symbol.............................. "SKYM"
- ---------------
(1) An additional 2,000,000 shares of Common Stock are being offered by the
Company and up to 300,000 additional shares of Common Stock to cover
over-allotments, if any, are being offered by certain shareholders of the
Company (the "Selling Shareholders") in the concurrent underwritten public
offering. See "Concurrent Offering."
(2) Assumes that the 2,000,000 shares of Common Stock registered under the
concurrent offering have been sold by the Company.
(3) Does not include (i) 438,080 shares of Common Stock issuable upon exercise
of stock options issued pursuant to the Company's stock option plans, which
have a weighted average exercise price of $6.13 per share, an additional
311,920 shares of Common Stock reserved for issuance thereunder, including
20,000 shares reserved for issuance to non-employee directors upon
completion of this Offering, (ii) 180,000 shares of Common Stock issuable
upon the exercise of Warrants issued by the Company in connection with the
Private Placement, which are exercisable at the initial public offering
price and (iii) 58,824 shares of Common Stock issuable by the Company upon
the exercise of a warrant issued to a vendor, which is exercisable at the
initial public offering price. See "The Company -- Private Placement" and
"Management -- Stock Option Plans."
<PAGE> 87
[ALTERNATE PAGE FOR SELLING SECURITYHOLDER PROSPECTUS]
CONCURRENT OFFERING
On the date of this Prospectus, a registration statement under the
Securities Act with respect to an underwritten public offering of 2,000,000
shares of Common Stock by the Company and up to an additional 300,000 shares of
Common Stock to cover over-allotments, if any, by the Selling Shareholders was
declared effective by the Commission. Sales of securities by the Company and the
Selling Shareholders, or even the potential of such sales, would likely have an
adverse effect on the market price of the Common Stock. See "Risk
Factors -- Shares Eligible for Future Sale."
<PAGE> 88
[ALTERNATE PAGE FOR SELLING SECURITYHOLDER PROSPECTUS]
SELLING SECURITYHOLDERS
The following table provides certain information with respect to the Common
Stock beneficially owned by each Selling Securityholder as of the date of this
Prospectus. Except as indicated in the footnotes to this table, none of such
Selling Securityholders has a material relationship with the Company. Except as
indicated in the footnotes to this table, the Company believes that the persons
named in the following table have sole voting and investment power with respect
to the respective shares of Common Stock set forth opposite their names. The
shares of Common Stock offered by this Prospectus may be offered from time to
time by the Selling Securityholders named below or their nominees.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY SHARES BENEFICIALLY
OWNED PRIOR TO THE OWNED AFTER THE
OFFERING NUMBER OF OFFERING
--------------------- SHARES ---------------------
NAME NUMBER PERCENT OFFERED NUMBER PERCENT
- ---------------------------------------- --------- ------- --------- --------- -------
<S> <C> <C> <C> <C> <C>
Robert M. and Christi Worsley(2)........ 5,470,895 63.7% 3,600 5,467,295 63.6%
David A. Wirthlin(3).................... 90,216 1.0 3,600 86,616 1.0
Martin F. Smith(4)...................... 48,108 * 4,800 43,308 *
Thomas J. Litle(5)...................... 29,000 * 24,000 5,000 *
Lyle R. Knight(6)....................... 29,000 * 24,000 5,000 *
Andrea Fox(7)........................... 22,854 * 1,200 21,654 *
David Anfang, M.D....................... 6,000 * 6,000 0 0
American High Growth Equities Retirement
Trust................................. 54,000 * 54,000 0 0
Gary Bielfeldt.......................... 24,000 * 24,000 0 0
Richard R. Blue......................... 12,000 * 12,000 0 0
James A. Buck and Martha Buck, Trustees
of the James and Martha Buck Family
Trust................................. 6,000 * 6,000 0 0
Christine Cheney........................ 1,200 * 1,200 0 0
Continental Stock Transfer & Trust
Company(8)............................ 6,000 * 6,000 0 0
Ditta Limited Partnership............... 48,000 * 48,000 0 0
Mark Folk............................... 6,000 * 6,000 0 0
Donald L. and Elizabeth Fones........... 12,000 * 12,000 0 0
Brian Gell.............................. 6,000 * 6,000 0 0
Alan Grotenstein........................ 6,000 * 6,000 0 0
Keith Gulledge.......................... 6,000 * 6,000 0 0
James and Teresa Hara................... 18,000 * 18,000 0 0
Hi-Tel Group, Inc....................... 6,000 * 6,000 0 0
Holistica International, Inc............ 6,000 * 6,000 0 0
Mohammed & Hasina Hossain............... 6,000 * 6,000 0 0
Inveski Ltd............................. 54,000 * 54,000 0 0
Varugheshe & Leela Jacob................ 6,000 * 6,000 0 0
Neal T. Jansen.......................... 12,000 * 12,000 0 0
Raj G. Kansal........................... 6,000 * 6,000 0 0
Michael R. Klein........................ 12,000 * 12,000 0 0
O. James & Karen Klein(9)............... 66,135 * 12,000 54,135 *
Manohar & Gopaldas Mahtani.............. 6,000 * 6,000 0 0
Michael & Shoshana Margolin............. 6,000 * 6,000 0 0
Kenneth Mastrilli....................... 12,000 * 12,000 0 0
Sandy & Manuel Mayerson................. 6,000 * 6,000 0 0
Michael A. McKee........................ 12,000 * 12,000 0 0
</TABLE>
<PAGE> 89
<TABLE>
<CAPTION>
SHARES BENEFICIALLY SHARES BENEFICIALLY
OWNED PRIOR TO THE OWNED AFTER THE
OFFERING NUMBER OF OFFERING
--------------------- SHARES ---------------------
NAME NUMBER PERCENT OFFERED NUMBER PERCENT
- ---------------------------------------- --------- ------- --------- --------- -------
<S> <C> <C> <C> <C> <C>
Richard G. Morris....................... 6,000 * 6,000 0 0
Melvin L. & Betty H. Mouton Family
Living Trust.......................... 6,000 * 6,000 0 0
Omotsu Holdings Ltd..................... 20,400 * 20,400 0 0
Richard H. & Mary O'Riley Trust......... 12,000 * 12,000 0 0
Charumati Patel......................... 6,000 * 6,000 0 0
Kala C. & Chandu V. Patel............... 6,000 * 6,000 0 0
Natu & Daksha Patel..................... 6,000 * 6,000 0 0
Rajni R. & Shobhana R. Patel............ 12,000 * 12,000 0 0
Summant L. & Laxmi Patel................ 12,000 * 12,000 0 0
James Lee Perkins....................... 18,000 * 18,000 0 0
Esther Purjes........................... 24,000 * 24,000 0 0
Dr. Sanjeeva Rao........................ 6,000 * 6,000 0 0
Sandeep Diamond Corp.................... 12,000 * 12,000 0 0
James Scibelli.......................... 54,000 * 54,000 0 0
Norman Shapiro.......................... 12,000 * 12,000 0 0
Fredda Sheib............................ 12,000 * 12,000 0 0
Six L. Properties L.P................... 12,000 * 12,000 0 0
David Soucek & Joseph Soucek............ 12,000 * 12,000 0 0
Frank Stella............................ 12,000 * 12,000 0 0
Leonard Vitullo......................... 6,000 * 6,000 0 0
John Worsley............................ 1,200 * 1,200 0 0
Jay S. Youngerman....................... 12,000 * 12,000 0 0
Muhammed S. Yousuf...................... 6,000 * 6,000 0 0
</TABLE>
- ---------------
* Less than 1%.
(1) Percentages are based upon 8,590,000 shares of the Company's common stock
outstanding.
(2) Mr. Worsley is the President and Chief Executive Officer of the Company and
is a member of the Company's Board of Directors.
(3) Mr. Wirthlin is the Chief Financial Officer and Secretary of the Company.
(4) Mr. Smith is a Vice President of the Company.
(5) Mr. Litle is a member of the Company's Board of Directors.
(6) Mr. Knight is a member of the Company's Board of Directors.
(7) Ms. Fox is a Vice President of the Company.
(8) Continental Stock Transfer & Trust Company is the Company's stock transfer
agent and registrar.
(9) Mr. Klein, who currently serves as a consultant to the Company, is a former
employee of the Company.
<PAGE> 90
[ALTERNATE PAGE FOR SELLING SECURITYHOLDER PROSPECTUS]
PLAN OF DISTRIBUTION
The Company will not receive any of the proceeds from the sale of any of
the Shares of Common Stock offered hereby (the "Offered Securities") by the
Selling Securityholders; however, the Company will receive proceeds from the
exercise, if any, of the Warrants. The Offered Securities may be sold from time
to time by the Selling Securityholders, or by pledgees, donees, transferees or
other successors in interest. Such sales may be made on one or more exchanges or
in the over-the-counter market or otherwise, at prices and at terms then
prevailing or at prices related to the then current market price, or in
negotiated transactions. The Offered Securities may be sold by one or more of
the following: (a) a block trade in which the broker-dealer so engaged will
attempt to sell the Offered Securities as agent but may position and resell a
portion of the block as principal to facilitate the transaction; (b) purchases
by a broker-dealer as principal and resale by such broker-dealer for its account
pursuant to this Prospectus; (c) an exchange distribution in accordance with the
rules of such exchange; and (d) ordinary brokerage transactions and transactions
in which the broker solicits purchasers. In effecting sales, broker-dealers
engaged by the Selling Securityholders may arrange for other broker-dealers to
participate in the resales.
In connection with distributions of the Offered Securities or otherwise,
the Selling Securityholders may enter into hedging transactions with
broker-dealers. In connection with such transactions, broker-dealers may engage
in short sales of the Offered Securities in the course of hedging the positions
they assume with Selling Securityholders. The Selling Securityholders may also
sell Offered Securities short and redeliver the Offered Securities to close out
such short positions. The Selling Securityholders may also enter into option or
other transactions with broker-dealers which require the delivery to the
broker-dealer of the Offered Securities, which the broker-dealer may resell or
otherwise transfer pursuant to this Prospectus. The Selling Securityholders may
also loan or pledge Offered Securities to a broker-dealer and the broker-dealer
may sell the Offered Securities so loaned or, upon a default, the broker-dealer
may effect sales of the pledged Offered Securities pursuant to this Prospectus.
Broker-dealers or agents may receive compensation in the form of
commissions, discounts or concessions from Selling Securityholders in amounts to
be negotiated in connection with the sale. Such broker-dealers and any other
participating broker-dealers may be deemed to be "underwriters" within the
meaning of the Securities Act in connection with such sales and any such
commission, discount or concession may be deemed to be underwriting discounts or
commissions under the Securities Act. In addition, any securities covered by
this Prospectus which qualify for sale pursuant to Rule 144 may be sold under
Rule 144 rather than pursuant to this Prospectus.
All costs, expenses and fees in connection with the registration of the
shares will be borne by the Company. Commissions and discounts, if any,
attributable to the sales of the Offered Securities will be borne by the Selling
Securityholders. The Selling Securityholders may agree to indemnify any
broker-dealer or agent that participates in transactions involving sales of the
Offered Securities against certain liabilities, including liabilities arising
under the Securities Act.
In order to comply with the securities laws of certain states, if
applicable, the securities will be sold in such jurisdictions only through
registered or licensed brokers or dealers. In addition, in certain states the
securities may not be sold unless they have been registered or qualified for
sale in the applicable state or an exemption from the registration or
qualification requirement is available and is complied with by the Company and
the Selling Securityholders.
Under applicable rules and regulations under the Exchange Act, any person
engaged in the distribution of the securities may not simultaneously engage in
market-making activities with respect to the securities for a period of two
business days prior to the commencement of such distribution. In addition, and
without limiting the foregoing, each Selling Securityholder will be subject to
applicable provisions of the Exchange Act and the rules and regulations
thereunder, including without limitation, Rules 10b-6, 10b-6A and 10b-7, which
provisions may limit the timing of the purchases and sales of securities by the
Selling Securityholders.
<PAGE> 91
[ALTERNATE PAGE FOR SELLING SECURITYHOLDER PROSPECTUS]
======================================================
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATION OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE
RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR ANY UNDERWRITER. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO
BUY ANY OF THE SECURITIES OFFERED HEREBY BY ANYONE IN ANY JURISDICTION IN WHICH
SUCH OFFER OR SOLICITATION IS NOT AUTHORIZED OR IN WHICH THE PERSON MAKING SUCH
OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO OR TO ANY PERSON TO WHOM IT IS
UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION IN SUCH JURISDICTION. NEITHER THE
DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY
CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THE INFORMATION HEREIN IS CORRECT AS
OF ANY TIME SUBSEQUENT TO THE DATE HEREOF OR THAT THERE HAS BEEN NO CHANGE IN
THE AFFAIRS OF THE COMPANY SINCE SUCH DATE.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary....................
Risk Factors..........................
The Company...........................
Concurrent Offering...................
Use of Proceeds.......................
Dividend Policy.......................
Dilution..............................
Capitalization........................
Selected Financial and Operating
Data................................
Management's Discussion and Analysis
of Financial Condition and Results
of Operations.......................
Business..............................
Management............................
Certain Transactions..................
Selling Securityholders...............
Description of Securities.............
Shares Eligible for Future Sale.......
Plan of Distribution..................
Legal Matters.........................
Experts...............................
Additional Information................
Index to Financial Statements......... F-1
</TABLE>
======================================================
======================================================
SKYMALL, INC.
[Company logo depicting
aircraft inside of a
diamond shape]
720,000 SHARES
COMMON STOCK
-----------------
PROSPECTUS
-----------------
, 1996
======================================================
<PAGE> 92
PART II TO FORM S-1
INFORMATION NOT REQUIRED IN THE PROSPECTUS
INDEMNIFICATION OF DIRECTORS AND OFFICERS
Articles 11 and 12 of the Company's Articles of Incorporation provide as
follows:
1. To the fullest extent permitted by the laws of the State of Nevada, as
the same exist or may hereinafter be amended, no director or officer of the
Corporation shall be personally liable to the Corporation or its shareholders
for monetary damages for breach of fiduciary duty as a director or officer;
provided, however, that nothing contained herein shall eliminate or limit the
liability of a director or officer of the Corporation to the extent provided by
applicable laws (i) for acts or omissions which involve intentional misconduct,
fraud or knowing violation of law or (ii) for authorizing the payment of
dividends in violation of Nevada Revised Statutes Section 78.300. The limitation
of liability provided herein shall continue after a director or officer has
ceased to occupy such position as to acts or omissions occurring during such
director's or officer's term or terms of office. No repeal, amendment or
modification of this Article, whether direct or indirect, shall eliminate or
reduce its effect with respect to any act or omission of a director or officer
of the Corporation occurring prior to such repeal, amendment or modification.
2. The Corporation shall indemnify, defend and hold harmless any person who
incurs expenses, claims, damages or liability by reason of the fact that he or
she is, or was, an officer, director, employee or agent of the Corporation, to
the fullest extent allowed pursuant to Nevada law.
OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the estimated costs and expenses of the
Company in connection with the Offering other than underwriting discounts.
<TABLE>
<S> <C>
SEC Registration Fee...................................................... $ 8,893
NASD Filing Fee........................................................... 3,434
Nasdaq Listing Fee........................................................ 38,975
Legal Fees and Expenses................................................... 100,000
Accounting Fees and Expenses.............................................. 75,000
Representative's Non-accountable Expense Allowance........................ 75,000
Printing and Engraving Expenses........................................... 150,000
Blue Sky Fees and Expenses................................................ 80,000
Miscellaneous............................................................. 278,698
--------
Total........................................................... $810,000
========
</TABLE>
RECENT SALES OF UNREGISTERED SECURITIES
On October 1, 1994, the Company issued 2,268,898 shares of Common Stock to
Alan C. and Karen Ashton in consideration for certain intellectual property
rights and a right to receive a 1% royalty on the Company's sales.
On October 1, 1994, the Company issued 226,890 shares of Common Stock to
Bert A. Getz in consideration of Mr. Getz's guarantee of certain Company debt.
On October 20, 1996, the Company issued 3,575 shares of Preferred Stock to
Bert A. Getz in consideration for conversion of $3,575,000 of debt owed by the
Company to Getz.
On October 20, 1996, the Company issued 1,425 shares of Preferred Stock to
Alan C. and Karen Ashton in consideration for conversion of $1,425,000 of debt
owed by the Company to the Ashtons.
On October 20, 1996, the Company issued 3,000 shares of 6% Dividend Paying
Convertible Redeemable Preferred Stock (the "Preferred Stock") in a private
placement offering to certain investors (the "Investors").
II-1
<PAGE> 93
The Company received gross proceeds of $3,000,000 as consideration for the
Preferred Stock. The Preferred Stock is convertible into Common Stock at any
point, and it shall automatically convert into shares of Common Stock upon a
public offering at a conversion rate of the greater of (i) 180 shares of Common
Stock per share of Preferred Stock, or (ii) 1,000 divided by (66 2/3 multiplied
by the initial public offering price per share of Common Stock per share of
Preferred Stock). In connection with the Private Placement, the Company also
issued Warrants to the Investors to purchase an aggregate of 180,000 shares of
Common Stock at the Company's initial public offering price.
On a number of different dates since December 15, 1993, the Company granted
options to purchase a total of 438,080 shares of Common Stock to various
employees of the Company pursuant to the Company's 1994 Stock Option Plan. Such
options have exercise prices ranging from $5.56 to $7.39 per share.
Unless otherwise noted herein, the issuances of securities in the
transactions described above were deemed to be exempt from registration under
the Act either pursuant to the exemption from registration contained in Section
3(a)(9) and Section 4(2) thereof, or under the provisions of Regulation D or
Rule 701 promulgated under the Act. Such sales were made solely to investors who
represented that they were accredited investors and to not more than 35
non-accredited investors, all of whom purchased such securities for investment
and not with a view to the distribution thereof. All sales were made without any
general solicitation or general advertising. Restrictions have been imposed on
the resale of such securities, including the placement of legends thereon noting
such restrictions, and written disclosure of such restrictions were made prior
to issuance of the securities.
EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(A) EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT PAGE NUMBER OR
NUMBER DESCRIPTION METHOD OF FILING
------- --------------------------------------------------------------- -------------------
<S> <C> <C>
1 Form of Underwriting Agreement................................. *
3.1a Articles of Incorporation of Registrant........................ ***
3.1b Certificate of Amendment to Articles of Incorporation.......... ***
3.2 Bylaws of Registrant........................................... *
4.1 Amended Certificate of Designation for Preferred Stock......... ***
4.2 Form of Common Stock Certificate............................... *
4.3 Form of Representative's Warrant Agreement..................... *
5 Opinion re: legality of the securities being registered........ *
10.1 Employment Agreement between Robert M. Worsley and
SkyMall, Inc................................................... ***
10.2 Form of Airline Customer Services Agreement.................... ***
10.2a Schedule of Omitted Material Terms from Material Airline
Customer Services Agreement.................................... *+
10.2b Airline Customer Services Agreement between SkyMall, Inc. and
Continental Airlines, Inc., dated January 1, 1992, as
amended........................................................ *+
10.2c Airline Customer Services Agreement between SkyMall, inc. and
United Airlines, Inc., dated May 1, 1992....................... *+
10.4 Loan Agreement between Merrill Lynch Business Financial
Services, Inc. and SkyMall, Inc. dated October 11, 1996........ *
10.5 Form of Tax Indemnification Agreement.......................... *
10.6 SkyMall, Inc. 1994 Stock Option Plan, as amended............... ***
10.7 Non-Employee Director Stock Option Plan........................ ***
10.8a Lease Agreement between Pasqualetti Properties, Inc. and
Smitty's Super Valu, Inc. dated June 24, 1960.................. *
10.8b Agreement between Rose Pasqualetti Perkins, Amos Pasqualetti,
Anthony Pasqualetti, Ben Pasqualetti and Smitty's Super Valu,
Inc. dated March 2, 1961....................................... *
</TABLE>
II-2
<PAGE> 94
<TABLE>
<CAPTION>
EXHIBIT PAGE NUMBER OR
NUMBER DESCRIPTION METHOD OF FILING
------- --------------------------------------------------------------- -------------------
<S> <C> <C>
10.8c Addendum to Lease between Amos Pasqualetti, Ben S. Pasqualetti,
Rose Pasqualetti Jenkins, Estate of Anthony J. Pasqualetti and
Smitty's Super Valu, Inc. dated May 11, 1966................... *
10.8d Sublease between Schwan Brothers Properties and Smitty's Super
Valu, Inc. dated August 1, 1984................................ *
10.8e Lease Amending Agreement Smitty's Super Valu, Inc., Pasquo
Investments, and Amos Pasqualetti and Victoria McFarland dated
October 1, 1984................................................ *
10.8f Addendum to Sublease between Smitty's Super Valu, Inc. and
Schwan Brothers Properties dated January 1, 1985............... *
10.8g Assignment of Sublease from Pima Partners to SkyMall, Inc.
dated July 12, 1990............................................ *
11 Statement re: computation of per share earnings................ ***
21 Subsidiaries of Registrant..................................... N/A
23.1 Consent of Accountants......................................... *
23.2 Consent of Counsel............................................. See Exhibit 5
24 Powers of Attorney............................................. ***
27 Financial Data Schedule........................................ ***
99.1 Consent of Alan C. Ashton...................................... ***
99.2 Consent of Lyle R. Knight...................................... ***
99.3 Consent of Thomas J. Litle..................................... ***
99.4 Consent of Randy Petersen...................................... ***
</TABLE>
- ---------------
* Filed herewith.
** To be filed by amendment.
*** Previously filed.
+ Confidential treatment requested as to certain portions of this exhibit.
(B) FINANCIAL STATEMENT SCHEDULES
UNDERTAKINGS
1. The undersigned Registrant hereby undertakes to file, during any period
in which offers or sales are being made, a post-effective amendment to this
registration statement:
(a) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(b) To reflect in the prospectus any facts or events arising after the
effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the
registration statement. Notwithstanding the foregoing, any increase or
decrease in volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered) and any
deviation from the low or high end of the estimated maximum offering range
may be reflected in the form of prospectus filed with the Commission
pursuant to Rule 424(b) if, in the aggregate, the changes in volume and
price represent no more than a 20% change in the maximum aggregate offering
price set forth in the "Calculation of Registration Fee" table in the
effective registration statement.
(c) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or any
material change to such information in the registration statement.
2. The undersigned Registrant hereby undertakes that, for the purpose of
determining any liability under the Securities Act of 1933, each such
post-effective amendment shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
II-3
<PAGE> 95
3. The undersigned Registrant hereby undertakes to remove from registration
by means of a post-effective amendment any of the securities being registered
which remain unsold at the termination of the offering.
4. The undersigned Registrant hereby undertakes to provide to the
underwriter at the closing specified in the underwriting agreements certificates
in such denominations and registered in such names as required by the
underwriter to permit prompt delivery to each purchaser.
5. Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the Registrant pursuant to the foregoing provisions, or otherwise, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer or controlling person of the Registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
6. The undersigned Registrant hereby undertakes that:
(a) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part
of this registration statement in reliance upon Rule 430A and contained in
a form of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or
(4) or Rule 497(h) under the Securities Act shall be deemed to be part of
this registration statement as of the time it was declared effective.
(b) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
II-4
<PAGE> 96
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 S-1 and has duly caused this Amendment No. 1 to
the Registration Statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of Phoenix and State of Arizona on
November 7, 1996.
SKYMALL, INC.,
a Nevada corporation
By /s/ Robert M. Worsley
------------------------------------------
Robert M. Worsley
Chairman of the Board and
President
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 1 to the 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/ Robert M. Worsley Director and President (Principal November 7, 1996
- ----------------------------------- Executive Officer)
Robert M. Worsley
/s/ David A. Wirthlin Chief Financial Officer (Principal November 7, 1996
- ----------------------------------- Financial Officer)
David A. Wirthlin
</TABLE>
II-6
<PAGE> 1
EXHIBIT 1
2,000,000 SHARES OF COMMON STOCK
SKYMALL, INC.
UNDERWRITING AGREEMENT
New York, New York
, 1996
JOSEPHTHAL LYON & ROSS INCORPORATED
CRUTTENDEN ROTH INCORPORATED
As Representatives of the Several
Underwriters listed on Schedule A hereto
c/o Josephthal Lyon & Ross Incorporated
200 Park Avenue, 24th Floor
New York, New York 10166
Ladies and Gentlemen:
SkyMall, Inc., a Nevada corporation (the "Company") confirms
its agreement with Josephthal Lyon & Ross Incorporated ("Josephthal"),
Cruttenden Roth Incorporated ("Cruttenden") and each of the underwriters named
in Schedule A hereto (collectively, the "Underwriters," which term shall also
include any underwriter substituted as hereinafter provided in Section 12), for
whom Josephthal and Cruttenden are acting as representatives (in such capacity,
Josephthal and Cruttenden each shall hereinafter sometimes be referred to as a
Representative and collectively as "you" or the "Representatives"), with respect
to the sale by the Company and the purchase by the Underwriters, acting
severally and not jointly, of the respective numbers of shares of the Company's
common stock, $.001 par value per share ("Common Stock"), set forth in Schedule
A hereto. Such shares of Common Stock are hereinafter referred to as the "Firm
Shares."
Upon your request, as provided in Section 3(b) of this
Agreement, Alan C. and Karen Ashton (the "Ashtons") and Bert A. Getz ("Getz")
(each of the Ashtons and Getz a "Selling Shareholder" and collectively the
"Selling Shareholders") shall sell to the Underwriters, acting severally and not
jointly, an aggregate of up to 300,000 shares of Common Stock (collectively, the
"Option Shares"). Each of the Selling Shareholders shall sell one-half of the
aggregate number of Option Shares purchased by the Underwriters, acting
severally and not jointly, on each Option Closing Date (hereinafter defined), if
any. The Firm Shares and the Option Shares are sometimes hereinafter referred to
as the "Shares". The Company also proposes to issue and sell to Josephthal
warrants (the "Representative's Warrants") pursuant to the Representative's
Warrant Agreement (the "Representative's Warrant Agreement") for the purchase of
up to an additional 200,000 shares of Common Stock. The shares of Common Stock
issuable upon exercise of the Representative's Warrants are hereinafter referred
to as the "Representative's Shares." The Firm Shares, the Option Shares, the
Representative's Warrants and the Representative's Shares (collectively,
hereinafter referred to as the "Securities") are more fully described in the
Registration Statement and the Prospectus referred to below.
<PAGE> 2
1. Representations and Warranties of the Company. The Company
represents and warrants to, and agrees with, each of the Underwriters as of the
date hereof, and as of the Closing Date (hereinafter defined) and the Option
Closing Date (hereinafter defined), if any, as follows:
(a) The Company has prepared and filed with the
Securities and Exchange Commission (the "Commission") a registration statement,
and an amendment or amendments thereto, on Form S-1 (No. 333-_______), including
any related preliminary prospectus ("Preliminary Prospectus"), for the
registration of the Firm Shares and the Option Shares under the Securities Act
of 1933, as amended (the "Act"), which registration statement and amendment or
amendments have been prepared by the Company in conformity with the requirements
of the Act, and the rules and regulations (the "Regulations") of the Commission
under the Act. The Company will promptly file a further amendment to said
registration statement in the form heretofore delivered to the Underwriters and
will not, file any other amendment thereto to which the Underwriters shall have
objected in writing after having been furnished with a copy thereof. Except as
the context may otherwise require, such registration statement, as amended, on
file with the Commission at the time the registration statement becomes
effective (including the prospectus, financial statements, schedules, exhibits
and all other documents filed as a part thereof or incorporated therein
(including, but not limited to those documents or information incorporated by
reference therein) and all information deemed to be a part thereof as of such
time pursuant to paragraph (b) of Rule 430(A) of the Regulations)), is
hereinafter called the "Registration Statement", and the form of prospectus in
the form first filed with the Commission pursuant to Rule 424(b) of the
Regulations, is hereinafter called the "Prospectus." For purposes hereof, "Rules
and Regulations" mean the rules and regulations adopted by the Commission under
either the Act or the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), as applicable.
(b) Neither the Commission nor any state regulatory
authority has issued any order preventing or suspending the use of any
Preliminary Prospectus, the Registration Statement or Prospectus or any part of
any thereof and no proceedings for a stop order suspending the effectiveness of
the Registration Statement or any of the Company's securities have been
instituted or are pending or to the Company's knowledge, threatened. Each of the
Preliminary Prospectus, the Registration Statement and Prospectus at the time of
filing thereof conformed with the requirements of the Act and the Rules and
Regulations, and none of the Preliminary Prospectus, the Registration Statement
or Prospectus at the time of filing thereof contained an untrue statement of a
material fact or omitted to state a material fact required to be stated therein
and necessary to make the statements therein, in light of the circumstances
under which they were made, not misleading, except that this representation and
warranty does not apply to statements made in reliance upon and in conformity
with written information furnished to the Company with respect to the
Underwriters by or on behalf of the Underwriters expressly for use in such
Preliminary Prospectus, Registration Statement or Prospectus, provided, however,
that this representation and warranty does not apply to statements made or
statements omitted in reliance upon and in conformity with information furnished
to the Company in writing by or on behalf of any Underwriter expressly for use
in the Preliminary Prospectus, Registration Statement or Prospectus or any
amendment thereof or supplement thereto, provided that such written information
or omissions only pertain to disclosures in the Preliminary Prospectus, the
Registration Statement or Prospectus directly relating to the
- 2 -
<PAGE> 3
transactions effected by the Underwriters in connection with this Offering. The
Company acknowledges that the statements with respect to the public offering of
the Securities set forth under the heading "Underwriting" and the stabilization
legend in the Prospectus have been furnished by the Underwriters expressly for
use therein and constitute the only information furnished in writing by or on
behalf of the Underwriters for inclusion in the Prospectus.
(c) When the Registration Statement becomes effective
and at all times subsequent thereto up to the Closing Date and each Option
Closing Date, if any, and during such longer period as the Prospectus may be
required to be delivered in connection with sales by the Underwriters or a
dealer, the Registration Statement and the Prospectus will contain all
statements which are required to be stated therein in accordance with the Act
and the Rules and Regulations, and will conform to the requirements of the Act
and the Rules and Regulations; neither the Registration Statement nor the
Prospectus, nor any amendment or supplement thereto, will contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading, provided, however,
that this representation and warranty does not apply to statements made or
statements omitted in reliance upon and in conformity with information furnished
to the Company in writing with respect to the Underwriters by or on behalf of
any Underwriter expressly for use in the Preliminary Prospectus, Registration
Statement or Prospectus or any amendment thereof or supplement thereto, provided
that such written information or omissions only pertain to disclosures in the
Preliminary Prospectus, the Registration Statement or Prospectus directly
relating to the transactions effected by the Underwriters in connection with
this Offering. The Company acknowledges that the statements with respect to the
public offering of the Securities set forth under the heading "Underwriting" and
the stabilization legend in the Prospectus have been furnished by the
Underwriters expressly for use therein and constitute the only information
furnished in writing by or on behalf of the Underwriters for inclusion in the
Prospectus.
(d) The Company has been duly organized and is
validly existing as a corporation in good standing under the laws of the state
of its incorporation. The Company does not own an interest in any corporation,
partnership, trust, joint venture or other business entity. The Company is duly
qualified and licensed and in good standing as a foreign corporation in each
jurisdiction in which its ownership or leasing of any properties or the
character of its operations requires such qualification or licensing. The
Company has all requisite corporate power and authority, and the Company has
obtained any and all necessary authorizations, approvals, orders, licenses,
certificates, franchises and permits of and from all governmental or regulatory
officials and bodies (including, without limitation, those having jurisdiction
over environmental or similar matters), to own or lease its properties and
conduct its business as described in the Prospectus; the Company is and has been
doing business in compliance with all such authorizations, approvals, orders,
licenses, certificates, franchises and permits and all federal, state and local
laws, rules and regulations; and the Company has not received any notice of
proceedings relating to the revocation or modification of any such
authorization, approval, order, license, certificate, franchise, or permit
which, singly or in the aggregate, if the subject of an unfavorable decision,
ruling or finding, would materially and adversely affect the condition,
financial or otherwise, or the earnings, position, prospects, value, operation,
properties, business or results of operations of the Company. The disclosures in
the Registration Statement concerning the effects of federal, state and local
laws, rules and regulations on the
- 3 -
<PAGE> 4
Company's business as currently conducted and as contemplated are correct in all
material respects and do not omit to state a material fact necessary to make the
statements contained therein not misleading in light of the circumstances in
which they were made.
(e) The Company has a duly authorized, issued and
outstanding capitalization as set forth in the Prospectus, under
"Capitalization" and "Description of Capital Stock" and will have the adjusted
capitalization set forth therein on the Closing Date and the Option Closing
Date, if any, based upon the assumptions set forth therein, and the Company is
not a party to or bound by any instrument, agreement or other arrangement
providing for it to issue any capital stock, rights, warrants, options or other
securities, except for this Agreement, the Representative's Warrant Agreement
and as described in the Prospectus. The Securities and all other securities
issued or issuable by the Company conform or, when issued and paid for, will
conform, in all respects to all statements with respect thereto contained in the
Registration Statement and the Prospectus. All issued and outstanding securities
of the Company have been duly authorized and validly issued and are fully paid
and non-assessable and the holders thereof have no rights of rescission with
respect thereto, and the holders thereof are not subject to personal liability
by reason of being such holders; and none of such securities were issued in
violation of the preemptive rights of any holders of any security of the Company
or similar contractual rights granted by the Company. The Securities are not and
will not be subject to any preemptive or other similar rights of any
stockholder, have been duly authorized and, when issued, paid for and delivered
in accordance with the terms hereof, will be validly issued, fully paid and
non-assessable and will conform to the description thereof contained in the
Prospectus; the holders thereof will not be subject to any liability solely by
reason of being such holders; all corporate action required to be taken for the
authorization, issue and sale of the Securities to be sold by the Company
hereunder has been duly and validly taken; and the certificates representing the
Securities will be in due and proper form. Upon the issuance and delivery
pursuant to the terms hereof of the Securities to be sold by the Company
hereunder, the Underwriters or the Representatives, as the case may be, will
acquire good and marketable title to such Securities free and clear of any lien,
charge, claim, encumbrance, pledge, security interest, defect or other
restriction or equity of any kind whatsoever.
(f) The financial statements, including the related
notes and schedules thereto, included in the Registration Statement, each
Preliminary Prospectus and the Prospectus fairly present the financial position,
income, changes in cash flow, changes in stockholders' equity, and the results
of operations of the Company at the respective dates and for the respective
periods to which they apply and the pro forma financial information included in
the Registration Statement and Prospectus presents fairly on a basis consistent
with that of the audited financial statements included therein, what the
Company's pro forma capitalization would have been for the respective periods
and as of the respective dates to which they apply after giving effect to the
adjustments described therein. Such financial statements have been prepared in
conformity with generally accepted accounting principles and the Rules and
Regulations, consistently applied throughout the periods involved. There has
been no adverse change or development involving a material prospective change in
the condition, financial or otherwise, or in the earnings, position, prospects,
value, operation, properties, business, or results of operations of the Company
whether or not arising in the ordinary course of business, since the date of the
financial statements included in the Registration Statement and the Prospectus
and the outstanding debt, the property, both tangible and intangible, and the
business of the Company
- 4 -
<PAGE> 5
conform in all material respects to the descriptions thereof contained in the
Registration Statement and the Prospectus. Financial information set forth in
the Prospectus under the headings "Summary Financial and Operating Data,"
"Selected Financial and Operating Data," "Capitalization," and "Management's
Discussion and Analysis of Financial Condition and Results of Operations,"
fairly present, on the basis stated in the Prospectus, the information set forth
therein, have been derived from or compiled on a basis consistent with that of
the audited financial statements included in the Prospectus.
(g) The Company (i) has paid all federal, state,
local, and foreign taxes for which it is liable, including, but not limited to,
withholding taxes and amounts payable under Chapters 21 through 24 of the
Internal Revenue Code of 1986 (the "Code"), and has furnished all information
returns it is required to furnish pursuant to the Code, (ii) has established
adequate reserves for such taxes which are not due and payable, and (iii) does
not have any tax deficiency or claims outstanding, proposed or assessed against
it.
(h) No transfer tax, stamp duty or other similar tax
is payable by or on behalf of the Underwriters in connection with (i) the
issuance by the Company of the Securities, (ii) the purchase by the Underwriters
of the Securities to be sold by the Company hereunder and the purchase by
Josephthal of the Representative's Warrants from the Company, (iii) the
consummation by the Company of any of its obligations under this Agreement or
the Representative's Warrant Agreement, or (iv) resales of the Shares in
connection with the distribution contemplated hereby.
(i) The Company maintains insurance policies,
including, but not limited to, general liability, product liability and property
insurance, which insures the Company and its employees, against such losses and
risks generally insured against by comparable businesses. The Company (A) has
not failed to give notice or present any insurance claim with respect to any
matter, including but not limited to the Company's business, property or
employees, under the insurance policy or surety bond in a due and timely manner,
(B) does not have any disputes or claims against any underwriter of such
insurance policies or surety bonds or has not failed to pay any premiums due and
payable thereunder, or (C) has not failed to comply with all conditions
contained in such insurance policies and surety bonds. There are no facts or
circumstances under any such insurance policy or surety bond which would relieve
any insurer of its obligation to satisfy in full any valid claim of the Company.
(j) There is no action, suit, proceeding, inquiry,
arbitration, investigation, litigation or governmental proceeding (including,
without limitation, those having jurisdiction over environmental or similar
matters), domestic or foreign, pending or threatened against (or circumstances
that may give rise to the same), or involving the properties or business of, the
Company which (i) questions the validity of the capital stock of the Company,
this Agreement or the Representative's Warrant Agreement or of any action taken
or to be taken by the Company pursuant to or in connection with this Agreement
or the Representative's Warrant Agreement, (ii) is required to be disclosed in
the Registration Statement which is not so disclosed (and such proceedings as
are summarized in the Registration Statement are accurately summarized in all
material respects), or (iii) might materially and adversely affect the
condition, financial or otherwise, or the earnings, position, prospects,
stockholders' equity, value, operation, properties, business or results of
operations of the Company.
- 5 -
<PAGE> 6
(k) The Company has full legal right, power and
authority to authorize, issue, deliver and sell the Firm Shares, the
Representative's Warrants and the Representative's Shares, enter into this
Agreement and the Representative's Warrant Agreement and to consummate the
transactions provided for in such agreements; and this Agreement and the
Representative's Warrant Agreement have each been duly and properly authorized,
executed and delivered by the Company. Each of this Agreement and the
Representative's Warrant Agreement constitutes a legal, valid and binding
agreement of the Company enforceable against the Company in accordance with its
terms, except (i) as such enforceability may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance or
similar laws affecting creditors' rights generally, (ii) as enforceability of
any indemnification or contribution provisions may be limited under applicable
laws or the public policies underlying such laws and (iii) that the remedies of
specific performance and injunctive and other forms of equitable relief may be
subject to equitable defenses and to the discretion of the court before which
any proceedings may be brought. None of the Company's issue and sale of the
Securities to be sold by the Company, execution or delivery of this Agreement or
the Representative's Warrant Agreement, its performance hereunder and
thereunder, its consummation of the transactions contemplated herein and
therein, or the conduct of its business as described in the Registration
Statement, the Prospectus, and any amendments or supplements thereto, conflicts
with or will conflict with or results or will result in any breach or violation
of any of the terms or provisions of, or constitutes or will constitute a
default under, or result in the creation or imposition of any lien, charge,
claim, encumbrance, pledge, security interest, defect or other restriction or
equity of any kind whatsoever upon, any property or assets (tangible or
intangible) of the Company pursuant to the terms of, (i) the articles of
incorporation or by-laws of the Company, (ii) any license, contract, indenture,
mortgage, deed of trust, voting trust agreement, stockholders agreement, note,
loan or credit agreement or any other agreement or instrument to which the
Company is a party or by which it is or may be bound or to which any of its
properties or assets (tangible or intangible) is or may be subject, or any
indebtedness, or (iii) any statute, judgment, decree, order, rule or regulation
applicable to the Company of any arbitrator, court, regulatory body or
administrative agency or other governmental agency or body (including, without
limitation, those having jurisdiction over environmental or similar matters),
domestic or foreign, having jurisdiction over the Company or any of its
activities or properties.
(l) Except as described in the Prospectus, no
consent, approval, authorization or order of, and no filing with, any court,
regulatory body, government agency or other body, domestic or foreign, is
required for the issuance of the Firm Shares pursuant to the Prospectus and the
Registration Statement, the issuance of the Representative's Warrants, the
performance of this Agreement and the Representative's Warrant Agreement and the
transactions contemplated hereby and thereby, including without limitation, any
waiver of any preemptive, first refusal or other rights that any entity or
person may have for the issue and/or sale of any of the Firm Shares or the
Representative's Warrants, except such as have been or may be obtained under the
Act or may be required under state securities or Blue Sky laws in connection
with the Underwriters' purchase and distribution of the Shares, and the
Representative's Warrants to be sold by the Company hereunder and under the
Representative's Warrant Agreement.
(m) All executed agreements, contracts or other
documents or copies of executed agreements, contracts or other documents filed
as exhibits to the Registration Statement
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<PAGE> 7
to which the Company is a party or by which it may be bound or to which any of
its assets, properties or business may be subject have been duly and validly
authorized, executed and delivered by the Company, and constitute the legal,
valid and binding agreements of the Company, enforceable against the Company, in
accordance with their respective terms. The descriptions in the Registration
Statement of agreements, contracts and other documents are accurate in all
material respects and fairly present the information required to be shown with
respect thereto on Form S-1, and there are no contracts or other documents which
are required by the Act to be described in the Registration Statement or filed
as exhibits to the Registration Statement which are not described or filed as
required, and the exhibits which have been filed are in all material respects
complete and correct copies of the documents of which they purport to be copies.
(n) Subsequent to the respective dates as of which
information is set forth in the Registration Statement and Prospectus, and
except as may otherwise be indicated or contemplated herein or therein, the
Company has not (i) issued any securities or incurred any liability or
obligation, direct or contingent, for borrowed money, (ii) entered into any
transaction other than in the ordinary course of business, or (iii) declared or
paid any dividend or made any other distribution on or in respect of its capital
stock of any class, and there has not been any change in the capital stock, or
any material change in the debt (long or short term) or liabilities or material
adverse change in or affecting the general affairs, management, financial
operations, stockholders' equity or results of operations of the Company.
(o) No default exists in the due performance and
observance of any term, covenant or condition of any license, contract,
indenture, mortgage, installment sale agreement, lease, deed of trust, voting
trust agreement, stockholders agreement, partnership agreement, note, loan or
credit agreement, purchase order, or any other agreement or instrument
evidencing an obligation for borrowed money, or any other material agreement or
instrument to which the Company is a party or by which the Company may be bound
or to which the property or assets (tangible or intangible) of the Company is
subject or affected.
(p) The Company has generally enjoyed a satisfactory
employer-employee relationship with its employees and is in compliance with all
federal, state, local, and foreign laws and regulations respecting employment
and employment practices, terms and conditions of employment and wages and
hours. There are no pending investigations involving the Company by the U.S.
Department of Labor, or any other governmental agency responsible for the
enforcement of such federal, state, local, or foreign laws and regulations.
There is no unfair labor practice charge or complaint against the Company
pending before the National Labor Relations Board or any strike, picketing,
boycott, dispute, slowdown or stoppage pending or threatened against or
involving the Company or any predecessor entity, and none has ever occurred. No
representation question exists respecting the employees of the Company, and no
collective bargaining agreement or modification thereof is currently being
negotiated by the Company. No grievance or arbitration proceeding is pending
under any expired or existing collective bargaining agreements of the Company.
No labor dispute with the employees of the Company exists, or, to the knowledge
of the Company, is imminent.
(q) Except as described in the Prospectus, the
Company does not maintain, sponsor or contribute to any program or arrangement
that is an "employee pension benefit plan,"
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<PAGE> 8
an "employee welfare benefit plan," or a "multiemployer plan" as such terms are
defined in Sections 3(2), 3(1) and 3(37), respectively, of the Employee
Retirement Income Security Act of 1974, as amended ("ERISA") ("ERISA Plans").
The Company does not maintain or contribute, now or at any time previously, to a
defined benefit plan, as defined in Section 3(35) of ERISA. No ERISA Plan (or
any trust created thereunder) has engaged in a "prohibited transaction" within
the meaning of Section 406 of ERISA or Section 4975 of the Code, which could
subject the Company to any tax penalty on prohibited transactions and which has
not adequately been corrected. Each ERISA Plan is in compliance with all
reporting, disclosure and other requirements of the Code and ERISA as they
relate to any such ERISA Plan. Determination letters have been received from the
Internal Revenue Service with respect to each ERISA Plan which is intended to
comply with Code Section 401(a), stating that such ERISA Plan and the attendant
trust are qualified thereunder. The Company has never completely or partially
withdrawn from a "multiemployer plan."
(r) Neither the Company nor any of its employees,
directors, stockholders, partners, or affiliates (within the meaning of the
Rules and Regulations) of any of the foregoing has taken or will take, directly
or indirectly, any action designed to or which has constituted or which might be
expected to cause or result in, under the Exchange Act, or otherwise,
stabilization or manipulation of the price of any security of the Company to
facilitate the sale or resale of the Securities or otherwise.
(s) Except as otherwise disclosed in the Prospectus,
none of the patents, patent applications, trademarks, service marks, trade names
and copyrights, and licenses and rights to the foregoing presently owned or held
by the Company are in dispute so far as known by the Company or are in any
conflict with the right of any other person or entity. The Company (i) owns or
has the right to use, free and clear of all liens, charges, claims,
encumbrances, pledges, security interests, defects or other restrictions or
equities of any kind whatsoever, all patents, trademarks, service marks, trade
names and copyrights, technology and licenses and rights with respect to the
foregoing, used in the conduct of its business as now conducted or proposed to
be conducted without infringing upon or otherwise acting adversely to the right
or claimed right of any person, corporation or other entity under or with
respect to any of the foregoing and (ii) is not obligated or under any liability
whatsoever to make any payment by way of royalties, fees or otherwise to any
owner or licensee of, or other claimant to, any patent, trademark, service mark,
trade name, copyright, know-how, technology or other intangible asset, with
respect to the use thereof or in connection with the conduct of its business or
otherwise.
(t) The Company owns and has the unrestricted right
to use all trade secrets, know-how (including all other unpatented and/or
unpatentable proprietary or confidential information, systems or procedures),
inventions, designs, processes, works of authorship, computer programs and
technical data and information (collectively herein "intellectual property")
that are material to the development, manufacture, operation and sale of all
products and services sold or proposed to be sold by the Company, free and clear
of and without violating any right, lien, or claim of others, including without
limitation, former employers of its employees; provided, however, that the
possibility exists that other persons or entities, completely independently of
the Company, or its employees or agents, could have developed trade secrets or
items of technical information similar or identical to those of the Company.
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<PAGE> 9
(u) The Company has good and marketable title to, or
valid and enforceable leasehold estates in, all items of real and personal
property stated in the Prospectus, to be owned or leased by it free and clear of
all liens, charges, claims, encumbrances, pledges, security interests, defects,
or other restrictions or equities of any kind whatsoever, other than those
referred to in the Prospectus and liens for taxes not yet due and payable.
(v) Arthur Andersen LLP ("Arthur Andersen") whose
report is filed with the Commission as a part of the Registration Statement, are
independent certified public accountants as required by the Act and the Rules
and Regulations.
(w) The Company has caused to be duly executed
legally binding and enforceable agreements pursuant to which all officers and
directors and all of the holders of Common Stock and securities exchangeable for
or convertible into shares of Common Stock including, but not limited to each
holder of shares of 6% Dividend Paying Convertible Preferred Stock (the
"Convertible Preferred Stock") or Warrants (as defined in the Registration
Statement) have executed an agreement (individually, a "Lock-up Agreement,"
collectively, the "Lock-up Agreements") pursuant to which such each person has
agreed not to, directly or indirectly, offer to sell, sell, grant any option for
the sale of, assign, transfer, pledge, hypothecate, distribute or otherwise
encumber or dispose of any shares of Common Stock or securities convertible
into, exercisable or exchangeable for or evidencing any right to purchase or
subscribe for any shares of Common Stock (either pursuant to Rule 144 of the
Rules and Regulations or otherwise) or dispose of any beneficial interest
therein for a period of not less than twelve (12) months following the effective
date of the Registration Statement without the prior written consent of the
Representatives except as expressly set forth in the respective Lock-up
Agreement. The Company will cause the Transfer Agent, as defined below, to mark
an appropriate legend on the face of stock certificates representing all of such
securities and to place "stop transfer" orders on the Company's stock ledgers.
(x) Except as described in the Prospectus under
"Underwriting," there are no claims, payments, issuances, arrangements or
understandings, whether oral or written, for services in the nature of a
finder's or origination fee with respect to the sale of the Securities hereunder
or any other arrangements, agreements, understandings, payments or issuance with
respect to the Company or any of its officers, directors, stockholders,
partners, employees or affiliates that may affect the Underwriters'
compensation, as determined by the National Association of Securities Dealers,
Inc. ("NASD").
(y) The Common Stock has been approved for quotation
on the Nasdaq National Market ("Nasdaq").
(z) Neither the Company nor any of its officers,
employees, agents, or any other person acting on behalf of the Company, has,
directly or indirectly, given or agreed to give any money, gift or similar
benefit (other than legal price concessions to customers in the ordinary course
of business) to any customer, supplier, employee or agent of a customer or
supplier, or official or employee of any governmental agency (domestic or
foreign) or instrumentality of any government (domestic or foreign) or any
political party or candidate for office (domestic or foreign) or other person
who was, is, or may be in a position to help or hinder the business of the
Company (or assist the Company in connection with any actual or
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<PAGE> 10
proposed transaction) which (a) might subject the Company, or any other such
person to any damage or penalty in any civil, criminal or governmental
litigation or proceeding (domestic or foreign), (b) if not given in the past,
might have had a materially adverse effect on the assets, business or operations
of the Company, or (c) if not continued in the future, might adversely affect
the assets, business, operations or prospects of the Company. The Company's
internal accounting controls are sufficient to cause the Company to comply with
the Foreign Corrupt Practices Act of 1977, as amended.
(aa) Except as set forth in the Prospectus, no
officer, director or stockholder of the Company, or any "affiliate" or
"associate" (as these terms are defined in Rule 405 promulgated under the Rules
and Regulations) of any of the foregoing persons or entities has or has had,
either directly or indirectly, (i) an interest in any person or entity which (A)
furnishes or sells services or products which are furnished or sold or are
proposed to be furnished or sold by the Company, or (B) purchases from or sells
or furnishes to the Company any goods or services, or (ii) a beneficial interest
in any contract or agreement to which the Company is a party or by which it may
be bound or affected. Except as set forth in the Prospectus under "Certain
Transactions," there are no existing agreements, arrangements, understandings or
transactions, or proposed agreements, arrangements, understandings or
transactions, between or among the Company and any officer, director, or
Principal Shareholder (as such term is defined in the Prospectus) of the Company
or any partner, affiliate or associate of any of the foregoing persons or
entities.
(bb) Any certificate signed by any officer of the
Company, and delivered to the Underwriters or to Underwriters' Counsel (as
defined herein) shall be deemed a representation and warranty by the Company to
the Underwriters as to the matters covered thereby.
(cc) The minute books of the Company, and its
predecessor, have been made available to the Underwriters and contains a
complete summary of all meetings and actions of the directors, stockholders,
audit committee, compensation committee and any other committee of the Board of
Directors of the Company, respectively, since the time of its incorporation, and
reflects all transactions referred to in such minutes accurately in all material
respects.
(dd) Except and to the extent described in the
Prospectus, no holders of any securities of the Company or of any options,
warrants or other convertible or exchangeable securities of the Company have the
right to include any securities issued by the Company in the Registration
Statement or any registration statement to be filed by the Company or to require
the Company to file a registration statement under the Act and no person or
entity holds any anti-dilution rights with respect to any securities of the
Company.
(ee) The Company has as of the effective date of the
Registration Statement (i) entered into an employment agreement with Robert M.
Worsley, in the form filed as Exhibit 10.1 to the Registration Statement and
(ii) obtained term key-man insurance on the life of Robert M. Worsley, in the
amount of $1,000,000, which policy names the Company as the sole beneficiary of
at least $1,000,000 thereof.
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<PAGE> 11
(ff) The Company confirms as of the date hereof that
it is in compliance with all provisions of Section 1 of Laws of Florida, Chapter
92-198, An Act Relating to Disclosure of Doing Business with Cuba, and the
Company further agrees that if it or any affiliate commences engaging in
business with the government of Cuba or with any person or affiliate located in
Cuba after the date the Registration Statement becomes or has become effective
with the Commission or with the Florida Department of Banking and Finance (the
"Department"), whichever date is later, or if the information reported or
incorporated by reference in the Prospectus, if any, concerning the Company's,
or any affiliate's, business with Cuba or with any person or affiliate located
in Cuba changes in any material way, the Company will provide the Department
notice of such business or change, as appropriate, in a form acceptable to the
Department.
(gg) The conversion of all the outstanding shares of
Convertible Preferred Stock of the Company as set forth in the Prospectus has
been duly authorized by the Company and the shareholders of the Company in
accordance with all agreements, documents, understandings and instruments
affecting the rights, duties, responsibilities, obligations and/or privileges of
holders of Convertible Preferred Stock or to which the Company is bound,
including without limitation, the Certificate of the Designations, Powers,
Preferences and Rights of the Convertible Preferred Stock, the Company's
articles of incorporation and the Company's by-laws; and upon the consummation
of the Offering, without any further action of any shareholders of the Company
or the Company, every share of Convertible Preferred Stock of the Company will
simultaneously convert into 180 validly issued, fully paid and nonassessable
shares of Common Stock.
2. Representations and Warranties of the Selling
Shareholders.
Each of the Selling Shareholders represents and warrants to,
and agrees with, the Underwriters as of the date hereof, and as of the Option
Closing Date, if any, with respect to such Selling Shareholders respective
Option Shares as follows:
(a) Such Selling Shareholder has now and will
have on each Option Closing Date, if any, good and valid title to the Option
Shares free and clear of any lien, charge, claim, encumbrance, pledge, security
interest, stockholders' agreement, voting trust, community property right,
defect in title, equitable interest or other equities or restrictions of any
kind whatsoever (including any liability for estate or inheritance taxes and
claims of any creditor, devisee, legatee or beneficiary); other than as
described in this Agreement or disclosed in the Registration Statement or
Prospectus, there are no outstanding options, warrants, rights or other
agreements or arrangements with respect to any of the Option Shares; the Selling
Shareholder has and will have on each Option Closing Date, if any, full right,
power and authority to sell, transfer and deliver the Option Shares hereunder;
and upon delivery of the Option Shares against payment of the purchase price
therefor as contemplated in this Agreement, each of the Underwriters, who has
purchased in good faith and without notice of any adverse claim, will receive
good and marketable title to the Option Shares purchased by it, free and clear
of any lien, charge, claim, encumbrance, pledge, security interest,
stockholders' agreement, voting trust, community property right, defect in
title, equitable interests or other equities or restrictions of any kind
whatsoever (including any liability for estate or inheritance taxes and claims
of any creditor, devisee, legatee or beneficiary).
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<PAGE> 12
(b) Such Selling Shareholder has duly authorized
(if applicable), executed and delivered, in the forms theretofore furnished to
the Representative, a Lock-up Agreement (the "Seller Lock-Up Agreement"), a
Stock Power (the "Stock Power"), a Power of Attorney (the "Power of Attorney")
and a Letter of Transmittal and Custody Agreement (the "Custody Agreement");
each of the Custody Agreement, the Stock Power, the Power of Attorney and the
Seller Lock-Up Agreement constitutes a legal, valid and binding agreement of the
Selling Shareholder, enforceable in accordance with its terms, except as the
enforcement thereof may be limited by bankruptcy, insolvency, reorganization,
moratorium or other similar laws relating to or affecting creditors' rights
generally or by general equitable principles.
(c) All authorizations, approvals, consents and
orders necessary for the execution and delivery by such Selling Shareholder of
this Agreement, the Custody Agreement, the Stock Power, the Power of Attorney
and the Seller Lock-Up Agreement and the sale and delivery of the Option Shares
hereunder (other than such authorizations, approvals, orders or consents as may
be necessary under state securities laws) have been obtained and are in full
force and effect; and such Selling Shareholder has full right, power and
authority to enter into and perform its obligations under this Agreement, the
Custody Agreement, the Stock Power and the Power of Attorney and the Seller
Lock-Up Agreement.
(d) Such Selling Shareholder has not distributed
and will not distribute any prospectus or other offering material in connection
with the distribution of the Securities.
(e) This Agreement has been duly authorized (if
applicable), executed and delivered by such Selling Shareholder and is a legal,
valid and binding agreement of such Selling Shareholder, enforceable in
accordance with its terms, except insofar as indemnity and contribution
provisions may be limited by applicable laws (including, without limitation,
federal laws) or equitable principles and except as enforceability may be
limited by applicable bankruptcy, insolvency, reorganization, moratorium or
other similar laws relating to or affecting creditors' rights generally or by
general equitable principles. The execution, delivery and performance of this
Agreement, the Custody Agreement, the Stock Power, the Power of Attorney and the
Seller Lock-Up Agreement and the consummation of the transactions contemplated
hereby and thereby by such Selling Shareholder has not conflicted and will not
conflict with and has not resulted and will not result in a breach of or default
under (i) any will, license, contract, indenture, mortgage, lease, deed of
trust, voting trust agreement, bond, debenture, stockholders' agreement, note,
loan or credit agreement or other agreement or instrument to which such Selling
Shareholder is a party or by which such Selling Shareholder is or may be bound
or to which any of its properties (including the Option Shares) is or may be
subject, or any indebtedness, or (ii) any statute, judgment, decree, order, rule
or regulation applicable to such Selling Shareholder of any arbitrator, court,
regulatory body or administrative agency or other governmental agency or body,
domestic or foreign, having jurisdiction over such Selling Shareholder or any of
such Selling Shareholder's activities or properties (including the Option
Shares), except for conflicts, breaches and defaults which will not adversely
affect the consummation by such Selling Shareholder of the transactions
contemplated hereby.
(f) The sale of the Option Shares hereunder is
not prompted by any information concerning the Company which is material and
adverse to the Company taken as a whole and which is not set forth in the
Prospectus; the information relating to such Selling
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<PAGE> 13
Shareholder, the transactions between such Selling Shareholder or its employees,
agents or affiliates, if any, and the Company and all securities of the Company
or any of the subsidiaries owned by such Selling Shareholder (collectively,
"Seller Information") set forth in the Registration Statement and the
Prospectus, as so amended or supplemented, does not and at the Closing Date and
each Option Closing Date, if any, will not contain any untrue statement of a
material fact or omit to state any material fact required to be stated therein
or necessary to make the statements therein not misleading; all information
furnished by or on behalf of such Selling Shareholder in writing for use in each
Preliminary Prospectus, the Registration Statement and the Prospectus, or any
amendment or supplement thereto, is and at the Closing Date and each Option
Closing Date, if any, will be true, correct and complete in all material
respects; and there are not now and will not be at the Closing Date or any
Option Closing Date, if any, any agreements, contracts or other documents or
instruments providing for indemnification, contribution or reimbursement to such
Selling Shareholder or its employees, agents, or affiliates, if any, (as defined
in Section 8) by the Company with respect to the offer or sale of the Option
Shares or the distribution contemplated hereby (other than those provisions of
the by-laws or the articles of incorporation, as amended, of the Company
relating to the indemnification of directors of the Company in their capacity as
such).
(g) Nothing material has come to the attention
of such Selling Shareholder to cause such Selling Shareholder to believe that
the Company's representations and warranties contained in this Agreement are not
accurate in any material respect.
(h) There is not pending or, to the knowledge of
such Selling Shareholder, threatened against such Selling Shareholder or
involving its properties or activities any material action, inquiry,
investigation, suit or proceeding (and, to the knowledge of such Selling
Shareholder, there are no circumstances that would be expected to give rise to
the same) which (i) questions the validity of this Agreement, the Custody
Agreement, the Stock Power, the Power of Attorney, the Seller Lock-Up Agreement
or any action taken or to be taken by such Selling Shareholder in connection
herewith or therewith, (ii) has or reasonably would be expected to materially
adversely affect the Company which is not disclosed in the Prospectus or (iii)
reasonably would be expected to adversely affect the consummation by such
Selling Shareholder of the transactions contemplated hereby or thereby.
(i) Except as and to the extent disclosed in the
Registration Statement or the Prospectus, such Selling Shareholder does not have
any registration rights, rights of first refusal, co-sale rights, preemptive
rights or other similar rights with respect to any securities of the Company;
such Selling Shareholder has waived all of those rights which it may have with
respect to the Option Shares and the transactions contemplated hereby; and such
Selling Shareholder does not have any warrants, options or similar rights to
acquire, and does not have any right or arrangement to acquire, any capital
stock, rights, warrants, options or other securities from the Company, other
than those disclosed in the Registration Statement or the Prospectus.
(j) Such Selling Shareholder has not since the
initial filing of the Registration Statement with the Commission (i) sold, bid
for, purchased, attempted to induce any person to purchase or paid anyone any
compensation for soliciting purchases of any securities of the Company or (ii)
paid or agreed to pay to any person any compensation for soliciting
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<PAGE> 14
another person or entity to purchase any securities of the Company (in each
case, except for the sale of the Option Shares to the Underwriters hereunder and
except as permitted by federal and state securities laws).
(k) Such Selling Shareholder has not taken and
will not take, directly or indirectly, any action which is designed to or which
has constituted or which might reasonably be expected to cause or result in
stabilization or manipulation of the price of any security of the Company to
facilitate the distribution of the Securities.
(l) Any certificate signed by or on behalf of
such Selling Shareholder and delivered to the Underwriters or Underwriters'
Counsel shall be deemed a representation and warranty by such Selling
Shareholder to the Underwriters or Underwriters' Counsel as to the matters
covered thereby.
3. Purchase, Sale and Delivery of the Securities and
Representative's Warrants.
(a) On the basis of the representations, warranties,
covenants and agreements herein contained, but subject to the terms and
conditions herein set forth, the Company agrees to sell to each Underwriter, and
each Underwriter, severally and not jointly, agrees to purchase from the Company
at a price of $__________ [93% of the initial public offering price] per share
of Common Stock, that number of Firm Shares set forth in Schedule A opposite the
name of such Underwriter, plus any additional number of Firm Shares which such
Underwriter may become obligated to purchase pursuant to the provisions of
Section 12 hereof.
(b) In addition, on the basis of the representations,
warranties, covenants and agreements herein contained, but subject to the terms
and conditions herein set forth, the Selling Shareholders hereby grant an option
to the Underwriters, severally and not jointly, to purchase all or any part of
an additional 300,000 shares of Common Stock at a price of $__________ [93% of
the initial public offering price] per share of Common Stock. Each of the
Selling Shareholders shall sell one-half of the aggregate number of Option
Shares purchased by the Underwriters, acting severally and not jointly, on each
Option Closing Date, if any. The option granted hereby will expire 45 days after
(i) the date the Registration Statement becomes effective, if the Company has
elected not to rely on Rule 430A under the Rules and Regulations, or (ii) the
date of this Agreement if the Company has elected to rely upon Rule 430A under
the Rules and Regulations, and may be exercised in whole or in part from time to
time only for the purpose of covering over-allotments which may be made in
connection with the offering and distribution of the Firm Shares upon notice by
the Representatives to the Company and the Selling Shareholders setting forth
the number of Option Shares as to which the several Underwriters are then
exercising the option and the time and date of payment and delivery for any such
Option Shares. Any such time and date of delivery (an "Option Closing Date")
shall be determined by the Representatives, but shall not be later than seven
full business days after the exercise of said option, nor in any event prior to
the Closing Date, as hereinafter defined, unless otherwise agreed upon by the
Representatives and the Company and the Selling Shareholders. Nothing herein
contained shall obligate the Underwriters to make any over-allotments. No Option
Shares shall be delivered unless the Firm
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<PAGE> 15
Shares shall be simultaneously delivered or shall theretofore have been
delivered as herein provided.
(c) Payment of the purchase price for, and delivery
of certificates for, the Firm Shares shall be made at the offices of Josephthal
Lyon & Ross Incorporated at 200 Park Avenue, 24th Floor, New York, New York
10166, or at such other place as shall be agreed upon by the Representatives and
the Company. Such delivery and payment shall be made at 10:00 a.m. (New York
City time) on __________, 1996 or at such other time and date as shall be agreed
upon by the Representatives and the Company, but not less than three (3) nor
more than seven (7) full business days after the effective date of the
Registration Statement (such time and date of payment and delivery being herein
called "Closing Date"). In addition, in the event that any or all of the Option
Shares are purchased by the Underwriters, payment of the purchase price for, and
delivery of certificates for, such Option Shares shall be made at the above
mentioned office of the Representatives or at such other place as shall be
agreed upon by the Representatives, the Company and the Selling Shareholders on
each Option Closing Date as specified in the notice from the Representatives to
the Company. Delivery of the certificates for the Firm Shares and the Option
Shares, if any, shall be made to the Underwriters against payment by the
Underwriters, severally and not jointly, of the purchase price for the Firm
Shares and the Option Shares, if any, to the order of the Company for the Firm
Shares and the Option Shares, if any, by New York Clearing House funds. In the
event such option is exercised, each of the Underwriters, acting severally and
not jointly, shall purchase that proportion of the total number of Option Shares
then being purchased which the number of Firm Shares set forth in Schedule A
hereto opposite the name of such Underwriter bears to the total number of Firm
Shares, subject in each case to such adjustments as the Representatives in their
discretion shall make to eliminate any sales or purchases of fractional shares.
Certificates for the Firm Shares and the Option Shares, if any, shall be in
definitive, fully registered form, shall bear no restrictive legends and shall
be in such denominations and registered in such names as the Underwriters may
request in writing at least two (2) business days prior to the Closing Date or
the relevant Option Closing Date, as the case may be. The certificates for the
Firm Shares and the Option Shares, if any, shall be made available to the
Representatives at such office or such other place as the Representatives may
designate for inspection, checking and packaging no later than 9:30 a.m. on the
last business day prior to Closing Date or the relevant Option Closing Date, as
the case may be.
(d) On the Closing Date, the Company shall issue and
sell to Josephthal, Representative's Warrants at a purchase price of $.001 per
warrant, which warrants shall entitle the holders thereof to purchase (i) an
aggregate of 200,000 shares of Common Stock. The Representative's Warrants shall
be exercisable for a period of forty-eight (48) months commencing twelve (12)
months from the effective date of the Registration Statement at a price equaling
one hundred twenty percent (120%) of the initial public offering price of the
shares of Common Stock. The Representative's Warrant Agreement and form of
Warrant Certificate shall be substantially in the form filed as Exhibit 4.2 to
the Registration Statement. Payment for the Representative's Warrants shall be
made on the Closing Date.
4. Public Offering of the Shares. As soon after the
Registration Statement becomes effective as the Representatives deem advisable,
the Underwriters shall make a public offering of the Shares (other than to
residents of or in any jurisdiction in which qualification of
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<PAGE> 16
the Shares is required and has not become effective) at the price and upon the
other terms set forth in the Prospectus. The Representatives may from time to
time increase or decrease the public offering price after distribution of the
Shares has been completed to such extent as the Representatives, in their
discretion deems advisable. The Underwriters may enter into one of more
agreements as the Underwriters, in each of their sole discretion, deem advisable
with one or more broker-dealers who shall act as dealers in connection with such
public offering.
5. Covenants and Agreements of the Company.
(a) The Company covenants and agrees with each of the
Underwriters as follows:
i) The Company shall use its best efforts to
cause the Registration Statement and any amendments thereto to
become effective as promptly as practicable and will not at
any time, whether before or after the effective date of the
Registration Statement, file any amendment to the Registration
Statement or supplement to the Prospectus or file any document
under the Act or Exchange Act before termination of the
offering of the Shares by the Underwriters of which the
Representatives shall not previously have been advised and
furnished with a copy, or to which the Representatives shall
have objected or which is not in compliance with the Act, the
Exchange Act or the Rules and Regulations.
ii) As soon as the Company is advised or
obtains knowledge thereof, the Company will advise the
Representatives and confirm the notice in writing, (i) when
the Registration Statement, as amended, becomes effective, if
the provisions of Rule 430A promulgated under the Act will be
relied upon, when the Prospectus has been filed in accordance
with said Rule 430A and when any post-effective amendment to
the Registration Statement becomes effective, (ii) of the
issuance by the Commission of any stop order or of the
initiation, or the threatening, of any proceeding, suspending
the effectiveness of the Registration Statement or any order
preventing or suspending the use of the Preliminary Prospectus
or the Prospectus, or any amendment or supplement thereto, or
the institution of proceedings for that purpose, (iii) of the
issuance by the Commission or by any state securities
commission of any proceedings for the suspension of the
qualification of any of the Securities for offering or sale in
any jurisdiction or of the initiation, or the threatening, of
any proceeding for that purpose, (iv) of the receipt of any
comments from the Commission; and (v) of any request by the
Commission for any amendment to the Registration Statement or
any amendment or supplement to the Prospectus or for
additional information. If the Commission or any state
securities commission authority shall enter a stop order or
suspend such qualification at any time, the Company will make
every effort to obtain promptly the lifting of such order.
iii) The Company shall file the Prospectus
(in form and substance satisfactory to the Representatives) or
transmit the Prospectus by a means reasonably calculated to
result in filing with the Commission pursuant to Rule
424(b)(1) (or, if applicable and if consented to by the
Representatives, pursuant
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<PAGE> 17
to Rule 424(b)(4)) not later than the Commission's close of
business on the earlier of (i) the second business day
following the execution and delivery of this Agreement and
(ii) the fifteenth business day after the effective date of
the Registration Statement.
iv) The Company will give the
Representatives notice of its intention to file or prepare any
amendment to the Registration Statement (including any
post-effective amendment) or any amendment or supplement to
the Prospectus (including any revised prospectus which the
Company proposes for use by the Underwriters in connection
with the offering of the Securities which differs from the
corresponding prospectus on file at the Commission at the time
the Registration Statement becomes effective, whether or not
such revised prospectus is required to be filed pursuant to
Rule 424(b) of the Rules and Regulations), and will furnish
the Representatives with copies of any such amendment or
supplement a reasonable amount of time prior to such proposed
filing or use, as the case may be, and will not file any such
prospectus to which the Representatives or Orrick, Herrington
& Sutcliffe LLP ("Underwriters' Counsel"), shall object.
v) The Company shall endeavor in good faith,
in cooperation with the Representatives, at or prior to the
time the Registration Statement becomes effective, to qualify
the Securities for offering and sale under the securities laws
of such jurisdictions as the Representatives may designate to
permit the continuance of sales and dealings therein for as
long as may be necessary to complete the distribution, and
shall make such applications, file such documents and furnish
such information as may be required for such purpose;
provided, however, the Company shall not be required to
qualify as a foreign corporation or file a general or limited
consent to service of process in any such jurisdiction. In
each jurisdiction where such qualification shall be effected,
the Company will, unless the Representatives agrees that such
action is not at the time necessary or advisable, use all
reasonable efforts to file and make such statements or reports
at such times as are or may reasonably be required by the laws
of such jurisdiction to continue such qualification.
vi) During the time when a prospectus is
required to be delivered under the Act, the Company shall use
all reasonable efforts to comply with all requirements imposed
upon it by the Act and the Exchange Act, as now and hereafter
amended and by the Rules and Regulations, as from time to time
in force, so far as necessary to permit the continuance of
sales of or dealings in the Securities in accordance with the
provisions hereof and the Prospectus, or any amendments or
supplements thereto. If at any time when a prospectus relating
to the Securities is required to be delivered under the Act,
any event shall have occurred as a result of which, in the
opinion of counsel for the Company or Underwriters' Counsel,
the Prospectus, as then amended or supplemented, includes an
untrue statement of a material fact or omits to state any
material fact required to be stated therein or necessary to
make the statements therein, in the light of the circumstances
under which they were made, not misleading, or if it
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<PAGE> 18
is necessary at any time to amend the Prospectus to comply
with the Act, the Company will notify the Representatives
promptly and prepare and file with the Commission an
appropriate amendment or supplement in accordance with Section
10 of the Act, each such amendment or supplement to be
satisfactory to Underwriters' Counsel, and the Company will
furnish to the Underwriters copies of such amendment or
supplement as soon as available and in such quantities as the
Underwriters may request.
vii) As soon as practicable, but in any
event not later than 45 days after the end of the 12-month
period beginning on the day after the end of the fiscal
quarter of the Company during which the effective date of the
Registration Statement occurs (90 days in the event that the
end of such fiscal quarter is the end of the Company's fiscal
year), the Company shall make generally available to its
security holders, in the manner specified in Rule 158(b) of
the Rules and Regulations, and to the Representatives, an
earnings statement which will be in the detail required by,
and will otherwise comply with, the provisions of Section
11(a) of the Act and Rule 158(a) of the Rules and Regulations,
which statement need not be audited unless required by the
Act, covering a period of at least 12 consecutive months after
the effective date of the Registration Statement.
viii) During a period of five years after
the date hereof, the Company will furnish to its stockholders,
as soon as practicable, annual reports (including financial
statements audited by independent public accountants) and
unaudited quarterly reports of earnings, and will deliver to
the Representatives:
(a) concurrently with furnishing
such quarterly reports to its stockholders,
statements of income of the Company for each quarter
in the form furnished to the Company's stockholders
and certified by the Company's principal financial or
accounting officer;
(b) concurrently with furnishing
such annual reports to its stockholders, a balance
sheet of the Company as at the end of the preceding
fiscal year, together with statements of operations,
stockholders' equity, and cash flows of the Company
for such fiscal year, accompanied by a copy of the
certificate thereon of independent certified public
accountants;
(c) as soon as they are available,
copies of all reports (financial or other) mailed to
stockholders;
(d) as soon as they are available,
copies of all reports and financial statements
furnished to or filed with the Commission, the NASD
or any securities exchange;
(e) every press release and every
material news item or article of interest to the
financial community in respect of the Company,
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<PAGE> 19
or its affairs which was released or prepared by or
on behalf of the Company; and
(f) any additional information of a
public nature concerning the Company (and any future
subsidiary) or its businesses which the
Representatives may request.
During such five (5)-year period, if the
Company has an active subsidiary, the foregoing financial
statements will be on a consolidated basis to the extent that
the accounts of the Company and its subsidiary are
consolidated, and will be accompanied by similar financial
statements for any significant subsidiary which is not so
consolidated.
ix) The Company will maintain a Transfer
Agent and, if necessary under the jurisdiction of
incorporation of the Company, a Registrar (which may be the
same entity as the Transfer Agent) for its Common Stock.
x) The Company will furnish to the
Representatives or on the Representatives' order, without
charge, at such place as the Representatives may designate,
copies of each Preliminary Prospectus, the Registration
Statement and any pre-effective or post-effective amendments
thereto (two of which copies will be signed and will include
all financial statements and exhibits), the Prospectus, and
all amendments and supplements thereto, including any
prospectus prepared after the effective date of the
Registration Statement, in each case as soon as available and
in such quantities as the Representatives may request.
xi) On or before the effective date of the
Registration Statement, the Company shall provide the
Representatives with true copies of duly executed, legally
binding and enforceable agreements pursuant to which for a
period of twelve (12) months from the effective date of the
Registration Statement, officers and directors and all of the
holders of Common Stock and securities exchangeable or
exercisable for or convertible into shares of Common Stock and
each holder of shares of Convertible Preferred Stock or the
Warrants agree that each will not directly or indirectly,
issue, offer to sell, sell, grant an option for the sale of,
assign, transfer, pledge, hypothecate, distribute or otherwise
encumber or dispose of any shares of Common Stock or
securities convertible into, exercisable or exchangeable for
or evidencing any right to purchase or subscribe for any
shares of Common Stock (either pursuant to Rule 144 of the
Rules and Regulations or otherwise) or dispose of any
beneficial interest therein without the prior written consent
of the Representatives (collectively, the "Lock-up
Agreements"). On or before the Closing Date, the Company shall
deliver instructions to the Transfer Agent authorizing it to
place appropriate legends on the certificates representing the
securities subject to the Lock-up Agreements and to place
appropriate stop transfer orders on the Company's ledgers.
During the twelve (12) month period commencing with the
effective date of the Registration Statement (the "Lock-up
Period"), the Company shall not, without the prior written
consent of the Representatives, sell, contract or offer to
sell, issue, transfer, assign, pledge,
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<PAGE> 20
hypothecate, distribute, or otherwise dispose of, directly or
indirectly, any shares of Common Stock or any options, rights
or warrants with respect to any shares of Common Stock. During
the Lock-up Period, the Company (i) shall not amend the
employment agreement of Robert M. Worsley, which is in effect
on the date hereof and has been filed as an exhibit to the
Registration Statement, (ii) shall not amend any option
agreement or other agreement providing compensation to any
officer, director or principal stockholder and (iii) shall not
file any registration statement with the Securities and
Exchange Commission without the prior written consent of the
Representatives.
xii) Neither the Company, nor any of its
officers, directors, stockholders, nor any of their respective
affiliates (within the meaning of the Rules and Regulations)
will take, directly or indirectly, any action designed to, or
which might in the future reasonably be expected to cause or
result in, stabilization or manipulation of the price of any
securities of the Company.
xiii) The Company shall apply the net
proceeds from the sale of the Securities in the manner, and
subject to the conditions, set forth under "Use of Proceeds"
in the Prospectus. Except as described in the Prospectus, no
portion of the net proceeds will be used, directly or
indirectly, to acquire any securities issued by the Company.
xiv) The Company shall timely file all such
reports, forms or other documents as may be required
(including, but not limited to, a Form SR as may be required
pursuant to Rule 463 under the Act) from time to time, under
the Act, the Exchange Act, and the Rules and Regulations, and
all such reports, forms and documents filed will comply as to
form and substance with the applicable requirements under the
Act, the Exchange Act, and the Rules and Regulations.
xv) The Company shall furnish to the
Representatives as early as practicable prior to each of the
date hereof, the Closing Date and each Option Closing Date, if
any, but no later than two (2) full business days prior
thereto, a copy of the latest available unaudited interim
financial statements of the Company (which in no event shall
be as of a date more than thirty (30) days prior to the date
of the Registration Statement) which have been read by the
Company's independent public accountants, as stated in its
letter to be furnished pursuant to Section 7(k) hereof.
xvi) The Company shall cause the Common
Stock to be quoted on Nasdaq and for a period of seven (7)
years from the date hereof, and use its best efforts to
maintain the Nasdaq quotation of the Common Stock to the
extent outstanding.
xvii) For a period of five (5) years from
the Closing Date, the Company shall furnish to the
Representatives at either Representative's request and at the
Company's sole expense, (i) daily consolidated transfer sheets
relating
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<PAGE> 21
to the Common Stock, (ii) the list of holders of all of the
Company's securities and (iii) a Blue Sky "Trading Survey" for
secondary sales of the Company's securities prepared by
counsel to the Company.
xviii) As soon as practicable, (i) but in no
event more than 5 business days before the effective date of
the Registration Statement, file a Form 8-A with the
Commission providing for the registration under the Exchange
Act of the Securities and (ii) but in no event more than 30
days from the effective date of the Registration Statement,
take all necessary and appropriate actions to be included in
Standard and Poor's Corporation Descriptions and Moody's OTC
Manual and to continue such inclusion for a period of not less
than five (5) years.
xix) The Company hereby agrees that it will
not for a period of twelve (12) months from the effective date
of the Registration Statement, adopt, propose to adopt or
otherwise permit to exist any employee, officer, director,
consultant or compensation plan or arrangement permitting the
grant, issue or sale of any shares of Common Stock or other
securities of the Company (i) in an amount greater than an
aggregate of 750,000 shares of Common stock, (ii) at an
exercise or sale price per share less than the greater of (a)
the initial public offering price of the Shares set forth
herein and (b) the fair market value of the Common Stock on
the date of grant or sale, (iii) to any direct or indirect
beneficial holder on the date hereof of more than 5% of the
issued and outstanding shares of Common Stock, (iv) with the
payment for such securities with any form of consideration
other than cash, (v) upon payment of less than the full
purchase or exercise price for such shares of Common Stock or
other securities of the Company on or before the date of
issuance, or (vi) the existence of stock appreciation rights,
phantom options or similar arrangements.
xx) Until the completion of the distribution
of the Securities, and for 25 days thereafter, the Company
shall not without the prior written consent of the
Representatives and Underwriters' Counsel, issue, directly or
indirectly, any press release or other communication or hold
any press conference with respect to the Company or its
activities or the offering contemplated hereby.
xxi) For a period equal to the lesser of (i)
seven (7) years from the date hereof, and (ii) the sale to the
public of the Representative's Shares, the Company will not
take any action or actions which may prevent or disqualify the
Company's use of Form S-1 (or other appropriate form) for the
registration under the Act of the Representative's Shares.
xxii) For a period of five (5) years after
the effective date of the Registration Statement, Josephthal
shall have the right to designate one (1) individual, for
election to the Company's Board of Directors (the "Board"). If
Josephthal does not designate a person for election to the
Board Josephthal may designate one (1) person to attend any
and all meetings of the Board. The Company shall notify
Josephthal of every meeting of the Board and the Company shall
send to such individual all notices and other correspondence
and
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<PAGE> 22
communications sent by the Company to members of the Board.
Such individual shall be reimbursed for all out-of-pocket
expenses incurred in connection with his attendance of
meetings of the Board.
(b) Each Selling Shareholder severally covenants and
agrees as to himself, herself or itself with the Underwriters that:
i) Such Selling Shareholder will not, directly or
indirectly, without the prior written consent of the
Representatives, offer, sell, grant any option to
purchase or otherwise dispose (or announce any offer,
sale, grant of any option to purchase or other
disposition) of any shares of Common Stock or any
securities convertible into, or exchangeable or
exercisable for, shares of Common Stock for a period
of twelve (12) months after the date hereof except
pursuant to this Agreement, the respective option
agreement as in effect on the date hereof by and
among the Selling Shareholder and Robert M. and
Christ M. Worsley and the respective Lock-up
Agreement and will not take, directly or indirectly,
any action designed to, or which might in the
foreseeable future reasonably be expected to cause or
result in, stabilization or manipulation of the price
of any securities of the Company.
ii) Such Selling Shareholder consents to the use of
the Prospectus and any amendment or supplement
thereto by the Underwriters and all dealers to whom
the Option Shares may be sold, both in connection
with the offering or sale of the Option Shares and
for such period of time thereafter as such Prospectus
is required by law to be delivered in connection
therewith.
iii) Such Selling Shareholder has reviewed the
Registration Statement and the Prospectus and will
comply with all agreements and satisfy all conditions
on his, her or its part to be complied with or
satisfied pursuant to this Agreement, the Stock
Power, the Custody Agreement, and the Power of
Attorney at or prior to the Closing Date, and will
advise his, her or its Attorney-in-Fact prior to the
Closing Date or Option Closing Date, if any, as
applicable, if any statement to be made on behalf of
such Selling Shareholder in the certificates
contemplated by Sections 7(g) and 7(j) hereof would
be inaccurate if made as of such Closing Date or
Option Closing Date, if any, as applicable.
6. Payment of Expenses.
(a) The Company hereby agrees to pay on each of
the Closing Date and the Option Closing Date (to the extent not paid at the
Closing Date) all expenses and fees (other than fees of Underwriters' Counsel,
except as provided in (iv) below) incident to the performance of the obligations
of the Company under this Agreement and the Representative's Warrant Agreement,
including, without limitation, (i) the fees and expenses of accountants and
counsel for the Company, (ii) all costs and expenses incurred in connection with
the preparation,
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<PAGE> 23
duplication, printing, (including mailing and handling charges) filing, delivery
and mailing (including the payment of postage with respect thereto) of the
Registration Statement and the Prospectus and any amendments and supplements
thereto and the printing, mailing (including the payment of postage with respect
thereto) and delivery of this Agreement, the Agreement Among Underwriters, the
Selected Dealer Agreements, and related documents, including the cost of all
copies thereof and of the Preliminary Prospectuses and of the Prospectus and any
amendments thereof or supplements thereto supplied to the Underwriters and such
dealers as the Underwriters may request, in quantities as hereinabove stated,
(iii) the printing, engraving, issuance and delivery of the Securities
including, but not limited to, (x) the purchase by the Underwriters of the
Shares, if any, and the purchase by Josephthal of the Representative's Warrants
from the Company, (y) the consummation by the Company of any of its obligations
under this Agreement and the Representative's Warrant Agreement, and (z) resale
of the Shares, if any, by the Underwriters in connection with the distribution
contemplated hereby, (iv) the qualification of the Securities under state or
foreign securities or "Blue Sky" laws and determination of the status of such
securities under legal investment laws, including the costs of printing and
mailing the "Preliminary Blue Sky Memorandum," the "Supplemental Blue Sky
Memorandum" and "Legal Investments Survey," if any, and disbursements and fees
of counsel in connection therewith, (v) costs and expenses in connection with
due diligence investigations, including but not limited to the fees of any
independent counsel or consultant retained, (vi) fees and expenses of the
transfer agent and registrar, (vii) applications for assignments of a rating of
the Securities by qualified rating agencies, (viii) the fees payable to the
Commission and the NASD, and (ix) the fees and expenses incurred in connection
with the quotation of the Securities on Nasdaq and any other exchange.
(b) If this Agreement is terminated by the
Underwriters in accordance with the provisions of Section 7 or Section 13, the
Company shall reimburse and indemnify the Representatives for all of their
actual out-of-pocket expenses, including the fees and disbursements of
Underwriters' Counsel, less any amounts already paid pursuant to Section 6(c)
hereof.
(c) The Company further agrees that, in addition
to the expenses payable pursuant to subsection (a) of this Section 6, it will
pay to the Representatives on the Closing Date by certified or bank cashier's
check or, at the election of the Representatives, by deduction from the proceeds
of the offering contemplated herein a non-accountable expense allowance equal to
$75,000.
7. Conditions of the Underwriters' Obligations. The obligations
of the Underwriters hereunder shall be subject to the continuing accuracy of the
representations and warranties of the Company and the Selling Shareholders
herein as of the date hereof and as of the Closing Date and each Option Closing
Date, if any, with respect to the and the Selling Shareholders, as the case may
be, as if it had been made on and as of the Closing Date or each Option Closing
Date, as the case may be; the accuracy on and as of the Closing Date or Option
Closing Date, if any, of the statements of the officers of the Company and of
the Selling Shareholders made pursuant to the provisions hereof; and the
performance by the Company and the Selling Shareholders on and as of the Closing
Date and each Option Closing Date, if any, of their respective covenants and
obligations hereunder and to the following further conditions:
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<PAGE> 24
(a) The Registration Statement shall have become
effective not later than 12:00 Noon, New York time, on the date of this
Agreement or such later date and time as shall be consented to in writing by the
Representatives, and, at Closing Date and each Option Closing Date, if any, no
stop order suspending the effectiveness of the Registration Statement shall have
been issued and no proceedings for that purpose shall have been instituted or
shall be pending or contemplated by the Commission and any request on the part
of the Commission for additional information shall have been complied with to
the reasonable satisfaction of Underwriters' Counsel. If the Company has elected
to rely upon Rule 430A of the Rules and Regulations, the price of the Shares and
any price-related information previously omitted from the effective Registration
Statement pursuant to such Rule 430A shall have been transmitted to the
Commission for filing pursuant to Rule 424(b) of the Rules and Regulations
within the prescribed time period, and prior to Closing Date the Company shall
have provided evidence satisfactory to the Representatives of such timely
filing, or a post-effective amendment providing such information shall have been
promptly filed and declared effective in accordance with the requirements of
Rule 430A of the Rules and Regulations.
(b) The Representatives shall not have advised
the Company that the Registration Statement, or any amendment thereto, contains
an untrue statement of fact which, in the Representatives' opinion, is material,
or omits to state a fact which, in the Representatives' opinion, is material and
is required to be stated therein or is necessary to make the statements therein
not misleading, or that the Prospectus, or any supplement thereto, contains an
untrue statement of fact which, in the Representatives' opinion, is material, or
omits to state a fact which, in the Representatives' opinion, is material and is
required to be stated therein or is necessary to make the statements therein, in
light of the circumstances under which they were made, not misleading.
(c) On or prior to the Closing Date, the
Representatives shall have received from Underwriters' Counsel, such opinion or
opinions with respect to the organization of the Company, the validity of the
Securities, the Representative's Warrants, the Registration Statement, the
Prospectus and other related matters as the Representatives may request and
Underwriters' Counsel shall have received such papers and information as they
request to enable them to pass upon such matters.
(d) At Closing Date, the Underwriters shall have
received the favorable opinion of Squire, Sanders & Dempsey L.L.P., counsel to
the Company, dated the Closing Date, addressed to the Underwriters and in form
and substance satisfactory to Underwriters' Counsel, to the effect that:
i) the Company (A) has been duly organized and is
validly existing as a corporation in good standing under the
laws of its jurisdiction, (B) is duly qualified and licensed
and in good standing as a foreign corporation in each
jurisdiction in which its ownership or leasing of any
properties or the character of its operations requires such
qualification or licensing, and (C) has all requisite
corporate power and authority; and the Company has obtained
any and all necessary authorizations, approvals, orders,
licenses, certificates, franchises and permits of and from all
governmental or regulatory officials and bodies (including,
without limitation, those having jurisdiction over
environmental or
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<PAGE> 25
similar matters), to own or lease its properties and conduct
its business as described in the Prospectus; the Company is
and has been doing business in material compliance with all
such authorizations, approvals, orders, licenses,
certificates, franchises and permits and all federal, state
and local laws, rules and regulations; the Company has not
received any notice of proceedings relating to the revocation
or modification of any such authorization, approval, order,
license, certificate, franchise, or permit which, singly or in
the aggregate, if the subject of an unfavorable decision,
ruling or finding, would materially adversely affect the
business, operations, condition, financial or otherwise, or
the earnings, business affairs, position, prospects, value,
operation, properties, business or results of operations of
the Company. The disclosures in the Registration Statement
concerning the effects of federal, state and local laws, rules
and regulations on the Company's business as currently
conducted and as contemplated are correct in all material
respects and do not omit to state a fact necessary to make the
statements contained therein not misleading in light of the
circumstances in which they were made.
ii) to the best of such counsel's knowledge, the
Company does not own an interest in any other corporation,
partnership, joint venture, trust or other business entity;
iii) the Company has a duly authorized, issued and
outstanding capitalization as set forth in the Prospectus, and
any amendment or supplement thereto, under "Capitalization"
and "Description of Capital Stock," and the Company is not a
party to or bound by any instrument, agreement or other
arrangement providing for it to issue any capital stock,
rights, warrants, options or other securities, except for this
Agreement and the Representative's Warrant Agreement and as
described in the Prospectus. The Securities, and all other
securities issued or issuable by the Company conform in all
material respects to all statements with respect thereto
contained in the Registration Statement and the Prospectus.
All issued and outstanding securities of the Company have been
duly authorized and validly issued and are fully paid and
non-assessable; the holders thereof have no rights of
rescission with respect thereto, and are not subject to
personal liability by reason of being such holders; and none
of such securities were issued in violation of the preemptive
rights of any holders of any security of the Company. The
Shares, the Representative's Warrants and the Representative's
Shares to be sold by the Company hereunder and under the
Representative's Warrant Agreement are not and will not be
subject to any preemptive or other similar rights of any
stockholder, have been duly authorized and, when issued, paid
for and delivered in accordance with the terms hereof, will be
validly issued, fully paid and non-assessable and conform to
the description thereof contained in the Prospectus; the
holders thereof will not be subject to any liability solely as
such holders; all corporate action required to be taken for
the authorization, issue and sale of the Securities has been
duly and validly taken, and the certificates representing the
Securities are in due and proper form. The Representative's
Warrants constitute valid and binding obligations of the
Company to issue and sell, upon exercise thereof and payment
therefor, the
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<PAGE> 26
number and type of securities of the Company called for
thereby. Upon the issuance and delivery pursuant to this
Agreement and the Representative's Warrant Agreement of the
Securities to be sold by the Company, the Underwriters and the
Representatives, respectively, will acquire good and
marketable title to such Securities free and clear of any
pledge, lien, charge, claim, encumbrance, pledge, security
interest, or other restriction or equity of any kind
whatsoever. No transfer tax is payable by or on behalf of the
Underwriters in connection with (A) the issuance by the
Company of the Securities, (B) the purchase by the
Underwriters and Josephthal of the Securities and the
Representative's Shares, respectively, from the Company, (C)
the consummation by the Company of any of its obligations
under this Agreement or the Representative's Warrant
Agreement, or (D) resales of the Securities and the
Representative's Shares in connection with the distribution
contemplated hereby.
iv) the Registration Statement is effective under the
Act, and, if applicable, filing of all pricing information has
been timely made in the appropriate form under Rule 430A, and
no stop order suspending the use of the Preliminary
Prospectus, the Registration Statement or Prospectus or any
part of any thereof or suspending the effectiveness of the
Registration Statement has been issued and no proceedings for
that purpose have been instituted or are pending or, to the
best of such counsel's knowledge, threatened or contemplated
under the Act;
v) each of the Preliminary Prospectus, the
Registration Statement, and the Prospectus and any amendments
or supplements thereto (other than the financial statements
and other financial and statistical data included therein, as
to which no opinion need be rendered) comply as to form in all
material respects with the requirements of the Act and the
Rules and Regulations.
vi) to the best of such counsel's knowledge, (A)
there are no agreements, contracts or other documents required
by the Act to be described in the Registration Statement and
the Prospectus and filed as exhibits to the Registration
Statement other than those described in the Registration
Statement (or required to be filed under the Exchange Act if
upon such filing they would be incorporated, in whole or in
part, by reference therein) and the Prospectus and filed as
exhibits thereto, and the exhibits which have been filed are
correct copies of the documents of which they purport to be
copies; (B) the descriptions in the Registration Statement and
the Prospectus and any supplement or amendment thereto of
contracts and other documents to which the Company is a party
or by which it is bound, including any document to which the
Company is a party or by which it is bound, incorporated by
reference into the Prospectus and any supplement or amendment
thereto, are accurate in all material respects and fairly
represent the information required to be shown by Form S-1;
(C) to such counsel's knowledge, there is not pending or
threatened against the Company any action, arbitration, suit,
proceeding, inquiry, investigation, litigation, governmental
or other proceeding (including, without limitation, those
having jurisdiction over environmental or similar matters),
domestic or foreign, pending
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<PAGE> 27
or threatened against (or circumstances that may give rise to
the same), or involving the properties or business of the
Company which (x) is required to be disclosed in the
Registration Statement which is not so disclosed (and such
proceedings as are summarized in the Registration Statement
are accurately summarized in all material respects), (y)
questions the validity of the capital stock of the Company or
this Agreement or the Representative's Warrant Agreement, or
of any action taken or to be taken by the Company pursuant to
or in connection with any of the foregoing; (D) no statute or
regulation or legal or governmental proceeding required to be
described in the Prospectus is not described as required; and
(E) there is no action, suit or proceeding pending, or
threatened, against or affecting the Company before any court
or arbitrator or governmental body, agency or official (or any
basis thereof known to such counsel) in which there is a
reasonable possibility of an adverse decision which may result
in a material adverse change in the condition, financial or
otherwise, or the earnings, position, prospects, stockholders'
equity, value, operation, properties, business or results of
operations of the Company, which could adversely affect the
present or prospective ability of the Company to perform its
obligations under this Agreement or the Representative's
Warrant Agreement or which in any manner draws into question
the validity or enforceability of this Agreement or the
Representative's Warrant Agreement;
vii) the Company has full legal right, power and
authority to enter into each of this Agreement and the
Representative's Warrant Agreement and to consummate the
transactions provided for therein; and this Agreement and the
Representative's Warrant Agreement have been duly authorized,
executed and delivered by the Company. Each of this Agreement
and the Representative's Warrant Agreement assuming due
authorization, execution and delivery by each other party
thereto constitutes a legal, valid and binding agreement of
the Company enforceable against the Company in accordance with
its terms (except as such enforceability may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium
or other laws of general application relating to or affecting
enforcement of creditors' rights and the application of
equitable principles in any action, legal or equitable, and
except as rights to indemnity or contribution may be limited
by applicable law), and none of the Company's execution or
delivery of this Agreement and the Representative's Warrant
Agreement its performance hereunder or thereunder, its
consummation of the transactions contemplated herein or
therein, or the conduct of its business as described in the
Registration Statement, the Prospectus, and any amendments or
supplements thereto, conflicts with or will conflict with or
results or will result in any breach or violation of any of
the terms or provisions of, or constitutes or will constitute
a default under, or result in the creation or imposition of
any lien, charge, claim, encumbrance, pledge, security
interest, defect or other restriction or equity of any kind
whatsoever upon, any property or assets (tangible or
intangible) of the Company pursuant to the terms of, (A) the
articles of incorporation or by-laws of the Company, (B) any
license, contract, indenture, mortgage, deed of trust, voting
trust agreement, stockholders agreement, note, loan or credit
agreement or any other agreement or instrument to which the
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<PAGE> 28
Company is a party or by which it is or may be bound or to
which any of its respective properties or assets (tangible or
intangible) is or may be subject, or any indebtedness, or (C)
any statute, judgment, decree, order, rule or regulation
applicable to the Company of any arbitrator, court, regulatory
body or administrative agency or other governmental agency or
body (including, without limitation, those having jurisdiction
over environmental or similar matters), domestic or foreign,
having jurisdiction over the Company or any of its activities
or properties;
viii) except as described in the Prospectus, no
consent, approval, authorization or order of, and no filing
with, any court, regulatory body, government agency or other
body (other than such as may be required under Blue Sky laws,
as to which no opinion need be rendered) is required in
connection with the issuance of the Shares pursuant to the
Prospectus and the Registration Statement, the issuance of the
Representative's Warrants, the performance of this Agreement
and the Representative's Warrant Agreement and the
transactions contemplated hereby and thereby;
ix) the properties and business of the Company
conform in all material respects to the description thereof
contained in the Registration Statement and the Prospectus;
and the Company has good and marketable title to, or valid and
enforceable leasehold estates in, all items of real and
personal property stated in the Prospectus to be owned or
leased by it, in each case free and clear of all liens,
charges, claims, encumbrances, pledges, security interests,
defects or other restrictions or equities of any kind
whatsoever, other than those referred to in the Prospectus and
liens for taxes not yet due and payable;
x) to the best knowledge of such counsel, the Company
is not in breach of, or in default under, any term or
provision of any license, contract, indenture, mortgage,
installment sale agreement, deed of trust, lease, voting trust
agreement, stockholders' agreement, partnership agreement,
note, loan or credit agreement or any other agreement or
instrument evidencing an obligation for borrowed money, or any
other agreement or instrument to which the Company is a party
or by which the Company may be bound or to which the property
or assets (tangible or intangible) of the Company is subject
or affected; and the Company is not in violation of any term
or provision of its articles of incorporation by-laws, or in
violation of any franchise, license, permit, judgment, decree,
order, statute, rule or regulation;
xi) the statements in the Prospectus under
"MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS," "BUSINESS," "MANAGEMENT,"
"PRINCIPAL SHAREHOLDERS," "CERTAIN TRANSACTIONS," "DESCRIPTION
OF CAPITAL STOCK," and "SHARES ELIGIBLE FOR FUTURE SALE" have
been reviewed by such counsel, and insofar as they refer to
statements of law, descriptions of statutes, licenses, rules
or regulations or legal conclusions, are correct in all
material respects;
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<PAGE> 29
xii) the Shares have been accepted for quotation on
Nasdaq;
xiii) the persons listed under the caption "PRINCIPAL
SHAREHOLDERS" in the Prospectus are the respective "beneficial
owners" (as such phrase is defined in regulation 13d-3 under
the Exchange Act) of the securities set forth opposite their
respective names thereunder as and to the extent set forth
therein;
xiv) except as described in the Prospectus, no
person, corporation, trust, partnership, association or other
entity has the right to include and/or register any securities
of the Company in the Registration Statement, require the
Company to file any registration statement or, if filed, to
include any security in such registration statement;
xv) except as described in the Prospectus, there are
no claims, payments, issuances, arrangements or understandings
for services in the nature of a finder's or origination fee
with respect to the sale of the Securities hereunder or
financial consulting arrangement or any other arrangements,
agreements, understandings, payments or issuances that may
affect the Underwriters' compensation, as determined by the
NASD;
xvi) assuming due execution by the parties thereto
other than the Company, the Lock-up Agreements hereof are
legal, valid and binding obligations of parties thereto,
enforceable against the party and any subsequent holder of the
securities subject thereto in accordance with its terms
(except as such enforceability may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium or other
laws of general application relating to or affecting
enforcement of creditors' rights and the application of
equitable principles in any action, legal or equitable, and
except as rights to indemnity or contribution may be limited
by applicable law); and
xvii) except as described in the Prospectus, the
Company does not (A) maintain, sponsor or contribute to any
ERISA Plans, (B) maintain or contribute, now or at any time
previously, to a defined benefit plan, as defined in Section
3(35) of ERISA, and (C) has never completely or partially
withdrawn from a "multiemployer plan".
Such counsel shall state that such counsel has participated
in conferences with officers and other representatives of the Company and
representatives of the independent public accountants for the Company at which
conferences such counsel made inquiries of such officers, representatives and
accountants and discussed the contents of the Preliminary Prospectus, the
Registration Statement, the Prospectus, and related matters were discussed and,
although such counsel is not passing upon and does not assume any responsibility
for the accuracy, completeness or fairness of the statements contained in the
Preliminary Prospectus, the Registration Statement and Prospectus, on the basis
of the foregoing, no facts have come to the attention of such counsel which lead
them to believe that either the Registration Statement or any amendment thereto,
at the time such Registration Statement or amendment became effective or
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<PAGE> 30
the Preliminary Prospectus or Prospectus or amendment or supplement thereto
as of the date of such opinion contained any untrue statement of a material fact
or omitted to state a material fact required to be stated therein or necessary
to make the statements therein not misleading (it being understood that such
counsel need express no opinion with respect to the financial statements and
schedules and other financial and statistical data included in the Preliminary
Prospectus, the Registration Statement or Prospectus).
Such opinion shall not state that it is to be governed or
qualified by, or that it is otherwise subject to, any treatise, written policy
or other document relating to legal opinions, including, without limitation, the
Legal Opinion Accord of the ABA Section of Business Law (1991), or any
comparable State bar accord.
In rendering such opinion, such counsel may rely (A) as to
matters involving the application of laws other than the laws of the United
States and jurisdictions in which they are admitted, to the extent such counsel
deems proper and to the extent specified in such opinion, if at all, upon an
opinion or opinions (in form and substance satisfactory to Underwriters'
Counsel) of other counsel acceptable to Underwriters' Counsel, familiar with the
applicable laws; (B) as to matters of fact, to the extent they deem proper, on
certificates and written statements of responsible officers of the Company, and
certificates or other written statements of officers of departments of various
jurisdictions having custody of documents respecting the corporate existence or
good standing of the Company, provided that copies of any such statements or
certificates shall be delivered to Underwriters' Counsel if requested. The
opinion of such counsel for the Company shall state that the opinion of any such
other counsel is in form satisfactory to such counsel and that the
Representatives and they are justified in relying thereon. Such opinion shall
also state that Underwriters' Counsel is entitled to rely thereon.
(e) On the Closing Date, the Underwriters shall
have received the favorable opinion of Squire, Sanders & Dempsey L.L.P., in its
capacity as counsel for the Selling Shareholders, dated the Closing Date,
addressed to the Underwriters, in form and substance satisfactory to
Underwriters' Counsel, to the effect that:
i) Each Selling Shareholder has full legal right,
power and authority to enter into this Agreement and to sell,
assign, transfer and deliver in the manner provided herein the
Selling Shareholders' Option Shares sold by such Selling
Shareholder; this Agreement has been duly authorized, executed
and delivered by such Selling Shareholder; and this Agreement,
assuming due authorization, execution and delivery by each
other party hereto and further assuming it is a valid and
binding agreement of the Underwriters, is a valid and legally
binding agreement of such Selling Shareholder, enforceable
against such Selling Shareholder in accordance with its terms
(except as may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium or similar laws
relating to or affecting creditors' rights generally and by
general principles of equity relating to the availability of
remedies and except its rights to indemnity and contribution
may be limited by applicable law);
ii) None of the execution, delivery or performance of
this Agreement, the Stock Power, the Power of Attorney, and
the Custody Agreement
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<PAGE> 31
by such Selling Shareholder and the consummation by such
Selling Shareholder of the transactions herein and therein
contemplated, to the best of such counsel's knowledge,
conflict with or result in a breach of, or default under, any
indenture, mortgage, deed of trust, voting trust agreement,
stockholders agreement, note agreement or other agreement or
other instrument to which such Selling Shareholder is a party
or by which such Selling Shareholder is bound or to which any
of the property of any of the Selling Shareholders is subject,
or the charter or by-laws of any of the Selling Shareholders
that are corporations, and nothing has come to such counsel's
attention which causes such counsel to believe that such
actions will result in any violation of any law, rule,
administrative regulation or court decree applicable to such
Selling Shareholder (other than state securities or blue sky
laws or regulations, as to which counsel need not express any
opinion);
iii) A Stock Power, Power of Attorney, and the
Custody Agreement have been duly authorized, executed and
delivered by each Selling Shareholder and, assuming the due
authorization, execution and delivery of the Custody Agreement
by the other parties thereto, each constitutes the valid and
binding agreement of each Selling Shareholder enforceable in
accordance with its terms (except as such enforceability may
be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or similar laws relating to or
affecting creditors' rights generally and by general
principles of equity relating to availability of remedies and
except as rights to indemnity or contribution may be limited
by applicable law); and
iv) Upon the delivery of the Selling Shareholders'
Option Shares sold hereunder by the Selling Shareholders and
payment therefor in accordance with the terms of this
Agreement, the Underwriters will have acquired all rights of
such Selling Shareholder to the Selling Shareholders' Shares
sold by such Selling Shareholder hereunder, and in addition
will have acquired good and marketable title to such Selling
Shareholders' Shares free and clear of any adverse claim.
(f) At each Option Closing Date, if any, the
Underwriters shall have received (i) the favorable opinion of Squire, Sanders &
Dempsey L.L.P. in its role as counsel for the Company, and (ii) the favorable
opinion of Squire, Sanders & Dempsey L.L.P. in its role as counsel for each
Selling Shareholder, dated the Option Closing Date, addressed to the
Underwriters and in form and substance satisfactory to Underwriters' Counsel
confirming as of Option Closing Date the respective statements made by Squire,
Sanders & Dempsey L.L.P. in its respective opinions delivered on the Closing
Date.
(g) On or prior to each of the Closing Date and
the Option Closing Date, if any, Underwriters' Counsel shall have been furnished
such documents, certificates and opinions as they may reasonably require for the
purpose of enabling them to review or pass upon the matters referred to in
subsections (d) and (e) of this Section 7, or in order to evidence the accuracy,
completeness or satisfaction of any of the representations, warranties or
conditions of the Company, or herein contained.
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<PAGE> 32
(h) Prior to each of the Closing Date and each
Option Closing Date, if any, (i) there shall have been no material adverse
change nor development involving a prospective change in the condition,
financial or otherwise, prospects, stockholders' equity or the business
activities of the Company, whether or not in the ordinary course of business,
from the latest dates as of which such condition is set forth in the
Registration Statement and Prospectus; (ii) there shall have been no
transaction, not in the ordinary course of business, entered into by the
Company, from the latest date as of which the financial condition of the Company
is set forth in the Registration Statement and Prospectus which is materially
adverse to the Company; (iii) the Company shall not be in default under any
provision of any instrument relating to any outstanding indebtedness; (iv) the
Company shall not have issued any securities (other than the Securities); the
Company shall not have declared or paid any dividend or made any distribution in
respect of its capital stock of any class; and there has not been any change in
the capital stock of the Company, or any material change in the debt (long or
short term) or liabilities or obligations of the Company (contingent or
otherwise); (v) no material amount of the assets of the Company shall have been
pledged or mortgaged, except as set forth in the Registration Statement and
Prospectus; (vi) no action, suit or proceeding, at law or in equity, shall have
been pending or threatened (or circumstances giving rise to same) against the
Company, or affecting any of its properties or business before or by any court
or federal, state or foreign commission, board or other administrative agency
wherein an unfavorable decision, ruling or finding may adversely affect the
business, operations, prospects or financial condition or income of the Company,
except as set forth in the Registration Statement and Prospectus; and (vii) no
stop order shall have been issued under the Act and no proceedings therefor
shall have been initiated, threatened or contemplated by the Commission.
(i) At each of the Closing Date and each Option
Closing Date, if any, the Underwriters shall have received a certificate of the
Company signed by the principal executive officer and by the chief financial or
chief accounting officer of the Company, dated the Closing Date or Option
Closing Date, as the case may be, to the effect that each of such persons has
carefully examined the Registration Statement, the Prospectus and this
Agreement, and that:
i) The representations and warranties of the Company
in this Agreement are true and correct, as if made on and as
of the Closing Date or the Option Closing Date, as the case
may be, and the Company has complied with all agreements and
covenants and satisfied all conditions contained in this
Agreement on its part to be performed or satisfied at or prior
to such Closing Date or Option Closing Date, as the case may
be;
ii) No stop order suspending the effectiveness of the
Registration Statement or any part thereof has been issued,
and no proceedings for that purpose have been instituted or
are pending or, to the best of each of such person's
knowledge, after due inquiry are contemplated or threatened
under the Act;
iii) The Registration Statement and the Prospectus
and, if any, each amendment and each supplement thereto,
contain all statements and information required to be included
therein, and none of the Registration Statement, the
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<PAGE> 33
Prospectus nor any amendment or supplement thereto includes
any untrue statement of a material fact or omits to state any
material fact required to be stated therein or necessary to
make the statements therein not misleading and neither the
Preliminary Prospectus nor any supplement thereto included any
untrue statement of a material fact or omitted to state any
material fact required to be stated therein or necessary to
make the statements therein, in light of the circumstances
under which they were made, not misleading; and
iv) Subsequent to the respective dates as of which
information is given in the Registration Statement and the
Prospectus, (a) the Company has not incurred up to and
including the Closing Date or the Option Closing Date, as the
case may be, other than in the ordinary course of its
business, any material liabilities or obligations, direct or
contingent; (b) the Company has not paid or declared any
dividends or other distributions on its capital stock; (c) the
Company has not entered into any transactions not in the
ordinary course of business; (d) there has not been any change
in the capital stock of the Company or any material change in
the debt (long or short-term) of the Company; (e) the Company
has not sustained any material loss or damage to its property
or assets, whether or not insured; (g) there is no litigation
which is pending or to the best of each such person's
knowledge threatened (or circumstances giving rise to same)
against the Company, or any affiliated party of any of the
foregoing which is required to be set forth in an amended or
supplemented Prospectus which has not been set forth; and (h)
there has occurred no event required to be set forth in an
amended or supplemented Prospectus which has not been set
forth.
References to the Registration Statement and the Prospectus in this subsection
(i) are to such documents as amended and supplemented at the date of such
certificate.
(j) On the Closing Date, the Underwriters shall
have received a certificate dated the Closing Date, from each Selling
Shareholder (which may be signed by the Attorney-in-Fact) to the effect that
each such Selling Shareholder has carefully examined the Registration Statement
and the Prospectuses and this Agreement, and that:
i) The representations and warranties of such Selling
Shareholder in this Agreement are true and correct, as if made
at and as of the Closing Date, and such Selling Shareholder
has complied with all the agreements and satisfied all the
conditions to be performed or satisfied by such Selling
Shareholder at or prior to the Closing Date; and
ii) The Registration Statement and Prospectuses and,
if any, each amendment and each supplement thereto, contain
all statements required to such Selling Shareholder's
knowledge to be included therein regarding such Selling
Shareholder, and none of the Registration Statement nor any
amendment thereto includes any untrue statement of a material
fact regarding such Selling Shareholder or omits to state any
material fact regarding such Selling Shareholder required to
such Selling Shareholder's knowledge to be stated therein or
necessary to make the statements therein regarding such
Selling Shareholder not misleading,
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<PAGE> 34
and no Prospectus (an any supplements thereto) or any
Preliminary Prospectus includes or included any untrue
statement of a material fact regarding such Selling
Shareholder or omits or omitted to state a material fact
regarding such Selling Shareholder required to such Selling
Shareholder's knowledge to be stated therein or necessary in
order to make the statements therein regarding such Selling
Shareholder, in light of the circumstances under which they
are made, not misleading.
(k) By the Closing Date, the Underwriters will
have received clearance from the NASD as to the amount of compensation allowable
or payable to the Underwriters, as described in the Registration Statement.
(l) At the time this Agreement is executed, the
Underwriters shall have received a letter, dated such date, addressed to the
Underwriters in form and substance satisfactory (including the non-material
nature of the changes or decreases, if any, referred to in clause (iii) below)
in all respects to the Underwriters and Underwriters' Counsel, from Arthur
Andersen:
i) confirming that they are independent certified
public accountants with respect to the Company within the
meaning of the Act and the applicable Rules and Regulations;
ii) stating that it is their opinion that the
financial statements and supporting schedules of the Company
as of September 30, 1996 and December 31, 1996 and for the
years then ended, and for the period from inception through
________________ included in the Registration Statement comply
as to form in all material respects with the applicable
accounting requirements of the Act and the Rules and
Regulations thereunder and that the Representatives may rely
upon the opinion of Arthur Andersen with respect to such
financial statements and supporting schedules included in the
Registration Statement;
iii) stating that, on the basis of a limited review
which included a reading of the latest available unaudited
interim financial statements of the Company, a reading of the
latest available minutes of the stockholders and board of
directors and the various committees of the board of directors
of the Company, consultations with officers and other
employees of the Company responsible for financial and
accounting matters and other specified procedures and
inquiries, nothing has come to their attention which would
lead them to believe that (A) the pro forma financial
information contained in the Registration Statement and
Prospectus does not comply as to form in all material respects
with the applicable accounting requirements of the Act and the
Rules and Regulations or is not fairly presented in conformity
with generally accepted accounting principles applied on a
basis consistent with that of the audited financial statements
of the Company or the unaudited pro forma financial
information included in the Registration Statement, (B) the
unaudited financial statements and supporting schedules of the
Company included in the Registration Statement do not comply
as to form in all
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<PAGE> 35
material respects with the applicable accounting requirements
of the Act and the Rules and Regulations or are not fairly
presented in conformity with generally accepted accounting
principles applied on a basis substantially consistent with
that of the audited financial statements of the Company
included in the Registration Statement, or (C) at a specified
date not more than five (5) days prior to the effective date
of the Registration Statement, there has been any change in
the capital stock of the Company, any change in the long-term
debt of the Company, or any decrease in the stockholders'
equity of the Company or any decrease in the net current
assets or net assets of the Company as compared with amounts
shown in the September 30, 1996 balance sheets included in the
Registration Statement, other than as set forth in or
contemplated by the Registration Statement, or, if there was
any change or decrease, setting forth the amount of such
change or decrease, and (D) during the period from September
30, 1996 to a specified date not more than five (5) days prior
to the effective date of the Registration Statement, there was
any decrease in net revenues or net earnings of the Company or
increase in net earnings per common share of the Company, in
each case as compared with the corresponding period beginning
September 30, 1995 other than as set forth in or contemplated
by the Registration Statement, or, if there was any such
decrease, setting forth the amount of such decrease;
iv) setting forth, at a date not later than five (5)
days prior to the date of the Registration Statement, the
amount of liabilities of the Company (including a break-down
of commercial paper and notes payable to banks);
v) stating that they have compared specific dollar
amounts, numbers of shares, percentages of revenues and
earnings, statements and other financial information
pertaining to the Company set forth in the Prospectus in each
case to the extent that such amounts, numbers, percentages,
statements and information may be derived from the general
accounting records, including work sheets, of the Company and
excluding any questions requiring an interpretation by legal
counsel, with the results obtained from the application of
specified readings, inquiries and other appropriate procedures
(which procedures do not constitute an examination in
accordance with generally accepted auditing standards) set
forth in the letter and found them to be in agreement; and
vi) statements as to such other matters incident to
the transaction contemplated hereby as the Representatives may
request.
(m) At the Closing Date and each Option Closing Date, if
any, the Underwriters shall have received from Arthur Anderson a letter, dated
as of the Closing Date or the Option Closing Date, as the case may be, to the
effect that they reaffirm the statements made in the letter furnished pursuant
to subsection (l) of this Section hereof except that the specified date referred
to shall be a date not more than five days prior to the Closing Date or the
Option Closing Date, as the case may be, and, if the Company has elected to rely
on Rule 430A of the Rules and Regulations, to the further effect that they have
carried out procedures as specified in clause (v) of subsection (l) of this
Section with respect to certain amounts, percentages and financial information
as specified by the Representatives and deemed to be a
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<PAGE> 36
part of the Registration Statement pursuant to Rule 430A(b) and have found such
amounts, percentages and financial information to be in agreement with the
records specified in such clause (v).
(n) The Company shall have delivered to the
Representatives a letter from Arthur Andersen addressed to the Company stating
that they have not during the immediately preceding two year period brought to
the attention of the Company's management any "weakness" as defined in Statement
of Auditing Standards No. 60 "Communication of Internal Control Structure
Related Matters Noted in an Audit," in any of the Company's internal controls.
(o) On each of the Closing Date and Option
Closing Date, if any, there shall have been duly tendered to the Representatives
for the several Underwriters' accounts the appropriate number of Securities.
(p) No order suspending the sale of the
Securities in any jurisdiction designated by the Representatives pursuant to
Section 5(a)(v) hereof shall have been issued on either the Closing Date or the
Option Closing Date, if any, and no proceedings for that purpose shall have been
instituted or shall be contemplated.
(q) On or before the Closing Date, the Company
shall have executed and delivered to Josephthal, (i) the Representative's
Warrant Agreement substantially in the form filed as Exhibit 4.2 to the
Registration Statement in final form and substance satisfactory to Josephthal,
and (ii) the Representative's Warrants in such denominations and to such
designees as shall have been provided to the Company by Josephthal.
(r) On or before the Closing Date, the
Securities shall have been duly approved for quotation on Nasdaq, subject to
official notice of issuance.
(s) On or before the Closing Date, there shall
have been delivered to the Representatives all of the Lock-up Agreements and in
the Seller Lock-up Agreements, in form and substance satisfactory to
Underwriters' Counsel.
If any condition to the Underwriters' obligations hereunder to
be fulfilled prior to or at the Closing Date or the relevant Option Closing
Date, as the case may be, is not so fulfilled, the Representatives may terminate
this Agreement or, if the Representatives so elect, it may waive any such
conditions which have not been fulfilled or extend the time for their
fulfillment.
8. Indemnification.
(a) The Company and the Selling Shareholders,
jointly and severally, agrees to indemnify and hold harmless each of the
Underwriters (for purposes of this Section 8 "Underwriter" shall include the
officers, directors, partners, employees, agents and counsel of the Underwriter,
including specifically each person who may be substituted for an Underwriter as
provided in Section 12 hereof), and each person, if any, who controls the
Underwriter ("controlling person") within the meaning of Section 15 of the Act
or Section 20(a)
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<PAGE> 37
of the Exchange Act, from and against any and all losses, claims, damages,
expenses or liabilities, joint or several (and actions, proceedings,
investigations, inquiries, and suits in respect thereof), whatsoever (including
but not limited to any and all costs and expenses whatsoever reasonably incurred
in investigating, preparing or defending against such action, proceeding,
investigation, inquiry or suit, commenced or threatened, or any claim
whatsoever), as such are incurred, to which the Underwriter or such controlling
person may become subject under the Act, the Exchange Act or any other statute
or at common law or otherwise or under the laws of foreign countries, arising
out of or based upon (A) any untrue statement or alleged untrue statement of a
material fact contained (i) in any Preliminary Prospectus, the Registration
Statement or the Prospectus (as from time to time amended and supplemented);
(ii) in any post-effective amendment or amendments or any new registration
statement and prospectus in which is included securities of the Company issued
or issuable upon exercise of the Securities; or (iii) in any application or
other document or written communication (in this Section 8 collectively called
"application") executed by the Company or based upon written information
furnished by the Company or any Selling Shareholder filed, delivered or used in
any jurisdiction in order to qualify the Securities under the securities laws
thereof or filed with the Commission, any state securities commission or agency,
Nasdaq or any other securities exchange, (B) the omission or alleged omission
therefrom of a material fact required to be stated therein or necessary to make
the statements therein not misleading (in the case of the Prospectus, in the
light of the circumstances under which they were made), or (C) any breach of any
representation, warranty, covenant or agreement of the Company contained herein
or in any certificate by or on behalf of the Company or any of its officers
delivered pursuant hereto unless, in the case of clause (A) or (B) above, such
statement or omission was made in reliance upon and in conformity with written
information furnished to the Company with respect to any Underwriter by or on
behalf of such Underwriter expressly for use in any Preliminary Prospectus, the
Registration Statement or any Prospectus, or any amendment thereof or supplement
thereto, or in any application, as the case may be. The liability of each
Selling Shareholder under this paragraph shall be limited to the proportion
thereof which the number of shares of Common Stock sold by such Selling
Shareholder bears to all shares of Common Stock purchased by the Underwriters,
but in no event shall such Selling Shareholder be liable under this paragraph
for an amount exceeding the aggregate purchase price received by such Selling
Shareholder from the Underwriters for the shares of Common Stock sold by such
Selling Shareholder hereunder. Neither Selling Shareholder will be liable to the
Underwriters or any person controlling the Underwriters with respect to any
untrue statement or omission or alleged untrue statement or omission made by the
Company or by any other Selling Shareholder.
The indemnity agreement in this subsection (a) shall be in
addition to any liability which the Company or the Selling Shareholders may have
at common law or otherwise.
(b) Each of the Underwriters agrees severally,
but not jointly, to indemnify and hold harmless the Company, each of its
directors, each of its officers who has signed the Registration Statement, and
each other person, if any, who controls the Company within the meaning of the
Act, and each Selling Shareholder to the same extent as the foregoing indemnity
from the Company to the Underwriters but only with respect to statements or
omissions, if any, made in any Preliminary Prospectus, the Registration
Statement or Prospectus or any amendment thereof or supplement thereto or in any
application made in reliance upon, and in strict conformity with, written
information furnished to the Company with respect to any
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<PAGE> 38
Underwriter by such Underwriter expressly for use in such Preliminary
Prospectus, the Registration Statement or Prospectus or any amendment thereof or
supplement thereto or in any such application, provided that such written
information or omissions only pertain to disclosures in the Preliminary
Prospectus, the Registration Statement or Prospectus directly relating to the
transactions effected by the Underwriters in connection with this Offering. The
Company and the Selling Shareholders acknowledge that the statements with
respect to the public offering of the Securities set forth under the heading
"Underwriting" and the stabilization legend in the Prospectus have been
furnished by the Underwriters expressly for use therein and constitute the only
information furnished in writing by or on behalf of the Underwriters for
inclusion in the Prospectus.
The indemnity agreement in this subsection (b) shall be in
addition to any liability which the Underwriters may have at common law or
otherwise.
(c) Promptly after receipt by an indemnified
party under this Section 8 of notice of the commencement of any action, suit or
proceeding, such indemnified party shall, if a claim in respect thereof is to be
made against one or more indemnifying parties under this Section 8, notify each
party against whom indemnification is to be sought in writing of the
commencement thereof (but the failure so to notify an indemnifying party shall
not relieve it from any liability which it may have under this Section 8 except
to the extent that it has been prejudiced in any material respect by such
failure or from any liability which it may have otherwise). In case any such
action, investigation, inquiry, suit or proceeding is brought against any
indemnified party, and it notifies an indemnifying party or parties of the
commencement thereof, the indemnifying party or parties will be entitled to
participate therein, and to the extent it may elect by written notice delivered
to the indemnified party promptly after receiving the aforesaid notice from such
indemnified party, to assume the defense thereof with counsel reasonably
satisfactory to such indemnified party. Notwithstanding the foregoing, the
indemnified party or parties shall have the right to employ its or their own
counsel in any such case but the fees and expenses of such counsel shall be at
the expense of such indemnified party or parties unless (i) the employment of
such counsel shall have been authorized in writing by the indemnifying parties
in connection with the defense of such action at the expense of the indemnifying
party, (ii) the indemnifying parties shall not have employed counsel reasonably
satisfactory to such indemnified party to have charge of the defense of such
action within a reasonable time after notice of commencement of the action, or
(iii) such indemnified party or parties shall have reasonably concluded that
there may be defenses available to it or them which are different from or
additional to those available to one or all of the indemnifying parties (in
which case the indemnifying parties shall not have the right to direct the
defense of such action, investigation, inquiry, suit or proceeding on behalf of
the indemnified party or parties), in any of which events such fees and expenses
of one additional counsel shall be borne by the indemnifying parties. In no
event shall the indemnifying parties be liable for fees and expenses of more
than one counsel (in addition to any local counsel) separate from their own
counsel for all indemnified parties in connection with any one action,
investigation, inquiry, suit or proceeding or separate but similar or related
actions, investigations, inquiries, suits or proceedings in the same
jurisdiction arising out of the same general allegations or circumstances.
Anything in this Section 8 to the contrary notwithstanding, an indemnifying
party shall not be liable for any settlement of any claim or action effected
without its written consent; provided, however, that such consent was not
unreasonably withheld. An indemnifying party will not,
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<PAGE> 39
without the prior written consent of the indemnified parties, settle compromise
or consent to the entry of any judgment with respect to any pending or
threatened claim, action, investigation, inquiry, suit or proceeding in respect
of which indemnification or contribution may be sought hereunder (whether or not
the indemnified parties are actual or potential parties to such claim or
action), unless such settlement, compromise or consent (i) includes an
unconditional release of each indemnified party form all liability arising out
of such claim, action, suit or proceeding and (ii) does not include a statement
as to or an admission of fault, culpability or a failure to act by or on behalf
of any indemnified party.
(d) In order to provide for just and equitable
contribution in any case in which (i) an indemnified party makes claim for
indemnification pursuant to this Section 8, but it is judicially determined (by
the entry of a final judgment or decree by a court of competent jurisdiction and
the expiration of time to appeal or the denial of the last right of appeal) that
such indemnification may not be enforced in such case notwithstanding the fact
that the express provisions of this Section 8 provide for indemnification in
such case, or (ii) contribution under the Act may be required on the part of any
indemnified party, then each indemnifying party shall contribute to the amount
paid as a result of such losses, claims, damages, expenses or liabilities (or
actions, investigations, inquiries, suits or proceedings in respect thereof) (A)
in such proportion as is appropriate to reflect the relative benefits received
by each of the contributing parties, on the one hand, and the party to be
indemnified on the other hand, from the offering of the Securities or (B) if the
allocation provided by clause (A) above is not permitted by applicable law, in
such proportion as is appropriate to reflect not only the relative benefits
referred to in clause (i) above but also the relative fault of each of the
contributing parties, on the one hand, and the party to be indemnified on the
other hand in connection with the statements or omissions that resulted in such
losses, claims, damages, expenses or liabilities, as well as any other relevant
equitable considerations. In any case where the Company is a contributing party
and the Underwriters are the indemnified party, the relative benefits received
by the Company and/or the Selling Shareholders on the one hand, and the
Underwriters, on the other, shall be deemed to be in the same proportion as the
total net proceeds from the offering of the Securities (before deducting
expenses) bear to the total underwriting discounts received by the Underwriters
hereunder, in each case as set forth in the table on the Cover Page of the
Prospectus. Relative fault shall be determined by reference to, among other
things, whether the untrue or alleged untrue statement of a material fact or the
omission or alleged omission to state a material fact relates to information
supplied by the Company, or the Selling Shareholders or by the Underwriters, and
the parties' relative intent, knowledge, access to information and opportunity
to correct or prevent such untrue statement or omission. The amount paid or
payable by an indemnified party as a result of the losses, claims, damages,
expenses or liabilities (or actions, investigations, inquiries, suits or
proceedings in respect thereof) referred to above in this subdivision (d) shall
be deemed to include any legal or other expenses reasonably incurred by such
indemnified party in connection with investigating or defending any such action,
claim, investigation, inquiry, suit or proceeding. Notwithstanding the
provisions of this subdivision (d) the Underwriters shall not be required to
contribute any amount in excess of the underwriting discount applicable to the
Securities purchased by the Underwriters hereunder. No person guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of the Act)
shall be entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation. For purposes of this Section 8, each person, if
any, who controls the Company within the meaning of the Act, each officer of the
Company who has signed the Registration Statement, and each
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<PAGE> 40
director and each Selling Shareholder of the Company shall have the same rights
to contribution as the Company, subject in each case to this subparagraph (d).
Any party entitled to contribution will, promptly after receipt of notice of
commencement of any action, suit, inquiry, investigation or proceeding against
such party in respect to which a claim for contribution may be made against
another party or parties under this subparagraph (d), notify such party or
parties from whom contribution may be sought, but the omission so to notify such
party or parties shall not relieve the party or parties from whom contribution
may be sought from any obligation it or they may have hereunder or otherwise
than under this subparagraph (d), or to the extent that such party or parties
were not adversely affected by such omission. The contribution agreement set
forth above shall be in addition to any liabilities which any indemnifying party
may have at common law or otherwise.
9. Representations and Agreements to Survive Delivery.
All representations, warranties and agreements contained in this Agreement or
contained in certificates of officers of the Company or of any Selling
Shareholder submitted pursuant hereto, shall be deemed to be representations,
warranties and agreements at the Closing Date and the Option Closing Date, as
the case may be, and such representations, warranties and agreements of the
Company and the Selling Shareholders, as the case may be, and the respective
indemnity agreements contained in Section 8 hereof, shall remain operative and
in full force and effect regardless of any investigation made by or on behalf of
any Underwriter, the Company, any Selling Shareholder any controlling person of
any Underwriter, the Company or any Selling Shareholder, and shall survive
termination of this Agreement or the issuance, sale and delivery of the
Securities to the Underwriters and the Representatives, as the case may be.
10. Effective Date.
(a) This Agreement shall become effective at 10:00
a.m., New York City time, on the next full business day following the date
hereof, or at such earlier time after the Registration Statement becomes
effective as the Representatives, in their discretion, shall release the
Securities for sale to the public; provided, however, that the provisions of
Sections 6, 8 and 11 of this Agreement shall at all times be effective. For
purposes of this Section 10, the Securities to be purchased hereunder shall be
deemed to have been so released upon the earlier of dispatch by the
Representatives of telegrams to securities dealers releasing such shares for
offering or the release by the Representatives for publication of the first
newspaper advertisement which is subsequently published relating to the
Securities.
11. Termination.
(a) Subject to subsection (b) of this Section 11, the
Representatives shall have the right to terminate this Agreement, after the date
hereof, (i) if any domestic or international event or act or occurrence has
materially disrupted, or in the Representatives' opinion will in the immediate
future materially adversely disrupt the financial markets; or (ii) any material
adverse change in the financial markets shall have occurred; or (iii) if trading
generally shall have been suspended or materially limited on or by, as the case
may be, any of the New York Stock Exchange, the American Stock Exchange, the
National Association of Securities Dealers, Inc., the Boston Stock Exchange, the
Commission or any other government authority having jurisdiction; or (iv) if
trading of any of the securities of the Company shall have
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<PAGE> 41
been suspended, or any of the securities of the Company shall have been
delisted, on any exchange or in any over-the-counter market; or (v) if the
United States shall have become involved in a war or major hostilities, or if
there shall have been an escalation in an existing war or major hostilities or a
national emergency shall have been declared in the United States; or (vi) if a
banking moratorium has been declared by a state or federal authority; or (vii)
if a moratorium in foreign exchange trading has been declared; or (viii) if the
Company shall have sustained a loss material or substantial to the Company by
fire, flood, accident, hurricane, earthquake, theft, sabotage or other calamity
or malicious act which, whether or not such loss shall have been insured, will,
in the Representatives' opinion, make it inadvisable to proceed with the
delivery of the Securities; or (viii) if there shall have occurred any outbreak
or escalation of hostilities or any calamity or crisis or there shall have been
such a material adverse change in the conditions or prospects of the Company, or
such material adverse change in the general market, political or economic
conditions, in the United States or elsewhere as in the Representatives'
judgment would make it inadvisable to proceed with the offering, sale and/or
delivery of the Securities or (ix) if Robert M. Worsley shall no longer serve
the Company in his present capacity.
(b) If this Agreement is terminated by the
Representatives in accordance with the provisions of Section 11(a) the Company
shall promptly reimburse and indemnify the Representatives for all of its actual
out-of-pocket expenses, including the fees and disbursements of counsel for the
Underwriters (less amounts previously paid pursuant to Section 6(c) above).
Notwithstanding any contrary provision contained in this Agreement, if this
Agreement shall not be carried out within the time specified herein, or any
extension thereof granted to the Representatives, by reason of any failure on
the part of the Company to perform any undertaking or satisfy any condition of
this Agreement by it to be performed or satisfied (including, without
limitation, pursuant to Section 7 or Section 13) then, the Company shall
promptly reimburse and indemnify the Representatives for all of their actual
out-of-pocket expenses, including the fees and disbursements of counsel for the
Underwriters (less amounts previously paid pursuant to Section 6(c) above). In
addition, the Company shall remain liable for all Blue Sky counsel fees and
expenses and filing fees. Notwithstanding any contrary provision contained in
this Agreement, any election hereunder or any termination of this Agreement
(including, without limitation, pursuant to Sections 7, 11, 12 and 13 hereof),
and whether or not this Agreement is otherwise carried out, the provisions of
Section 6 and Section 8 shall not be in any way affected by such election or
termination or failure to carry out the terms of this Agreement or any part
hereof.
12. Substitution of the Underwriters. If one or more of the
Underwriters shall fail (otherwise than for a reason sufficient to justify the
termination of this Agreement under the provisions of Section 6, Section 7,
Section 11 or Section 13 hereof) to purchase the Securities which it or they are
obligated to purchase on such date under this Agreement (the "Defaulted
Securities"), the Representatives shall have the right, within 24 hours
thereafter, to make arrangement for one or more of the non-defaulting
Underwriters, or any other underwriters, to purchase all, but not less than all,
of the Defaulted Securities in such amounts as may be agreed upon and upon the
terms herein set forth; if, however, the Representatives shall not have
completed such arrangements within such 24-hour period, then:
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<PAGE> 42
(a) if the number of Defaulted Securities does not
exceed 10% of the total number of Firm Shares to be purchased
on such date, the non-defaulting Underwriters shall be
obligated to purchase the full amount thereof in the
proportions that their respective underwriting obligations
hereunder bear to the underwriting obligations of all
non-defaulting Underwriters, or
(b) if the number of Defaulted Securities exceeds 10%
of the total number of Firm Shares, this Agreement shall
terminate without liability on the part of any non-defaulting
Underwriters.
No action taken pursuant to this Section shall relieve any
defaulting Underwriter from liability in respect of any default by such
Underwriter under this Agreement.
In the event of any such default which does not result in a
termination of this Agreement, the Representatives shall have the right to
postpone the Closing Date for a period not exceeding seven days in order to
effect any required changes in the Registration Statement or Prospectus or in
any other documents or arrangements.
13. Default by the Company or Selling Shareholders. If
the Company or any Selling Shareholder shall fail at the Closing Date or at any
Option Closing Date, as applicable, to sell and deliver the number of Securities
which it is obligated to sell hereunder on such date, then this Agreement shall
terminate (or, if such default shall occur with respect to any Option Shares to
be purchased on an Option Closing Date, the Underwriters may at the
Representatives' option, by notice from the Representatives to the Company,
terminate the Underwriters' obligation to purchase Option Shares from the
Company on such date) without any liability on the part of any non-defaulting
party other than pursuant to Section 6, Section 8 and Section 11 hereof. No
action taken pursuant to this Section shall relieve the Company or any Selling
Shareholder, as the case may be, from liability, if any, in respect of such
default.
14. Notices. All notices and communications hereunder,
except as herein otherwise specifically provided, shall be in writing and shall
be deemed to have been duly given if mailed or transmitted by any standard form
of telecommunication. Notices to the Underwriters shall be directed to the
Representatives c/o Josephthal Lyon & Ross Incorporated at 200 Park Avenue, 24th
Floor, New York, New York 10166, Attention: Michael Kollender, with a copy to
Orrick, Herrington & Sutcliffe LLP, 666 Fifth Avenue, New York, New York 10103,
Attention: Rubi Finkelstein, Esq. Notices to the Company shall be directed to
the Company at 1520 East Pima Street, Phoenix, Arizona 85034, Attention: Robert
M. Worsley, President and Chief Executive Officer, with a copy to Squire,
Sanders & Dempsey L.L.P., 40 North Central Avenue, Phoenix, Arizona 85004,
Attention: Christopher D. Johnson, Esq. Notices to the Selling Shareholders
shall be directed to [___________________________].
15. Parties. This Agreement shall inure solely to the
benefit of and shall be binding upon, the Underwriters, the Company, the Selling
Shareholders and the controlling persons, directors and officers referred to in
Section 8 hereof, and their respective successors, legal representatives and
assigns, and no other person shall have or be construed to have any legal or
equitable right, remedy or claim under or in respect of or by virtue of this
Agreement
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<PAGE> 43
or any provisions herein contained. No purchaser of Securities from any
Underwriter shall be deemed to be a successor by reason merely of such purchase.
16. Construction. This Agreement shall be governed by and
construed and enforced in accordance with the laws of the State of New York
without giving effect to the choice of law or conflict of laws principles.
17. Counterparts. This Agreement may be executed in any
number of counterparts, each of which shall be deemed to be an original, and all
of which taken together shall be deemed to be one and the same instrument.
18. Entire Agreement; Amendments. This Agreement and the
Representative's Warrant Agreement constitute the entire agreement of the
parties hereto and supersede all prior written or oral agreements,
understandings and negotiations with respect to the subject matter hereof. This
Agreement may not be amended except in a writing, signed by the Representatives,
the Company and the Selling Shareholders.
If the foregoing correctly sets forth the understanding among
the Underwriters, the Company and the Selling Shareholders, please so indicate
in the space provided below for that purpose, whereupon this letter shall
constitute a binding agreement among us.
Very truly yours,
SKYMALL, INC.
By:__________________________________________
Robert M. Worsley
Chairman of the Board, President and Chief
Executive Officer
Confirmed and accepted as of
the date first above written.
JOSEPHTHAL LYON & ROSS INCORPORATED
For itself and as Representatives
of the several Underwriters named
in Schedule A hereto.
By:____________________________________
Name:
Title:
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<PAGE> 44
CRUTTENDEN ROTH INCORPORATED
For itself and as Representatives
of the several Underwriters named
in Schedule A hereto.
By:________________________________
Name:
Title:
SELLING SHAREHOLDERS
By:________________________________________
As Attorney-in-Fact for the Selling
Shareholders Named in Schedule B hereto
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<PAGE> 1
EXHIBIT 3.2
BYLAWS
OF
SKYMALL, INC.
ARTICLE I
OFFICES
1. Principal Office.
The principal office shall be in the City of Reno, County of Washoe,
State of Nevada.
2. Other Offices.
The Corporation may also have offices at such other places both within
and without the State of Nevada as the Board of Directors may from time to time
determine or the business of the Corporation may require.
ARTICLE II
STOCKHOLDERS
1. Annual Meeting.
The annual meeting of the stockholders shall be held on such date and
at such time and place each year as the Board of Directors (the "Board") shall
determine, for the purpose of electing Directors and for the transaction of such
other business as may properly come before the meeting. If the election of
Directors is not held on the day designated by the Board for any annual meeting
of the stockholders, or any adjournment thereof, the Board shall cause the
election to be held at a special meeting of the stockholders as soon thereafter
as convenient.
2. Special Meetings.
Special meetings of the stockholders may be called for any purpose or
purposes at any time by a majority of the Board of Directors, Chairman of the
Board or the President or by persons holding at least 10 percent (10%) of the
issued and outstanding shares of the Corporation's Common Stock. Business
transacted at any special meeting of stockholders shall be limited to the
purposes stated in the notice thereof.
3. Place of Meetings.
Annual and special meetings of the stockholders may be held at such
time and place within or without the State of Nevada as shall be stated in the
notice of the meeting, or in a duly executed waiver of notice thereof.
<PAGE> 2
4. Notice of Meeting.
Written notice stating the place, date and hour of the meeting and, in
the case of a special meeting, the purpose or purposes for which the meeting is
called, shall be delivered to each stockholder of record entitled to vote at
such meeting not less than ten (10) nor more than sixty (60) days before the
date of the meeting. Notice may be delivered either personally or by first
class, certified or registered mail, postage prepaid, and signed by an officer
of the Corporation at the direction of the person or persons calling the
meeting. If mailed, notice shall be deemed to be delivered when mailed to the
stockholders at his or her address as it appears on the stock transfer books of
the Corporation. Delivery of any such notice to any officer of a corporation or
association, or to any member of a partnership shall constitute delivery of such
notice to such corporation, association or partnership. In the event of the
transfer of stock after delivery or mailing of the notice of and prior to the
holding of the meeting it shall not be necessary to deliver or mail notice of
the meeting to the transferee. Notice need not be given of an adjourned meeting
if the time and place thereof are announced at the meeting at which the
adjournment is taken, provided that such adjournment is for less than thirty
(30) days and further provided that a new record date is not fixed for the
adjourned meeting, in either of which events, written notice of the adjourned
meeting shall be given to each stockholder of record entitled to vote at such
meeting. At any adjourned meeting, any business may be transacted which might
have been transacted at the meeting as originally noticed. A written waiver of
notice, whether given before or after the meeting to which it relates, shall be
equivalent to the giving of notice of such meeting to the stockholder or
stockholders signing such waiver. Attendance of a stockholder at a meeting shall
constitute a waiver of notice of such meeting, except when the stockholder
attends for the express purpose of objecting to the transaction of any business
because the meeting is not lawfully called or convened.
5. Fixing Date for Determination of Stockholders Record.
In order that the Corporation may determine the stockholders entitled
to notice of and to vote at any meeting of stockholders or any adjournment
thereof, or to express consent to corporate action in writing without a meeting,
or to receive payment of any dividend or other distribution or allotment of any
rights, or to exercise any rights in respect of any other change, conversion or
exchange of stock or for the purpose of any other lawful action, the Board of
Directors may fix in advance a record date, which shall not be more than sixty
(60) nor less than ten (10) days prior to the date of such meeting or such
action, as the case may be. If the Board of Directors has not fixed a record
date for determining the stockholders entitled to notice of and to vote at a
meeting of stockholders, the record date shall be at close of business on the
day next preceding the day on which notice is given, or if notice is waived, at
the close of business on the day next preceding the day on which the meeting is
held. If the Board of Directors has not fixed a record date for determining the
stockholders entitled to express consent to corporate action in writing without
a meeting, when no prior action by the Board of Directors is necessary, the
record date shall be the day on which the first written consent is expressed by
any stockholder. If the Board of Directors has not fixed a record date for
determining stockholders for any other purpose, the record date shall be at the
close of business on the day on which the Board of Directors adopts the
resolution relating thereto. A determination of stockholders of record entitled
to notice of or to vote at a meeting of stockholders shall apply to any
2
<PAGE> 3
adjournment of the meeting; provided, however, that the Board of Directors may
fix a new record date for the adjourned meeting.
6. Record of Stockholders.
The Secretary or other officer having charge of the stock transfer
books of the Corporation shall make, or cause to be made, at least ten (10) days
before every meeting of stockholders, a complete record of the stockholders
entitled to vote at a meeting of stockholders or any adjournment thereof,
arranged in alphabetical order, with the address of and the number of shares
registered in the name of each stockholder. Such list shall be open to the
examination of any stockholder, for any purpose germane to the meeting, during
ordinary business hours, for a period of at least ten (10) days prior to the
meeting, either at a place within the city where the meeting is to be held,
which place shall be specified in the notice of the meeting, or if not so
specified, at the place where the meeting is to be held. The list shall also be
produced and kept at the time and place of the meeting during the whole time
thereof and may be inspected by any stockholder who is present.
7. Quorum and Manner of Acting.
At any meeting of the stockholders, the presence, in person or by
proxy, of the holders of a majority of the outstanding stock entitled to vote
shall constitute a quorum for the transaction of business except as otherwise
provided by the Nevada General Corporation Law or by the Articles of
Incorporation. All shares represented and entitled to vote on any single subject
matter which may be brought before the meeting shall be counted for quorum
purposes. Only those shares entitled to vote on a particular subject matter
shall be counted for the purpose of voting on that subject matter. Business may
be conducted once a quorum is present and may continue to be conducted until
adjournment sine die, notwithstanding the withdrawal or temporary absence of
stockholders leaving less than a quorum. Except as otherwise provided in the
Nevada General Corporation Law, the Articles of Incorporation or these Bylaws,
the affirmative vote of the holders of a majority of the shares of stock then
represented at the meeting and entitled to vote thereat shall be the act of the
stockholders; provided, however, that if the shares of stock so represented are
less than the number required to constitute a quorum, the affirmative vote must
be such as would constitute a majority if a quorum were present, except that the
affirmative vote of the holders of a majority of the shares of stock then
present is sufficient in all cases to adjourn a meeting.
8. Voting of Shares of Stock.
Each stockholder shall be entitled to one vote or corresponding
fraction thereof for each share of stock or fraction thereof standing in his,
her or its name on the books of the Corporation on the record date. A
stockholder may vote either in person or by valid proxy, as defined in Section
12 of this Article II, executed in writing by the stockholder or by his, her or
its duly authorized attorney in fact. Shares of its own stock belonging to the
Corporation or to another corporation, if a majority of the shares entitled to
vote in the election of directors of such other corporation is held, directly or
indirectly, by the Corporation, shall neither be entitled to vote nor counted
for quorum purposes; provided, however, that the foregoing shall not limit the
right of any corporation to vote stock, including but not limited to its own
stock, when held
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<PAGE> 4
by it in a fiduciary capacity. Shares of stock standing in the name of another
corporation may be voted by such officer, agent or proxy as the bylaws of such
other corporation may prescribe or, in the absence of such provision, as the
Board of Directors of such other corporation may determine. Unless demanded by a
stockholder present in person or by proxy at any meeting of the stockholders and
entitled to vote thereat, or unless so directed by the chairman of the meeting,
the vote thereat on any question need not be by ballot. If such demand or
direction is made, a vote by ballot shall be taken, and each ballot shall be
signed by the stockholder voting, or by his or her proxy, and shall state the
number of shares voted.
9. Organization.
At each meeting of the stockholders, the Chairman of the Board, or, if
he or she is absent therefrom, the President, or, if he or she is absent
therefrom, another officer of the Corporation chosen as chairman of such meeting
by stockholders holding a majority of the shares present in person or by proxy
and entitled to vote thereat, or, if all the officers of the Corporation are
absent therefrom, a stockholder of record so chosen, shall act as chairman of
the meeting and preside thereat. The Secretary, or, if he or she is absent from
the meeting or is required pursuant to the provisions of this Section 9 to act
as chairman of such meeting, the person (who shall be an Assistant Secretary, if
any and if present) whom the chairman of the meeting shall appoint shall act as
secretary of the meeting and keep the minutes thereof.
10. Order of Business.
The order of business at each meeting of the stockholders shall be
determined by the chairman of such meeting, but the order of business may be
changed by the vote of stockholders holding a majority of the shares present in
person or by proxy at such meeting and entitled to vote thereat.
11. Voting.
At all meetings of stockholders, each stockholder entitled to vote
thereat shall have the right to vote, in person or by proxy, and shall have, for
each share of stock registered in his, her or its name, the number of votes
provided by the Articles of Incorporation or these Bylaws in respect of stock of
such class. Stockholders shall not have cumulative voting rights with respect to
the election of Directors.
12. Voting by Proxy.
At any meeting of the stockholders, any stockholder may be represented
and vote by a proxy or proxies appointed by an instrument in writing. In the
event that any such instrument in writing shall designate two (2) or more
persons to act as proxies, a majority of such persons present at the meeting,
or, if only one shall be present, then that one shall have and may exercise all
of the powers conferred by such written instrument upon all of the persons so
designated unless the instrument shall otherwise provide. No such proxy shall be
valid after the expiration of six (6) months from the date of its execution,
unless coupled with an interest, or unless the person executing it specifies
therein the length of time for which it is to continue in force, which in no
case shall exceed seven (7) years from the date of its execution. Subject to
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the above, any proxy duly executed is not revoked and continues in full force
and effect until an instrument revoking it or a duly executed proxy bearing a
later date is filed with the Secretary of the Corporation.
13. Action By Stockholders Without a Meeting.
Any action required or permitted to be taken at a meeting of the
stockholders may be taken without a meeting without notice and without a vote,
if a consent in writing, setting forth the action so taken, is signed by the
holders of outstanding stock having not less than the number of votes that would
have been necessary to authorize such action at a meeting at which all shares
entitled to vote were present and voted. Such written consent shall not be valid
unless it is (a) signed by the stockholder, (b) dated, as to the date of such
stockholder's signature, and (c) delivered to the Corporation personally or by
certified or registered mail, return receipt requested, to the Corporation's
principal place of business, principal office in the State of Nevada or officer
or agent who has custody of the book in which the minutes of meetings of
stockholders are recorded, within sixty (60) days after the earliest date that a
stockholder signed the written consent. Prompt notice of the taking of any such
action shall be given to any such stockholder entitled to vote who has not so
consented in writing.
14. Nomination of Directors. Only persons who are nominated in accordance with
the following procedures shall be eligible for election as directors. Nomination
for election to the Board of Directors of the Corporation at a meeting of
stockholders may be made by the Board of Directors or by any stockholder of the
Corporation entitled to vote for the election of directors at such meeting who
complies with the notice procedures set forth in this Section 14. Such
nominations, other than those made by or on behalf of the Board of Directors,
shall be made by notice in writing delivered or mailed by first class United
States mail, postage prepaid, to the Secretary of the Corporation, and received
not less than thirty (30) days nor more than sixty (60) days prior to such
meeting; provided, however, that if less than forty-five (45) days' notice or
prior public disclosure of the date of the meeting is given or made to
stockholders, such nomination shall have been mailed or delivered to the
Secretary not later than the close of business on the 10th day following the
date on which the notice of the meeting was mailed or public disclosure was
made, whichever occurs first. Such notice shall set forth (a) as to each
proposed nominee (i) the name, age, business address and, if known, residence
address of each such nominee, (ii) the principal occupation or employment of
each such nominee, (iii) the number of shares of stock of the Corporation which
are beneficially owned by each such nominee, and (iv) any other information
concerning the nominee that must be disclosed to as nominees in proxy
solicitations pursuant to Regulation 14A under the Securities Exchange Act of
1934, as amended (including such person's written consent to be named as a
nominee and to serve as a director if elected); (b) as to the stockholder giving
the notice (i) the name and address, as they appear on the Corporation's books,
of such stockholder, and (ii) the class and number or shares of the Corporation
which are beneficially owned by such stockholder; and (c) as to the beneficial
owner, if any, on whose behalf the nomination is made, (i) the name and address
of such person and (ii) the class and number of shares of the Corporation which
are beneficially owned by such person.
The Chairman presiding at a meeting of stockholders may, if the facts
warrant, determine and declare to the meeting that a nomination was not made in
accordance with the foregoing
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procedure, and if he should so determine, he shall so declare to the meeting and
the defective nomination shall be disregarded.
Nothing in the foregoing provision shall obligate the Corporation or
the Board of Directors to include in any proxy statement or other stockholder
communication distributed on behalf of the Corporation or the Board of Directors
information with respect to any nominee for directors submitted by a
stockholder.
ARTICLE III
BOARD OF DIRECTORS
1. General Powers.
The business and affairs of the Corporation shall be managed by the
Board of Directors.
2. Number, Term of Office and Qualifications.
Subject to the requirements of the Nevada General Corporation Law or
the Articles of Incorporation, the Board of Directors may from time to time
determine the number of Directors. Until the Board of Directors shall otherwise
determine, the number of Directors shall be that number comprising the initial
Board of Directors as set forth in the Articles of Incorporation. Each director
shall hold office until his or her successor is duly elected or until his or her
earlier death or resignation or removal in the manner hereinafter provided.
Directors need not be stockholders.
3. Place of Meeting.
The Board of Directors may hold its meetings, either within or without
the State of Nevada, at such place or places as it may from time to time by
resolution determine or as shall be designated in any notices or waivers of
notice thereof. Any such meeting, whether regular or special, may be held by
telephone conference or similar communications equipment by means of which all
persons participating in the meeting can hear each other, and participation in a
meeting in such manner shall constitute presence in person at such meeting. Each
person participating in a telephonic meeting shall sign the minutes thereof,
which may be signed in counterparts.
4. Annual Meetings.
As soon as practicable after each annual election of Directors, the
Board of Directors shall meet for the purpose of organization and the
transaction of other business at the place where regular meetings of the Board
of Directors are held, and no notice of such meeting shall be necessary in order
to legally hold the meeting, provided that a quorum is present. If such meeting
is not held as provided above, the meeting may be held at such time and place as
shall be specified in a notice given as hereinafter provided for a special
meeting of the Board of Directors, or in the event of waiver of notice as
specified in the written waiver of notice.
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5. Regular Meetings.
Regular meetings of the Board of Directors may be held without notice
at such times as the Board of Directors shall from time to time by resolution
determine.
6. Special Meetings; Notice.
Special meetings of the Board of Directors shall be held, either within
or without the State of Nevada, whenever called by the Chairman of the Board or
a majority of the Directors at the time in office. Notice shall be given, in the
manner hereinafter provided, of each such special meeting, which notice shall
state the time and place of such meeting, but need not state the purposes
thereof. Except as otherwise provided in Section 9 of this Article III, notice
of each such meeting shall be mailed to each Director, addressed to him or her
at his or her residence or usual place of business, at least two (2) days before
the day on which such meeting is to be held, or shall be sent addressed to him
or her at such place by facsimile, cable, wireless or other form of recorded
communication or delivered personally or by telephone not later than the day
before the day on which such meeting is to be held. A written waiver of notice,
whether given before or after the meeting to which it relates, shall be
equivalent to the giving of notice of such meeting to the Director or Directors
signing such waiver. Attendance of a Director at a special meeting of the Board
of Directors shall constitute a waiver of notice of such meeting, except when he
or she attends the meeting for the express purpose of objecting to the
transaction of any business because the meeting is not lawfully called or
convened.
7. Quorum and Manner of Acting.
A majority of the whole Board of Directors shall be present in person
at any meeting of the Board of Directors in order to constitute a quorum for the
transaction of business at such meeting, and except as otherwise specified in
the Articles of Incorporation or these Bylaws, and except also as otherwise
expressly provided by the Nevada General Corporation Law, the vote of a majority
of the Directors present at any such meeting at which a quorum is present shall
be the act of the Board of Directors. In the absence of a quorum from any such
meeting, a majority of the Directors present thereat may adjourn such meeting
from time to time to another time or place, without notice other than
announcement at the meeting, until a quorum shall be present thereat. The
Directors shall act only as a Board of Directors and the individual Directors
shall have no power as such.
8. Organization.
At each meeting of the Board of Directors, the Chairman of the Board,
or, if he or she is absent therefrom, the President, or if he or she is absent
therefrom, a Director chosen by a majority of the Directors present thereat,
shall act as chairman of such meeting and preside thereat. The Secretary, or if
he or she is absent, the person (who shall be an Assistant Secretary, if any and
if present) whom the chairman of such meeting shall appoint, shall act as
Secretary of such meeting and keep the minutes thereof.
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9. Action by Directors Without a Meeting.
Any action required or permitted to be taken at a meeting of the Board
of Directors may be taken without a meeting, without prior notice and without a
vote, if a consent in writing, setting forth the action so taken, is signed by
all Directors and such consent is filed with the minutes of the proceedings of
the Board of Directors.
10. Resignations.
Any Director may resign at any time by giving written notice of his or
her resignation to the Corporation. Any such resignation shall take effect at
the time specified therein, or, if the time when it shall become effective is
not specified therein, it shall take effect immediately upon its receipt by the
Chairman of the Board, the President or the Secretary; and, unless otherwise
specified therein, the acceptance of such resignation shall not be necessary to
make it effective.
11. Removal of Directors.
Directors may be removed either with or without cause, by the
affirmative vote of stockholders representing at least fifty-one percent (51%)
of the outstanding stock entitled to vote thereon.
12. Vacancies.
Vacancies and newly created directorships resulting from any increase
in the authorized number of Directors elected by all of the stockholders having
the right to vote as a single class may be filled by a majority of the Directors
then in office, although less than a quorum, or by a sole remaining Director. If
at any time, by reason of death or resignation or other cause, the Corporation
has no Directors in office, then any officer or stockholder or an executor,
administrator, trustee or guardian of a stockholder, may call a special meeting
of stockholders for the purpose of filling vacancies in the Board of Directors.
If one or more Directors shall resign from the Board of Directors, effective at
a future date, a majority of the Directors then in office, including those who
have so resigned, shall have the power to fill such vacancy or vacancies, the
vote thereon to take effect when such resignation or resignations shall become
effective, and each Director so chosen shall hold office as provided in this
section in the filling of other vacancies.
13. Compensation.
Unless otherwise expressly provided by resolution adopted by the Board
of Directors, no Director shall receive any compensation for his or her services
as a Director. The Board of Directors may at any time and from time to time by
resolution provide that the Directors shall be paid a fixed sum for attendance
at each meeting of the Board of Directors or a stated salary as Director. In
addition, the Board of Directors may at any time and from time to time by
resolution provide that Directors shall be paid their actual expenses, if any,
of attendance at each meeting of the Board of Directors. Nothing in this section
shall be construed as precluding any Director from serving the Corporation in
any other capacity and receiving compensation
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therefor, but the Board of Directors may by resolution provide that any Director
receiving compensation for his or her services to the Corporation in any other
capacity shall not receive additional compensation for his or her services as a
Director.
ARTICLE IV
OFFICERS
1. Number.
The Corporation shall have the following officers: a Chairman of the
Board (who shall be a Director), a President, a Vice President, a Secretary and
a Treasurer. At the discretion of the Board of Directors, the Corporation may
also have additional Vice Presidents, one or more Assistant Vice Presidents, one
or more Assistant Secretaries and one or more Assistant Treasurers. Any two (2)
or more offices may be held by the same person.
2. Election and Term of Office.
The officers of the Corporation shall be elected annually by the Board
of Directors. Each such officer shall hold office until his or her successor is
duly elected or until his or her earlier death or resignation or removal in the
manner hereinafter provided.
3. Agents.
In addition to the officers mentioned in Section 1 of this Article IV,
the Board of Directors may appoint such agents as the Board of Directors may
deem necessary or advisable, each of which agents shall have such authority and
perform such duties as are provided in these Bylaws or as the Board of Directors
may from time to time determine. The Board of Directors may delegate to any
officer or to any committee the power to appoint or remove any such agents.
4. Removal.
Any officer may be removed, with or without cause, at any time by
resolution adopted by a majority of the whole Board of Directors.
5. Resignations.
Any officer may resign at any time by giving written notice of his or
her resignation to the Board of Directors, the Chairman of the Board, the
President or the Secretary. Any such resignation shall take effect at the times
specified therein, or, if the time when it shall become effective is not
specified therein, it shall take effect immediately upon its receipt by the
Board of Directors, the Chairman of the Board, the President or the Secretary;
and, unless otherwise specified therein, the acceptance of such resignation
shall not be necessary to make it effective.
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6. Vacancies.
A vacancy in any office due to death, resignation, removal,
disqualification or any other cause may be filled for the unexpired portion of
the term thereof by the Board of Directors.
7. Chairman of the Board.
The Chairman of the Board shall be the chief executive officer of the
Corporation and shall have, subject to the control of the Board of Directors,
general and active supervision and direction over the business and affairs of
the Corporation and over its several officers. The Chairman of the Board shall:
(a) preside at all meetings of the stockholders and at all meetings of the Board
of Directors; (b) make a report of the state of the business of the Corporation
at each annual meeting of the stockholders; (c) see that all orders and
resolutions of the Board of Directors are carried into effect; (d) sign, with
the Secretary or an Assistant Secretary, certificates for stock of the
Corporation; (e) have the right to sign, execute and deliver in the name of the
Corporation all deeds, mortgages, bonds, contracts or other instruments
authorized by the Board of Directors, except in cases where the signing,
execution or delivery thereof is expressly delegated by the Board of Directors
or by these Bylaws to some other officer or agent of the Corporation or where
any of them are required by law otherwise to be signed, executed or delivered;
and (f) have the right to cause the corporate seal, if any, to be affixed to any
instrument which requires it. In general, the Chairman of the Board shall
perform all duties incident to the office of the Chairman of the Board and such
other duties as from time to time may be assigned to him or her by the Board of
Directors.
8. President.
The President shall have, subject to the control of the Board of
Directors and the Chairman of the Board, general and active supervision and
direction over the business and affairs of the Corporation and over its several
officers. At the request of the Chairman of the Board, or in case of his or her
absence or inability to act, the President shall perform the duties of the
Chairman of the Board and, when so acting, shall have all the powers of, and be
subject to all the restrictions upon, the Chairman of the Board. He may sign,
with the Secretary or an Assistant Secretary, certificates for stock of the
Corporation. He may sign, execute and deliver in the name of the Corporation all
deeds, mortgages, bonds, contracts or other instruments authorized by the Board
of Directors, except in cases where the signing, execution or delivery thereof
is expressly delegated by the Board of Directors or by these Bylaws to some
other officer or agent of the Corporation or where any of them are required by
law otherwise to be signed, executed or delivered, and he may cause the
corporate seal, if any, to be affixed to any instrument which requires it. In
general, the President shall perform all duties incident to the office of the
President and such other duties as from time to time may be assigned to him or
her by the Board of Directors or the Chairman of the Board.
9. Vice President.
The Vice President and any additional Vice Presidents shall have such
powers and perform such duties as the Chairman of the Board, the President or
the Board of Directors may from time to time prescribe and shall perform such
other duties as may be prescribed by these
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Bylaws. At the request of the President, or in case of his or her absence or
inability to act, the Vice President shall perform the duties of the President
and, when so acting, shall have all the powers of, and be subject to all the
restrictions upon, the President.
10. Secretary.
The Secretary shall: (a) record all the proceedings of the meetings of
the stockholders, the Board of Directors and the Executive Committee, if any, in
one or more books kept for that purpose; (b) see that all notices are duly given
in accordance with the provisions of these Bylaws or as required by law; (c) be
the custodian of all contracts, deeds, documents, all other indicia of title to
properties owned by the Corporation and of its other corporate records (except
accounting records) and of the corporate seal, if any, and affix such seal to
all documents the execution of which on behalf of the Corporation under its seal
is duly authorized; (d) sign, with the Chairman of the Board, the President or a
Vice President, certificates for stock of the Corporation; (e) have charge,
directly or through the transfer clerk or transfer clerks, transfer agent or
transfer agents and registrar or registrars appointed as provided in Section 3
of Article VII of these Bylaws, of the issue, transfer and registration of
certificates for stock of the Corporation and of the records thereof, such
records to be kept in such manner as to show at any time the amount of the stock
of the Corporation issued and outstanding, the manner in which and the time when
such stock was paid for, the names, alphabetically arranged, and the addresses
of the holders of record thereof, the number of shares held by each, and the
time when each became a holder of record; (f) upon request, exhibit or cause to
be exhibited at all reasonable times to any Director such records of the issue,
transfer and registration of the certificates for stock of the Corporation; (g)
see that the books, reports, statements, certificates and all other documents
and records required by law are properly kept and filed; and (h) see that the
duties prescribed by Section 6 of Article II of these Bylaws are performed. In
general, the Secretary shall perform all duties incident to the office of
Secretary and such other duties as from time to time may be assigned to him or
her by the Chairman of the Board, the President or the Board of Directors.
11. Treasurer.
If required by the Board of Directors, the Treasurer shall give a bond
for the faithful discharge of his or her duties in such sum and with such surety
or sureties as the Board of Directors shall determine. The Treasurer shall: (a)
have charge and custody of, and be responsible for, all funds, securities, notes
and valuable effects of the Corporation; (b) receive and give receipt for monies
due and payable to the Corporation from any sources whatsoever; (c) deposit all
such monies to the credit of the Corporation or otherwise as the Board of
Directors, the Chairman of the Board or the President shall direct in such
banks, trust companies or other depositories as shall be selected in accordance
with the provisions of Article VI of these Bylaws; (d) cause such funds to be
disbursed by checks or drafts on the authorized depositories of the Corporation
signed as provided in Article VI of these Bylaws; (e) be responsible for the
accuracy of the amounts of, and cause to be preserved proper vouchers for, all
monies so disbursed; (f) have the right to require from time to time reports or
statements giving such information as he or she may desire with respect to any
and all financial transactions of the Corporation from the officers or agents
transacting the same; (g) render to the Chairman of the Board, the President or
the Board of Directors, whenever they, respectively, shall request him
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or her so to do, an account of the financial condition of the Corporation and of
all his or her transactions as Treasurer; and (h) upon request, exhibit or cause
to be exhibited at all reasonable times the cash books and other records to the
Chairman of the Board, the President or any of the Directors of the Corporation.
In general, the Treasurer shall perform all duties incident to the office of
Treasurer and such other duties as from time to time may be assigned to him or
her by the Chairman of the Board, the President or the Board of Directors.
12. Assistant Officers.
Any persons elected as assistant officers shall assist in the
performance of the duties of the designated office and such other duties as
shall be assigned to them by any Vice President, the Secretary or the Treasurer,
as the case may be, or by the Board of Directors, the Chairman of the Board, or
the President.
13. Compensation.
The salaries of all officers and agents of the Corporation shall be
fixed by the Board of Directors or a committee thereof.
ARTICLE V
COMMITTEES
1. Executive Committee; How Constituted and Powers.
The Board of Directors, by resolution adopted by a majority of the
whole Board of Directors, may designate one or more of the Directors then in
office, who shall include the Chairman of the Board, to constitute an Executive
Committee, which shall have and may exercise between meetings of the Board of
Directors all the delegable powers of the Board of Directors to the extent not
expressly prohibited by the Nevada General Corporation Law or by resolution of
the Board of Directors. The Board of Directors may designate one or more
Directors as alternate members of the Committee who may replace any absent or
disqualified member at any meeting of the Committee. Each member of the
Executive Committee shall continue to be a member thereof only during the
pleasure of a majority of the whole Board of Directors.
2. Executive Committee; Organization.
The Chairman of the Board shall act as chairman at all meetings of the
Executive Committee and the Secretary shall act as secretary thereof. In case of
the absence from any meeting of the Chairman of the Board or the Secretary, the
Committee may appoint a chairman or secretary, as the case may be, of the
meeting.
3. Executive Committee; Meetings.
Regular meetings of the Executive Committee may be held without notice
on such days and at such places as shall be fixed by resolution adopted by a
majority of the Committee and
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communicated to all its members. Special meetings of the Committee shall be held
whenever called by the Chairman of the Board or a majority of the members
thereof then in office. Notice of each special meeting of the Committee shall be
given in the manner provided in Section 6 of Article III of these Bylaws for
special meetings of the Board of Directors. Notice of any such meeting of the
Executive Committee, however, need not be given to any member of the Committee
if waived by him or her in writing or by facsimile, cable, wireless or other
form of recorded communication either before or after the meeting, or if he or
she is present at such meeting, except when he or she attends for the express
purpose of objecting to the transaction of any business because the meeting is
not lawfully called or convened. Subject to the provisions of this Article V,
the Committee, by resolution adopted by a majority of the whole Committee, shall
fix its own rules of procedure and it shall keep a record of its proceedings and
report them to the Board of Directors at the next regular meeting thereof after
such proceedings have been taken. All such proceedings shall be subject to
revision or alteration by the Board of Directors; provided, however, that third
parties shall not be prejudiced by any such revision or alteration.
4. Executive Committee; Quorum and Manner of Acting.
A majority of the Executive Committee shall constitute a quorum for the
transaction of business, and, except as specified in Section 3 of this Article
V, the act of a majority of those present at a meeting thereof at which a quorum
is present shall be the act of the Committee. The members of the Committee shall
act only as a committee, and the individual members shall have no power as such.
5. Other Committees.
The Board of Directors, by resolution adopted by a majority of the
whole Board, may constitute other committees, which shall in each case consist
of one or more of the Directors and, at the discretion of the Board of
Directors, such officers who are not Directors. The Board of Directors may
designate one or more Directors or officers who are not Directors as alternate
members of any committee who may replace any absent or disqualified member at
any meeting of the committee. Each such committee shall have and may exercise
such powers as the Board of Directors may determine and specify in the
respective resolutions appointing them; provided, however, that (a) unless all
of the members of any committee shall be Directors, such committee shall not
have authority to exercise any of the powers of the Board of Directors in the
management of the business and affairs of the Corporation, and (b) if any
committee shall have the power to determine the amounts of the respective fixed
salaries of the officers of the Corporation or any of them, such committee shall
consist of not less than two (2) members and none of its members shall have any
vote in the determination of the amount that shall be paid to him or her as a
fixed salary. A majority of all the members of any such committee may fix its
rules of procedure, determine its action and fix the time and place of its
meetings and specify what notice thereof, if any, shall be given, unless the
Board of Directors shall otherwise by resolution provide.
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6. Committee Minutes.
The Executive Committee and any other committee shall keep regular
minutes of their proceedings and report the same to the Board of Directors when
required.
7. Action by Committees Without a Meeting.
Any action required or permitted to be taken at a meeting of the
Executive Committee or any other committee of the Board of Directors may be
taken without a meeting, without prior notice and without a vote, if a consent
in writing, setting forth the action so taken, is signed by all members of the
committee and such consent is filed with the minutes of the proceedings of the
committee.
8. Resignations.
Any member of the Executive Committee or any other committee may resign
therefrom at any time by giving written notice of his or her resignation to the
Chairman of the Board, the President or the Secretary. Any such resignation
shall take effect at the time specified therein, or if the time when it shall
become effective is not specified therein, it shall take effect immediately upon
its receipt by the Chairman of the Board or the Secretary; and, unless otherwise
specified therein, the acceptance of such resignation shall not be necessary to
make it effective.
9. Vacancies.
Any vacancy in the Executive Committee or any other committee shall be
filled by the vote of a majority of the whole Board of Directors.
10. Compensation.
Unless otherwise expressly provided by resolution adopted by the Board
of Directors, no member of the Executive Committee or any other committee shall
receive any compensation for his or her services as a committee member. The
Board of Directors may at any time and from time to time by resolution provide
that committee members shall be paid a fixed sum for attendance at each
committee meeting or a stated salary as a committee member. In addition, the
Board of Directors may at any time and from time to time by resolution provide
that such committee members shall be paid their actual expenses, if any, of
attendance at each committee meeting. Nothing in this section shall be construed
as precluding any committee member from serving the Corporation in any other
capacity and receiving compensation therefor, but the Board of Directors may by
resolution provide that any committee member receiving compensation for his or
her services to the Corporation in any other capacity shall not receive
additional compensation for his or her services as a committee member.
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11. Dissolution of Committees; Removal of Committee Members.
The Board of Directors, by resolution adopted by a majority of the
whole Board, may, with or without cause, dissolve the Executive Committee or any
other committee, and, with or without cause, remove any member thereof.
ARTICLE VI
MISCELLANEOUS
1. Execution of Contracts.
Except as otherwise required by law or by these Bylaws, any contract or
other instrument may be executed and delivered in the name of the Corporation
and on its behalf by the Chairman of the Board, the President, or any Vice
President. In addition, the Board of Directors may authorize any other officer
of officers or agent or agents to execute and deliver any contract or other
instrument in the name of the Corporation and on its behalf, and such authority
may be general or confined to specific instances as the Board of Directors may
by resolution determine.
2. Attestation.
Any Vice President, the Secretary, or any Assistant Secretary may
attest the execution of any instrument or document by the Chairman of the Board,
the President, or any other duly authorized officer or agent of the Corporation
and may affix the corporate seal, if any, in witness thereof, but neither such
attestation nor the affixing of a corporate seal shall be requisite to the
validity of any such document or instrument.
3. Checks, Drafts.
All checks, drafts, orders for the payment of money, bills of lading,
warehouse receipts, obligations, bills of exchange and insurance certificates
shall be signed or endorsed (except endorsements for collection for the account
of the Corporation or for deposit to its credit, which shall be governed by the
provisions of Section 4 of this Article VI) by such officer or officers or agent
or agents of the Corporation and in such manner as shall from time to time be
determined by resolution of the Board of Directors.
4. Deposits.
All funds of the Corporation not otherwise employed shall be deposited
from time to time to the credit of the Corporation or otherwise as the Board of
Directors, the Chairman of the Board, or the President shall direct in general
or special accounts at such banks, trust companies, savings and loan
associations, or other depositories as the Board of Directors may select or as
may be selected by any officer or officers or agent or agents of the Corporation
to whom power in that respect has been delegated by the Board of Directors. For
the purpose of deposit and for the purpose of collection for the account of the
Corporation, checks, drafts and other orders for the payment of money which are
payable to the order of the Corporation may be endorsed, assigned and delivered
by any officer or agent of the Corporation. The Board of Directors may
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<PAGE> 16
make such special rules and regulations with respect to such accounts, not
inconsistent with the provisions of these Bylaws, as it may deem expedient.
5. Proxies in Respect of Stock or Other Securities of Other Corporations.
Unless otherwise provided by resolution adopted by the Board of
Directors, the Chairman of the Board, the President, or any Vice President may
exercise in the name and on behalf of the Corporation the powers and rights
which the Corporation may have as the holder of stock or other securities in any
other corporation, including without limitation the right to vote or consent
with respect to such stock or other securities.
6. Fiscal Year.
The fiscal year of the Corporation shall be fixed by resolution of the
Board of Directors, and may thereafter be changed from time to time by action of
the board of Directors. Initially, the fiscal year shall begin on January 1 and
end on December 31.
ARTICLE VII
STOCK
1. Certificates.
Every holder of stock in the Corporation shall be entitled to have a
certificate signed by or in the name of the Corporation by the Chairman of the
Board, the President, or a Vice President and by the Secretary or an Assistant
Secretary. The signatures of such officers upon such certificate may be
facsimiles if the certificate is manually signed by a transfer agent or
registered by a registrar, other than the Corporation itself or one of its
employees. If any officer who has signed or whose facsimile signature has been
placed upon a certificate has ceased for any reason to be such officer prior to
issuance of the certificate, the certificate may be issued with the same effect
as if that person were such officer at the date of issue. All certificates for
stock of the Corporation shall be consecutively numbered, shall state the number
of shares represented thereby and shall otherwise be in such form as shall be
determined by the Board of Directors, subject to such requirements as are
imposed by the Nevada General Corporation Law. The names and addresses of the
persons to whom the shares represented by certificates are issued shall be
entered on the stock transfer books of the Corporation, together with the number
of shares and the date of issue, and in the case of cancellation, the date of
cancellation. Certificates surrendered to the Corporation for transfer shall be
canceled, and no new certificate shall be issued in exchange for such shares
until the original certificate has been canceled; except that in the case of a
lost, stolen, destroyed or mutilated certificate, a new certificate may be
issued therefor upon such terms and indemnity to the Corporation as the Board of
Directors may prescribe.
2. Transfer of Stock.
Transfers of shares of stock of the Corporation shall be made only on
the stock transfer books of the Corporation by the holder of record thereof or
by his or her legal representative
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<PAGE> 17
or attorney in fact, who shall furnish proper evidence of authority to transfer
to the Secretary, or a transfer clerk or a transfer agent, and upon surrender of
the certificate or certificates for such shares properly endorsed and payment of
all taxes thereon. The person in whose name shares of stock stand on the books
of the Corporation shall be deemed the owner thereof for all purposes as regards
the Corporation.
3. Regulations.
The Board of Directors may make such rules and regulations as it may
deem expedient, not inconsistent with these Bylaws, concerning the issue,
transfer and registration of certificates for stock of the Corporation. The
Board of Directors may appoint, or authorize any officer or officers or any
committee to appoint, one or more transfer clerks or one or more transfer agents
and one or more registrars, and may require all certificates for stock to bear
the signature or signatures of any of them.
4. Lost Certificates.
The Board of Directors may direct a new certificate or certificates to
be issued in place of any certificate or certificates theretofore issued by the
Corporation alleged to have been lost or destroyed, upon the making of an
affidavit of the fact by the person claiming the certificate of stock to be lost
or destroyed. When authorizing such issue of a new certificate or certificates,
the Board of Directors may, in its discretion and as a condition precedent to
the issuance thereof, require the owner of such lost or destroyed certificate or
certificates, or his legal representative, to advertise the same in such manner
as it shall require and/or give the Corporation a bond in such sum as it may
direct as indemnity against any claim that may be made against the Corporation
with respect to the certificate alleged to have been lost or destroyed.
5. Registered Stockholders.
The Corporation shall be entitled to recognize the exclusive right of a
person registered on its books as the owner of shares to receive dividends, and
to vote as such owner, and hold liable for calls and assessments a person
registered on its books as the owner of shares, and shall not be bound to
recognize any equitable or other claim to or interest in such share or shares on
the part of any other person, whether or not it shall have express or other
notice thereof, except as otherwise provided by the laws of Nevada.
ARTICLE VIII
DIVIDENDS
The Board of Directors may from time to time declare, and the
Corporation may pay, dividends on its outstanding shares of stock in the manner
and upon the terms and conditions provided in the Nevada General Corporation
Law.
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<PAGE> 18
ARTICLE IX
SEAL
A corporate seal shall not be requisite to the validity of any
instrument executed by or on behalf of the Corporation. Nevertheless, if in any
instance a corporate seal is used, the same shall be in the form of a circle and
shall bear the full name of the Corporation and the year and state of
incorporation, or words and figures of similar import.
ARTICLE X
INDEMNIFICATION OF DIRECTORS AND OFFICERS
1. General.
The Corporation shall indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative
(other than an action by or in the right of the Corporation) by reason of the
fact that he is or was a director, officer, employee or agent of the
Corporation, or is or was serving at the request of the Corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, against expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement actually and reasonably
incurred by him in connection with the action, suit or proceeding if he acted in
good faith and in a manner he reasonably believed to be in or not opposed to the
best interests of the Corporation, and, with respect to any criminal action or
proceeding, had no reasonable cause to believe his conduct was unlawful. The
termination of any action, suit or proceeding by judgment, order, settlement,
conviction, or upon a plea of nolo contendere or its equivalent, does not, of
itself, create a presumption that the person did not act in good faith and in a
manner which he reasonably believed to be in or not opposed to the best
interests of the Corporation, and that, with respect to any criminal action or
proceeding, he had reasonable cause to believe that his conduct was unlawful.
2. Derivative Actions.
The Corporation shall indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action or
suit by or in the right of the Corporation to procure a judgment in its favor by
reason of the fact that he is or was a director, officer, employee or agent of
the Corporation, or is or was serving at the request of the Corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, against expenses (including amounts paid in
settlement and attorneys' fees) actually and reasonably incurred by him in
connection with the defense or settlement of the action or suit if he acted in
good faith and in a manner he reasonably believed to be in or not opposed to the
best interests of the Corporation and except that no indemnification shall be
made in respect of any claim, issue or matter as to which such person shall have
been adjudged by a court of competent jurisdiction after exhaustion of all
appeals therefrom to be liable to the Corporation or for amounts paid in
settlement to the Corporation unless and only to the extent that the court in
which such action or suit was brought or other
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<PAGE> 19
court of competent jurisdiction shall determine upon application that, in view
of all the circumstances of the case, the person is fairly and reasonably
entitled to indemnity for such expenses which the court shall deem proper.
3. Indemnification in Certain Cases.
To the extent that a director, officer, employee or agent of the
Corporation has been successful on the merits or otherwise in defense of any
action, suit or proceeding referred to in Sections 1 and 2 of this Article X, or
in defense of any claim, issue or matter therein, he or she shall be indemnified
against expenses (including attorneys' fees) actually and reasonably incurred by
him in connection therewith.
4. Procedure.
Any indemnification under Sections 1 and 2 of this Article X (unless
ordered by a court or advanced pursuant to Section 5 of this Article X) shall be
made by the Corporation only as authorized in the specific case upon a
determination that indemnification of the director, officer, employee or agent
is proper in the circumstances. Such determination shall be made (a) by the
Board of Directors by a majority vote of a quorum consisting of directors who
were not parties to such action, suit or proceeding, or (b) if such a quorum is
not obtainable, or, even if obtainable a quorum of disinterested directors so
directs, by independent legal counsel in a written opinion, or (c) by the
stockholders.
5. Advances for Expenses.
Expenses incurred by a director, officer, employee, or agent of the
Corporation in defending a civil or criminal action, suit or proceeding shall be
paid by the Corporation as they are incurred and in advance of the final
disposition of such action, suit or proceeding upon receipt of an undertaking by
or on behalf of the director, officer, employee or agent to repay the amount if
it shall be ultimately determined by a court of competent jurisdiction that he
is not entitled to be indemnified by the Corporation as authorized in this
Article X.
6. Rights Not-Exclusive.
The indemnification and advancement of expenses authorized in or
ordered by a court pursuant to the other Sections of this Article X shall not be
deemed exclusive of any other rights to which those seeking indemnification or
advancement of expenses may be entitled under any law, bylaw, agreement, vote of
stockholders or disinterested directors or otherwise, for either an action in
his official capacity or an action in another capacity while holding such
office, except that indemnification, unless ordered by a court pursuant to
Section 2 of this Article X or for advancement of expenses made pursuant to
Section 5 of this Article X, may not be made to or on behalf of any director or
officer if a final adjudication establishes that his acts or omissions involved
intentional misconduct, fraud or a knowing violation of the law and was material
to the cause of action.
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<PAGE> 20
7. Insurance.
The Corporation shall have power to purchase and maintain insurance on
behalf of any person who is or was a director, officer, employee or agent of the
Corporation, or is or was serving at the request of the Corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise against any liability asserted against him
and liability and expenses incurred by him in any such capacity, or arising out
of his status as such, whether or not the Corporation would have the power to
indemnify him against such liability under the provisions of this Article X.
8. Definition of Corporation.
For the purposes of this Article X, references to "the Corporation"
include, in addition to the resulting corporation, all constituent corporations
(including any constituent of a constituent) absorbed in consolidation or merger
which, if its separate existence had continued, would have had power and
authority to indemnify its directors, officers, employees and agents so that any
person who is or was a director, officer, employee or agent of such constituent
corporation, or is or was serving at the request of such constituent corporation
as a director, officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise, shall stand in the same position under
the provisions of this Article X with respect to the resulting or surviving
corporation as he or she would have with respect to such constituent corporation
if its separate existence had continued.
9. Other Definitions.
For purposes of this Article X, references to "other enterprises" shall
include employee benefit plans; references to "fines" shall include any excise
taxes assessed on a person with respect to an employee benefit plan; and
references to "serving at the request of the Corporation" shall include any
service as a director, officer, employee or agent of the Corporation which
imposes duties on, or involves services by, such director, officer, employee, or
agent with respect to an employee benefit plan, its participants, or
beneficiaries; and a person who acted in good faith and in a manner he
reasonably believed to be in the interest of the participants and beneficiaries
of an employee benefit plan shall be deemed to have acted in a manner "not
opposed to the best interests of the Corporation" as referred to in this Article
X.
10. Continuation of Rights.
The indemnification and advancement of expenses provided by, or granted
pursuant to this Article X shall continue as to a person who has ceased to be a
director, officer, employee or agent and shall inure to the benefit of the
heirs, executors and administrators of such person. No amendment to or repeal of
this Article X shall apply to or have any effect on, the rights of any director,
officer, employee or agent under this Article X which rights come into existence
by virtue of acts or omissions of such director, officer, employee or agent
occurring prior to such amendment or repeal.
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<PAGE> 21
ARTICLE XI
AMENDMENTS
These Bylaws may be repealed, altered or amended by the affirmative
vote of the holders of a majority of the stock issued and outstanding and
entitled to vote at any meeting of stockholders or by resolution duly adopted by
the affirmative vote of not less than a majority of the Directors in office at
any annual or regular meeting of the Board of Directors or at any special
meeting of the Board of Directors if notice of the proposed repeal, alteration
or amendment be contained in the notice of such special meeting; provided,
however, that an affirmative vote of sixty-six and two-thirds percent (66 2/3%)
of the stock issued and outstanding and entitled to vote thereon is required to
repeal, alter or amend Section 14 of Article II or Article X.
I, THE UNDERSIGNED, being the Secretary of SKYMALL, INC., DO HEREBY
CERTIFY the foregoing to be the Bylaws of the Corporation, as adopted by the
Board of Directors on the 11th day of October, 1996.
/s/ David A. Wirthlin
------------------------
Secretary
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<PAGE> 1
EXHIBIT 4.2
FORM OF COMMON STOCK CERTIFICATE
Stock Certificate with a Certificate No., the number of shares and the SkyMall,
Inc. logo, with the following text:
"SkyMall, Inc., incorporated under the laws of Nevada, CUSIP No. ___________.
The Corporation is authorized to issue 50,000,000 shares of Common Stock, par
value $.001 each. This certifies that ________________ is the owner of ________
shares of fully paid and non-assessable Common Stock of SkyMall, Inc.,
transferable only on the books of the Corporation by the holder hereof in person
or by duly appointed attorney-in-fact upon surrender of this Certificate
properly endorsed. This Certificate is not valid until countersigned and
registered by the Transfer Agent and Registrar. This certificate and the shares
of Common Stock represented hereby are received and held subject to the laws of
the State of Nevada and to the Articles of Incorporation and the Bylaws of the
Corporation, all as from time to time amended and the owner of this Certificate
by accepting the same expressly asserts thereto. In witness whereof, the said
Corporation has caused this Certificate to be signed by its duly authorized
officers and its Corporate Seal to be hereunto affixed this _____ day of
_______, 19___."
Countersigned and Registered:
CONTINENTAL STOCK TRANSFER & TRUST COMPANY SKYMALL, INC.
_____________________________ _______________________________
Secretary President
Corporate Seal
Back of Certificate: various abbreviations and the language:
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:
<TABLE>
<S> <C>
TEN COM -- as tenants in common UNIF GIFT MIN ACT - _________________ Custodian ______________________
TEN ENT -- as tenants by the entireties (Cust) (Minor)
JT TEN -- as joint tenants with right of under Uniform Gifts to Minors
survivorship and not as tenants in Act______________________________________
common (State)
Additional abbreviations may also be used though not in the above list.
</TABLE>
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 OF ASSIGNEE
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- ------------------------------------------------------------------------Shares
of the 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.
<PAGE> 1
EXHIBIT 4.2
SKYMALL, INC.
AND
JOSEPHTHAL LYON & ROSS INCORPORATED
REPRESENTATIVE'S
WARRANT AGREEMENT
DATED AS OF ________, 1996
<PAGE> 2
REPRESENTATIVE'S WARRANT AGREEMENT dated as of _______, 1996
between SKYMALL, INC., a Nevada corporation (the "Company"), and JOSEPHTHAL LYON
& ROSS INCORPORATED (hereinafter referred to variously as the "Holder",
"Josephthal" or the "Representative").
W I T N E S S E T H:
WHEREAS, the Company proposes to issue to Josephthal or its
designees warrants ("Warrants") to purchase up to an aggregate 200,000 shares of
common stock of the Company ("Common Stock"); and
WHEREAS, Josephthal has agreed pursuant to the underwriting
agreement (the "Underwriting Agreement") dated as of the date hereof among
Josephthal, Cruttenden Ross Incorporated ("Cruttenden", collectively with
Josephthal, the "Representatives") as the Representatives of the Several
Underwriters named in Schedule A thereto, and the Company to act as a
Representative in connection with the Company's proposed public offering of up
to 2,000,000 shares of Common Stock at a public offering price of $____ per
share of Common Stock (the "Public Offering"); and
WHEREAS, the Warrants to be issued pursuant to this Agreement
will be issued on the Closing Date (as such term is defined in the Underwriting
Agreement) by the Company to Josephthal in consideration for, and as part of
Josephthal's compensation in connection with, Josephthal acting one of the
Representatives pursuant to the Underwriting Agreement;
NOW, THEREFORE, in consideration of the premises, the payment
by Josephthal to the Company of an aggregate two hundred dollars ($200.00), the
agreements herein set forth
<PAGE> 3
and other good and valuable consideration, hereby acknowledged, the parties
hereto agree as follows:
1. Grant. Josephthal is hereby granted the right to purchase,
at any time from _______, 1997 [one year from the effective date of the
registration statement], until 5:30 P.M., New York time, on ____________, 2001
[five years from the effective date of the registration statement], up to an
aggregate of 200,000 shares of Common Stock (the "Shares") at an initial
exercise price (subject to adjustment as provided in Section 8 hereof) of $____
per share of Common Stock [120% of the initial public offering price per share]
subject to the terms and conditions of this Agreement. Except as set forth
herein, the Shares issuable upon exercise of the Warrants are in all respects
identical to the shares of Common Stock being purchased by the Underwriters for
resale to the public pursuant to the terms and provisions of the Underwriting
Agreement.
2. Warrant Certificates. The warrant certificates (the
"Warrant Certificates") delivered and to be delivered pursuant to this Agreement
shall be in the form set forth in Exhibit A, attached hereto and made a part
hereof, with such appropriate insertions, omissions, substitutions, and other
variations as required or permitted by this Agreement.
3. Exercise of Warrant.
Section 3.1 Method of Exercise. The Warrants initially are
exercisable at an aggregate initial exercise price (subject to adjustment as
provided in Section 8 hereof) per share of Common Stock set forth in Section 6
hereof payable by certified or official bank check in New York Clearing House
funds, subject to adjustment as provided in Section 8 hereof. Upon surrender of
a Warrant Certificate with the annexed Form of Election to Purchase duly
executed, together with payment of the Exercise Price (as hereinafter defined)
for the shares of Common Stock purchased at the Company's principal offices in
Phoenix, Arizona (presently located at
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<PAGE> 4
1520 East Pima Street, Phoenix, Arizona 85034) the registered holder of a
Warrant Certificate ("Holder" or "Holder") shall be entitled to receive a
certificate or certificates for the shares of Common Stock so purchased. The
purchase rights represented by each Warrant Certificate are exercisable at the
option of the Holder thereof, in whole or in part (but not as to fractional
shares of the Common Stock underlying the Warrants). Warrants may be exercised
to purchase all or part of the shares of Common Stock represented thereby. In
the case of the purchase of less than all the shares of Common Stock purchasable
under any Warrant Certificate, the Company shall cancel said Warrant Certificate
upon the surrender thereof and shall execute and deliver a new Warrant
Certificate of like tenor for the balance of the shares of Common Stock
purchasable thereunder.
Section 3.2 Exercise by Surrender of Warrant. In addition to
the method of payment set forth in Section 3.1 and in lieu of any cash payment
required thereunder, the Holder(s) of the Warrants shall have the right at any
time and from time to time to exercise the Warrants in full or in part by
surrendering the Warrant Certificate in the manner specified in Section 3.1 in
exchange for the number of Shares equal to the product of (x) the number of
Shares as to which the Warrants are being exercised multiplied by (y) a
fraction, the numerator of which is the Market Price (as defined in Section 3.3
below) of the Shares less the Exercise Price and the denominator of which is
such Market Price. Solely for the purposes of this paragraph, Market Price shall
be calculated either (i) on the date which the form of election attached hereto
is deemed to have been sent to the Company pursuant to Section 13 hereof
("Notice Date") or (ii) as the average of the Market Prices for each of the five
trading days preceding the Notice Date, whichever of (i) or (ii) is greater.
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<PAGE> 5
Section 3.3 Definition of Market Price. As used herein, the
phrase "Market Price" at any date shall be deemed to be the last reported sale
price, or, in case no such reported sale takes place on such day, the average of
the last reported sale prices for the last three (3) trading days, in either
case as officially reported by the principal securities exchange on which the
Common Stock is listed or admitted to trading or by the Nasdaq National Market
("NNM"), or, if the Common Stock is not listed or admitted to trading on any
national securities exchanged or quoted by NNM, the average closing bid price as
furnished by the NASD through NNM or similar organization if NNM is no longer
reporting such information, or if the Common Stock is not quoted on NNM, as
determined in good faith by resolution of the Board of Directors of the Company,
based on the best information available to it.
4. Issuance of Certificates. Upon the exercise of the
Warrants, the issuance of certificates for shares of Common Stock and/or other
securities, properties or rights underlying such Warrants, shall be made
forthwith (and in any event within five (5) business days thereafter) without
charge to the Holder thereof including, without limitation, any tax which may be
payable in respect of the issuance thereof, and such certificates shall (subject
to the provisions of Sections 5 and 7 hereof) be issued in the name of, or in
such names as may be directed by, the Holder thereof; provided, however, that
the Company shall not be required to pay any tax which may be payable in respect
of any transfer involved in the issuance and delivery of any such certificates
in a name other than that of the Holder, and the Company shall not be required
to issue or deliver such certificates unless or until the person or persons
requesting the issuance thereof shall have paid to the Company the amount of
such tax or shall have established to the satisfaction of the Company that such
tax has been paid.
The Warrant Certificates and the certificates representing the
Shares underlying the Warrants (and/or other securities, property or rights
issuable upon the exercise of the
4
<PAGE> 6
Warrants) shall be executed on behalf of the Company by the manual or facsimile
signature of the then Chairman or Vice Chairman of the Board of Directors or
President or Vice President of the Company. Warrant Certificates shall be dated
the date of execution by the Company upon initial issuance, division, exchange,
substitution or transfer.
5. Restriction On Transfer of Warrants. The Holder of a
Warrant Certificate, by its acceptance thereof, covenants and agrees that the
Warrants are being acquired as an investment and not with a view to the
distribution thereof; that the Warrants may not be sold, transferred, assigned,
hypothecated or otherwise disposed of, in whole or in part, for a period of one
(1) year from the date hereof, except to officers of the Josephthal.
6. Exercise Price.
Section 6.1 Initial and Adjusted Exercise Price. Except as
otherwise provided in Section 8 hereof, the initial exercise price of each
Warrant shall be $____ [120% of the initial public offering price] per share of
Common Stock. The adjusted exercise price shall be the price which shall result
from time to time from any and all adjustments of the initial exercise price in
accordance with the provisions of Section 8 hereof.
Section 6.2 Exercise Price. The term "Exercise Price" herein
shall mean the initial exercise price or the adjusted exercise price, depending
upon the context.
7. Registration Rights.
Section 7.1 Registration Under the Securities Act of 1933. The
Warrants, the Shares, and any of the other securities issuable upon exercise of
the Warrants have been registered under the Securities Act of 1933, as amended
(the "Act"), pursuant to the Company's Registration Statement on Form S-1
(Registration No. 333-_____) (the "Registration Statement"). All of the
representations and warranties of the Company contained in the Underwriting
Agreement relating to the Registration Statement, the Preliminary Prospectus and
Prospectus (as such terms are
5
<PAGE> 7
defined in the Underwriting Agreement) and made as of the dates provided
therein, are hereby incorporated by reference. The Company agrees and covenants
promptly to file post-effective amendments to such Registration Statement as may
be necessary in order to maintain its effectiveness and otherwise to take such
action as may be necessary to maintain the effectiveness of the Registration
Statement as long as any Warrants are outstanding. In the event that, for any
reason, whatsoever, the Company shall fail to maintain the effectiveness of the
Registration Statement, upon exercise, in part or in whole, of the Warrants,
certificates representing the Shares underlying the Warrants, and any of the
other securities issuable upon exercise of the Warrants (collectively, the
"Warrant Securities") shall bear the following legend:
The securities represented by this certificate have not been
registered under the Securities Act of 1933, as amended
("Act"), and may not be offered or sold except pursuant to (i)
an effective registration statement under the Act, (ii) to the
extent applicable, Rule 144 under the Act (or any similar rule
under such Act relating to the disposition of securities), or
(iii) an opinion of counsel, if such opinion shall be
reasonably satisfactory to counsel to the issuer, that an
exemption from registration under such Act is available.
Section 7.2 Piggyback Registration. If, at any time commencing
after the date hereof and expiring seven (7) years from the effective date, the
Company proposes to register any of its securities under the Act (other than in
connection with a merger or pursuant to Form S-8) it will give written notice by
registered mail, at least thirty (30) days prior to the filing of each such
registration statement, to Josephthal and to all other Holder(s) of the Warrants
and/or the Warrant Securities of its intention to do so. If Josephthal or other
Holder(s) of the Warrants and/or Warrant Securities notify the Company within
twenty (20) business days after receipt of any such notice of its or their
desire to include any such securities in such proposed registration statement,
the Company shall afford Josephthal and such Holder(s) of the Warrants
6
<PAGE> 8
and/or Warrant Securities the opportunity to have any such Warrant Securities
registered under such registration statement (sometimes referred to herein as
the "Piggyback Registration").
Notwithstanding the provisions of this Section 7.2, the
Company shall have the right at any time after it shall have given written
notice pursuant to this Section 7.2 (irrespective of whether a written request
for inclusion of any such securities shall have been made) to elect not to file
any such proposed registration statement, or to withdraw the same after the
filing but prior to the effective date thereof.
Section 7.3 Demand Registration.
(a) At any time commencing after the date hereof and expiring
five (5) years from the effective date, the Holder of the Warrants and/or
Warrant Securities representing a "Majority" (as hereinafter defined) of such
securities (assuming the exercise of all of the Warrants) shall have the right
(which right is in addition to the registration rights under Section 7.2
hereof), exercisable by written notice to the Company, to have the Company
prepare and file with the Securities and Exchange Commission (the "Commission"),
on one occasion, a registration statement and such other documents, including a
prospectus, as may be necessary in the opinion of both counsel for the Company
and counsel for Josephthal and Holder, in order to comply with the provisions of
the Act, so as to permit a public offering and sale of their respective Warrant
Securities for nine (9) consecutive months by such Holder and any other Holder
of the Warrants and/or Warrant Securities who notify the Company within ten (10)
days after receiving notice from the Company of such request.
(b) The Company covenants and agrees to give written notice of
any registration request under this Section 7.3 by any Holder or Holder(s) to
all other registered Holder(s) of the Warrants and the Warrant Securities within
ten (10) days from the date of the receipt of any such registration request.
7
<PAGE> 9
(c) In addition to the registration rights under Section 7.2
and subsection (a) of this Section 7.3, at any time commencing after the date
hereof and expiring five (5) years from the effective date, any Holder of
Warrants and/or Warrant Securities shall have the right, exercisable by written
request to the Company, to have the Company prepare and file, on one occasion,
with the Commission a registration statement so as to permit a public offering
and sale for nine (9) consecutive months by any such Holder of its Warrant
Securities, provided, however, that the provisions of Section 7.4(b) hereof
shall not apply to any such registration request and registration and all costs
incident thereto shall be at the expense of the Holder or Holders making such
request.
(d) Notwithstanding anything to the contrary contained herein,
if the Company shall not have filed a registration statement for the Warrant
Securities within the time period specified in Section 7.4(a) hereof pursuant to
the written notice specified in Section 7.3(a) of a Majority of the Holders of
the Warrants and/or Warrant Securities, the Company shall have the option, upon
the written notice of election of a Majority of the Holders of the Warrants
and/or Warrant Securities, to repurchase (i) any and all Warrant Securities at
the higher of the Market Price per share of Common Stock on (x) the date of the
notice sent pursuant to Section 7.3(a) or (y) the expiration of the period
specified in Section 7.4(a) and (ii) any and all Warrants at such Market Price
less the Exercise Price of such Warrant. Such repurchase shall be in immediately
available funds and shall close within two (2) days after the later of (i) the
expiration of the period specified in Section 7.4(a) or (ii) the delivery of the
written notice of election specified in this Section 7.3(d).
Section 7.4 Covenants of the Company With Respect to
Registration. In connection with any registration under Section 7.2 or 7.3
hereof, the Company covenants and agrees as follows:
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<PAGE> 10
(a) The Company shall use its best efforts to file a
registration statement within thirty (30) days of receipt of any demand
therefor, shall use its best efforts to have any registration statements
declared effective at the earliest possible time, and shall furnish each Holder
desiring to sell Warrant Securities such number of prospectuses as shall
reasonably be requested.
(b) The Company shall pay all costs (excluding fees and
expenses of Holder(s)' counsel and any underwriting or selling commissions),
fees and expenses in connection with all registration statements filed pursuant
to Sections 7.2 and 7.3(a) hereof including, without limitation, the Company's
legal and accounting fees, printing expenses, blue sky fees and expenses. The
Holder(s) will pay all costs, fees and expenses in connection with any
registration statement filed pursuant to Section 7.3(c). If the Company shall
fail to comply with the provisions of Section 7.4(a), the Company shall, in
addition to any other equitable or other relief available to the Holder(s), be
liable for any or all incidental or special damages sustained by the Holder(s)
requesting registration of their Warrant Securities.
(c) The Company will take all necessary action which may be
required in qualifying or registering the Warrant Securities included in a
registration statement for offering and sale under the securities or blue sky
laws of such states as reasonably are requested by the Holder(s), provided that
the Company shall not be obligated to execute or file any general consent to
service of process or to qualify as a foreign corporation to do business under
the laws of any such jurisdiction.
(d) The Company shall indemnify the Holder(s) of the Warrant
Securities to be sold pursuant to any registration statement and each person, if
any, who controls such Holder within the meaning of Section 15 of the Act or
Section 20(a) of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), against all loss, claim, damage, expense or
9
<PAGE> 11
liability (including all expenses reasonably incurred in investigating,
preparing or defending against any claim whatsoever) to which any of them may
become subject under the Act, the Exchange Act or otherwise, arising from such
registration statement but only to the same extent and with the same effect as
the provisions pursuant to which the Company has agreed to indemnify each of the
Underwriters contained in Section 8 of the Underwriting Agreement.
(e) The Holder(s) of the Warrant Securities to be sold
pursuant to a registration statement, and their successors and assigns, shall
severally, and not jointly, indemnify the Company, its officers and directors
and each person, if any, who controls the Company within the meaning of Section
15 of the Act or Section 20(a) of the Exchange Act, against all loss, claim,
damage or expense or liability (including all expenses reasonably incurred in
investigating, preparing or defending against any claim whatsoever) to which
they may become subject under the Act, the Exchange Act or otherwise, arising
from information furnished by or on behalf of such Holder, or their successors
or assigns, for specific inclusion in such registration statement to the same
extent and with the same effect as the provisions contained in Section 8 of the
Underwriting Agreement pursuant to which the Underwriters have agreed to
indemnify the Company.
(f) Nothing contained in this Agreement shall be construed as
requiring the Holder(s) to exercise their Warrants prior to the initial filing
of any registration statement or the effectiveness thereof.
(g) The Company shall not permit the inclusion of any
securities other than the Warrant Securities to be included in any registration
statement filed pursuant to Section 7.3 hereof, without the prior written
consent of the Holder(s) of the Warrants and Warrant Securities representing a
Majority of such securities.
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<PAGE> 12
(h) The Company shall furnish to each Holder participating in
the offering and to each underwriter, if any, a signed counterpart, addressed to
such Holder or underwriter, of (i) an opinion of counsel to the Company, dated
the effective date of such registration statement (and, if such registration
includes an underwritten public offering, an opinion dated the date of the
closing under the underwriting agreement), and (ii) a "cold comfort" letter
dated the effective date of such registration statement (and, if such
registration includes an underwritten public offering, a letter dated the date
of the closing under the underwriting agreement) signed by the independent
public accountants who have issued a report on the Company's financial
statements included in such registration statement, in each case covering
substantially the same matters with respect to such registration statement (and
the prospectus included therein) and, in the case of such accountants' letter,
with respect to events subsequent to the date of such financial statements, as
are customarily covered in opinions of issuer's counsel and in accountants'
letters delivered to underwriters in underwritten public offerings of
securities.
(i) The Company shall as soon as practicable after the
effective date of the registration statement, and in any event within 15 months
thereafter, make "generally available to its security holders" (within the
meaning of Rule 158 under the Act) an earnings statement (which need not be
audited) complying with Section 11(a) of the Act and covering a period of at
least 12 consecutive months beginning after the effective date of the
registration statement.
(j) The Company shall deliver promptly to each Holder
participating in the offering requesting the correspondence and memoranda
described below and to the managing underwriters, copies of all correspondence
between the Commission and the Company, its counsel or auditors and all
memoranda relating to discussions with the Commission or its staff with respect
to the registration statement and permit each Holder and underwriters to do such
11
<PAGE> 13
investigation, upon reasonable advance notice, with respect to information
contained in or omitted from the registration statement as it deems reasonably
necessary to comply with applicable securities laws or rules of the National
Association of Securities Dealers, Inc. ("NASD"). Such investigation shall
include access to books, records and properties and opportunities to discuss the
business of the Company with its officers and independent auditors, all to such
reasonable extent and at such reasonable times and as often as any such Holder
or underwriter shall reasonably request.
(k) The Company shall enter into an underwriting agreement
with the managing underwriters selected for such underwriting by Holder(s)
holding a Majority of the Warrant Securities requested to be included in such
underwriting, which may be Josephthal. Such agreement shall be satisfactory in
form and substance to the Company, each Holder and such managing underwriters,
and shall contain such representations, warranties and covenants by the Company
and such other terms as are customarily contained in agreements of that type
used by the managing underwriter. The Holder(s) shall be parties to any
underwriting agreement relating to an underwritten sale of their Warrant
Securities and may, at their option, require that any or all the
representations, warranties and covenants of the Company to or for the benefit
of such underwriters shall also be made to and for the benefit of such
Holder(s). Such Holder(s) shall not be required to make any representations or
warranties to or agreements with the Company or the underwriters except as they
may relate to such Holder(s) and their intended methods of distribution.
(l) In addition to the Warrant Securities, upon the written
request therefor by any Holder(s), the Company shall include in the registration
statement any other securities of the Company held by such Holder(s) as of the
date of filing of such registration statement,
12
<PAGE> 14
including without limitation restricted shares of Common Stock, options,
warrants or any other securities convertible into shares of Common Stock.
(m) For purposes of this Agreement, the term "Majority" in
reference to the Holder(s) of Warrants or Warrant Securities, shall mean in
excess of fifty percent (50%) of the then outstanding Warrants or Warrant
Securities that (i) are not held by the Company, an affiliate, officer,
creditor, employee or agent thereof or any of their respective affiliates,
members of their family, persons acting as nominees or in conjunction therewith
and (ii) have not been resold to the public pursuant to a registration statement
filed with the Commission under the Act.
8. Adjustments to Exercise Price and Number of Securities.
Section 8.1 Subdivision and Combination. In case the Company
shall at any time subdivide or combine the outstanding shares of Common Stock,
the Exercise Price shall forthwith be proportionately decreased in the case of
subdivision or increased in the case of combination.
Section 8.2 Stock Dividends and Distributions. In case the
Company shall pay a dividend in, or make a distribution of, shares of Common
Stock or of the Company's capital stock convertible into Common Stock, the
Exercise Price shall forthwith be proportionately decreased. An adjustment made
pursuant to this Section 8.2 shall be made as of the record date for the subject
stock dividend or distribution.
Section 8.3 Adjustment in Number of Securities. Upon each
adjustment of the Exercise Price pursuant to the provisions of this Section 8,
the number of Warrant Securities issuable upon the exercise at the adjusted
exercise price of each Warrant shall be adjusted to the nearest full amount by
multiplying a number equal to the Exercise Price in effect immediately prior to
such adjustment by the number of Warrant Securities issuable upon
13
<PAGE> 15
exercise of the Warrants immediately prior to such adjustment and dividing the
product so obtained by the adjusted Exercise Price.
Section 8.4 Definition of Common Stock. For the purpose of
this Agreement, the term "Common Stock" shall mean (i) the class of stock
designated as Common Stock in the Articles of Incorporation of the Company as
may be amended as of the date hereof, or (ii) any other class of stock resulting
from successive changes or reclassifications of such Common Stock consisting
solely of changes in par value, or from par value to no par value, or from no
par value to par value.
Section 8.5 Merger or Consolidation. In case of any
consolidation of the Company with, or merger of the Company with, or merger of
the Company into, another corporation (other than a consolidation or merger
which does not result in any reclassification or change of the outstanding
Common Stock), the corporation formed by such consolidation or merger shall
execute and deliver to the Holder a supplemental warrant agreement providing
that the holder of each Warrant then outstanding or to be outstanding shall have
the right thereafter (until the expiration of such Warrant) to receive, upon
exercise of such warrant, the kind and amount of shares of stock and other
securities and property receivable upon such consolidation or merger, by a
holder of the number of shares of Common Stock of the Company for which such
warrant might have been exercised immediately prior to such consolidation,
merger, sale or transfer. Such supplemental warrant agreement shall provide for
adjustments which shall be identical to the adjustments provided in Section 8.
The above provision of this subsection shall similarly apply to successive
consolidations or mergers.
Section 8.6 No Adjustment of Exercise Price in Certain Cases.
No adjustment of the Exercise Price shall be made:
14
<PAGE> 16
(a) Upon the issuance or sale of the Warrants or the
shares of Common Stock issuable upon the exercise of the
Warrants;
(b) If the amount of said adjustment shall be less
than two cents (2(cent)) per Warrant Security, provided,
however, that in such case any adjustment that would otherwise
be required then to be made shall be carried forward and shall
be made at the time of and together with the next subsequent
adjustment which, together with any adjustment so carried
forward, shall amount to at least two cents (2(cent)) per
Warrant Security.
9. Exchange and Replacement of Warrant Certificates. Each
Warrant Certificate is exchangeable without expense, upon the surrender thereof
by the registered Holder at the principal executive office of the Company, for a
new Warrant Certificate of like tenor and date representing in the aggregate the
right to purchase the same number of Warrant Securities in such denominations as
shall be designated by the Holder thereof at the time of such surrender.
Upon receipt by the Company of evidence reasonably
satisfactory to it of the loss, theft, destruction or mutilation of any Warrant
Certificate, and, in case of loss, theft or destruction, of indemnity or
security reasonably satisfactory to it, and reimbursement to the Company of all
reasonable expenses incidental thereto, and upon surrender and cancellation of
the Warrants, if mutilated, the Company will make and deliver a new Warrant
Certificate of like tenor, in lieu thereof.
10. Elimination of Fractional Interests. The Company shall not
be required to issue certificates representing fractions of shares of Common
Stock upon the exercise of the Warrants, nor shall it be required to issue scrip
or pay cash in lieu of fractional interests, it being the intent of the parties
that all fractional interests shall be eliminated by rounding any
15
<PAGE> 17
fraction up to the nearest whole number of shares of Common Stock or other
securities, properties or rights.
11. Reservation and Listing of Securities. The Company shall
at all times reserve and keep available out of its authorized shares of Common
Stock, solely for the purpose of issuance upon the exercise of the Warrants,
such number of shares of Common Stock or other securities, properties or rights
as shall be issuable upon the exercise thereof. The Company covenants and agrees
that, upon exercise of the Warrants and payment of the Exercise Price therefor,
all shares of Common Stock and other securities issuable upon such exercise
shall be duly and validly issued, fully paid, non-assessable and not subject to
the preemptive rights of any stockholder. As long as the Warrants shall be
outstanding, the Company shall use its best efforts to cause all shares of
Common Stock issuable upon the exercise of the Warrants to be listed (subject to
official notice of issuance) on all securities exchanges on which the Common
Stock issued to the public in connection herewith may then be listed and/or
quoted.
12. Notices to Warrant Holder. Nothing contained in this
Agreement shall be construed as conferring upon the Holder the right to vote or
to consent or to receive notice as a stockholder in respect of any meetings of
stockholders for the election of directors or any other matter, or as having any
rights whatsoever as a stockholder of the Company. If, however, at any time
prior to the expiration of the Warrants and their exercise, any of the following
events shall occur:
(a) the Company shall take a record of the holders of
its shares of Common Stock for the purpose of entitling them
to receive a dividend or distribution payable otherwise than
in cash, or a cash dividend or distribution payable otherwise
than out of current or retained earnings, as indicated by the
16
<PAGE> 18
accounting treatment of such dividend or distribution on the
books of the Company; or
(b) the Company shall offer to all the holders of its
Common Stock any additional shares of capital stock of the
Company or securities convertible into or exchangeable for
shares of capital stock of the Company, or any option, right
or warrant to subscribe therefor; or
(c) a dissolution, liquidation or winding up of the
Company (other than in connection with a consolidation or
merger) or a sale of all or substantially all of its property,
assets and business as an entirety shall be proposed;
then, in any one or more of said events, the Company shall give written notice
of such event at least fifteen (15) days prior to the date fixed as a record
date or the date of closing the transfer books for the determination of the
stockholders entitled to such dividend, distribution, convertible or
exchangeable securities or subscription rights, or entitled to vote on such
proposed dissolution, liquidation, winding up or sale. Such notice shall specify
such record date or the date of closing the transfer books, as the case may be.
Failure to give such notice or any defect therein shall not affect the validity
of any action taken in connection with the declaration or payment of any such
dividend, or the issuance of any convertible or exchangeable securities, or
subscription rights, options or warrants, or any proposed dissolution,
liquidation, winding up or sale.
13. Notices.
All notices, requests, consents and other communications
hereunder shall be in writing and shall be deemed to have been duly made and
sent when delivered, or mailed by registered or certified mail, return receipt
requested:
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<PAGE> 19
(a) If to a registered Holder of the Warrants, to the
address of such Holder as shown on the books of the Company;
or
(b) If to the Company, to the address set forth in
Section 3 hereof or to such other address as the Company may
designate by notice to the Holder.
14. Supplements and Amendments. The Company and Josephthal may
from time to time supplement or amend this Agreement without the approval of any
holder of Warrant Certificates (other than Josephthal) in order to cure any
ambiguity, to correct or supplement any provision contained herein which may be
defective or inconsistent with any provisions herein, or to make any other
provisions in regard to matters or questions arising hereunder which the Company
and Josephthal may deem necessary or desirable and which the Company and
Josephthal deem shall not adversely affect the interests of the Holder(s) of
Warrant Certificates.
15. Successors. All the covenants and provisions of this
Agreement shall be binding upon and inure to the benefit of the Company, the
Holder(s) and their respective successors and assigns hereunder.
16. Termination. This Agreement shall terminate at the close
of business on _______, 2003. Notwithstanding the foregoing, the indemnification
provisions of Section 7 shall survive such termination until the close of
business on _______, 2009.
17. Governing Law; Submission to Jurisdiction. This Agreement
and each Warrant Certificate issued hereunder shall be deemed to be a contract
made under the laws of the State of New York and for all purposes shall be
construed in accordance with the laws of said State without giving effect to the
rules of said State governing the conflicts of laws.
The Company, Josephthal and the Holder hereby agree that any
action, proceeding or claim against it arising out of, or relating in any way
to, this Agreement shall
18
<PAGE> 20
be brought and enforced in the courts of the State of New York or of the United
States of America for the Southern District of New York, and irrevocably submits
to such jurisdiction, which jurisdiction shall be exclusive. The Company,
Josephthal and the Holder hereby irrevocably waive any objection to such
exclusive jurisdiction or inconvenient forum. Any such process or summons to be
served upon any of the Company, Josephthal and the Holder(s) (at the option of
the party bringing such action, proceeding or claim) may be served by
transmitting a copy thereof, by registered or certified mail, return receipt
requested, postage prepaid, addressed to it at the address set forth in Section
13 hereof. Such mailing shall be deemed personal service and shall be legal and
binding upon the party so served in any action, proceeding or claim. The
Company, Josephthal and the Holder(s) agree that the prevailing party(ies) in
any such action or proceeding shall be entitled to recover from the other
party(ies) all of its/their reasonable legal costs and expenses relating to such
action or proceeding and/or incurred in connection with the preparation
therefor.
18. Entire Agreement; Modification. This Agreement (including
the Underwriting Agreement to the extent portions thereof are referred to
herein) contains the entire understanding between the parties hereto with
respect to the subject matter hereof and may not be modified or amended except
by a writing duly signed by the party against whom enforcement of the
modification or amendment is sought.
19. Severability. If any provision of this Agreement shall be
held to be invalid or unenforceable, such invalidity or unenforceability shall
not affect any other provision of this Agreement.
20. Captions. The caption headings of the Sections of this
Agreement are for convenience of reference only and are not intended, nor should
they be construed as, a part of this Agreement and shall be given no substantive
effect.
19
<PAGE> 21
21. Benefits of this Agreement. Nothing in this Agreement
shall be construed to give to any person or corporation other than the Company
and Josephthal and any other registered Holder(s) of the Warrant Certificates or
Warrant Securities any legal or equitable right, remedy or claim under this
Agreement; and this Agreement shall be for the sole benefit of the Company and
Josephthal and any other registered Holder(s) of Warrant Certificates or Warrant
Securities.
22. Counterparts. This Agreement may be executed in any number
of counterparts and each of such counterparts shall for all purposes be deemed
to be an original, and such counterparts shall together constitute but one and
the same instrument.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed, as of the day and year first above written.
SKYMALL, INC.
By:_____________________________________
Name:
Title:
Attest:
_________________________
Secretary
JOSEPHTHAL LYON & ROSS INCORPORATED
By:_____________________________________
Name:
Title:
20
<PAGE> 22
EXHIBIT A
[FORM OF WARRANT CERTIFICATE]
THE WARRANTS REPRESENTED BY THIS CERTIFICATE AND THE OTHER SECURITIES ISSUABLE
UPON EXERCISE THEREOF MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO (i) AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933, AS AMENDED
(THE "ACT"), (ii) TO THE EXTENT APPLICABLE, RULE 144 UNDER THE ACT (OR ANY
SIMILAR RULE UNDER THE ACT RELATING TO THE DISPOSITION OF SECURITIES), OR (iii)
AN OPINION OF COUNSEL, IF SUCH OPINION SHALL BE REASONABLY SATISFACTORY TO
COUNSEL FOR THE ISSUER, THAT AN EXEMPTION FROM REGISTRATION UNDER THE ACT IS
AVAILABLE.
THE TRANSFER OR EXCHANGE OF THE WARRANTS REPRESENTED BY THIS CERTIFICATE IS
RESTRICTED IN ACCORDANCE WITH THE WARRANT AGREEMENT REFERRED TO HEREIN.
EXERCISABLE ON OR BEFORE
5:30 P.M., NEW YORK TIME, __________, 2001
No. W- Warrants to Purchase
____ Shares of Common Stock
WARRANT CERTIFICATE
This Warrant Certificate certifies that ______________________,
or registered assigns, is the registered holder of ________ Warrants to purchase
initially, at any time from __________, 1997 [one year from the effective date
of the Registration Statement] until 5:30 p.m. New York time on ___________,
2001 [five years from the effective date of the Registration Statement]
("Expiration Date"), up to __________ fully-paid and non-assessable shares of
common stock, ("Common Stock") of SKYMALL, INC., a Nevada corporation (the
"Company"), (one share of Common Stock referred to individually as a "Security"
and collectively as the "Securities") at the initial exercise price, subject to
adjustment in certain events (the "Exercise Price"), of $______ [120% of the
initial public offering price] per share of Common Stock upon surrender of this
Warrant Certificate and payment of the Exercise Price at an office or agency of
the Company, but subject to the conditions set forth herein and in the warrant
agreement dated as of _______, 1996 between the Company, and JOSEPHTHAL LYON &
ROSS INCORPORATED (the "Warrant Agreement"). Payment of the Exercise Price shall
be made by certified or official bank check in New York Clearing House funds
payable to the order of the Company.
A-1
<PAGE> 23
No Warrant may be exercised after 5:30 p.m., New York time, on
the Expiration Date, at which time all Warrants evidenced hereby, unless
exercised prior thereto, hereby shall thereafter be void.
The Warrants evidenced by this Warrant Certificate are part of a
duly authorized issue of Warrants issued pursuant to the Warrant Agreement,
which Warrant Agreement is hereby incorporated by reference in and made a part
of this instrument and is hereby referred to for a description of the rights,
limitation of rights, obligations, duties and immunities thereunder of the
Company and the holder(s) (the words "holder" or "holder(s)" meaning the
registered holder or registered holder(s)) of the Warrants.
The Warrant Agreement provides that upon the occurrence of
certain events the Exercise Price and the type and/or number of the Company's
securities issuable thereupon may, subject to certain conditions, be adjusted.
In such event, the Company will, at the request of the holder, issue a new
Warrant Certificate evidencing the adjustment in the Exercise Price and the
number and/or type of securities issuable upon the exercise of the Warrants;
provided, however, that the failure of the Company to issue such new Warrant
Certificates shall not in any way change, alter, or otherwise impair, the rights
of the holder as set forth in the Warrant Agreement.
Upon due presentment for registration of transfer of this
Warrant Certificate at an office or agency of the Company, a new Warrant
Certificate or Warrant Certificates of like tenor and evidencing in the
aggregate a like number of Warrants shall be issued to the transferee(s) in
exchange for this Warrant Certificate, subject to the limitations provided
herein and in the Warrant Agreement, without any charge except for any tax or
other governmental charge imposed in connection with such transfer.
Upon the exercise of less than all of the Warrants evidenced by
this Certificate, the Company shall forthwith issue to the holder hereof a new
Warrant Certificate representing such number of unexercised Warrants.
The Company may deem and treat the registered holder(s) hereof
as the absolute owner(s) of this Warrant Certificate (notwithstanding any
notation of ownership or other writing hereon made by anyone), for the purpose
of any exercise hereof, and of any distribution to the holder(s) hereof, and for
all other purposes, and the Company shall not be affected by any notice to the
contrary.
All terms used in this Warrant Certificate which are defined in
the Warrant Agreement shall have the meanings assigned to them in the Warrant
Agreement.
A-2
<PAGE> 24
IN WITNESS WHEREOF, the Company has caused this Warrant
Certificate to be duly executed under its corporate seal.
Dated as of ___________, 1996
SKYMALL, INC.
[SEAL] By:_____________________________________
Name:
Title:
Attest:
______________________________
Secretary
A-3
<PAGE> 25
[FORM OF ELECTION TO PURCHASE PURSUANT TO SECTION 3.1]
The undersigned hereby irrevocably elects to exercise the right,
represented by this Warrant Certificate, to purchase:
/ / ____________________ shares of Common Stock;
and herewith tenders in payment for such securities a certified or official bank
check payable in New York Clearing House Funds to the order of SkyMall, Inc. in
the amount of $____, all in accordance with the terms of Section 3.1 of the
Representative's Warrant Agreement dated as of _________, 1996 between SkyMall,
Inc. and Josephthal Lyon & Ross Incorporated. The undersigned requests that a
certificate for such securities be registered in the name of ____________ whose
address is ____________________ and that such Certificate be delivered to
________________ whose address is _______________.
Dated:
Signature ______________________________
(Signature must conform in all respects
to name of holder as specified on the
face of the Warrant Certificate.)
________________________________________
(Insert Social Security or Other
Identifying Number of Holder)
A-4
<PAGE> 26
[FORM OF ASSIGNMENT]
(To be executed by the registered holder if such holder
desires to transfer the Warrant Certificate.)
FOR VALUE RECEIVED ____________________________________ hereby sells,
assigns and transfers unto
________________________________________________________________________________
(Please print name and address of transferee)
this Warrant Certificate, together with all right, title and interest therein,
and does hereby irrevocably constitute and appoint ____________________
Attorney, to transfer the within Warrant Certificate on the books of the
within-named Company, with full power of substitution.
Dated:________________________ Signature:______________________________
(Signature must conform in all respects
to name of holder as specified on the
face of the Warrant Certificate.)
________________________________________
(Insert Social Security or Other
Identifying Number of Assignee)
A-5
<PAGE> 1
EXHIBIT 5
SQUIRE, SANDERS & DEMPSEY
Two Renaissance Square
40 North Central Avenue, Suite 2700
Phoenix, AZ 85004
November 7, 1996
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
RE: SKYMALL, INC.
Ladies and Gentlemen:
We have acted as counsel to SkyMall, Inc., a Nevada corporation (the
"Company"), in connection with its Registration Statement on Form S-1 (the
"Registration Statement") filed under the Securities Act of 1933 relating to the
registration of 2,000,000 shares of its Common Stock, $.001 par value (the
"Shares") issuable in connection with the Company's initial public offering.
In that connection, we have examined such documents, corporate records
and other instruments as we have deemed necessary or appropriate for purposes of
this opinion, including the Articles of Incorporation, as amended, and the
Bylaws of the Company.
Based upon the foregoing, we are of the opinion that:
1. The Company has been duly organized and is validly existing as a
corporation under the laws of the State of Nevada.
2. The Shares, when issued, will be validly issued, fully paid and
nonassessable.
We hereby consent to the use of this opinion as an exhibit to the
Registration Statement.
Very truly yours,
SQUIRE, SANDERS & DEMPSEY L.L.P.
<PAGE> 1
EXHIBIT 10.2a
SCHEDULE OF AIRLINE CUSTOMER SERVICES AGREEMENTS
MATERIALLY DIFFERENT TERMS
* Confidential portion has been omitted and filed separately with
the Commission.
The following are material terms of certain airline customer services
agreements, a form of which may be found in Exhibit 10.2.
A. Airline Customer Services Agreement with Delta Air Lines, Inc.
dated as of July 18, 1995.
Section 4.1: The Initial Term of the Agreement from January 1,
1995, until the later of: January 31, 1996; or the date on which
the third edition of the Catalog has been continually distributed
aboard the Delta Fleet for three consecutive months.
Section 5.1: SkyMall shall produce three or more editions of
the Catalog each year, each between 24 and 150 pages but not weighing
more than 12 ounces.
Section 5.1.2: In each edition of the Catalog, (a) up to four
pages shall be devoted to Delta's Trademarked Merchandise and Delta's
Services and (b) up to four pages may be devoted to Delta's airline
route map (collectively, the "Delta Pages"). SkyMall shall provide
the Delta Pages at cost to Delta pursuant to the Delta Pages
Reimbursement Formula set forth in Exhibit A.
Section 5.2.1: SkyMall shall deliver the Catalogs to Delta's
facilities at up to three Delta hub locations (the "Delta Hubs").
Section 6.1.5: Subject to proper identification and to
participation by SkyMall vendors, SkyMall will allow Delta employees a
* % discount on merchandise and services purchased for personal use.
Section 6.3: SkyMall will provide a liaison to Delta to
provide direct assistance, orientation, and problem solving relating
to operation of the SkyMall Program with Delta (the "SkyMall
Liaison").
Section 6.7.1: SkyMall may include in its shipment, at no cost
to Delta, Delta promotional inserts weighing less than two ounces.
Section 6.7.2: SkyMall may add to its standard order
processing scripts unique Delta scripts of up to 15 seconds for any
compatible promotion Delta chooses.
<PAGE> 2
* Confidential portion has been omitted and filed separately with
the Commission.
Section 8.1: SkyMall will pay a monthly sales commission
(the "Sales Commission") to Delta equal to the greater of (a) $ * or
(b)(1) * % of Net Sales (as defined in Exhibit B) plus (2) * % of Net
Sales to Delta employees.
Section 8.2: SkyMall agrees to pay Delta interest at a rate
of 12 percent per annum (1 percent per month) on all payments not paid
within 30 days after their due date.
Section 9: On each anniversary of this Agreement the
Parties will review and adjust for the new year, if necessary, any
cost or expense formulas in this Agreement including, without
limitation, the Delta Pages Reimbursement Formula and the calculation
of Net Sales, to cover any increase or decrease in actual costs or
expenses of more than 5%.
Section 18.15: This Agreement is executed on July 18, 1995 to
be effective retroactive to January 1, 1995.
Exhibit A: Delta's reimbursement to SkyMall = SkyMall's CPPPC
[cost per page per catalog] X Number of Delta Pages X Number of
Catalogs printed
B. Airline Customer Services Agreement with USAIR Group, Inc. dated as
of May 1, 1995.
Section 4.1: The Initial Term from May 1, 1995, through
April 30, 1996.
Section 5.1: SkyMall will produce, at its expense, three or
more editions of the Catalog each year, each between 24 and 150 pages
but not weighing more than 12 ounces.
Section 5.1(b): If Airline requests, up to 4 pages in each
Catalog (the "Airline Pages") may be devoted to Airlines, with 2 pages
devoted to Airline's logo and general service information and 2 pages
devoted to Airline's Trademarked Merchandise or Airline's Services.
Section 5.2(a): SkyMall will deliver the Catalogs to Airline's
facilities at Airline's four hub locations (the "Airline Hubs").
Section 6.1(f): Subject to proper identification, SkyMall will
allow Airline employees a * % discount on merchandise and services to
the extent permitted by SkyMall's vendors.
2
<PAGE> 3
* Confidential portion has been omitted and filed separately with
the Commission.
Section 8.1: Effective May 1, 1995, SkyMall will pay
annually a $ * cabin service fee and a $ * fuel burn fee for a total
of $ * per year. This will be paid in monthly increments of $ *
effective May 1995 Sales Commission payments. Effective September 1,
1995, SkyMall will also pay Airline * % of Net Sales commencing with
the September 1995 Sales Commissions payments.
Section 9: On each anniversary of this Agreement the
Parties will review and adjust for the new year, if necessary, any
cost or expense formulas in this Agreement, to cover any increase or
decrease in actual costs or expenses of more than 5%.
Section 18.15: This Agreement is executed on August 8, 1995 to
be effective retroactive to May 1, 1995.
AMENDMENT dated August 30, 1996:
The new terms of Agreement will commence once SkyMall has made
payment in full of all past due commission payments of approximately
$300,000 (amount to be calculated exactly prior to payment) to USAir
prior to boarding the Holiday catalog on or before Nov. 1, 1996.
Agreement shall run on an issue by issue basis for one year
subject to SkyMall performance to USAir standards and timely payment
of scheduled commission payments.
Effective with the term of this Agreement, SkyMall agrees to
make bi-weekly commission payments to USAir.
SkyMall agrees that if a commission payment is missed, catalogs
will be pulled from all USAir aircraft and the Agreement shall be
terminated immediately.
SkyMall agrees to print the 1996 Holiday issue of the USAir
catalog with a new cover per instructions from USAir Advertising.
3
<PAGE> 1
* Confidential portion has been omitted and
filed separately with the Commission.
EXHIBIT 10.2(b)
[LETTERHEAD OF CONTINENTAL AIRLINES, INC.]
February 5, 1995
Mr. Robert M. Worsley
President and CEO
SkyMall In-Flight Shopping Service
1520 East Pima Street
Phoenix, AZ 85034
Re: AMENDMENT TO THE JANUARY 1, 1992 AIRLINE CUSTOMER SERVICES
AGREEMENT BETWEEN CONTINENTAL AIRLINES AND SKYMALL, INC.
Dear Bob:
This letter, when accepted on behalf of Continental Airlines,
Inc. ("Continental") and SkyMall, Inc. ("SkyMall"), will constitute an amendment
to the Airline Customer Services Agreement dated January 1, 1992 between
Continental and SkyMall (the "Agreement"). Whereas Continental has previously
delivered to SkyMall a letter terminating the Agreement and Continental has
agreed to revoke the letter terminating the Agreement if SkyMall agrees to the
amendment to the Agreement as set forth herein. The amendment is set forth as
follows:
Agreement 7.1 Minimum Fee Payment is amended to increase the
monthly Minimum Fee Payment to $*, thereby increasing the annual Minimum Fee
Payment to $*. SkyMall agrees that payment of Continental's Minimum Fee Payment
will be retroactive to October 1, 1994.
Agreement 4.5 Termination of the Agreement is amended to allow
Continental to terminate the Agreement at any time for any reason upon not less
than thirty (30) days prior written notice to SkyMall.
The terms of these amendments shall be effective as of October
1, 1994.
Except as specifically set forth herein, the terms and
conditions set forth in the Agreement shall remain in full force and effect.
Please indicate your acceptance of this amendment by signing
in the space provided below and returning one fully executed copy of this letter
to my attention.
Sincerely,
/s/ B. S. Reitz
- ----------------------------
B. S. Reitz /s/ Robert M. Worsley
----------------------------------
Vice President SkyMall, Inc.
Marketing and Sales 3-1-95
----------------------------------
Date
<PAGE> 2
AIRLINE CUSTOMER SERVICES AGREEMENT
BETWEEN
CONTINENTAL AIRLINES
2929 ALLEN PARKWAY
HOUSTON, TEXAS 77019
AND
SKYMALL, INC.
1520 EAST PIMA STREET
PHOENIX, ARIZONA 85034
DATED
JANUARY 1, 1992
<PAGE> 3
AIRLINE CUSTOMER SERVICES AGREEMENT
CONTINENTAL AIRLINES
TABLE OF CONTENTS
<TABLE>
<S> <C>
RECITALS............................................................................................... 1
AGREEMENTS............................................................................................. 1
1.0 Continental................................................................................... 1
2.0 SkyMall....................................................................................... 1
2.1 SkyMall(R)Services Catalog........................................................... 2
2.2 SkyMall(R)Concierge Service.......................................................... 2
2.3 SkyMall(R)Guarantees................................................................. 2
3.0 Continental's Basic Agreement With SkyMall.................................................... 2
4.0 Term of Agreement............................................................................. 3
4.1 Term of Agreement.................................................................... 3
4.2 Initial Term......................................................................... 3
4.3 New SkyMall Distribution Center Renewal Term......................................... 3
4.5 Termination of the Agreement......................................................... 3
5.0 SkyMall(R)Program and SkyMall(R)Services Catalog.............................................. 3
5.1 SkyMall(R)Program.................................................................... 3
5.2 SkyMall(R)Services Catalog Merchandise, Services, Design and Production.............. 3
5.2.1 Continental Approval of SkyMall(R)Services Catalog.......................... 4
5.2.2 Continental Pages........................................................... 5
5.2.3 Suppliers Including GTE Airfone(R).......................................... 5
5.2.4 Continental Approval of Advertising and Promotional Material................ 5
5.2.5 Continental Employee Discounts.............................................. 5
5.2.6 Rights to the Catalog Name, Services and Purchase Information............... 5
5.2.7 Minimum Catalog Production Formula.......................................... 6
5.3 SkyMall Shipment and Continental Distribution of Catalogs............................ 6
5.4 Continental Promotion of Catalog Services............................................ 7
5.5 Continental Aircraft Seat Phones..................................................... 7
6.0 SkyMall(R)Customer Ordering and Services...................................................... 7
6.1 SkyMall(R)Order Processing and Deliver............................................... 7
6.1.1 SkyMall(R)Order Processing.................................................. 7
6.1.2 SkyMall(R)Product Services.................................................. 7
6.1.3 SkyMall(R)National Merchandise Deliveries................................... 8
6.1.4 SkyMall(R)International Orders and Deliveries............................... 8
6.1.5 Credit Card Companies....................................................... 8
6.1.6 Payment for Merchandise and Services........................................ 8
6.1.7 SkyMall Employees........................................................... 8
6.2 Resolution of Customer Problems...................................................... 9
</TABLE>
<PAGE> 4
<TABLE>
<S> <C>
6.3 SkyMall Support of Continental Personnel............................................. 9
6.3.1 On-Going Support............................................................ 9
6.4 Complimentary Air Travel............................................................. 9
6.5 Optional Other Services.............................................................. 9
6.5.1 Frequent Flyer Mileage Credit Service....................................... 9
6.5.2 Counter-to-Counter Deliver Service.......................................... 10
6.5.3 On-Board Sales and Deliveries Service.......................................... 10
6.6 Optional SkyMall Independent Mailing Services........................................ 10
6.6.1 Continental Frequent Flyer Customers........................................ 10
6.6.2 All Continental Customer Participants....................................... 10
6.7 Additional Services to Promote Continental........................................... 10
6.7.1 Continental Free-Standing Inserts........................................... 10
6.7.2 Continental Scripts for SkyMall Customer Service Representatives............ 10
6.7.3 Continental Future Promotional Programs..................................... 10
6.8 SkyMall(R)Program Costs and Expenses................................................. 10
6.8.1 SkyMall..................................................................... 11
6.8.2 Continental................................................................... 11
7.0 Continental Sales Commissions and Fees........................................................ 12
7.1 Minimum Fee Payment.................................................................. 12
7.2 Net Sales............................................................................ 12
7.3 SkyMall Payment of Continental Sales Commissions..................................... 12
8.0 Annual Adjustments............................................................................ 13
8.1. Formulas............................................................................. 13
8.2. Adjustment of Total Payments............................................................ 13
9.0 Reports, Records and Audit.................................................................... 14
9.1 SkyMall Reports and Records.......................................................... 14
9.2 Continental Audit of Records......................................................... 14
9.3 Continental Reports and Records...................................................... 14
9.3.1 Continental Scheduled Flight Information.................................... 15
9.4 SkyMall Audit of Records............................................................. 15
10.0 Limited License of Use of Continental's Names................................................. 15
11.0 Confidential Information...................................................................... 15
11.1 Confidential and Proprietary Information............................................. 15
11.2 Exceptions........................................................................... 16
11.3 Continental and SkyMall Actions...................................................... 16
11.4 Enforcement.......................................................................... 16
11.5 Survival............................................................................. 17
12.0 No-Competition................................................................................ 17
13.0 Indemnifications.............................................................................. 17
13.1 Claims............................................................................... 17
13.2 SkyMall's Indemnification of Continental............................................. 17
13.3 Continental's Indemnification of SkyMall............................................. 17
13.4 Notification, Defense of Claims and Settlement....................................... 18
</TABLE>
<PAGE> 5
<TABLE>
<S> <C> <C>
13.5 Survival............................................................................. 19
14.0 Insurance..................................................................................... 19
14.1 SkyMall Insurance.................................................................... 19
14.2 Continental Insurance................................................................ 20
14.3 Survival............................................................................. 20
15.0 Miscellaneous................................................................................. 21
15.1 Agreement............................................................................ 21
15.2 Agreement - Amendments and Waivers................................................... 21
15.3 Agreement - Failure of Enforcement................................................... 21
15.4 Approval or Consent.................................................................. 21
15.5 Assignments and Successions.......................................................... 21
15.6 Attorneys' Fees...................................................................... 22
15.7 Benefits of Parties, Successors and Assigns.......................................... 22
15.8 Breach or Default.................................................................... 22
15.9 Breach and Default Remedies.......................................................... 24
15.10 Consequential Damages................................................................ 24
15.11 Counterparts......................................................................... 24
15.12 Days................................................................................. 25
15.13 Dealings with Third Parties.......................................................... 25
15.14 Exhibits............................................................................. 25
15.15 Force Major Excusing Performance..................................................... 25
15.16 Further Actions and Assurances....................................................... 25
15.17 Governing Law........................................................................ 25
15.18 Headings and Interpretation.......................................................... 26
15.19 Joint Venture or Partnership......................................................... 26
15.20 Notices.............................................................................. 26
15.21 Severability......................................................................... 27
15.22 Survival............................................................................. 27
15.23 Termination.......................................................................... 27
15.24 Time................................................................................. 29
</TABLE>
EXHIBIT A - MINIMUM CATALOG PRODUCTION FORMULA ............... A-1
EXHIBIT B - CONTINENTAL PAGES REIMBURSEMENT FORMULA .......... B-1
EXHIBIT C - NET SALES FORMULA ................................ C-1
EXHIBIT D - CONTINENTAL PAGES AGREEMENT ...................... D-1
EXHIBIT E - FREQUENT FLYER MILEAGE CREDIT AGREEMENT .......... E-1
EXHIBIT F - COUNTER-TO-COUNTER DELIVERY SERVICES AGREEMENT ... F-1
EXHIBIT G - ON-BOARD SALES AND DELIVERIES AGREEMENT .......... G-1
<PAGE> 6
AIRLINE CUSTOMER SERVICES AGREEMENT
CONTINENTAL AIRLINES
This copyrighted and confidential Airline Customer Services Agreement
(the "Agreement") is made January 1, 1992, by and between Continental Airlines,
a Delaware corporation ("Continental"), and SkyMall, Inc., an Arizona
corporation ("SkyMall", or "SM").
RECITALS
WHEREAS, Continental operates passenger aircraft in domestic and
international service;
WHEREAS, SkyMall provides in-flight and in-transit shopping of quality
merchandise, rapid delivery of such merchandise, and a variety of concierge
services for travelers (the "SkyMall(R) Program");
WHEREAS, SkyMall is the owner of United States Service Mark
Registration numbers 1,643,136, 1,661,267, 1,661,973, 1,661,974, and 1,662,025
for SkyMall(R) and its designs, and SkyMall has applications pending for other
service marks including JETCETERASSM, CONCIERGE SERVICE - IT'S MAGICSM, and
accompanying designs, and various other marks and designs; and
WHEREAS, Continental desires to grant to SkyMall, and SkyMall desires
to receive from Continental, the exclusive right as provided in this Agreement
to offer the SkyMall(R) Program to the domestic and international air travelers
of Continental.
NOW, THEREFORE, in consideration of the mutual representations,
warranties, promises, and covenants made in this Agreement, and for other
valuable consideration, the receipt and sufficiency of which is acknowledged, it
is agreed by and between Continental and SkyMall (individually, a "Party", and
collectively, the "Parties") as follows:
AGREEMENTS
1.0 CONTINENTAL
Continental operates fleets of aircraft in domestic and international
scheduled flights, with many equipped with aircraft telephones (Airfones(R)).
For purposes of this Agreement, Continental aircraft fleets are defined as those
Continental aircraft fleets which generally fly domestic and international trips
(the "Continental Fleets"). Continental Fleets serve millions of air travelers
annually with the highest quality of airline services.
2.0 SKYMALL
SkyMall will provide to Continental for Continental Fleets the
SkyMall(R) Program which is defined as the: (A) SkyMall(R) In-flight Merchandise
and Services Catalog offering high quality
1
<PAGE> 7
merchandise (the "SkyMall(R) Services Catalog", or "Catalog"); and (B) SkyMall
Concierge(R) Service - Its Magic(SM) offering high quality concierge services
(the "SkyMall(R) Concierge Service").
2.1 SkyMall(R) Services Catalog. Travelers may order SkyMall(R)
Merchandise from the SkyMall(R) Services Catalog by air phone, ground phone,
telefax, or mail and, correspondingly, the merchandise may be delivered either
immediately on arrival at designated airports, by express two (2) business day
air delivery to domestic addresses, by mail, or by commercially available means
to selected international addresses. SkyMall provides full satisfaction
guarantees on its merchandise. Likewise, SkyMall provides a complete line of
concierge services to travellers with limited to full satisfaction guarantees,
depending on the services requested.
2.2 SkyMall(R) Concierge Service. SkyMall will provide SkyMall(R)
Concierge Service - It's Magic(SM) to Continental passengers which services will
be available through the SkyMall(R) Services Catalog for a concierge fee plus
the price of the product or service (the "SkyMall(R) Concierge Service").
SkyMall(R) Concierge Service presently include, but are not limited to, the
making of reservations for dinner, lodging, other accommodations, auto rental,
airline, transportation and sporting event tickets, floral deliveries, other
services, and locating hard-to-find items. Continental acknowledges that
Continental's passengers may make travel reservations for other than
Continental's flights using SkyMall(R) Concierge Service. Continental will
cooperate in good faith in the implementation and development of the SkyMall(R)
Concierge Service Program.
2.3 SkyMall(R) Guarantees. SkyMall will provide a total customer
satisfaction guarantee on all merchandise offered in the SkyMall(R) Services
Catalog. Merchandise may be returned by the customer to SkyMall within thirty
(30) days of the customer's receipt of the merchandise for full exchange or
refund of the purchase price, at the customer's choice, except for personalized
merchandise (unless there is an imprinting error by SkyMall's Supplier in which
event the customer shall have the foregoing election). SkyMall also will provide
limited to total customer satisfaction guarantees on SkyMall(R) Concierge
Service, depending on the services requested. The SkyMall(R) Concierge Service
fees shall also be fully exchanged or refunded, at the customer's choice, for
any SkyMall(R) Concierge Service which are unsatisfactory to the customer.
SkyMall will not guarantee Continental's Trademarked Merchandise unless such a
guarantee is part of a separate Continental Pages Agreement. SkyMall will not
under any circumstances, however, guarantee any services offered by Continental
in the Continental Pages.
3.0 CONTINENTAL'S BASIC AGREEMENT WITH SKYMALL
By this Agreement and during the Term of this Agreement, Continental
contracts with and grants to SkyMall the exclusive right to provide the
SkyMall(R) Program, consisting of the SkyMall(R) Services Catalog and SkyMall(R)
Concierge Service specified in this Agreement, to Continental for the
Continental Fleets, and Continental will not itself provide such program, nor
contract with any other source for or otherwise obtain from any other source
such program or a similar program. Continental also grants to SkyMall(R) the
first right of refusal to provide the SkyMall(R) Program on inter-active video
to Continental for the Continental Fleets, and Continental will not itself
provide such program, nor contract with any other source for or otherwise obtain
from any other source such program or a similar program. Continental reserves
its rights to provide certain services to its passengers, as follows: (A)
Continental may offer in its own in-flight magazine the sale of (a) merchandise
marked with Continental's own trademarks ("Continental's Trademarked
Merchandise"), Continental's airfare
2
<PAGE> 8
and vacation packages, air transportation services, or any other proprietary
items or services of Continental, and (b) merchandise and services offered by
other advertisers; and (B) Continental may offer a catalog for the sale of duty
free merchandise.
4.0 TERM OF AGREEMENT
4.1 TERM OF AGREEMENT. This Agreement shall be binding and effective as
of the date first above written. The Term of this Agreement shall consist of the
Initial Term, any New SkyMall Distribution Center Renewal Term, and any Annual
Renewal Terms (the "Term of this Agreement").
4.2 INITIAL TERM. The Initial Term of this Agreement shall commence on
January 1, 1992, and shall continue in full force and effect until the later of:
(A) June 30, 1995; or (B) the date on which the third (3rd) edition of the
SkyMall merchandise and services catalog (the "SkyMall(R) Services Catalog" or
"Catalog") produced pursuant to this Agreement has been continually distributed
aboard Continental's aircraft for at least three (3) consecutive calendar months
(the "Initial Term").
4.3 New SkyMall Distribution Center Renewal Term. Should Continental
and SkyMall determine that it is in their mutual best interests for SkyMall to
open a new SkyMall merchandise distribution center ("SkyMall Distribution
Center") at any of the airports serving Continental, then because of the
substantial cost to SkyMall to open and maintain such a facility, the renewal
terms after the Initial Term will be for a period of three (3) years for each
new SkyMall Distribution Center (the "New SkyMall Distribution Center Renewal
Term").
4.4 Annual Renewal Terms. After the Initial Term, and subject to any
New SkyMall Distribution Center Renewal Term as stated in the SECTION on NEW
SKYMALL DISTRIBUTION CENTER RENEWAL TERM, this Agreement shall renew
automatically for periods of one (1) year (the "Annual Renewal Terms"), unless
terminated earlier by either Party pursuant to the terms and conditions of this
Agreement.
4.5 Termination of the Agreement. Subject to the Initial Term, any New
SkyMall Distribution Center Renewal Term, and the SECTION on TERMINATION, either
Party may terminate this Agreement at any time for any reason upon not less than
one hundred eighty (180) days prior written notice to the other Party, or either
Party may otherwise terminate this Agreement pursuant to its terms and
conditions.
5.0 SKYMALL(R) PROGRAM AND SKYMALL(R) SERVICES CATALOG
5.1 SkyMall(R) Program. SkyMall shall provide to Continental the parts
of the SkyMall(R) Program stated in this Agreement.
5.2 SkyMall(R) Services Catalog Merchandise, Services, Design and
Production. Subject to approval by Continental of the SkyMall(R) Services
Catalog pursuant to the SECTION on CONTINENTAL APPROVAL OF SKYMALL(R) SERVICES
CATALOG, SkyMall shall be responsible on an annual basis for creating,
designing, developing, coordinating, producing, and printing at least three (3)
successive editions of a commercially acceptable SkyMall(R) Services Catalog,
each edition consisting of between
3
<PAGE> 9
twenty-four (24) and one-hundred fifty (150) pages, but not to exceed twelve
(12) ounces per Catalog. Merchandise and services to be offered in the
SkyMall(R) Services Catalog shall be selected and priced by SkyMall, except for
those offered in the Continental Pages. SkyMall will consider accommodating the
reasonable requests of Continental for additional Catalog products and services,
and participating merchants.
5.2.1 Continental Approval of SkyMall(R) Services Catalog.
A. Continental's Approval. Continental shall have the
right to review and approve or disapprove in a commercially reasonable manner
and in writing each edition of the SkyMall(R) Services Catalog including,
without limitation, all art work for covers and order forms, and any product or
service on any reasonable grounds (except prices), provided that any such
approval or disapproval is made in writing within five (5) business days after
receipt from SkyMall of the listing in which such art work, product or service
first appears. Continental will be deemed to have approved all such artwork,
product and service if Continental's written approval or disapproval is not made
to SkyMall within such five (5) day period.
B. SkyMall's Notice. Notwithstanding this SECTION on
CONTINENTAL APPROVAL OF SKYMALL(R) SERVICES CATALOG, should Continental select
any merchandise, includinG Continental's Trademarked Merchandise, that in
SkyMall's commercially reasonable belief will not sell, is illegal, is
dangerous, might not meet federal safety requirements, or may have unreasonable
purchase commitments required for a profitable program, then SkyMall may notify
Continental in writing at the time merchandise selections are made of such
belief. Notwithstanding SkyMall's written objection, in the event that
Continental notifies SkyMall in writing that it chooses to include such
merchandise in the Catalog, Continental will assume total liability for such
merchandise, including without limitation, the cost of providing the inventory
to supply such merchandise, any overages in inventory, full indemnification of
SkyMall for all costs and damages in connection with such merchandise, law
suits, federal or state penalties, and other costs of defense and reasonable
attorneys' fees pertaining to such merchandise.
C. Continental's Right to Have Catalogs Withdrawn
from Distribution. After a Catalog edition is approved by Continental pursuant
to this SECTION on CONTINENTAL APPROVAL OF SKYMALL(R) SERVICES CATALOG,
Continental or SkyMall may withdraw the Catalogs of that editioN from
distribution on the following conditions: (a) Should the approved Catalog
edition, or a part thereof, create a public disturbance with Continental's
passengers and SkyMall cannot resolve such disturbance within a commercially
reasonable cost and period of time, then Continental will have the right to
remove all such Catalogs from its aircraft, and Continental shall, unless
otherwise agreed in writing by the Parties, reimburse SkyMall for fifty percent
(50%) of all costs for reproducing such Catalogs; (b) Continental may
unilaterally remove any one Catalog edition for any reason in which case
Continental shall reimburse SkyMall for all costs of reproducing such Catalog
edition and redistributing it to the Continental Hubs; and (c) SkyMall may
unilaterally require the removal of any one Catalog edition for any reason in
which case SkyMall shall reimburse Continental for all costs of removing and
replacing such Catalog edition. The unilateral removal of more than one Catalog
edition by any Party will be governed by the SECTION on TERMINATION.
5.2.2 Continental Pages. The Parties agree that in each
edition of the SkyMall(R) Services Catalog, a mutually agreed upon number of
pages not to exceed four (4) shall be devoted to the sale of merchandise marked
with Continental's own trademarks ("Continental's Trademarked
4
<PAGE> 10
* Confidential portion has been omitted and
filed separately with the Commission.
Merchandise") and Continental's space advertising devoted to non-merchandise
offerings ("Continental's Advertising") as designated by Continental
(collectively, the "Continental Pages"). SkyMall shall provide Continental Pages
at cost to Continental pursuant to the Continental Pages Reimbursement Formula
in EXHIBIT B. Should Continental elect to feature merchandise for sale in the
Continental Pages, Continental and SkyMall will enter into a separate and
mutually acceptable revenue sharing agreement regarding the sale and delivery of
such merchandise, and the processing and accounting by SkyMall for such sales
(the "Continental Pages Agreement"). See EXHIBIT D.
5.2.3 Suppliers Including GTE Airfone(R). Except as otherwise
agreed by SkyMall and Continental, SkyMall shall solicit and contract with each
supplier of merchandise or services separately with respect to that supplier's
participation in the SkyMall(R) Program ("Supplier"), and SkyMall shall be
solely responsible and liable for each Supplier's merchandise and services
offered in the SkyMall(R) Services Catalog, and Continental shall have no
obligation, liability or responsibility whatsoever to any such SkyMall Supplier,
but Continental shall be solely responsible and liable for Continental's
merchandise and services offered in the Continental Pages, including
Continental's suppliers. Continental agrees not to interfere with or otherwise
affect the terms upon which SkyMall may enter into contracts (or negotiate for
prospective contracts) with any actual or potential Supplier, including GTE
Airfone, Inc. ("GTE") provided that such contracts do not materially interfere
or conflict with Continental's agreements with other vendors.
5.2.4 Continental Approval of Advertising and Promotional
Material. All advertising or promotional material which refers to Continental
and is distributed in connection with this Agreement shall be subject to and
require the prior written approval of Continental.
5.2.5 Continental Employee Discounts. Subject to proper
identification, Continental employees will be allowed a * percent (*%)
discount on their orders for merchandise and concierge services offered in
the SkyMall(R) Services Catalog.
5.2.6 Rights to the Catalog Name, Services and Purchase
Information. All rights, title and interest to the Catalog, its contents, and
its name or names, including, without limitation, the right to copyright the
Catalog and the SkyMall names "SkyMall"(R), "SkyMall(R) Services Catalog", and
"SkyMall(R) Merchandise & Concierge Service", as SkyMall selects as the name of
the Catalog, and the designs and other information created or developed by
SkyMall, or jointly by SkyMall and Continental, in connection with the Catalog
and the SkyMall(R) Program, and the goodwill attributable thereto, shall be
owned by and remain the property of SkyMall. All rights, title and interest to
the SkyMall(R) Concierge Service and its contents, and its name or names, as
SkyMall selects and the designs and other information created or developed by
SkyMall, or jointly by SkyMall and Continental in connection with the Catalog
and/or SkyMall(R) Concierge Service, and the goodwill attributable thereto,
shall be owned and remain the property of SkyMall. All rights, title and
interest to the names, addresses and other direct marketing information of
persons who order from the SkyMall(R) Services Catalog shall be owned and remain
the property of SkyMall and shall be part of SkyMall's buyer file (the
"SkyMall(R) Buyer File") which SkyMall may use or make available for rental to
third parties as long as the file information is not selectable or identifiable
by airline, including Continental, nor indicates that an individual is a
passenger of Continental and/or a member of Continental's frequent flyer club.
5.2.7 Minimum Catalog Production Formula. Since it is in the
best interests of SkyMall and Continental to provide a Catalog for every
passenger, Continental and SkyMall agree that
5
<PAGE> 11
pursuant to a minimum Catalog production formula (the "Minimum Catalog
Production Formula") in EXHIBIT A, SkyMall shall produce, and Continental shall
distribute, SkyMall(R) Services Catalogs based on three percent (3%) to five
percent (5%) of Continental's annual projected passenger enplanements (the
"Projected Passenger Enplanements") which Continental projects to be thirty-nine
million six hundred thousand (39,600,000) during the next twelve (12) months.
SkyMall shall use Continental's projected passenger enplanements (the "Projected
Passenger Enplanements") and the actual passenger enplanements (the "Actual
Passenger Enplanements") and Continental's internal confirmation of Catalogs
placed in aircraft seat-back pockets (the "Catalog Stocked Seats Information")
to calculate and monitor the actual customer Catalog response rates (the
"Catalog Response Rates") and monitor the ratio of Catalog-stocked seats (the
"Ratio of Catalog Stocked Seats"). Subject to the Catalog Response Rates and if
desired by Continental, SkyMall may, in its sole discretion, produce additional
Catalogs at its sole cost and expense for Continental's use. Continental shall
provide SkyMall on a timely basis the Projected Passenger Enplanements, the
Actual Passenger Enplanements, and the Catalog-Stocked Seats Information, and
any updates thereto, during the Term of this Agreement for the purposes of
performing their respective obligations under this Agreement. Should the Minimum
Catalog Production Formula yield a quantity that is less than the number of
SkyMall(R) Services Catalogs actually needed to satisfy the provisions of this
Agreement (a "Catalog Deficiency"), Continental and SkyMall agree that neither
Party shall have any liability to the other resulting or arising from such
Catalog Deficiency.
5.3 SkyMall Shipment and Continental Distribution of Catalogs. During
the Term of this Agreement, subject to the Minimum Catalog Production Formula in
EXHIBIT A, SkyMall shall deliver the SkyMall(R) Services Catalogs to
Continental's facilities at up to two (2) Continental hub locations (the
"Continental Hubs") according to reasonable instructions by Continental
(including delivery locations, quantities, delivery schedule, and reorder
directions) at least three (3) weeks prior to the date of distribution of the
SkyMall(R) Services Catalogs by Continental in the seatback pockets of
Continental's aircraft. Other hub locations may be added to the Continental Hubs
upon mutual written agreement by the Parties. Continental shall use commercially
reasonable efforts, and at a minimum will use the same efforts Continental uses
in connection with its own in-flight magazine PROFILES MAGAZINE to timely
distribute and properly board or place an adequate quantity of the SkyMall(R)
Services Catalogs on all aircraft in the Continental fleet to ensure that each
passenger has available to him or her on an as-needed or requested basis, a
reasonably unsoiled and presentable copy of the SkyMall(R) Services Catalog.
Continental will carry twenty (20) copies of the current Catalog on each
scheduled aircraft of Continental Fleets to replace any Catalogs taken daily by
passengers. Continental will not destroy or otherwise remove the SkyMall(R)
Services Catalogs from any Continental aircraft unless the condition of a
Catalog is no longer reasonably unsoiled and presentable to Continental
passengers, or the edition of the Catalog has expired. Continental may change
the Continental Hubs delivery locations upon thirty (30) days written notice to
SkyMall, but the total number of Continental Hubs shall not exceed three (3).
SkyMall and Continental will determine the allocation of the number of Catalogs
to be delivered among the hub locations designated by Continental by contacting
Continental's designated coordinator. SkyMall will follow-up with the hub
locations to help promote and assure proper distribution of the Catalogs on the
Continental Fleet.
5.4 Continental Promotion of Catalog Services. Continental and its
employees shall use commercially reasonable efforts to promote and encourage
Continental passenger use of the SkyMall(R) Services Catalog, and at a minimum
using the same efforts they use in connection with Continental's in-flight
magazine PROFILES MAGAZINE. Such promotion and encouragement may include,
without limitation, on-board announcements, boarding area announcements, flight
club area announcements,
6
<PAGE> 12
information booths, and possible video introduction, provided that prior written
consent of SkyMall shall be required for any formal or written advertising or
promotional campaign which includes, without limitation, any references to
SkyMall, SkyMall or any SkyMall trademarks, service marks, programs or services
in broadcast or printed advertisements or other promotional materials and
efforts.
5.5 Continental Aircraft Seat Phones. Since the SkyMall(R) Program
emphasizes in-flight telephone orders for merchandise or services, Continental
will continue to equip its aircraft with seat phones, or other in-flight
telephone equipment, as business conditions warrant and consistent with the
timetable previously mutually agreed upon by Continental and GTE Airfone, Inc.
(or another inflight phone provider). Continental shall promptly notify SkyMall
should Continental cease equipping its aircraft with such telephone equipment.
6.0 SKYMALL(R) CUSTOMER ORDERING AND SERVICES
6.1 SkyMall(R) Order Processing and Deliver. SkyMall shall provide
purchasing, inventory, warehousing, shipment and staff to properly facilitate
rapid delivery of all merchandise and services offered through the SkyMall(R)
Services Catalog, as described in this Agreement.
6.1.1 SkyMall(R) Order Processing. SkyMall shall offer
customer order inquiry and processing for merchandise and services twenty-four
(24) hours per day, three-hundred sixty-five (365) days per year, but SkyMall in
its sole discretion may use voice messaging and other equipment to handle or
facilitate customer order inquiry and processing during early morning hours,
Sundays, holidays, and other appropriate times. SkyMall shall maintain an "800"
customer order telephone number, including an in-flight equivalent of an "800"
telephone number (speed dial number) using the GTE Airfone(R) or telephone
equipment offered by other in-flight services providers.
6.1.2 SkyMall(R) Product Services. SkyMall may offer certain
product enhancement services, including: (A) Gift Wrapping, within certain size
restrictions, any product in the SkyMall(R) Services Catalog for a published
charge; and (B) Monogramming any clothing items, luggage items, or soft goods in
the SkyMall(R) Services Catalog for a published charge.
6.1.3 SkyMall(R) National Merchandise Deliveries. Subject to
the approval of the customer's credit, and at customer's choice, SkyMall shall
offer delivery of orders received and accepted by SkyMall for shipment to all
points within the continental limits of the United States, Alaska, Hawaii,
Puerto Rico, and the Virgin Islands, as follows:
A. 48 Hour Air Delivery. For a per-order charge,
orders placed by 5:00 p.m. EST will be shipped the same day (Continental United
States only), by an air express carrier who generally delivers the order within
forty-eight (48) hours during business days.
B. Airport Deliver on Arrival. For a per-order charge
and depending on the airport, orders normally placed any time prior to thirty
(30) to forty-five (45) minutes before arrival at an airport which has a SkyMall
distribution center ("SkyMall(R) Distribution Center") will be delivered at a
designated place when the passenger arrives at such airport. SkyMall expects to
provide such deliveries during reasonable time periods such as between 7:00 a.m.
or 8:00 a.m. to 10:00 p.m., Monday through Saturday, but SkyMall in its sole
discretion may limit the availability of such deliveries to avoid late evening
or early morning hours, Sundays, holidays, or other appropriate times.
SkyMall(R) Distribution Centers with airport delivery are available currently in
7
<PAGE> 13
Phoenix, Chicago (O'Hare), and Atlanta.
Continental shall acknowledge the existence of this
Agreement to any inquiring airport authorities, and shall cooperate in good
faith with SkyMall in SkyMall's dealings with airport authorities regarding the
matters of this Agreement. SkyMall shall obtain any necessary airport security
clearance to effect SkyMall merchandise deliveries to airports.
6.1.4 SkyMall(R) International Orders and Deliveries. SkyMall
may accept orders from the Catalog used on Continental Fleets for delivery to an
international destination.
6.1.5 Credit Card Companies. SkyMall shall be solely
responsible for establishing appropriate contractual arrangements between
SkyMall and those companies issuing credit cards to be honored by SkyMall.
6.1.6 Payment for Merchandise and Services. SkyMall, in its
sole discretion, may limit payment for merchandise to United States currency
cash equivalent negotiable instruments redeemable for United States currency,
and major credit cards.
6.1.7 SkyMall Employees. Unless separately agreed to by the
Parties, SkyMall's order processing and delivery personnel are SkyMall's
employees or independent contractors, and not the employees of Continental, and
are under SkyMall's exclusive direction and control, and SkyMall shall at all
times provide the direction and supervision required for the proper performance
of SkyMall employees and independent contractors. Although Continental shall
have no supervision or control over SkyMall's employees and independent
contractors, SkyMall agrees to give prompt attention to any complaint or
requested change in procedure with respect to SkyMall's employees or independent
contractors or the performance of SkyMall's order processing or delivery
services. SkyMall's employees and independent contractors shall be screened to
comply with reasonable security measures, and will be well-groomed and suitably
attired to present a professional appearance to the public.
6.2 Resolution of Customer Problems. SkyMall shall be responsible for
the resolution of all customer service problems. SkyMall will receive and handle
all correspondence, claims or complaints generated by the SkyMall(R) Program and
the SkyMall(R) Services Catalog, except for Continental's Trademarked
Merchandise and Continental's Services represented on the Continental Pages
which problems and correspondence SkyMall will forward to Continental for
handling unless otherwise agreed by the Parties in a separate Continental Pages
Agreement. SkyMall shall handle all complaints, requests or adjustments promptly
and to the satisfaction of Continental and the customer. Further, at
Continental's option, Continental may respond directly to any such customer
request or complaint. SkyMall shall handle such customer requests or complaints
on a priority exception basis, and shall furnish Continental with data regarding
such correspondence, claims and complaints as requested by Continental but
within thirty (30) days.
6.3 SkyMall Support of Continental Personnel. SkyMall will provide, and
Continental will cooperate in good faith to have SkyMall provide, both start-up
and on-going assistance to help with the orientation, training, and logistical
concerns of all affected Continental personnel and
8
<PAGE> 14
departments to support Continental and its personnel on a schedule for
implementation of the SkyMall(R) Program to be mutually agreed to by Continental
and SkyMall.
6.3.1 On-Going Support. On-going SkyMall support will be
provided on an as needed basis to answer Continental's questions and to resolve
any problems which may arise during the implementation and administration of the
SkyMall(R) Program.
6.4 Complimentary Air Travel. Since SkyMall is paying Continental a
Minimum Fee Payment, Continental shall provide three (3) monthly complimentary
round-trip passes on a stand-by basis on regularly scheduled domestic flights to
selected SkyMall personnel for the sole purposes of providing (A) A SkyMall
service representative as a liaison during the start-up of the SkyMall(R)
Program, (B) In-person orientation of Continental personnel during start-up of
the SkyMall(R) Program, (C) Establishment of any SkyMall(R) Distribution
Centers, (D) Any on-going problem solving requiring a personal visit, and (E)
Evaluation and monitoring of SkyMall's in-flight shopping service on the
SkyMall(R) evaluation service card (the "SkyMall(R) Evaluation of Service Card")
(collectively, the "Complimentary Air Travel"). These complimentary round-trip
tickets will be non-transferable coach tickets to be used for business travel on
a space available basis to be requested and approved by the Continental
Marketing Programs Department. SkyMall's personnel who use the Complimentary Air
Travel will adhere to all dress code requirements of Continental. SkyMall
employees will complete a SkyMall Evaluation of Service Card every time they fly
on Continental's scheduled flights, including the use of Complimentary Air
Travel, and SkyMall shall provide Continental with a copy of all such cards.
6.5 Optional Other Services.
6.5.1 Frequent Flyer Mileage Credit Service. Continental and
SkyMall may agree to credit Continental's frequent flyer mileage to the mileage
program accounts of Continental members who purchase SkyMall(R) Services Catalog
merchandise and services, and to have SkyMall enroll Continental passengers in
the Continental frequent flyer program, pursuant to a cost effective formula to
be mutually agreed upon by Continental and SkyMall (the "Frequent Flyer Services
Agreement"). See EXHIBIT E.
6.5.2 Counter-to-Counter Deliver Service. Continental and
SkyMall may agree to use Continental's Counter-to-Counter Delivery Service to
facilitate the delivery of merchandise ordered by Continental's passengers,
pursuant to a cost effective formula to be mutually agreed upon by Continental
and SkyMall (the "Counter-to-Counter Delivery Service Agreement"). See EXHIBIT
F.
6.5.3 On-Board Sales and Deliveries Service. Continental and
SkyMall may agree to provide On-Board Sales and Deliveries to facilitate the
sale and delivery of merchandise ordered by Continental's passengers, pursuant
to a cost effective formula to be mutually agreed upon by Continental and
SkyMall (the "On-Board Sales and Deliveries Service Agreement"). See EXHIBIT G.
6.6 Optional SkyMall Independent Mailing Services.
6.6.1 Continental Frequent Flyer Customers. If cost effective
to SkyMall and agreed to by Continental, on a periodic basis, SkyMall will
consider mailing SkyMall(R) Services Catalogs or other promotional material to
all or selected Continental frequent flyer members with the periodic frequent
flyer statements of Continental. The incremental increase in mailing costs above
what
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<PAGE> 15
Continental normally pays for mailing its periodic frequent flyer statements can
be shared equally by SkyMall and Continental, at Continental's discretion.
6.6.2 All Continental Customer Participants. If cost effective
to SkyMall and agreed to by Continental, on a periodic basis, SkyMall will
consider mailing SkyMall(R) Services Catalogs or other promotional materials to
all or selected Continental passengers who have made a purchase from SkyMall
within the prior twelve (12) months. Mailing costs can be shared equally by
SkyMall and Continental, at Continental's discretion.
6.7 Additional Services to Promote Continental. SkyMall offers
additional services to promote Continental to the customer, including:
6.7.1 Continental Free-Standing Inserts. Continental
promotional inserts weighing less than two (2) ounces may be included in SkyMall
shipments at no cost to Continental.
6.7.2 Continental Scripts for SkyMall Customer Service
Representatives. Unique Continental scripts of up to fifteen (15) seconds for
any compatible promotion Continental chooses may be added to SkyMall's standard
order processing scripts for SkyMall's Customer Service Representatives at no
cost to Continental.
6.7.3 Continental Future Promotional Programs. Subject to
mutual agreement between Continental and SkyMall, Continental will coordinate
the offering of SkyMall(R) Program services with existing and future Continental
promotional programs including, without limitation, Continental's frequent flyer
program.
6.8 SkyMall(R) Program Costs and Expenses. The costs and expenses
associated with the SkyMall(R) Program shall be paid as follows:
6.8.1 SkyMall. SkyMall shall pay for all costs and expenses
associated with its provision of the SkyMall(R) Program except for those
Continental shall pay for stated in the SECTION on SKYMALL(R) PROGRAM COSTS AND
EXPENSES (CONTINENTAL) below. Such SkyMall costs and expenseS include, without
limitation:
(A) The creation, design, production, and delivery to Continental
of the SkyMall(R) Services Catalog;
(B) The purchase, inventory, and delivery of SkyMall Catalog
merchandise;
(C) Provision of SkyMall staff, including telemarketing staff, to
professionally handle customer orders, questions and
complaints, and to support Continental personnel;
(D) Provision of SkyMall facilities, equipment and their use to
facilitate express delivery of merchandise to selected airport
and non-airport delivery locations subject to payment of
published charges to be paid by customers;
(E) All credit card fees for the sale of SkyMall(R) Services
Catalog merchandise and services;
(F) All payroll, unemployment insurance, disability, benefit
insurance, worker's compensation, employers' liability
insurance for SkyMall employees;
(G) Any other local, state or federal taxes or levies associated
with SkyMall's employees; and
(H) The collection and payment of all applicable sales and excise
taxes on the sales of
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<PAGE> 16
* Confidential portion has been omitted and
filed separately with the Commission.
SkyMall(R) Services Catalog merchandise and services, and the
filing of the corresponding reports and returns, including any
penalties and interest.
6.8.2 Continental. Continental shall provide and pay for:
(A) The Continental Pages on a reimbursement basis to SkyMall
according to the Continental Pages Reimbursement Formula in
EXHIBIT B;
(B) Other costs to be agreed to regarding the inventory and
delivery of Continental's Trademarked Merchandise and
Continental's Services featured in the Continental Pages
according to Continental Pages Agreement in EXHIBIT D;
(C) The distribution from the Continental Hubs by Continental of
the SkyMall(R) Services Catalog to the aircraft in the
Continental Fleets under the SECTION on SKYMALL SHIPMENT AND
CONTINENTAL DISTRIBUTION OF CATALOGS;
(D) The promotional costs associated with the SECTION on
CONTINENTAL PROMOTION OF CATALOG SERVICES;
(E) Space at no charge to SkyMall in which SkyMall and Continental
personnel can meet to implement the SkyMall(R) Program, and
booths where appropriate;
(F) The Complimentary Air Travel costs under the SECTION on
COMPLIMENTARY AIR TRAVEL; and
(G) The costs to be agreed to regarding any optional SkyMall(R)
Program Services, including the SECTIONS on OPTIONAL OTHER
SERVICES, OPTIONAL SKYMALL INDEPENDENT MAILING SERVICES,
ADDITIONAL SERVICES TO PROMOTE CONTINENTAL and SKYMALL(R)
PROGRAM COSTS AND EXPENSES.
7.0 CONTINENTAL SALES COMMISSIONS AND FEES
7.1 Minimum Fee Payment. Subject to the SECTIONS on REPORTS, RECORDS
AND AUDITS, BREACH OR DEFAULT, FORCE MAJEURE EXCUSING PERFORMANCE and
TERMINATION, SkyMall shall make a minimum fee payment to Continental every month
that the Continental Fleets carry SkyMall(R) Services Catalog during the term of
the Agreement (the "Minimum Fee Payment"). The monthly Minimum Fee Payment, or
any portion thereof, will be in addition to the Sales Commission and will be pro
rated based on the actual period of time the Catalogs are carried on-board the
Continental Fleets if there is an interruption of the continual distribution of
the Catalog on-board the Continental Fleets, breach or default in performance,
or termination of the Agreement according to the terms of the Agreement.
Therefore, the maximum monthly Minimum Fee Payment, if any, will be * Dollars
($*), and the maximum annual Minimum Fee Payment, if any, will be * Dollars
($*). The payment date of the monthly Minimum Fee Payment will be on the first
day of the second month following the end of the month. SkyMall agrees that
payment of Continental's Minimum Fee Payment will be retroactive to January 1,
1992, and such retroactive Minimum Fee Payment shall be paid to Continental
within one (1) week after the signing of this Agreement.
7.2 Net Sales. For purposes of this Agreement, "Net Sales" is defined
as gross merchandise sales and SkyMall(R) Concierge Service Fees received in a
calendar month from the SkyMall(R) Program from orders made from the SkyMall(R)
Services Catalog provided to Continental, less revenues relating to any returned
merchandise or refunds, canceled SkyMall(R) Concierge Service, sales and excise
taxes and duties, shipping and handling, giftwrapping and monogramming, and bad
debts (the "Net Sales", and the "Net Sales Formula" in EXHIBIT C).
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<PAGE> 17
* Confidential portion has been
omitted and filed separately
with the Commission.
7.3 SkyMall Payment of Continental Sales Commissions. Subject To the
SECTIONS on REPORTS, RECORDS AND AUDITS, BREACH OR DEFAULT, FORCE MAJEURE
EXCUSING PERFORMANCE and TERMINATION, SkyMall shall also pay sales commissions
to Continental based on "Net Sales" as defined in the SECTION on NET SALES and
based upon the following schedule of Net Sales and its corresponding Sales
Commission (the "Sales Commission"):
Schedule of Quarterly Net Sales and Sales Commission
<TABLE>
<CAPTION>
Quarterly Net Sales Levels Quarterly Sales Commission Levels
-------------------------- ---------------------------------
<S> <C>
Level 1 - From * to $* *%
Level 2 - From $* to $* *%
Level 3 - From $* to $* *%
Level 4 - Over $* *%
</TABLE>
A. Calculation Formula:
Sales Commission Payment = Quarterly Net Sales X Quarterly Sales
Commission Level
B. Example:
<TABLE>
<S> <C> <C>
Level 1 - $ * X *% = $ *
Level 2 - $ * X *% = $ *
Level 3 - $ * X *% = $ *
Level 4 - $ * X *% = $ *
----------- --------
TOTALS $* $ *
</TABLE>
C. Payment Date and Statement. The monthly Sales Commissions
shall be payable to Continental on the first day of the second
month following the sales (the "Sales Commissions Payment
Date") and will be accompanied by a supporting statement which
includes the (a) Number of orders filled for the payment
month, (b) Net dollar amount of sales related to the orders,
and (c) Calculation of Continental's Sales Commission based
upon said sales. For purposes of calculating Sales
Commissions, the Commission Level indicated is paid only on
Net Sales for each calendar month at that level, and not
retroactively on aggregate Net Sales.
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<PAGE> 18
8.0 ANNUAL ADJUSTMENTS
8.1. Formulas. SkyMall and Continental agree that on the annual
anniversary date of this Agreement they will review and adjust for the new year,
if necessary, any cost or expense formulas in this Agreement, including without
limitation, the Minimum Catalog Production Formula, Continental Pages
Reimbursement Formula, and Net Sales Formula, to cover any increase or decrease
in actual costs or expenses to either Continental or SkyMall which have changed
more than five percent (5%) based on actual invoice charges during the prior
twelve (12) calendar months.
8.2. Adjustment of Total Payments. Continental desires that the Minimum
Fee Payment and its Sales Commission (the "Total Payments") cover Continental's
fuel costs for carrying the Catalog on Continental Fleets. SkyMall is concerned
about the accuracy of any fuel formula regarding the actual number of Catalogs
actually carried by the Continental Fleets during any period of time. The
Parties will use their good faith and best commercially reasonable efforts to
assure that Continental's fuel formula accurately reflects actual fuel costs for
carrying actual Catalogs on Continental Fleets. SkyMall will provide Continental
with its input regarding Continental's fuel formula. If the Total Payments do
not cover such actual Continental's fuel costs during a Catalog edition, then
Continental will so notify SkyMall in writing with the fuel costs needed to
cover the current and next or subsequent Catalog edition on Continental Fleets
(the "Subsequent Catalog Edition"), all at least sixty (60) days prior to the
printing of a Subsequent Catalog Edition. SkyMall will decide whether or not the
anticipated income from such current and Subsequent Catalog Edition on board
Continental Fleets will allow SkyMall to pay the increased fuel costs. If
SkyMall concludes that the income from such Catalog edition will not cover the
increased amount requested by Continental, and SkyMall otherwise does not elect
to cover the increased cost, then the Parties agree that the Catalog may be
either removed from the Continental Fleets, or removed from all but the first
class seats on the Continental Fleets, and that the Catalog will then be (A)
Mailed to Continental passengers who purchased from the Catalog during the
preceding twelve (12) months (the "Mailed Catalog Edition"), and (B) Distributed
to Continental employees and to locations where it may be seen by and be
available to Continental passengers at airports, in passenger lounges, etc.
SkyMall will pay Continental the Sales Commission from the Mailed Catalog
Edition and the Catalogs so distributed, but not the corresponding Minimum Fee
Payment for fuel costs since the Catalogs will not be boarded on the Continental
Fleets and since SkyMall will pay the costs of mailing the Catalog. Continental
agrees to use commercially reasonable efforts to distribute the Catalog to
Continental employees and to locations where it may be seen by and be available
to Continental passengers at airports, in passenger lounges, etc. The Parties
agree that the Catalog will be distributed to passengers on the Continental
Fleets once the fuel costs return to a level where the Total Payments cover
Continental's fuel costs.
9.0 REPORTS, RECORDS AND AUDIT
9.1 SkyMall Reports and Records. During the Term of this Agreement,
SkyMall shall, from time to time in a manner to be agreed by the Parties,
furnish Continental with accurate and complete reports and information regarding
the fulfillment of SkyMall's obligations to Continental under this Agreement,
including without limitation, Catalog design, merchandise and other information
referenced throughout the SECTION on SKYMALL(R) PROGRAM AND SKYMALL(R) SERVICES
CATALOG, customer problems referenced in the SECTION on RESOLUTION OF CUSTOMER
PROBLEMS, and Continental's Sales Commissions and Fees referenced in the SECTION
on CONTINENTAL SALES COMMISSIONS AND FEES (the "SkyMall Reports"). The SkyMall
Reports do not include any reports or information relating to SkyMall corporate
activities or the activities of SkyMall with any one other than Continental.
SkyMall
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<PAGE> 19
agrees to maintain the SkyMall Reports and supporting documentation during the
Term of this Agreement and for one (1) year following termination of the
Agreement, and as otherwise required by federal or state tax or other record
keeping laws or regulations (the "Record Maintenance Period").
9.2 Continental Audit of Records. SkyMall agrees that during the Record
Maintenance Period, Continental or such auditors as Continental may select and
authorize, at Continental's sole cost and expense, shall have the right from
time to time upon reasonable advance notice to SkyMall to examine and make
copies of the SkyMall Reports and supporting documentation at SkyMall's
headquarters offices during normal office hours. At Continental's request,
SkyMall agrees to generate and provide Continental or such auditors as
Continental may select and authorize with adhoc reports for auditing purposes.
9.3 Continental Reports and Records. During the Term of this Agreement,
Continental shall, from time to time in a manner to be agreed by the Parties,
furnish SkyMall with accurate and complete reports and information regarding the
fulfillment of Continental's obligations to SkyMall under this Agreement,
including without limitation, Continental information required to design,
produce, deliver, distribute, and promote the Catalog referenced throughout the
SECTION on SKYMALL(R) PROGRAM AND SKYMALL(R) SERVICES CATALOG, Catalog
production information (Projected PassengeR Enplanements, Actual Passenger
Enplanements, and Catalog Stocked Seats) referenced in the SECTION on MINIMUM
CATALOG PRODUCTION FORMULA, cost or expense formulas including Continental's
fuel formula referenced in the SECTION on ANNUAL ADJUSTMENTS. and the
Continental Scheduled Flight Information referenced in the SECTION on
CONTINENTAL SCHEDULED FLIGHT INFORMATION below (the "Continental Reports"). The
Continental Reports do not include any records or information relating to
Continental corporate activities or the activities of Continental with any one
other than SkyMall. Continental agrees to maintain the Continental Reports and
supporting documentation during the Term of this Agreement and for one (1) year
following termination of the Agreement, except as otherwise required by federal
or state tax or other record keeping laws or regulations (the "Record
Maintenance Period").
9.3.1 Continental Scheduled Flight Information. Continental
shall cooperate in good faith to provide SkyMall with Continental's schedule
changes (the "Scheduled Changes") of Continental's current scheduled domestic
flights. SkyMall shall use such information in its order entry and delivery
process and shall restrict its usage of such information to these processes (the
"Continental Scheduled Flight Information").
9.4 SkyMall Audit of Records. Continental agrees that during the Record
Maintenance Period, SkyMall or such auditors as SkyMall may select and
authorize, at SkyMall's sole cost and expense, shall have the right from time to
time upon reasonable advance notice to Continental to examine and make copies of
the Continental Reports and supporting documentation at Continental's
headquarters offices during normal office hours.
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<PAGE> 20
10.0 LIMITED LICENSE OF USE OF CONTINENTAL'S NAMES
By this Agreement and during the Term of this Agreement and subject to
Continental's prior approval of any written, oral, radio or TV copy, Continental
licenses SkyMall with a non-exclusive license to use Continental's corporate
name "Continental Airlines" and Continental's tradenames and service marks,
including "Continental Airlines," "Continental," and Continental's other
trademarks and service marks, logos, and logotype solely in connection with the
production and promotion of the SkyMall(R) Services Catalog for Continental, and
the advertisement and sale of any merchandise or service bearing a Continental
trademark or service mark in the SkyMall(R) Services Catalog or SkyMall(R)
Program, with all such Continental names and logos to be used solely as directed
by Continental ("SkyMall's Non-Exclusive License"). Except as provided in this
SECTION on LIMITED LICENSE OF USE OF CONTINENTAL'S NAMES, SkyMall will not use,
publish, or reproduce (including without limitation in any form of advertising)
any Continental name or logo. SkyMall's Non-Exclusive License creates no third
party rights. SkyMall's Non-Exclusive License shall terminate automatically at
the termination of this Agreement in accordance with the SECTION on TERM OF
AGREEMENT.
11.0 CONFIDENTIAL INFORMATION
11.1 Confidential and Proprietary Information. Both Continental and
SkyMall agree that in performing their respective obligations under this
Agreement that they may, from time to time, furnish to each other certain
information and materials, both oral and written, relating to their respective
companies which each Party considers confidential and/or proprietary information
which would by its appropriation, disclosure or misuse have a detrimental effect
on each such Party (the "Confidential Information"). Each Party will mark any
such Confidential Information as "Confidential", "Proprietary", or "Trade
Secret" (the "Confidential Marks") which marks shall serve as proper notice to
the other Party that such information or material shall be considered
Confidential Information and shall be so treated according to the requirements
of this Agreement. Such Confidential Information may include, without
limitation, marketing philosophies and objectives, data, plans, designs, orders,
forecasts, competitive advantages and disadvantages, the types of services
provided, trade secrets, ideas, creations, materials and information regarding
each other's intellectual property (which includes, without limitation, patents,
copyrights, trademarks and service marks and their designs, logos, slogans,
etc.), data processing programs or procedures, source code, object code,
business methods and procedures, employees, suppliers, and customers.
11.2 Exceptions. Confidential Information excludes: (A) Information
approved by either Party for release to the public without qualification as to
the recipient; (B) Information which either Party obtained, had or possessed
independently of the other Party, unless such information is confidential
pursuant to another agreement or understanding; (C) Information which either
Party has placed or in the future places in the public domain; and (D) The
SkyMall(R) Buyer File.
11.3 Continental and SkyMall Actions. SkyMall agrees that all of
Continental's Confidential Information shall be considered Continental's
property, and confidential and proprietary to Continental, and Continental shall
have all ownership and use rights to the same. Continental agrees that all of
SkyMall's Confidential Information shall be considered SkyMall's property, and
confidential and proprietary to SkyMall, and SkyMall shall have all ownership
and use rights to the same. Both Continental and SkyMall respectively and their
directors, officers, employees, contractors, and agents shall: (A) Protect and
preserve the confidential and proprietary nature of all of the other's
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Confidential Information; (B) Not disclose, give, sell or otherwise transfer or
make available, directly or indirectly, any of the other's Confidential
Information to any third party for any purpose; (C) Not use the other's
Confidential Information, except as expressly provided in this Agreement; (D)
Immediately notify the other of any loss or misplacement of its Confidential
Information or copies of the same; (E) Comply with such security procedures as
may be reasonably prescribed by the other from time to time for protection of
its Confidential Information, including, without limitation, procedures
concerning the transportation and storage of such information; and (F) At a
minimum, employ the same degree of care in protecting Confidential Information
as each Party employs in protecting its own Confidential Information.
11.4 Enforcement. Both Continental and SkyMall agree that in the event
of a breach or threatened breach of the provisions of the SECTION on
CONFIDENTIAL INFORMATION, their respective remedies at law would be inadequate
and each Party shall be entitled to a temporary restraining order or injunction
(without any bond or other security being required) to prevent disclosure or use
of the Confidential Information; provided, however, the foregoing shall not be
construed to preclude either Party from pursuing any action or further remedy,
at law or in equity, for any breach or threatened breach of such provisions or
any other provisions of this Agreement, including, but not limited to, the
recovery of damages, reasonable attorneys' fees, costs and other expenses in
connection with the actions. Should a Party be served with a subpoena or other
legal process requiring the production or disclosure of any Confidential
Information owned by the other Party, then the served Party will immediately
notify the owner Party thereof, and will in good faith attempt to permit the
owner Party at the owner Party's expense to intervene and contest such
disclosure or production.
11.5 Survival. All rights and obligations of the Parties with regard to
the Confidential Information shall indefinitely survive the expiration or
termination of this Agreement.
12.0 NO-COMPETITION
Continental and SkyMall acknowledge that they will be exchanging
Confidential Information and other information. and that SkyMall has developed
its SkyMall(R) Program, it's SkyMall(R) Services Catalog, and its SkyMall(R)
Concierge Service at significant effort and expense to itself. Accordingly,
during the Term of this Agreement and for a period of 3 years thereafter, both
SkyMall and Continental, and their respective directors, officers, employees,
contractors, and agents, shall not compete with each other in any way, nor use
any information or knowledge about the other in competition with the other, nor
provide any such information or knowledge to any other person, entity or
competitor of the other. All rights and obligations of the Parties regarding the
No-Competition Requirements shall survive the termination of this Agreement for
three (3) years.
13.0 INDEMNIFICATIONS
13.1 Claims. As used in this SECTION on INDEMNIFICATIONS, the word
claims means any and all claims, liabilities, damages, demands, suits, causes of
action, proceedings, recoveries, judgments, expenses, taxes, fines, penalties or
executions, including without limitation, litigation costs and expenses and
reasonable attorneys' fees, which may be made, had, brought or recovered by any
third party.
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13.2 SkyMall's Indemnification of Continental. Except for Claims
arising from or in connection with merchandise or services, advertising or
promotions offered or provided by Continental in the SkyMall(R) Services Catalog
or otherwise in connection with SkyMall, or failure by Continental to provide
any merchandise or service offered by Continental in connection thereto, or the
negligence of Continental, its directors, officers, employees, contractors or
agents arising out of or in connection thereto, SkyMall shall indemnify defend
and hold harmless Continental, its directors, officers, employees, and agents,
from and against all Claims for: (A) Personal injury, or bodily injury, or
death, to any person, and for damage to the property of anyone arising out of
services provided from SkyMall (excluding property of Continental); (B)
Offering, providing, or failing to provide any SkyMall(R) Services Catalog
merchandise or services; (C) SkyMall(R) Program advertising, promotions, or
activities; (D) Performance, non-performance, or improper performance of
SkyMall's obligations or SkyMall's acts or omissions pursuant to this Agreement;
(E) Use by Continental of patents, copyrights, trademarks, tradenames, logos,
slogans, imprints or any copy, whether graphic or printed, supplied solely by
SkyMall and used by Continental solely as directed by SkyMall; and (F) Any claim
that merchandise being sold in the SkyMall(R) Services Catalog infringed upon
the valid patent rights of a third party.
13.3 Continental's Indemnification of SkyMall. Except for Claims
arising from or in connection with merchandise or services, advertising or
promotions offered or provided by SkyMall in the SkyMall(R) Services Catalog or
otherwise in connection with SkyMall, or failure by SkyMall to provide any
merchandise or service offered by SkyMall in connection thereto, or the
negligence of SkyMall, its directors, officers, employees, contractors or agents
arising out of or in connection thereto, Continental shall indemnify defend and
hold harmless SkyMall, its directors, officers, employees, and agents, from and
against all Claims for: (A) Personal injury, or bodily injury, or death, to any
person, and for damage to the property of anyone arising out of services
provided from Continental (excluding property of SkyMall); (B) Offering,
providing, or failing to provide any merchandise or services which are to be
provided by Continental in the SkyMall(R) Services Catalog; (C) Continental
advertising, promotions, or activities; (D) Performance, non-performance, or
improper performance of Continental's obligations or Continental's acts or
omissions pursuant to this Agreement; (E) Use by SkyMall of patents, copyrights'
trademarks, tradenames, logos, slogans, imprints or any copy, whether graphic or
printed, supplied solely by Continental and used by SkyMall solely as directed
by Continental; and (F) Any claim that merchandise which is provided by
Continental to be sold in the SkyMall(R) Services Catalog, or otherwise in
connection with SkyMall, infringed upon the valid patent rights of a third
party.
13.4 Notification, Defense of Claims and Settlement. The Party seeking
indemnification under this SECTION on NOTIFICATION, DEFENSE OF CLAIMS AND
SETTLEMENT (the "Notifying Party") shall be subject to the following provisions:
A. Notice. The Notifying Party shall notify the other Party
(the "Other Party") upon learning of a claim or other matter for which
indemnification is sought (the "Indemnity Matter"). The omission by the
Notifying Party to promptly notify the Other Party of any Indemnity Matter shall
relieve the Other Party from any obligation it may have to indemnify the
Notifying Party to the extent, but only to the extent, that the delay in
notification materially prejudices the Other Party's defense of the Indemnity
Matter;
B. Defense of Claim. Upon receipt by the Other Party of notice
of an Indemnity Matter given by the Notifying Party as provided in this SECTION
on NOTIFICATION, DEFENSE OF CLAIMS
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AND SETTLEMENT (NOTICE), then:
(a) The Other Party will be entitled to participate
in the Indemnity Matter at its own expense; and
(b) The Other Party will be entitled to assume the
defense of the Indemnity Matter, with counsel reasonably acceptable to the
Notifying Party. After notice from Other Party to the Notifying Party of Other
Party's election to assume such defence, Other Party shall not be liable to
Notifying Party under this Agreement for any legal or other expenses
subsequently incurred by Notifying Party in connection with such Indemnity
Matter, other than the reasonable costs of investigating the matter by the
Notifying Party, if any. Notifying Party shall have the right to employ its own
counsel in such Indemnity Matter, but the fees and expenses of such counsel
incurred after notice from Other Party of its assumption of the defense shall be
at the expense of Notifying Party unless (i) the employment of counsel by
Notifying Party has been authorized by Other Party, or (ii) Notifying Party
shall have reasonably concluded based on the opinion of its counsel that there
may be a conflict of interest or position between Other Party and Notifying
Party in the conduct of the defense of such action, or (iii) Other Party shall
not in fact have employed counsel to assume the defense of such action, in each
of which cases the fees and expenses of counsel for the Notifying Party shall be
at the expense of the Other Party if it is determined ultimately that the Other
Party is responsible to indemnify the Notifying Party with respect to the
Indemnity Matter; and
C. Settlement. The Other Party shall not be obligated to
reimburse the costs of any settlement to which it has not agreed in writing. If
in any Indemnity Matter, the Notifying Party shall have unreasonably failed to
enter into a settlement offered, or assented to, by the opposing party or
parties which settlement was agreed to by the Other Party in writing, then the
indemnification obligation of the Other Party to the Notifying Party in
connection with such Indemnity Matter shall not exceed the total of the amount
of such settlement proposal and the expenses incurred by the Notifying Party up
to the time such settlement proposal could have been effected.
13.5 Survival. All rights and obligations of the Parties with regard to
Indemnification shall indefinitely survive the termination of this Agreement.
14.0 INSURANCE
14.1 SkyMall Insurance. SkyMall shall:
A. Comprehensive General Liability, Etc. Procure and keep in
force policies of insurance with respect to the Indemnifications given except
for third party patents, products to be provided, and services to be performed
by SkyMall under this Agreement, as follows: (A) Comprehensive general liability
insurance in an amount not less than Five Million Dollars ($5,000,000) combined
single limit coverage; (B) Products liability insurance in an amount not less
than Five Million Dollars ($5,000,000) combined single limit coverage; (C)
Advertisers liability insurance in an amount of not less than Five Million
Dollars ($5,000,000); and (D) Automobile liability insurance in an amount of not
less than One Million Dollars ($1,000,000).
B. Workers Compensation. Procure and keep in force policies of
workers compensation insurance in amounts as required by statute.
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C. Endorsements. Endorse all policies of liability insurance
procured by SkyMall pursuant to this SECTION on INSURANCE - SKYMALL INSURANCE
(ENDORSEMENTS) (A) to provide that said insurance shall be primary insurance and
to acknowledge that any other insurance policy or policies of Continental shall
be secondary or excess insurance notwithstanding any provisions in such policies
regarding other insurance, (B) to name Continental, its parent, subsidiaries and
affiliates and their directors, officers, agents and employees as additional
insureds, (C) to provide that all provisions of such insurance, except for the
limits of liability, shall operate in the same manner as if there were a
separate policy issued to each insured, (D) to specifically cover the indemnity
and hold harmless obligations of SkyMall to Continental under this Agreement
except for third party patents, (E) to contain a waiver of subrogation clause in
favor of Continental and all other additional insureds, and (F) to contain a
provision requiring the insurers to provide Continental with a written notice of
any cancellations or adverse material change in such insurance, and providing
that the same shall not be effective as to the benefit and/or interest of
Continental for thirty (30) days after written notice of such cancellation or
adverse material change is received by Continental.
D. Acceptable Insurers. Procure and keep in force all
insurance required to be maintained under this Agreement from insurers with an
independent rating of A or better.
E. Certificates. Furnish certificates evidencing the insurance
coverage required under this Agreement to Continental at an address to be
furnished to SkyMall by Continental.
14.2 Continental Insurance. Continental shall:
A. Comprehensive General Liability, Etc. Procure and keep in
force policies of insurance with respect to the Indemnifications given except
for third party patents, products to be provided, and services to be performed
by Continental under this Agreement, as follows: (A) Comprehensive general
liability insurance in an amount not less than Five Million Dollars ($5,000,000)
combined single limit coverage; (B) Products liability insurance in an amount
not less than Five Million Dollars ($5,000,000) combined single limit coverage;
(C) Advertisers liability insurance in an amount of not less than Five Million
Dollars ($5,000,000); and (D) Automobile liability insurance in an amount of not
less than One Million Dollars ($1,000,000).
B. Endorsements. Endorse all policies of liability insurance
procured by Continental pursuant to this SECTION on INSURANCE - CONTINENTAL
INSURANCE (ENDORSEMENTS) (A) to provide that said insurance shall be primary
insurance and to acknowledge that any other insurance policy or policies of
SkyMall shall be secondary or excess insurance notwithstanding any provisions in
such policies regarding other insurance, (B) to name SkyMall, its directors,
officers, agents and employees as additional insureds, (C) to provide that all
provisions of such insurance, except for the limits of liability, shall operate
in the same manner as if there were a separate policy issued to each insured,
(D) to specifically cover the indemnity and hold harmless obligations of
Continental to SkyMall under this Agreement except for third party patents, (E)
to contain a waiver of subrogation clause in favor of SkyMall and all other
additional insureds, and (F) to contain a provision requiring the insurers to
provide SkyMall with a written notice of any cancellations or adverse material
change in such insurance, and providing that the same shall not be effective as
to the benefit and/or interest of SkyMall for thirty (30) days after written
notice of such cancellation or adverse material change is received by SkyMall.
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C. Acceptable Insurers. Procure and keep in force all
insurance required to be maintained under this Agreement from insurers with an
independent rating of A or better.
D. Certificates. Furnish certificates evidencing the insurance
coverage required under this Agreement to SkyMall at an address to be furnished
to Continental by SkyMall.
14.3 Survival. All rights and obligations of the Parties with regard to
Insurance shall indefinitely survive the termination of this Agreement.
15.0 MISCELLANEOUS
15.1 Agreement.
This COPYRIGHTED AND CONFIDENTIAL AIRLINE CUSTOMER SERVICES AGREEMENT
WITH CERTAIN PROPRIETARY INFORMATION consists of the TITLE PAGE, TABLE OF
CONTENTS, MAIN SECTIONS INCLUDING BUT NOT LIMITED TO RECITALS and AGREEMENTS,
the EXHIBITS and any subsequent duly signed AMENDMENTS (the "Agreement"). This
Agreement states the entire agreement and understanding of the Parties regarding
the subject matters contemplated in this Agreement, and supersedes all
pre-existing oral or written agreements or commitments regarding these matters.
No Party shall be bound by or be deemed to have made any agreement,
representation or warranty except as set forth in this Agreement.
15.2 Agreement - Amendments and Waivers.
This Agreement may not be amended, changed or modified except by an
amending agreement in writing signed by a duly authorized representative of each
Party (the "Amendment"). All AMENDMENTS, if any, shall be construed and be
deemed to be attached to this Agreement, and they are fully incorporated herein
and are made part of the Agreement. No waiver of any provision or any breach of
this Agreement by either Party, whether expressed or implied, shall be effective
unless stated in writing and signed by a duly authorized representative of the
Party alleged to have waived such provision or breach. Any single waiver shall
not operate as a continuing waiver or waive any other provision or breach of
this Agreement, whether in the past or in the future.
15.3 Agreement - Failure of Enforcement.
The failure of either Party to enforce any agreement, condition,
covenant or term of this Agreement by reason of breach by the other Party, after
notice had, shall not be deemed to void or affect the right of such Party to
enforce the same or any other agreement, condition, covenant or term on the
occasion of a subsequent breach or default by the other Party.
15.4 Approval or Consent.
Whenever a Party's approval or consent is required by this Agreement,
such approval or consent will not be unreasonably withheld or delayed.
15.5 Assignments and Successions.
SkyMall and Continental may assign this Agreement to a wholly owned
subsidiary, to a
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successor of substantially all of its business or assets, and in the case of
Continental to its parent corporation. Neither SkyMall nor Continental may
otherwise assign, whether in whole or in part, or delegate any of their
respective rights or obligations under this Agreement, whether by operation of
law or otherwise, without the prior written consent of the other Party.
15.6 Attorneys' Fees.
In any litigation or arbitration action or proceeding regarding a
dispute arising out of or related to this Agreement, the prevailing Party shall
be entitled to receive, in addition to any other remedy or award, reasonable
attorneys' fees, costs and other expenses incurred in connection with such
action or proceeding as determined by the court (but not by a jury), or
arbitrator.
15.7 Benefits of Parties, Successors and Assigns.
This Agreement shall be binding on, and inure to the benefit of, the
Parties and, subject to the SECTION on ASSIGNMENTS AND SUCCESSIONS, on their
respective heirs, executors, administrators, legal representatives, successors
and assigns. Nothing in this Agreement, expressed or implied, is intended to or
shall confer on any person other than the Parties or their respective heirs,
executors, administrators, legal representatives, successors or assigns, any
rights, obligations, remedies or liabilities under this Agreement.
15.8 Breach or Default.
Subject to SECTIONS on FORCE MAJEURE EXCUSING PERFORMANCE, BREACH AND
DEFAULT REMEDIES, and TERMINATION, the existence or occurrence of any one or
more of the following shall constitute a breach or default under this Agreement
unless such breach or default is promptly cured within any applicable grace
periods provided and written notices required, all as stated below:
A. Confidential Information. The Parties agree that in the
event of a threatened breach or actual breach of the provisions of the SECTIONS
on CONFIDENTIAL INFORMATION AND NO-COMPETITION, that the non-defaulting Party's
remedies at law would be inadequate and will cause the other Party irreparable
injury and damage. Therefore, the non-defaulting Party shall be entitled to a
temporary restraining order or injunction (without any bond or other security
being required) to prevent disclosure or use of the Confidential Information or
No Competition information pursuant to the SECTION on BREACH AND DEFAULT
REMEDIES.
B. Non-Payment. Either Party's refusal, failure, or neglect in
making any required payment or performing any monetary term, condition,
covenant, warranty or representation within fifteen (15) days after its due date
under this Agreement, and written notice thereof from the other Party;
C. Performance or Condition. Either Party's refusal, failure,
or neglect in the performance of, or breach of, any non-monetary term,
condition, covenant, warranty or representation contained in this Agreement
shall have occurred and be continuing for thirty (30) days after written notice
thereof from the other Party; provided however that such thirty (30) day period
may be extended if, within such period, a duly authorized representative of the
defaulting Party delivers to the other Party a certificate stating that the
breach is not susceptible of cure within such thirty (30) day period but can be
cured within a period of ninety (90) days from receipt of the initial notice and
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further stating the actions being taken and to be taken to effect a cure, then
the defaulting Party shall be entitled to a total period of up to ninety (90)
days from the initial notice to cure such breach, but only for as long as the
defaulting Party diligently and vigorously pursues such cure, then, without
further notice, the non-defaulting Party may pursue any and all rights and
remedies available to it;
D. Bankruptcy or Insolvency. Notwithstanding Continental's
current bankruptcy proceeding in the U.S. Bankruptcy Court of the District of
Delaware, either Party: (a) Becomes insolvent; (b) Does not pay its bills when
due without just cause; (c) Takes any material steps leading to its cessation as
a going concern; (d) Ceases or suspends operations; (e) Makes a general
assignment for the benefit of creditors, or there is filed by or against a Party
a voluntary or involuntary petition or application for a custodian, or the
appointment of a receiver, provided, however, that any Party against whom an
involuntary petition is filed shall have sixty (60) days to secure the dismissal
thereof before the filing shall be deemed a default under this Agreement; or (f)
Commences any action under any law relating to bankruptcy, insolvency,
reorganization or relief of debtors, or proceedings for a Party's relief, or for
the composition, extension, arrangement or adjustment of any of a Party's
obligations, or affecting any significant portion of a Party's property
(collectively the "Bankruptcy Proceedings"), provided, however, that if any of
the foregoing Bankruptcy Proceedings are filed against a Party involuntarily,
such Party shall have sixty (60) days to secure dismissal thereof before such
filing shall be deemed to be a default under this Agreement;
E. Bankruptcy - Non-Defaulting Party. Notwithstanding
Continental's current bankruptcy proceeding in the U.S. Bankruptcy Court of the
District of Delaware, if Bankruptcy Proceedings are commenced with respect to
the defaulting Party and if this Agreement has not otherwise terminated, then
the non-defaulting Party may suspend all further performance of this Agreement,
other than making payments which are due under this Agreement subject to the
SECTION on BREACH OR DEFAULT - LIQUIDATED DAMAGES below, until the defaulting
Party assumes or rejects this Agreement pursuant to Section 365 of the United
States "Bankruptcy Code", or any similar or successor provision. Any such
suspension of further performance by the non-defaulting Party pending the
defaulting Party's assumption or rejection will not be a breach of this
Agreement and will not affect the non-defaulting Party's right to pursue or
enforce any of its rights under this Agreement or otherwise.
F. Liquidated Damages. In the event that Continental (a)
commences Bankruptcy Proceedings (other than its pending Chapter 11 proceeding),
including a conversion from the pending Chapter 11 case into a Chapter 7 case,
or (b) stops flying on a regular scheduled basis twenty-five percent (25%) of
its January 1, 1991 weekly scheduled flights, or (c) otherwise defaults under
this Agreement (collectively the "Special Breaches"), then SkyMall will sustain
both a financial loss and a loss of business that are difficult to ascertain
because of SkyMall's production of the Catalogs and lost Continental sales.
Therefore, the Parties agree that in the event of any Special Breach SkyMall
shall have a claim for liquidated damages in the amount(s) of the Minimum Fee
Payment and any Sales Commissions that SkyMall might otherwise owe Continental.
The Parties agree that such liquidated damages amount(s) shall be set-off by
SkyMall against any amounts SkyMall may otherwise owe Continental.
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15.9 Breach and Default Remedies.
Subject to the SECTIONS on FORCE MAJEURE EXCUSING PERFORMANCE AND
TERMINATION, upon the occurrence of any breach or default of this Agreement as
defined in the SECTION on BREACH OR DEFAULT which is not cured within any
applicable grace periods provided and written notices required, the
non-defaulting Party may, consistent with applicable laws, at its option, do one
or more of the following:
A. Temporary Restraining Order or Injunction. Proceed
immediately, when Confidential Information or No-Competition Requirements are
involved, to obtain a temporary restraining order or injunction (without any
bond or other security being required) to prevent disclosure or use of any
Confidential Information or No-Competition information respectively identified
under the SECTIONS on CONFIDENTIAL INFORMATION AND NO-COMPETITION, recognizing
that the Parties have agreed that remedies at law would be inadequate for such
threatened or actual breaches; provided, however, the foregoing shall not be
construed to preclude the non-defaulting Party from pursuing any action or
further remedy, at law or in equity, for any breach or threatened breach of such
provisions or any other provisions of this Agreement, including, but not limited
to, the recovery of damages, reasonable attorneys' fees, costs and other
expenses in connection with the actions;
B. Damages for Breach. Proceed by appropriate court action(s)
at law or equity to recover damages for the breach of this Agreement, including
reasonable attorneys' fees, costs and other expenses in connection with the
breach of any obligations stated in the SECTION on INDEMNIFICATIONS;
C. Other Remedies. Exercise any other right, privilege or
remedy available under this Agreement, or in law or equity; and
D. Terminate the Agreement. By written notice to the
defaulting Party immediately terminate this Agreement.
15.10 Consequential Damages. EXCEPT AS PROVIDED UNDER THE SECTIONS ON
INDEMNIFICATIONS AND TERM OF AGREEMENT, ABOVE, NEITHER PARTY WILL BE LIABLE FOR,
AND EACH PARTY WAIVES AND RELEASES ANY CLAIMS AGAINST THE OTHER PARTY FOR, ANY
SPECIAL, INCIDENTAL, OR CONSEQUENTIAL DAMAGES, INCLUDING, WITHOUT LIMITATION,
LOST REVENUES, LOST PROFIT, OR LOSS OF PROSPECTIVE ECONOMIC ADVANTAGE, RESULTING
FROM ITS PERFORMANCE OR FAILURE TO PERFORM OR ITS ACTS OR OMISSIONS, UNDER THIS
AGREEMENT.
15.11 Counterparts.
This Agreement may be executed in any number of counterparts, each of
which shall be deemed an original, and all counterparts so executed shall
constitute one and the same Agreement which is binding upon all Parties even
though all Parties do not sign the same counterpart.
15.12 Days.
The word days in this Agreement shall mean calendar days unless the
text in a provision expressly provides for business days.
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15.13 Dealings with Third Parties.
No Party is, nor shall any Party hold itself out to be, vested with any
power or right to represent, act on behalf of, or contractually bind any other
Party as its agent, partner, or otherwise.
15.14 Exhibits.
All EXHIBITS to this Agreement, identified as such and attached to this
Agreement are fully incorporated herein and are made part of this Agreement.
15.15 Force Major Excusing Performance.
Notwithstanding anything in this Agreement to the contrary, no Party
shall be liable to the other Party for any failure or delay in performing all or
any part of this Agreement and shall be excused to the extent that such
non-performance or delay arises out of any cause beyond the reasonable control
of either Party by reasons including, without limitation, loss of facilities,
breach by suppliers of supply agreements, fires, floods, strikes, labor unrest,
embargoes, civil commotion, rationing or other governmental orders or
requirements, acts of civil or military authorities, war, acts of God,
unavoidable accidents, acts or omissions of sovereign states, or seriously
adverse weather conditions. All requirements of notice and other performance
required by this Agreement within a specified period shall be automatically
extended to accommodate the period of pendency of any such contingency which
interferes with such performance, provided, however, that within thirty (30)
days of the conclusion of any Force Major cause a duly authorized representative
of the Party invoking such cause delivers to the other Party a certificate
stating such cause, the performance of this Agreement which it delayed, the
reasonable efforts taken to overcome such cause, and the period of time such
cause was in effect.
15.16 Further Actions and Assurances.
Each Party agrees that it shall cooperate in good faith to take such
further actions and duly sign, acknowledge and deliver, or cause to be so done,
all further documents, assurances and certificates as may be necessary or
expedient, or as either Party may reasonably request of the other, in order to
carry out the purpose and intent of this Agreement. In addition, each Party
agrees that it shall not take any action which would adversely affect any right
granted by it to the other Party by this Agreement.
15.17 Governing Law.
It is the express intention of the Parties that this Agreement is to be
governed and interpreted under the laws of the State of Arizona.
15.18 Headings and Interpretation.
The headings contained in this Agreement are for convenience and
reference only, and are not to be considered in interpreting this Agreement.
When the context so requires in this Agreement, the singular number includes the
plural, and vice versa.
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15.19 Joint Venture or Partnership.
Nothing in this Agreement, expressed or implied, is intended to or
shall constitute, create or establish any agency, joint venture, or partnership
relationship between the Parties. The Parties are independent contractors.
15.20 Notices.
All notices, requests, demands and other communications under this
Agreement shall be in writing and shall be deemed to have been duly given on the
date of delivery if delivered personally to the Party to whom notice is to be
given, or seventy-two (72) hours after mailing, if mailed to the Party to whom
notice is to be given by United States first class mail, registered or
certified, with return receipt requested, postage prepaid, and properly
addressed to the Party at the address set forth below, or at any other address
that any Party may designate by written notice to the other Party.
Continental Airlines
2929 Allen Parkway
Houston, Texas 77019
Attention: Mr. Eric Kleiman
Manager, Leisure Marketing Program
With a copy to:
Continental Airlines
2929 Allen Parkway
Houston, Texas 77019
Attention: Manager of Contract Administration
SkyMall, Inc.
1520 East Pima Street
Phoenix, Arizona 85034
Attention: Mr. Robert M. Worsley, President
With a copy to:
Lewis and Roca
40 North Central Avenue
Phoenix, Arizona 85004-4429
Attention: Kevin L. Olson, Esquire
15.21 Severability.
If any court or tribunal of competent jurisdiction shall refuse, in
that jurisdiction, to enforce any part or provision of this Agreement due to a
determination of unenforceability, illegality or invalidity, it is expressly
understood and agreed by the Parties that neither this Agreement, nor any part
thereof, shall be void, and only the particular restriction deemed to be
unenforceable, illegal or invalid shall then be reduced or otherwise modified by
such court or tribunal, but only to the minimum extent necessary to permit its
enforcement. If any provision cannot be so reduced or
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modified, that provision shall then be severed from this Agreement, and the
remaining provisions shall be interpreted in such a way as to give maximum
validity and maximum enforcement to this Agreement in that jurisdiction.
15.22 Survival
Notwithstanding any provisions in this Agreement to the contrary, the
Parties agree that all applicable agreements, obligations, covenants, terms,
conditions, representations and warranties made in this Agreement shall survive
the execution and delivery of this Agreement until all obligations of SkyMall to
Continental and of Continental to SkyMall under this Agreement shall have been
fully paid and performed including, without limitation, the SECTIONS on
CONFIDENTIAL INFORMATION, NO-- COMPETITION, INDEMNIFICATIONS, INSURANCE,
CONTINENTAL SALES COMMISSIONS AND FEES, and TERMINATION.
15.23 Termination.
A. Termination for Convenience. Subject to the requirements of
the SECTIONS on TERM OF AGREEMENT AND TERMINATION - TERMINATION RIGHTS AND
OBLIGATIONS, either Continental or SkyMall may terminate this Agreement for any
reason without cause by written notice to the other Party one-hundred eighty
(180) days prior to the date upon which Continental or SkyMall desires
termination to be effective.
(a) SkyMall Termination. Upon any termination by
SkyMall, SkyMall shall (i) be solely responsible for all SkyMall merchandise
inventory that, because of SkyMall's termination, will not be sold to
Continental's passengers through SkyMall(R) Services Catalogs based upon
historical levels of purchases over the preceding one hundred twenty (120) days
including any shipping, handling and restocking, (ii) fulfill all Continental
customer orders arising from SkyMall(R) Services Catalogs distributed prior to
termination, for a period of ninety (90) days following the effective date of
termination, and pay Continental the corresponding Sales Commissions due
Continental for Net Sales made during this time period, and (iii) be solely
responsible for all costs, damages, liabilities and claims arising from, in
connection with or allocable to this Agreement including, without limitation,
Catalog design, printing, and distribution, merchandise selection, purchase and
inventory, marketing, public relations, suffered by SkyMall (1) during the
Initial Term if SkyMall terminates the Agreement before the end of the Initial
Term, and (2) during any Continuing Term for the period of time in which SkyMall
is preparing a new edition of the Catalog (the "Catalog Lead Time") and for the
period of time such new edition of the SkyMall(R) Services Catalog is or would
have been distributed aboard the Continental Domestic Fleets (the "Catalog
Distribution Time"). For purposes of this Agreement, a Catalog Lead Time is
generally one hundred twenty (120) days, and a Catalog Distribution Time is
generally one hundred thirty (130) days. Upon receipt of any termination notice
by SkyMall, Continental shall use all reasonable commercial efforts to mitigate
its costs, damages and in connection with this Agreement for a termination
occurring during the Initial Term, any Continuing Term, or during any Catalog
Lead Time or any Catalog Distribution Time. In any termination, Continental will
be solely responsible for disposing of all SkyMall(R) Services Catalogs in its
possession at the time of termination.
(b) Continental Termination. Upon any termination by
Continental, Continental shall (i) be solely responsible for all SkyMall
merchandise inventory that, because of Continental's termination, will not be
sold to Continental's passengers through SkyMall(R) Services
26
<PAGE> 32
Catalogs based upon historical levels of purchases over the preceding one
hundred twenty (120) days including any shipping, handling and restocking
subject to SkyMall using all reasonable commercial efforts to return such
merchandise inventory to the merchandise Suppliers or selling such inventory,
all within one hundred twenty (120) days from SkyMall's receipt of the notice of
termination, and (ii) be solely responsible for all costs, damages, liabilities
and claims arising from, in connection with or allocable to this Agreement
including, without limitation, Catalog design, printing, and distribution,
merchandise selection, purchase and inventory, marketing, public relations,
suffered by SkyMall (1) during the Initial Term if Continental terminates the
Agreement before the end of the Initial Term, and (2) during any Continuing Term
for the period of time in which SkyMall is preparing a new edition of the
Catalog (the "Catalog Lead Time") and for the period of time such new edition of
the SkyMall(R) Services Catalog is or would have been distributed aboard the
Continental Domestic Fleets (the "Catalog Distribution Time"). For purposes of
this Agreement, a Catalog Lead Time is generally one hundred twenty (120) days,
and a Catalog Distribution Time is generally one hundred thirty (130) days. Upon
receipt of any termination notice by Continental, SkyMall shall use all
reasonable commercial efforts to mitigate its costs, damages and in connection
with this Agreement for a termination occurring during the Initial Term, any
Continuing Term, or during any Catalog Lead Time or any Catalog Distribution
Time. In any termination, Continental will be solely responsible for disposing
of all SkyMall(R) Services Catalogs in its possession at the time of
termination.
B. Termination For Cause. Subject to the SECTIONS on TERM OF
AGREEMENT, BREACH OR DEFAULT, BREACH AND DEFAULT REMEDIES, SURVIVAL, and
TERMINATION, Continental or SkyMall may cancel this Agreement for cause.
C. Termination Rights and Obligations. Subject to the
applicable Sections of this Agreement, any termination of this Agreement, with
or without cause, shall not affect any rights or obligations of the Parties
which are of a continuing nature or which shall have accrued prior to the
effective date of such termination including, without limitation, the SECTIONS
on TERMINATION, CONFIDENTIAL INFORMATION, NO-COMPETITION, INDEMNIFICATIONS,
INSURANCE, CONTINENTAL SALES COMMISSIONS AND FEES, BREACH OR DEFAULT, BREACH AND
DEFAULT REMEDIES and SURVIVAL.
15.24 Time.
Time is of the essence of this Agreement and each of its provisions.
[The remainder of this page is intentionally left blank]
27
<PAGE> 33
IN WITNESS WHEREOF, the duly authorized representatives of the Parties
with full power and authority to legally bind their respective Parties have duly
signed and executed this Airline Customer Services Agreement as of the date
first written above.
CONTINENTAL AIRLINES
By: /s/ Earl Quenzel
--------------------------
Name: Earl Quenzel
Title: Vice President, Marketing
SKYMALL, INC.
By: /s/ Robert M. Worsley
--------------------------
Name: Robert M. Worsley
Title: President
28
<PAGE> 34
EXHIBIT A
MINIMUM CATALOG PRODUCTION FORMULA
PART OF THE AIRLINE CUSTOMER SERVICES AGREEMENT BETWEEN
CONTINENTAL AND SKYMALL
The Minimum Catalog Production Formula is as follows:
Minimum Catalog Production Formula
A. Definitions:
(a) Projected Passenger Enplanements is defined as the
latest official Continental projections of the
applicable passenger enplanements for the following
six (6) months.
(b) Catalog Period is defined as the time period during
which Continental will distribute and board the
corresponding edition of the SkyMall(R) Services
Catalog. Catalog Periods are generally four (4)
months, and Catalog Lead Times are generally four (4)
months.
(c) Catalog Production Percent is defined as the percent
needed to produce the agreed upon minimum number of
Catalogs.
B. Calculation Formula:
Minimum Catalog Production Quantities to be printed for a
Catalog Period =
Monthly Projected Passenger Enplanements X Catalog Period X
Catalog Production Percent
C. Example:
3,300,000 Monthly Passengers X 4 Months X 5% = 660,000
Catalogs.
A-1
<PAGE> 35
EXHIBIT B
CONTINENTAL PAGES REIMBURSEMENT FORMULA
PART OF THE AIRLINE CUSTOMER SERVICES AGREEMENT BETWEEN
CONTINENTAL AND SKYMALL
The Continental Pages Reimbursement Formula is as follows:
Continental Pages Reimbursement Formula
A. Definitions:
(a) Continental Pages are defined as those pages offered
by SkyMall to Continental in the SkyMall(R) Services
Catalog which advertise Continental's Trademarked
Merchandise and Continental's Advertising that
Continental chooses to place on those pages.
(b) CPPPC is defined as the actual cost per page per
catalog and is to be determined after all invoices
are received.
B. Calculation Formula:
Continental's Reimbursement to SkyMall =
(a) Actual number of Continental Pages printed
X (b) Actual CPPPC
X (c) Catalogs printed
C. Example:
4 Continental Pages X .0032 X $800,000 = $10,240 of
Reimbursement due SkyMall.
D. Payment: All such reimbursement costs shall be paid to SkyMall
within thirty (30) days of SkyMall's presentation of the
invoice for such costs to Continental, including appropriate
supporting documentation.
B-1
<PAGE> 36
EXHIBIT C
NET SALES FORMULA
PART OF THE AIRLINE CUSTOMER SERVICES AGREEMENT BETWEEN
CONTINENTAL AND SKYMALL
The Net Sales Formula is as follows:
Net Sales Formula
A. Definitions:
(a) Gross SkyMall(R) Catalog Merchandise Sales is defined
as all gross merchandise sales from the SkyMall(R)
Services Catalog for Continental.
(b) SkyMall(R) Concierge Service Fees is defined as the
charge SkyMall collects from Continental customers
for each concierge service request and is exclusive
of the price of goods or services acquired to fulfill
each customer's request (the "SkyMall(R) Concierge
Service Fees").
(c) Returned Merchandise Revenue is defined as the sale
amounts on all returned merchandise or refunds from
Continental customers
(d) Canceled SkyMall(R) Concierge Service Fees is defined
as any SkyMall(R) Concierge Service Fees charged by
SkyMall for services rendered and thereafter canceled
by Continental customers, and the cost to cancel or
return the applicable service or product.
(e) Sales, Excises Taxes and Duties is defined as all
applicable sales and excise taxes and duties on
SkyMall Catalog merchandise and services paid by
SkyMall for Continental customers.
(f) Shipping and Handling Charge is defined as all
shipping, handling and insurance costs for all
SkyMall(R) Catalog merchandise and services sold to
Continental customers.
(g) Giftwrapping and monogramming Charges is defined as
all extra and special services requested and paid by
Continental customers.
(h) Bad Debts is defined as all bad debts incurred by
SkyMall in administering the SkyMall(R) Programs for
Continental (i.e., accounts receivable that are
deemed uncollectible).
C-1
<PAGE> 37
B. Calculation Formula:
Net Sales =
<TABLE>
<S> <C> <C>
(a) Gross SkyMall(R) Catalog Merchandise Sales
+ (b) SkyMall(R) Concierge Service Fees
+ (e) Sales, Excises Taxes and Duties
+ (f) Shipping and Handling Charges
+ (g) Giftwrapping and Monogramming Charges
(Less):
- (c) Returned Merchandise Revenue
- (d) Canceled SkyMall(R) Concierge Service Fees
- (e) Sales, Excises Taxes and Duties
- (f) Shipping and Handling Charges
- (g) Giftwrapping and Monogramming Charges
- (h) Bad Debts
</TABLE>
C. Example:
<TABLE>
<S> <C>
Merchandise Sales $3,100,000
Concierge Fees $ 100,000
Taxes $ 192,000
Shipping & Handling $ 320,000
Giftwrapping $ 30,000
----------
Subtotal $3,742,000
(Less):
Merchandise Returns $ 160,000
Canceled Fees $ 5,000
Taxes $ 192,000
Shipping & Handling $ 320,000
Giftwrapping $ 30,000
Bad Debts $ 32,000
----------
Subtotal $ 739,000
TOTAL NET SALES $3,003,000
</TABLE>
C-2
<PAGE> 38
EXHIBIT D
CONTINENTAL PAGES AGREEMENT
PART OF THE AIRLINE CUSTOMER SERVICES AGREEMENT BETWEEN
CONTINENTAL AND SKYMALL
The Continental Pages Agreement is as follows: NONE
[The balance of this page is intentionally left blank]
D-1
<PAGE> 39
EXHIBIT E
FREQUENT FLYER MILEAGE CREDIT AGREEMENT
PART OF THE AIRLINE CUSTOMER SERVICES AGREEMENT BETWEEN
CONTINENTAL AND SKYMALL
The Frequent Flyer Mileage Credit Agreement is as follows: NONE
[The balance of this page is intentionally left blank]
E-1
<PAGE> 40
EXHIBIT F
COUNTER-TO-COUNTER DELIVERY SERVICES AGREEMENT
PART OF THE AIRLINE CUSTOMER SERVICES AGREEMENT BETWEEN
CONTINENTAL AND SKYMALL
The Counter-to-Counter Delivery Services Agreement is as follows: NONE
[The balance of this page is intentionally left blank]
F-1
<PAGE> 41
EXHIBIT G
ON-BOARD SALES AND DELIVERIES AGREEMENT
PART OF THE AIRLINE CUSTOMER SERVICES AGREEMENT BETWEEN
CONTINENTAL AND SKYMALL
The On-Board Sales and Deliveries Agreement is as follows: NONE
[The balance of this page is intentionally left blank]
G-1
<PAGE> 1
* Confidential portion has been
omitted and filed separately
with the Commission.
EXHIBIT 10.2(c)
August 9, 1996 UNITED CONTRACT
112064-3
United Airlines
1200 East Algonquin Road
Box 66100
Elk Grove Township, Illinois 60007
Attention: Arthur Racek
Re: Amendment to May 1, 1992 Airline Customer Services Agreement No. 112064
Gentlemen:
This letter, when accepted on behalf of United Air Lines, Inc. ("Airline") and
SkyMall, Inc. ("SkyMall"), will constitute an amendment to the Airline Customer
and Services Agreement No. 112064, dated May 1, 1992 between Airline and SkyMall
(the "Agreement").
The Agreement has been amended previously on March 17, 1995 and September 15,
1995. References to this Amendment to the Agreement are to the Agreement as
amended.
Except as expressly changed by this Amendment, the Agreement continues to be
effective.
A new Section 2.4 is added to the Agreement to read as follows:
2.4. Operation of the SkvMall Program. Commencing with the January
1997 issue of the SkyMall Services Catalog (the "Catalog"),
SkyMall will observe the following restrictions on Catalog
content:
a. The Catalog (i.e., High Street Emporium) is
not a "magazine" and will not contain any
editorial content whatsoever;
b. All products and services depicted in the
Catalog will have an inventory (SKU) number
and will be available for sale direct to
customers;
c. SkyMall will maintain a single telephone
number for customers to place orders from
the Catalog and to make inquiries;
d. SkyMall's vendors or SkyMall will ship
products ordered from the Catalog direct to
customers; and
<PAGE> 2
e. SkyMall will not charge advertising rates
(depiction or placement fees) to its vendors
for space within the Catalog. SkyMall's
revenue will be solely derived from a
percentage of product sales, with a minimum
guarantee based upon the size of the vendor
space.
This Amendment is executed to be effective January 1, 1997.
ACCEPTED AND AGREED TO:
UNITED AIR LINES, INC. SKYMALL, INC.
By: /s/Arthur P. Racek By: /s/ Robert M. Worsley
------------------------- --------------------------
Title: Purchasing Agent Title: President and CEO
---------------------- ------------------------
Date: 8/20/96 Dated: August 9, 1996
----------------------- ------------------------
<PAGE> 3
* Confidential portion has been
omitted and filed separately
with the Commission.
[LETTERHEAD OF SKYMALL, INC.]
UNITED CONTRACT
112064-2
September 15, 1995
United Airlines
1200 East Algonquin Road
Box 66100
Elk Grove Township, Illinois 60007
Attention: Arthur Racek
Re: Amendment to May 1, 1992 United Airline Customer Services Agreement No.
l12064
Gentlemen:
This letter, when accepted on behalf of United Airlines ("Airline") and SkyMall,
Inc. ("SkyMall"), will constitute an amendment to the United Airline Customer
and Services Agreement No. 112064 dated May 1, 1992 between Airline and SkyMall
(the "Agreement"). The amendment is set forth as follows:
The existing Section 8.2 is replaced by the following:
SECTION 8.2 PAYMENT DUE DATE. AIRLINE AND SKYMALL RECOGNIZE THAT SINCE
JANUARY, 1995, PAPER PRICES HAVE RISEN OVER 50% FOR THE SKYMALL CATALOG. SKYMALL
HAS PAID APPROXIMATELY $40 PER HUNDRED (CWT.) SINCE 1990 FOR ITS PAPER. THE
SKYMALL CONTRACT WITH AIRLINE HAS BEEN SILENT WITH REGARD TO PAPER INCREASES.
BOTH PARTIES WISH TO ALLEVIATE THE PRESSURE THIS PAPER INCREASE HAS CREATED FOR
SKYMALL. THEREFORE, AIRLINE AND SKYMALL AGREE TO EXTEND COMMISSION PAYMENT TERMS
TO 90 DAYS FROM THE CURRENT 60-DAY TERMS UNTIL PAPER PRICES RECEDE TO $50 CWT.
OR LESS. SKYMALL AGREES TO PAY FINANCE CHARGES OF 12% PER ANNUM ON THE 60 -
90-DAY TIME EXTENSION GRANTED BY AIRLINE.
The existing 5.23 is replaced by the following:
SECTION 5.23 MERCHANDISE AND SERVICES. SKYMALL AGREES THAT, EFFECTIVE
WITH THE DROP OF THE SEPTEMBER 1, 1995 CATALOG, IT WILL PURCHASE MINIMUM
QUANTITIES OF UNITED TRADEMARKED MERCHANDISE (TRAVEL BAGS). COSTS OF DELIVERY OF
SAID MERCHANDISE FROM UNITED'S VENDOR TO SKYMALL'S PHOENIX LOCATION ARE TO BE
PAID BY UNITED EITHER DIRECTLY OR BY SKYMALL INVOICE IN THE EVENT SKYMALL IS
BILLED. AFTER A PERIOD OF ONE (1) YEAR FROM THE DATE OF PURCHASE OF SAID
TRADEMARKED MERCHANDISE, UNITED AGREES TO BUY BACK FROM SKYMALL ANY UNSOLD
TRADEMARKED MERCHANDISE AT THE ORIGINAL COST, PLUS 12%. SKYMALL WILL ADD ITS
MARGIN TO THE COST OF THE TRADEMARKED MERCHANDISE AND UNITED WILL RECEIVE
COMMISSION ON THE SALES OF THE TRADEMARKED MERCHANDISE AT THE RATE OF *%.
The terms of this amendment shall be effective as of September 1, 1995.
<PAGE> 4
Except as specifically set forth herein, all other terms and conditions set
forth in the Agreement shall remain in full force and effect.
Please indicate your acceptance of this agreement by signing in the space
provided below and returning one fully executed copy of this letter to my
attention.
Sincerely,
Robert M. Worsley
President and CEO
RMW:nw
ACCEPTED AND AGREED TO:
UNITED AIRLINES SKYMALL, INC.
By: /s/ Arthur P. Racek By: /s/ Robert M. Worsley
-------------------------- -------------------
Title: Purchasing Agent Title: President and CEO
---------------------- ---------------
Date: Oct 1 1995 Dated: September 15, 1996
----------------------------- -----------------
<PAGE> 5
[LETTERHEAD OF UNITED AIRLINES]
UNITED CONTRACT
112064-1
March 27, 1995
SKYMALL, INC.
1520 East Pima Street
Phoenix, Arizona 85034
RE: UNITED CONTRACT NO. 112064
Gentlemen:
Please refer to the captioned agreement between your company and United Air
Lines, Inc. This amendatory letter shall, when fully executed, evidence our
mutual understanding and agreement that said agreement shall be amended
effective as set forth in Attachment "A" to this letter.
It is hereby expressly understood and agreed between your company and United Air
Lines, Inc., that all other terms, conditions and provisions of said agreement
shall continue in full force and effect, and the terms set forth in Attachment
"A" shall be and hereby are incorporated therein and made part thereof.
If the foregoing, including the amendments set forth in Attachment "A" hereto,
conform to your understanding and agreement, please sign both copies of the same
in the space provided below and return "United's Copy" to United. The original
is intended for your file.
Very truly yours,
UNITED AIR LINES, INC.
By: /s/ RICHARD J. Fitzgerald READ, ACCEPTED AND AGREED
-------------------------------- TO THIS ____ DAY OF
Title: /s/ Director Purchasing __________________, 19__.
-----------------------------
SKYMALL, INC.
By: /s/ Robert M. Worsley
-----------------------
Title: CEO
-------------------
<PAGE> 6
* Confidential portion has been
omitted and filed separately
with the Commission.
ATTACHMENT "A"
1. Effective January 1, 1995, Section 7.2 SKYMALL PAYMENT OF UNITED SALES
COMMISSIONS is deleted in its entirety and the following new Section
7.2 is substituted therefor:
"7.2 SKYMALL PAYMENT OF UNITED SALES COMMISSIONS. SkyMall will pay a
monthly sales commission (the "Sales Commission") to United equal to
the greater of (a) $*, or (b) * percent (*%) of Net Sales (as
defined in Section 7.1).
A. PAYMENT DUE DATE. SkyMall will pay the Sales Commission to United on
the first day of the second month after the month when the sales
occurred. SkyMall will deliver, with the payment, a supporting
statement showing (a) the number of orders filled for the month, (b)
the net dollar amount of sales related to the orders, and (c) the
calculation of the Sales Commission."
2. Effective January 1, 1995, Section 7.3 MINIMUM FUEL PAYMENT is deleted
in its entirety.
3. Effective January 1, 1995, Section 7.4 ADJUSTMENTS TO MINIMUM FUEL
PAYMENT is deleted in its entirety.
4 Effective January 1, 1995, Section 9.32 UNITED DOMESTIC FLEET MONTHLY
FUEL REPORT is deleted in its entirety.
5. Effective April l, 1995, new Section 14.23 COMPLIMENTARY AIR TRAVEL is
added to the Agreement as follows:
"14.23 COMPLIMENTARY AIR TRAVEL. United will provide, at its
discretion, up to twenty-four (24) complimentary roundtrip passes per
year to SkyMall to be used for business travel related to the
performance of this Agreement (the "Complimentary Air Travel"). The
Complimentary Air Travel must be booked at least one week in advance,
is available on a positive space or space available basis as determined
by United, and is subject to other requirements and/or restrictions as
specified by United."
6. Effective January l, 1995, EXHIBIT B MINIMUM FUEL PAYMENT FORMULA is
deleted in its entirety.
ATTACHMENT "A"
UNITED CONTRACT NO. 112064-1
PAGE 1 OF 1
<PAGE> 7
AIRLINE CUSTOMER SERVICES AGREEMENT
Between
UNITED AIR LINES, INC.
1200 EAST ALGONQUIN ROAD
ELK GROVE TOWNSHIP, ILLINOIS 60007
And
SKYMALL, INC.
1520 EAST PIMA STREET
PHOENIX, ARIZONA 85034
Dated
May 1, 1992
<PAGE> 8
AIRLINE CUSTOMER SERVICES AGREEMENT
<TABLE>
<CAPTION>
Table of Contents
-----------------
<S> <C>
RECITALS............................................................................ 1
AGREEMENTS.......................................................................... 1
1.0 United..................................................................... 1
2.0 SkyMall.................................................................... 1
2.1 SkyMall(R)Services Catalog........................................ 2
2.2 SkyMall(R)Concierge Services...................................... 2
2.3 SkyMall(R)Guarantees.............................................. 2
3.0 United's Basic Agreement With SkyMall...................................... 2
4.0 Term of Agreement; and Survival............................................ 2
5.0 SkyMall(R)Program and SkyMall(R)Services Catalog............................ 3
5.1 SkyMall(R)Program ................................................ 3
5.2 SkyMall(R)Services Catalog Design and Production.................. 3
5.21 United Approval of SkyMall(R)Services Catalog............ 3
5.22 United Pages............................................. 4
5.23 Merchandise and Services................................. 4
5.24 Vendors Including GTE Airfone(R)......................... 4
5.25 United Approval of Advertising and
Promotional Material................................... 4
5.26 United Employee Discounts................................ 4
5.27 Rights to the Catalog and Catalog Name................... 4
5.28 Minimum Catalog Production Formula....................... 5
5.3 SkyMall Shipment and United Distribution
Catalogs........................................................ 5
5.4 United Encouragement of Use....................................... 5
6.0 SkyMall(R)Customer Ordering and Services................................... 6
6.1 SkyMall(R)Order Processing and Delivery........................... 6
6.11 SkyMall(R)Order Processing............................... 6
6.12 SkyMall(R)Product Services............................... 6
6.13 SkyMall(R)National Merchandise Deliveries................ 6
6.14 SkyMall(R)International Orders and Deliveries............ 6
6.15 Additional Services to Promote United.................... 6
6.16 Airport Deliveries....................................... 7
6.17 Credit Card Companies.................................... 7
6.18 Payment for Merchandise and Services..................... 7
</TABLE>
i
<PAGE> 9
<TABLE>
<S> <C>
6.19 SkyMall Employees........................................ 7
6.2 Resolution of Customer Problems................................... 7
6.3 SkyMall Support of United Personnel............................... 7
6.31 Liaison at United........................................ 7
6.32 On-Going Support......................................... 8
6.4 SkyMall(R)Program Costs and Expenses.............................. 8
6.41 SkyMall.................................................. 8
6.42 United................................................... 8
7.0 United Sales Commissions and Fees.......................................... 8
7.1 Net Sales......................................................... 8
7.2 SkyMall Payment of United Sales Commissions....................... 8
7.3 Minimum Fuel Payment.............................................. 9
7.4 Adjustments to Minimum Fuel Payment............................... 9
8.0 Annual Cost Adjustments.................................................... 10
9.0 Reports, Records and Audit................................................. 10
9.1 SkyMall Reports and Records....................................... 10
9.2 United Audit of Records........................................... 10
9.3 United Reports and Records........................................ 10
9.31 United Scheduled Flight Information...................... 10
9.32 United Domestic Fleet Monthly Fuel Report................ 11
9.4 SkyMall Audit of Records.......................................... 11
10.0 Limited License of Use of United's Names................................... 11
11.0 Confidential Information................................................... 11
11.1 Confidential and Proprietary Information.......................... 11
11.2 Exceptions........................................................ 12
11.3 United and SkyMall Actions........................................ 12
11.4 Enforcement....................................................... 12
11.5 Survival.......................................................... 12
12.0 Indemnifications........................................................... 13
12.1 Claims............................................................ 13
12.2 SkyMall's Indemnification of United............................... 13
12.21 General Third Party Claims............................... 13
12.22 Patent, Copyright, Trademark, Etc.
Third Party Claims..................................... 13
12.3 United's Indemnification of SkyMall............................... 13
12.31 General Third Party Claims............................... 13
12.32 Patent, Copyright, Trademark, Etc.
Third Party Claims..................................... 13
12.4 Notification, Defense of Claims and Settlement.................... 13
13.0 Insurance.................................................................. 14
13.1 SkyMall Insurance................................................. 14
</TABLE>
ii
<PAGE> 10
<TABLE>
<S> <C>
13.2 United Insurance.................................................. 15
14.0 Miscellaneous.............................................................. 16
14.1 Agreement......................................................... 16
14.2 Agreement - Amendments and Waivers................................ 16
14.3 Agreement - Failure of Enforcement................................ 16
14.5 Benefits of Parties, Successors and Assigns....................... 16
14.6 Breach of Default................................................. 17
14.7 Breach and Default Remedies....................................... 18
14.8 Consequential Damages............................................. 18
14.9 Counterparts...................................................... 18
14.10 Days.............................................................. 18
14.11 Dealings with Third Parties....................................... 19
14.12 Exhibits.......................................................... 19
14.13 Force Majeure Excusing Performance................................ 19
14.14 Further Actions and Assurances.................................... 19
14.15 Governing Law..................................................... 19
14.16 Headings and Interpretation....................................... 20
14.17 Joint Venture or Partnership...................................... 20
14.18 Limitation of Actions............................................. 20
14.19 Notices........................................................... 20
14.20 Survival.......................................................... 21
14.21 Termination....................................................... 21
14.22 Time.............................................................. 22
EXHIBIT A - MINIMUM CATALOG PRODUCTION FORMULA...................................... A-1
EXHIBIT B - UNITED PAGES REIMBURSEMENT FORMULA...................................... B-1
EXHIBIT C - NET SALES FORMULA....................................................... C-1
EXHIBIT D - MINIMUM FUEL PAYMENT FORMULA............................................ D-1
</TABLE>
iii
<PAGE> 11
AIRLINE CUSTOMER SERVICES AGREEMENT
This copyrighted Airline Customer Services Agreement (the "Agreement")
is made May 1 1992, by and between United Air Lines, Inc., a Delaware
corporation ("United", or "UA"), and SkyMall, Inc., an Arizona corporation
("SkyMall", or "SM").
RECITALS
WHEREAS, United operates passenger aircraft in domestic and
international service;
WHEREAS, SkyMall provides in-flight and in-transit shopping of quality
merchandise, rapid delivery of such merchandise, and a variety of concierge
services for travelers;
WHEREAS, SkyMall is the owner of United States Service Mark
Registration numbers 1,643,136, 1,661,267, 1,661,973, 1,661,974, and 1,662,025
for SkyMall(R) and its designs, and SkyMall has applications pending for other
service marks including JETCETERA(SM), CONCIERGE SERVICES - lT'S MAGIC(SM), and
accompanying designs, and various other marks and designs; and
WHEREAS, United desires to grant to SkyMall, and SkyMall desires to
receive from United, the right as provided in this Agreement to offer the
SkyMall(R) Program to the domestic air travelers of United.
NOW, THEREFORE, in consideration of the mutual representations,
warranties, promises, and covenants made in this Agreement, and for other
valuable consideration, the receipt and sufficiency of which is acknowledged, it
is agreed by and between United and SkyMall (individually, a "Party", and
collectively, the "Parties") as follows:
AGREEMENTS
1.0 UNITED.
United operates fleets of aircraft in domestic and international
scheduled flights, with many equipped with aircraft telephones (Airfones(R)).
For purposes of this Agreement, United domestic aircraft fleets are defined as
those United aircraft fleets which generally fly domestic trips without
international tags and which are not committed to international service (the
"United Domestic Fleets").
2.0 SKYMALL.
SkyMall will provide to United for United Domestic Fleets the
SkyMall(R) Program which is defined as the: (A) SkyMall(R) In-Flight Merchandise
and Services Catalog offering high quality merchandise in a catalog named "High
Street Emporium" which name will be proprietary to United with SkyMall doing
business under such name (the "SkyMall(R) Services Catalog", or "Catalog"); and
(B) SkyMall(R) Concierge Services - Its Magic(sm) offering high quality
concierge services (the "SkyMall(R) Concierge Services").
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2.1 SkyMall(R) Services Catalog. Travellers may order SkyMall(R)
Merchandise from the SkyMall(R) Services Catalog and have the merchandise
delivered either immediately on arrival at designated airports, by express two
(2) business days delivery at domestic addresses, by five (5) to ten (10)
business day ground delivery to domestic addresses, by mail, or to selected
international addresses. SkyMall provides full satisfaction guarantees on its
merchandise. Likewise, SkyMall provides a complete line of concierge services to
travellers with limited to full satisfaction guarantees, depending on the
services requested.
2.2 SkyMall(R) Concierge Services. SkyMall will provide SkyMall(R)
Concierge Services - It's Magic(sm) to United passengers which services will be
available through the SkyMall(R) Services Catalog for a concierge fee plus the
price of the product or service (the "SkyMall(R) Concierge Services").
SkyMall(R) Concierge Services presently include, but are not limited to, the
making of reservations for dinner, lodging, other accommodations, auto rental,
airline, transportation and sporting event tickets, other services, floral
deliveries, and locating hard-to-find items. United acknowledges that United's
passengers may make travel reservations for other than United's flights using
SkyMall(R) Concierge Services. United will cooperate in good faith in the
implementation and development of the SkyMall(R) Concierge Services Program.
2.3 SkyMall(R) Guarantees. SkyMall will provide a total customer
satisfaction guarantee on all merchandise offered in the SkyMall(R) Services
Catalog. Merchandise may be returned by the customer to SkyMall within thirty
(30) days of the customer's receipt of the merchandise for full exchange or
refund of the purchase price, at the customer's choice, except for personalized
merchandise (unless there is an imprinting error by SkyMall's Vendor in which
event the customer shall have the foregoing election). SkyMall also will provide
limited to total customer satisfaction guarantees on SkyMall(R) Concierge
Services, depending on the services requested. The SkyMall(R) Concierge Services
fee shall also be fully exchanged or refunded, at the customer's choice, for any
SkyMall(R) Concierge Services which are unsatisfactory to the customer. SkyMall
will not guarantee United's Trademarked Merchandise unless such a guarantee is
part of a separate United Pages Agreement. SkyMall will not under any
circumstances, however, guarantee any services offered by United in the United
Pages.
3.0 UNITED'S BASIC AGREEMENT WITH SKYMALL.
By this Agreement and during the term of this Agreement, United
contracts with and grants to SkyMall the exclusive right to provide the
SkyMall(R) Program, consisting of the SkyMall(R) Services Catalog and SkyMall(R)
Concierge Services specified in this Agreement, to United for the United
Domestic Fleets, and United will not itself provide such program, nor contract
with any other source for or otherwise obtain from any other source such program
or a similar program. Nothing in this Agreement shall affect any right United
may have to advertise or sell products or services through dissimilar programs
or other media, or to provide or arrange for the provision of a similar catalog
including concierge services for United International Fleets, or to use
concierge services provided by United. The total benefits provided in this
Agreement by SkyMall to United will not be less than the total benefits that
SkyMall provides in the future to any other domestic airline to the extent
practical as determined in the sole discretion of SkyMall.
4.0 Term of Agreement; and Survival.
This Agreement shall be binding and effective as of the date signed by
both Parties. The Term of Agreement shall be from May 1, 1992 through September
30, 1993 (the "Initial Term"), and shall
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<PAGE> 13
continue thereafter from month to month (the "Continuing Term") until properly
terminated by either Party (collectively, the "Term of Agreement"). Subject to
the Initial Term, any Continuing Term, and the Section on Termination, either
Party may terminate this Agreement. Any rights or obligations of either Party
that survive such termination will continue thereafter in full force and effect
until paid or otherwise performed.
5.0 SKYMALL(R) PROGRAM AND SKYMALL(R) SERVICES CATALOG.
5.1 SkyMall(R) Program. SkyMall shall provide to United the parts of
the SkyMall(R) Program stated in this Agreement.
5.2 SkyMall(R) Services Catalog Design and Production. Subject to
approval by United of the SkyMall(R) Services Catalog pursuant to SECTION 5.21,
SkyMall shall be responsible on an annual basis for creating, designing,
developing, coordinating, producing, and printing at least three (3) successive
editions of a commercially acceptable SkyMall(R) Services Catalog, each edition
consisting of between twenty-four (24) and one-hundred and fifty (150) pages,
but not to exceed twelve (12) ounces per Catalog.
5.21 United Approval of SkyMall(R) Services Catalog.
A. United's Approval. United shall have the right to
review and approve or disapprove in a commercially reasonable manner and in
writing each edition of the SkyMall(R) Services Catalog including, without
limitation, all art work for covers and order forms, and any product or service
on any reasonable grounds (except prices), provided that any such approval or
disapproval is made in writing within ten (10) business days after receipt from
SkyMall of the listing in which such art work, product or service first appears.
United will be deemed to have approved all such artwork, product and service if
United's written approval or disapproval is not made to SkyMall within such ten
(10) day period.
B. SkyMall's Notice. Notwithstanding SECTION 5.2.1,
should United select any merchandise, including United's Trademarked
Merchandise, that in SkyMall's commercially reasonable belief will not sell, is
illegal, is dangerous, might not meet federal safety requirements, or may have
unreasonable purchase commitments required for a profitable program, then
SkyMall may notify United in writing at the time merchandise selections are made
of such belief. In the event that United chooses to include such merchandise in
the Catalog, United will assume total liability for such merchandise, including
without limitation, the cost of providing the inventory to supply such
merchandise, any overages in inventory, full indemnification of SkyMall for all
costs and damages in connection with such merchandise, law suits, federal or
state penalties, and other costs of defense and reasonable attorneys' fees
pertaining to such merchandise.
C. United's Right to Have Catalogs Withdrawn from
Distribution. After a Catalog edition is approved by United pursuant to this
SECTION 5.21, United or SkyMall may withdraw the Catalogs of that edition from
distribution on the following conditions: (a) Should the approved Catalog
edition, or a part thereof, create a public disturbance with United's passengers
and SkyMall cannot resolve such disturbance within a commercially reasonable
cost and period of time, then United will have the right to remove all such
Catalogs from its aircraft, and United shall, unless otherwise agreed in writing
by the Parties, reimburse SkyMall for fifty percent (50%) of all costs for
reproducing such Catalogs; (b) United may unilaterally remove any one Catalog
edition for any reason in which case
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<PAGE> 14
* Confidential portion has been
omitted and filed separately
with the Commission.
United shall reimburse SkyMall for all costs of reproducing such Catalog edition
and redistributing it to the United Hubs; and (c) SkyMall may unilaterally
require the removal of any one Catalog edition for any reason in which case
SkyMall shall reimburse United for all costs of removing and replacing such
Catalog edition. The unilateral removal of more than one Catalog edition by any
Party will be governed by the Section on Termination.
5.22 United Pages. The Parties agree that in each edition of
the SkyMall(R) Services Catalog, a mutually agreed upon number of pages not to
exceed eight (8) shall be devoted to the sale of merchandise marked with
United's own trademarks ("United's Trademarked Merchandise") and United's space
advertising devoted to non-merchandise offerings ("United's Advertising") as
designated by United (collectively, the "United Pages"). SkyMall shall provide
United Pages at cost to United pursuant to the United Pages Reimbursement
Formula in EXHIBIT B. Should United elect to feature merchandise for sale in the
United Pages, United and SkyMall will enter into a separate and mutually
acceptable revenue sharing agreement regarding the sale and delivery of such
merchandise, and the processing and accounting by SkyMall for such sales (the
"United Pages Agreement").
5.23 Merchandise and Services. Merchandise and services to be
offered in the SkyMall(R) Services Catalog shall be selected and priced by
SkyMall, except for those offered in the United Pages. SkyMall will consider
accommodating the reasonable requests of United for additional Catalog products
and services, and participating merchants.
5.24 Vendors Including GTE Airfone(R). Except as otherwise
agreed by SkyMall and United, SkyMall shall solicit and contract with each
vendor of merchandise or services separately with respect to that vendor's
participation in the SkyMall(R) Program ("Vendor"), and SkyMall shall be solely
responsible and liable for each Vendor's merchandise and services offered in the
SkyMall. Services Catalog, and United shall have no obligation, liability or
responsibility whatsoever to any such SkyMall Vendor, but United shall be solely
responsible and liable for United's merchandise and services offered in the
United Pages, including United's vendors. SkyMall will consult with United on
any future material contractual terms in SkyMall's contracts with GTE Airfone,
Inc. ("GTE") if such terms may have a negative financial impact on United.
United agrees not to interfere with or otherwise affect the terms upon which
SkyMall may enter into contracts (or negotiate for prospective contracts) with
any actual or potential Vendor. Nothing, however, in this Agreement has or is
intended to have any effect on the existing contracts which United and SkyMall
independently have with GTE.
5.25 United Approval of Advertising and Promotional Material.
All advertising or promotional material which refers to United and is
distributed in connection with this Agreement shall be subject to and require
the prior written approval of United.
5.26 United Employee Discounts. Subject to proper
identification, United employees will be allowed a * percent (*%) discount
on all of their orders for merchandise and concierge services offered in the
SkyMall(R) Services Catalog.
5.27 Rights to the Catalog and Catalog Name. All rights, title
and interest to the Catalog name "High Street Emporium" or any other name United
selects for the Catalog, and the goodwill attributable to such name, shall be
owned by and remain the property of United. All rights, title and interest to
the Catalog contents including, without limitation, the right to copyright the
Catalog and the SkyMall names "SkyMall(R)" and "SkyMall(R) Merchandise &
Concierge Services", as SkyMall selects from time to time, and the designs and
other information created or developed by SkyMall, or jointly by
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<PAGE> 15
SkyMall and United, in connection with the Catalog and the SkyMall(R) Program,
and the goodwill attributable thereto, shall be owned by and remain the property
of SkyMall.
5.28 Minimum Catalog Production Formula. Since it is in the
best interests of SkyMall and United to provide a Catalog for every passenger,
United and SkyMall agree that pursuant to a minimum Catalog production formula
(the "Minimum Catalog Production Formula" in EXHIBIT A), SkyMall shall produce,
and United shall distribute, SkyMall(R) Services Catalogs based on a factor of
three and three-tenths (3.3) times the number of aircraft seats available in the
United Domestic Fleets (the "United Domestic Fleet Seats"). SkyMall shall use
United's projected passenger enplanements (the "Projected Passenger
Enplanements") and the actual passenger enplanements (the "Actual Passenger
Enplanements") to calculate and monitor the actual customer Catalog response
rates (the "Catalog Response Rates"). Subject to the Catalog Response Rates and
if desired by United, SkyMall may, in its sole discretion, produce additional
Catalogs at its sole cost and expense for United's use. United shall provide
SkyMall on a timely basis the United Domestic Fleet Seats, Projected Passenger
Enplanements, the Actual Passenger Enplanements, and any updates thereto, during
the Term of this Agreement for the purposes of performing their respective
obligations under this Agreement. Should the Minimum Catalog Production Formula
yield a quantity that is less than the number of SkyMall(R) Services Catalogs
actually needed to satisfy the provisions of this Agreement (a "Catalog
Deficiency"), United and SkyMall agree that neither Party shall have any
liability to the other resulting or arising from such Catalog Deficiency.
5.3 SkvMall Shipment and United Distribution of Catalogs. During the
Term of this Agreement, subject to the Minimum Catalog Production Formula in
EXHIBIT A, SkyMall shall deliver the SkyMall(R) Services Catalogs to United's
facilities at up to six (6) United hub locations (the "United Hubs") according
to reasonable instructions by United (including delivery locations, quantities,
delivery schedule, and reorder directions) at least two (2) weeks prior to the
date of distribution of the SkyMall(R) Services Catalogs by United in the
seatback pockets of United's aircraft. United shall use all commercially
reasonable efforts, and at a minimum will use the same efforts United uses in
connection with its own in-flight magazine VISAVIS, to timely distribute and
properly board or place an adequate quantity of the SkyMall(R) Services Catalogs
on all aircraft in the United Domestic Fleet to ensure that each passenger has
available to him or her on an as-needed or requested basis, a reasonably
unsoiled and presentable copy of the SkyMall(R) Services Catalog. United will
not destroy or otherwise remove the SkyMall(R) Services Catalogs from any United
aircraft unless the condition of a Catalog is no longer reasonably unsoiled and
presentable to United passengers, or the edition of the Catalog has expired.
United may change the United Hubs delivery locations upon thirty (30) days
written notice to SkyMall, but the total number of United Hubs shall not exceed
six (6). SkyMall and United will determine the allocation of the number of
Catalogs to be delivered among the hub locations designated by United by
contacting United's designated coordinator.
5.4 United Encouragement of Use. United and its employees shall use all
commercially reasonable efforts, and at a minimum will use the same efforts they
use in connection with United's in-flight magazine VISAVIS, to encourage United
passenger use of the SkyMall(R) Services Catalog. Such encouragement may
include, without limitation, on-board announcements, boarding area
announcements, flight club area announcements, information booths, and possible
video introduction, provided that prior written consent of SkyMall shall be
required for any formal or written advertising or promotional campaign which
includes, without limitation, any references to SkyMall, SkyMall(R) or any
SkyMall trademarks, service marks, programs or services in broadcast or printed
advertisements or other promotional materials or efforts.
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6.0 SKYMALL(R) CUSTOMER ORDERING AND SERVICES.
6.1 SkyMall(R) Order Processing and Delivery. SkyMall shall provide
purchasing, inventory, warehousing, shipment and staff to properly facilitate
rapid delivery of all merchandise and services offered through the SkyMall(R)
Services Catalog, as described in this Agreement.
6.11 SkyMall(R) Order Processing. SkyMall shall offer customer
order inquiry and processing for merchandise and services twenty-four (24) hours
per day, three-hundred sixty-five (365) days per year, but SkyMall in its sole
discretion may use voice messaging and other equipment to handle or facilitate
customer order inquiry and processing during early morning hours, Sundays,
holidays, and other appropriate times. SkyMall shall maintain a separate "800"
customer order telephone number for United, including an in-flight equivalent of
an "800" telephone number (speed dial number) using the GTE Airfone(R), or
telephone equipment offered by other in-flight services providers.
6.12 SkyMall(R) Product Services. SkyMall may offer certain
product entrancement services, including: (A) Gift Wrapping, within certain size
restrictions, any product in the SkyMall(R) Services Catalog for a published
charge; and (B) Monogramming any clothing items, luggage items, or soft goods in
the SkyMall(R) Services Catalog for a published charge.
6.13 SkyMall(R) National Merchandise Deliveries. Subject to
the approval of the customer's credit, and at customer's choice, SkyMall shall
offer delivery of orders received and accepted by SkyMall for shipment to all
points within the continental limits of the United States, Alaska, Hawaii,
Puerto Rico, and the Virgin Islands, as follows:
A. 48 Hour Air Delivery. For a per-order charge,
orders placed by 5:00 p.m. EST will be shipped the same day (Continental United
States only), by an air express carrier who generally delivers the order within
forty-eight (48) hours during business days.
B. Airport Delivery on Arrival. For a per-order
charge and depending on the airport, orders normally placed any time prior to
thirty (30) to forty-five (45) minutes before arrival at an airport which has a
SkyMall distribution center ("SkyMall(R) Distribution Center") will be delivered
at a designated place when the passenger arrives at such airport. SkyMall
expects to provide such deliveries during reasonable time periods such as
between 7:00 a.m. and 8:00 a.m. to 10:00 p.m., Monday through Saturday, but
SkyMall in its sole discretion may limit the availability of such deliveries to
avoid late evening or early morning hours, Sundays, holidays, or other
appropriate times. SkyMall(R) Distribution Centers with airport delivery are
available currently in Phoenix, Chicago (O'Hare), and Atlanta.
6.14 SkyMall(R) International Orders and Deliveries. SkyMall
may accept orders from the Catalog used on United Domestic Fleets for delivery
to an international destination, and SkyMall shall be solely responsible for
complying with all laws, orders, rules and regulations which may be applicable
to effecting such delivery.
6.15 Additional Services to Promote United. SkyMall offers
additional services to promote United to the customer, including:
A. United Free-Standing Inserts. United promotional
inserts weighing less than two (2) ounces may be included in SkyMall shipments
at no cost to United.
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<PAGE> 17
B. United Scripts for SkyMall Customer Service
Representatives. Unique United scripts of up to fifteen (15) seconds for any
compatible promotion United chooses may be added to SkyMall's standard order
processing scripts for SkyMall's Customer Service Representatives at no cost to
United.
6.16 Airport Deliveries. United shall acknowledge the
existence of this Agreement to any inquiring airport authorities, and shall
cooperate in good faith with SkyMall in SkyMall's dealings with airport
authorities regarding the matters of this Agreement. SkyMall shall obtain any
necessary airport security clearance to effect SkyMall merchandise deliveries to
airports.
6.17 Credit Card Companies. SkyMall shall be solely
responsible for establishing appropriate contractual arrangements between
SkyMall and those companies issuing credit cards to be honored by SkyMall.
6.18 Pavement for Merchandise and Services. SkyMall, in its
sole discretion, may limit payment for merchandise to United States currency,
cash equivalent negotiable instruments redeemable for United States currency,
and major credit cards.
6.19 SkyMall Employees. Unless separately agreed to by the
Parties, SkyMall's order processing and delivery personnel are SkyMall's
employees or independent contractors, and not the employees of United, and are
under SkyMall's exclusive direction and control, and SkyMall shall at all times
provide the direction and supervision required for the proper performance of
SkyMall employees and independent contractors. Although United shall have no
supervision or control over SkyMall's employees and independent contractors,
SkyMall agrees to give prompt attention to any complaint or requested change in
procedure with respect to SkyMall's employees or independent contractors or the
performance of SkyMall's order processing or delivery services. SkyMall's
employees and independent contractors shall be screened to comply with
reasonable security measures, and will be well-groomed and suitably attired to
present a professional appearance to the public.
6.2 Resolution of Customer Problems. SkyMall shall be responsible for
the resolution of all customer service problems. SkyMall will receive and handle
all correspondence, claims or complaints generated by the SkyMall(R) Program and
the SkyMall(R) Services Catalog, except for United's Trademarked Merchandise and
United's Services represented on the United Pages unless otherwise agreed by the
Parties in a separate United Pages Agreement. SkyMall shall handle all
complaints, requests or adjustments promptly and to the satisfaction of United
and the customer. Further, at United's option, United may respond directly to
any such customer request or complaint. SkyMall shall, from time to time in a
manner to be agreed, furnish United with data regarding such correspondence,
claims and complaints.
6.3 SkyMall Support of United Personnel. SkyMall will provide, and
United will cooperate in good faith to have SkyMall provide, both start-up and
on-going assistance to help with the orientation, training, and logistical
concerns of all affected United personnel and departments to support United and
its personnel on a schedule for implementation of the SkyMall(R) Program to be
mutually agreed to by United and SkyMall.
6.31 Liaison at United. SkyMall will provide a SkyMall
representative as a liaison on site at an United location and for a time to be
mutually agreed to by the Parties to provide direct assistance during the
start-up of the SkyMall(R) Program with United (the "SkyMall Liaison").
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6.32 On-Going Support. On-going SkyMall support will be
provided on an as-needed basis to answer United's questions and to resolve any
problems which may arise during the implementation and administration of the
SkyMall(R) Program.
6.4 SkyMall Program Costs and Expenses. The costs and expenses
associated with the SkyMall(R) Program shall be paid as follows:
6.41 SkyMall. Skymall shall pay for all costs and expenses
associated with its provision of the SkyMall(R) Program except for those United
shall pay for stated in SECTION 6.42 below. Such SkyMall costs and expenses
include, without limitation, the creation, design, production, and delivery to
United of the SkyMall(R) Services Catalog, the purchase, inventory, and delivery
of SkyMall(R) Services Catalog merchandise, provision of SkyMall staff,
including telemarketing staff, to professionally handle customer orders,
questions and complaints, and to support United personnel, provision of SkyMall
facilities, equipment and their use to facilitate express delivery of
merchandise to selected airport and non-airport delivery locations subject to
payment of published charges to be paid by customers, all credit card fees for
the sale of SkyMall(R) Services Catalog merchandise and services, all payroll,
unemployment insurance, disability, benefit insurance, worker's compensation,
employers' liability insurance, and any other local, state or federal taxes or
levies associated with SkyMall's employees, and the collection and payment of
all applicable sales and excise taxes on the sales of SkyMall(R) Services
Catalog merchandise and services, and for the filing of the corresponding
reports and returns, including any penalties and interest.
6.42 United. United shall pay for the United Pages on a
reimbursement basis to SkyMall according to the United Pages Reimbursement
Formula in EXHIBIT B, the inventory and delivery of United's Trademarked
Merchandise and United's Services featured in the United Pages unless otherwise
agreed by the Parties in a separate United Pages Agreement, the distribution
from the United Hubs by United of the SkyMall(R) Services Catalog to the
aircraft in the United Domestic Fleets. United, in its reasonable discretion,
will provide space at no charge to SkyMall in which SkyMall and United personnel
can meet to implement the SkyMall(R) Program, and booths where appropriate.
7.0 UNITED SALES COMMISSIONS AND FEES.
7.1 Net Sales. For purposes of this Agreement, "Net Sales" is defined
as gross merchandise sales and SkyMall(R) Concierge Services Fees received in a
calendar month from the SkyMall(R) Program (but not sales to United's Employees,
nor sales of United Trademarked Merchandise or United Services from United Pages
unless SkyMall and United have entered into a separate United Pages Agreement
for SkyMall to process and account for such sales from United Pages) from orders
made from the SkyMall(R) Services Catalog provided to United, less revenues
relating to any returned merchandise or refunds, canceled SkyMall(R) Concierge
Services, sales and excise taxes and duties, shipping and handling, giftwrapping
and monogramming, and bad debts (the "Net Sales", and the "Net Sales Formula" in
EXHIBIT C).
7.2 SkyMall Payment of United Sales Commissions. SkyMall shall pay
sales commissions to United based on "Net Sales" as defined in SECTION 7.1 each
month and based upon the following schedule of Net Sales Levels and their
corresponding Sales Commission Levels (the "Sales Commissions"):
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* Confidential portion has been
omitted and filed separately
with the Commission.
Schedule of Monthly Net Sales Levels and Sales Commission Levels
----------------------------------------------------------------
<TABLE>
<CAPTION>
Monthly Net Sales Levels Sales Commission Levels
------------------------ ----------------------
<S> <C>
Level 1 - From * to $* *%
Level 2 - From $* to $* *%
Level 3 - From $* to $* *%
Level 4 - Over $* *%
</TABLE>
A. Calculation Formula:
Sales Commission Payment = Monthly Net Sales Level X
Sales Commission Level
B. Example:
Level 1 - $* X *% = $*
Level 2 - $* X *% = $*
Level 3 - $* X *% = $*
Level 4 - $* X *% = $*
TOTALS $* $*
C. Payment Date and Statement. The monthly Sales
Commissions shall be payable to United on the first
day of the second month following the sales (the
"Sales Commissions Payment Date") and will be
accompanied by a supporting statement which includes
the (a) Number of orders filled for the payment
month, (b) Net dollar amount of sales related to the
orders, and (c) Calculation of United's Sales
Commission based upon said sales. For purposes of
calculating Sales Commissions, the Commission Level
indicated is paid only on Net Sales for each calendar
month at that level, and not retroactively on
aggregate Net Sales.
7.3 Minimum Fuel Payment. Subject to the SECTIONS ON REPORTS, RECORDS
AND AUDITS AND TERMINATION, SkyMall shall make a minimum payment to United every
month the United Domestic Fleets carry the SkyMall(R) Services Catalog for
United's incremental increase in fuel cost incurred to carry the Catalog during
the Term of this Agreement (the "Minimum Fuel Payment" as adjusted according to
SECTION 7.4. The Minimum Fuel Payment, or portion thereof, shall be net of the
Sales Commissions paid to United. In other words, the total monthly payment to
United will be the greater of the Minimum Fuel Payment or the Sales Commissions.
The greater of the Minimum Fuel Payment or Sales Commissions will be made on the
Sales Commission Payment Date. The formula for calculating the Minimum Fuel
Payment (the "Minimum Fuel Payment Formula") is in EXHIBIT D.
7.4 Adjustments to Minimum Fuel Payment. Payment of the Minimum Fuel
Payment, or any portion of the Minimum Fuel Payment is subject to the SECTIONS
ON TERMINATION AND FORCE MAJEURE EXCUSING PERFORMANCE. Should United or SkyMall
terminate this Agreement or should a Force Majeure circumstance as defined in
SECTION ON FORCE MAJEURE EXCUSING PERFORMANCE prevent continual
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distribution of the Catalog on-board United's aircraft for a portion of the Term
of this Agreement, the Minimum Fuel Payment will be pro rated based on the
actual period of time the Catalogs have been carried on-board the aircraft of
the United Domestic Fleets.
8.0 ANNUAL COST ADJUSTMENTS.
SkyMall and United agree that on the anniversary date of this Agreement
they will adjust for the new year any costs or expense formulas in this
Agreement, including without limitation, the Minimum Catalog Production Formula,
United Pages Reimbursement Formula, Net Sales Formula, and Minimum Fuel Payment
Formula, to cover any increase or decrease in actual costs or expenses which
have changed more than five percent (5%) based on actual invoice charges during
the prior twelve (12) calendar months.
9.0 REPORTS, RECORDS AND AUDIT.
9.1 SkyMall Reports and Records. During the Term of this Agreement,
SkyMall shall, from time to time in a manner to be agreed by the Parties,
furnish United with accurate and complete reports and information regarding the
fulfillment of SkyMall's obligations to United under this Agreement, including
without limitation, Catalog information referenced in SECTION 5.0, customer
problems referenced in SECTION 63, and United's Sales Commissions and Fees
referenced in SECTION 7.0 (the "SkyMall Reports"). The SkyMall Reports do not
include any reports or information relating to SkyMall corporate activities or
the activities of SkyMall with any one other than United. SkyMall agrees to
maintain the SkyMall Reports and supporting documentation during the Term of
this Agreement and for one (1) year following termination of the Agreement,
except as otherwise required by federal or state tax or other record keeping
laws or regulations (the "Record Maintenance Period").
9.2 United Audit of Records. SkyMall agrees that during the Record
Maintenance Period, United or such auditors as United may select and authorize,
at United's sole cost and expense, shall have the right from time to time upon
reasonable advance notice to SkyMall to examine and make copies of the SkyMall
Reports and supporting documentation at SkyMall's headquarters offices during
normal office hours.
9.3 United Reports and Records. During the Term of this Agreement,
United shall, from time to time in a manner to be agreed by the Parties, furnish
SkyMall with accurate and complete reports and information regarding the
fulfillment of United's obligations to SkyMall under this Agreement, including
without limitation, Catalog production information (United Domestic Fleet Seats,
Projected Passenger Enplanements, and Actual Passenger Enplanements) referenced
in SECTION 5.28, the United Scheduled Flight Information referenced in SECTION
931 below, and the United Domestic Fleet Monthly Fuel Report referenced in
SECTION 932 below (the "United Reports"). The United Reports do not include any
records or information relating to United corporate activities or the activities
of United with any one other than SkyMall. United agrees to maintain the United
Reports and supporting documentation during the Term of this Agreement and for
one (1) year following termination of the Agreement, except as otherwise
required by federal or state tax or other record keeping laws or regulations
(the "Record Maintenance Period").
9.31 United Scheduled Flight Information. United shall
cooperate in good faith to provide SkyMall with some computer medium of United's
choice which is compatible to the extent possible with SkyMall's order entry and
delivery process system containing all of United's current
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scheduled domestic flights, and shall provide SkyMall with an updated magnetic
disc or other medium accurately reflecting all schedule changes prior to the
effective date of such changes. SkyMall shall use such information in its order
entry and delivery process and shall restrict its usage of such information to
these processes (the "United Scheduled Flight Information").
9.32 United Domestic Fleet Monthly Fuel Report. United shall
provide SkyMall with a monthly report with the data collected for the first day
of each month which data includes the United Domestic Fleet aircraft type, total
seats by fleet aircraft type, and cost per pound by fleet aircraft type in order
for SkyMall to calculate and pay the Minimum Fuel Payment Formula in EXHIBIT D
(the "United Domestic Fleet Monthly Fuel Report"). The report will due to
SkyMall by the fifteenth (l5th) day of the month of the report.
9.4 SkyMall Audit of Records. United agrees that during the Record
Maintenance Period, SkyMall or such auditors as United may select and authorize,
at SkyMall's sole cost and expense, shall have the right from time to time upon
reasonable advance notice to United to examine and make copies of the United
Reports and supporting documentation at United's headquarters offices during
normal office hours.
10.0 LIMITED LICENSE OF USE OF UNITED'S NAMES.
By this Agreement and during the Term of this Agreement, United
licenses SkyMall with a non-exclusive license to use United's corporate name
"United Air Lines, Inc." and United's tradenames and service marks, including
"United Air Lines, Inc.," "United Airlines," "United," "United Vacations,"
"United Express," "Friendly Skies," or "Mileage Plus," and United's other
trademarks and service marks, logos, and logotype solely in connection with the
production and promotion of the SkyMall(R) Services Catalog for United, and the
advertisement and sale of any merchandise or service bearing a United trademark
or service mark in the SkyMall(R) Services Catalog or SkyMall(R) Program, with
all such United names and logos to be used solely as directed by United
("SkyMall's Non-Exclusive License"). Except as provided in this SECTION 10.0,
SkyMall will not use, publish, or reproduce (including without limitation in any
form of advertising) any United name or logo. This license creates no third
party rights. SkyMall's Non-Exclusive License shall terminate automatically at
the termination of this Agreement in accordance with the SECTION on TERM OF
AGREEMENT.
11.0 CONFIDENTIAL INFORMATION.
11.1 Confidential and Proprietary Information. Both United and SkyMall
agree that in performing their respective obligations under this Agreement that
they may, from time to time, furnish to each other certain information and
materials, both oral and written, relating to their respective companies which
each Party considers confidential and/or proprietary information which would by
its appropriation, disclosure or misuse have a detrimental effect on each such
Party (the "Confidential Information"). Each Party will mark any such
Confidential Information as "Confidential", "Proprietary", or "Trade Secret"
(the "Confidential Marks") which marks shall serve as proper notice to the other
Party that such information or material shall be considered Confidential
Information and shall be so treated according the requirements of this
Agreement. Such Confidential Information may include, without limitation,
marketing philosophies and objectives, data, plans, designs, orders, forecasts,
competitive advantages and disadvantages, the types of services provided, trade
secrets, ideas, creations, materials and information regarding each other's
intellectual property (which includes, without limitation, patents, copyrights,
trademarks and service marks and their designs, logos, slogans, etc.), data
processing
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programs or procedures, source code, object code, business methods and
procedures, employees, suppliers, and customers.
11.2 Exceptions. Confidential Information excludes: (A) Information
approved by either Party for release to the public without qualification as to
the recipient; (B) Information which either Party obtained, had or possessed
independently of the other Party, unless such information is confidential
pursuant to another agreement or understanding; (C) Information which either
Party has placed or in the future places in the public domain; and (D) The
names, addresses, and other direct marketing information of United's customers
who purchase from the SkyMall(R) Services Catalog which shall be owned by
SkyMall and be part of SkyMall's buyer file (the "SkyMall(R) Buyer File") which
SkyMall may use or make available for rental to third parties as long as each
file information is not selectable or identifiable by airline, including United,
nor indicates that an individual is a customer of United and/or a member of
United's frequent flyer club.
11.3 United and SkyMall Actions. SkyMall agrees that all of United's
Confidential Information shall be considered United's property, and confidential
and proprietary to United, and United shall have all ownership and use rights to
the same. United agrees that all of SkyMall's Confidential Information shall be
considered SkyMall's property, and confidential and proprietary to SkyMall, and
SkyMall shall have all ownership and use rights to the same. Both United and
SkyMall respectively and their directors, officers, employees, contractors, and
agents shall: (A) Protect and preserve the confidential and proprietary nature
of all of the other's Confidential Information; (B) Not disclose, give, sell or
otherwise transfer or make available, directly or indirectly, any of the other's
Confidential Information to any third party for any purpose; (C) Not use the
other's Confidential Information, except as expressly provided in this
Agreement; (D) Immediately notify the other of any loss or misplacement of its
Confidential Information or copies of the same; (E) Comply with such security
procedures as may be reasonably prescribed by the other from time to time for
protection of its Confidential Information, including, without limitation,
procedures concerning the transportation and storage of such information; and
(F) At a minimum, employ the same degree of care in protecting Confidential
Information as each Party employs in protecting its own Confidential
Information.
11.4 Enforcement. Both United and SkyMall agree that in the event of a
breach or threatened breach of the provisions of this SECTION 11.0, their
respective remedies at law would be inadequate and each Party shall be entitled
to a temporary restraining order or injunction (without any bond or other
security being required) to prevent disclosure or use of the Confidential
Information; provided, however, the foregoing shall not be construed to preclude
either Party from pursuing any action or further remedy, at law or in equity,
for any breach or threatened breach of such provisions or any other provisions
of this Agreement, including, but not limited to, the recovery of damages,
reasonable attorneys' fees, costs and other expenses in connection with the
actions. Should a Party be served with a subpoena or other legal process
requiring the production or disclosure of any Confidential Information owned by
the other Party, then the served Party will immediately notify the owner Party
thereof, and will in good faith attempt to permit the owner Party at the owner
Party's expense to intervene and contest such disclosure or production.
11.5 Survival. All rights and obligations of the Parties with regard to
the Confidential Information shall survive the expiration or termination of this
Agreement for a period of seven (7) years thereafter.
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12.0 INDEMNIFICATIONS.
12.1 Claims. As used in this SECTION on INDEMNIFICATION, the word
Claims means any and all claims, liabilities, damages, demands, suits, causes of
action, proceedings, recoveries, judgments, expenses, taxes, fines, penalties or
executions, including without limitation, litigation costs and expenses and
reasonable attorneys' fees, which may be made, had, brought or recovered by any
third party.
12.2 SkyMall's Indemnification of United.
12.21 General Third Part Claims. SkyMall will defend,
indemnify, and hold harmless United, its officers, employees, and agents
(collectively "United") against all Claims by third parties for injuries to or
deaths of persons or loss of or damage to property arising from or in connection
with (A) The provision of any services by SkyMall under this Agreement, or (B)
Any failure of supervision, negligence, or intentional or willful misconduct of
SkyMall under this Agreement.
12.22 Patent, Copyright, Trademark, Etc. Third Party Claims.
SkyMall will defend, indemnify, and hold harmless United, its officers,
employees, and agents (collectively "United") against all Claims for (A) Use by
United of patents, copyrights, trademarks, tradenames, logos, slogans, imprints
or any copy, whether graphic or printed, supplied solely by SkyMall and used by
United solely as directed by SkyMall; and (B) Any claim that merchandise being
sold in the SkyMall(R) Services Catalog infringed upon the valid patent rights
of a third party.
12.3 United's Indemnification of SkyMall.
12.31 General Third Party Claims. United will defend,
indemnify, and hold harmless SkyMall, its officers, employees, and agents
(collectively "SkyMall") against all Claims by third parties for injuries to or
deaths of persons or loss of or damage to property arising from or in connection
with (A) The provision of any services by United under this Agreement, or (B)
Any failure of supervision, negligence, or intentional or willful misconduct of
United under this Agreement.
12.32 Patent, Copyright, Trademark, Etc. Third Party Claims.
United will defend, indemnify, and hold harmless SkyMall, its officers,
employees, and agents (collectively "SkyMall") against all Claims for (A) Use by
SkyMall of patents, copyrights, trademarks, tradenames, logos, slogans, imprints
or any copy, whether graphic or printed, supplied solely by United and used by
SkyMall solely as directed by United; and (B) Any claim that United's
Trademarked Merchandise being sold in the SkyMall(R) Services Catalog infringed
upon the valid patent rights of a third party.
12.4 Notification, Defense of Claims and Settlement. The Party
seeking indemnification under this SECTION 12.4 (the "Notifying Party") shall be
subject to the following provisions:
A. Notice. The Notifying Party shall notify the other Party
(the "Other Party") upon learning of a claim or other matter for which
indemnification is sought (the "Indemnity Matter"). The omission by the
Notifying Party to promptly notify the Other Party of any Indemnity Matter shall
relieve the Other Party from any obligation it may have to indemnify the
Notifying Party to the extent, but only to the extent, that the delay in
notification materially prejudices the Other Party's defense of the Indemnity
Matter;
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B. Defense of Claim. Upon receipt by the Other Party of notice
of an Indemnity Matter given by the Notifying Party as provided in SECTION
12.4.A, then:
(a) The Other Party will be entitled to participate
in the Indemnity Matter at its own expense; and
(b) The Other Party will be entitled to assume the
defense of the Indemnity Matter, with counsel reasonably acceptable to the
Notifying Party. After notice from Other Party to the Notifying Party of Other
Party's election to assume such defense, Other Party shall not be liable to
Notifying Party under this Agreement for any legal or other expenses
subsequently incurred by Notifying Party in connection with such Indemnity
Matter, other than the reasonable costs of investigating the matter by the
Notifying Party, if any. Notifying Party shall have the right to employ its own
counsel in such Indemnity Matter, but the fees and expenses of such counsel
incurred after notice from Other Party of its assumption of the defense shall be
at the expense of Notifying Party unless (i) the employment of counsel by
Notifying Party has been authorized by Other Party, or (ii) Notifying Party
shall have reasonably concluded based on the opinion of its counsel that there
may be a conflict of interest or position between Other Party and Notifying
Party in the conduct of the defense of such action, or (iii) Other Party shall
not in fact have employed counsel to assume the defense of such action, in each
of which cases the fees and expenses of counsel for the Notifying Party shall be
at the expense of the Other Party if it is determined ultimately that the Other
Party is responsible to indemnify the Notifying Party with respect to the
Indemnity Matter; and
C. Settlement. The Other Party shall not be obligated to reimburse the
costs of any settlement to which it has not agreed in writing. If in any
Indemnity Matter, the Notifying Party shall have unreasonably failed to enter
into a settlement offered, or assented to, by the opposing party or parties
which settlement was agreed to by the Other Party in writing, then the
indemnification obligation of the Other Party to the Notifying Party in
connection with such Indemnity Matter shall not exceed the total of the amount
of such settlement proposal and the expenses incurred by the Notifying Party up
to the time such settlement proposal could have been effected.
13.0 INSURANCE.
13.1 SkyMall Insurance. SkyMall shall:
A. Comprehensive General Liability Etc. Procure and keep in
force policies of insurance with respect to the Indemnifications given except
for third party patents, products to be provided, and services to be performed
by SkyMall under this Agreement, as follows: (A) Comprehensive general liability
insurance in an amount not less than Five Million Dollars ($5,000,000) combined
single limit coverage; (B) Products liability insurance in an amount not less
than Five Million Dollars ($5,000,000) combined single limit coverage; (C)
Advertisers liability insurance in an amount of not less than Five Million
Dollars ($5,000,000); and (D) Automobile liability insurance in an amount of not
less than Two Million Dollars ($2,000,000).
B. Workers Compensation. Procure and keep in force policies of
workers compensation insurance in amounts as required by statute.
C. Endorsements. Endorse all policies of liability insurance
procured by SkyMall pursuant to this SECTION 13.1 (A) to provide that said
insurance shall be primary insurance and to
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acknowledge that any other insurance policy or policies of United shall be
secondary or excess insurance notwithstanding any provisions in such policies
regarding other insurance, (B) to name United, its directors, officers, agents
and employees as additional insureds, (C) to provide that all provisions of such
insurance, except for the limits of liability, shall operate in the same manner
as if there were a separate policy issued to each insured, (D) to specifically
cover the indemnity and hold harmless obligations of SkyMall to United under
this Agreement except for third party patents, (E) to contain a waiver of
subrogation clause in favor of United and all other additional insureds, and (F)
to contain a provision requiring the insurers to provide United with a written
notice of any cancellations or adverse material change in such insurance, and
providing that the same shall not be effective as to the benefit and/or interest
of United for thirty (30) days after written notice of such cancellation or
adverse material change is received by United.
D. Acceptable Insurers. Procure and keep in force all
insurance required to be maintained under this Agreement from insurers with an
independent rating of A or better.
E. Certificates. Furnish certificates evidencing the insurance
coverage required under this Agreement to United at an address to be furnished
to SkyMall by United.
13.2 United Insurance. United shall:
A. Comprehensive General Liability, Etc. Procure and keep in
force policies of insurance with respect to the Indemnifications given except
for third party patents, products to be provided, and services to be performed
by United under this Agreement, as follows: (A) Comprehensive general liability
insurance in an amount not less than Five Million Dollars ($5,000,000) combined
single limit coverage; (B) Products liability insurance in an amount not less
than Five Million Dollars ($5,000,000) combined single limit coverage; (C)
Advertisers liability insurance in an amount of not less than Five Million
Dollars ($5,000,000); and (D) Automobile liability insurance in an amount of not
less than Two Million Dollars ($2,000,000).
B. Endorsements. Endorse all policies of liability insurance
procured by United pursuant to this SECTION 13.2 (A) to provide that said
insurance shall be primary insurance and to acknowledge that any other insurance
policy or policies of SkyMall shall be secondary or excess insurance
notwithstanding any provisions in such policies regarding other insurance, (B)
to name SkyMall, its directors, officers, agents and employees as additional
insureds, (C) to provide that all provisions of such insurance, except for the
limits of liability, shall operate in the same manner as if there were a
separate policy issued to each insured, (D) to specifically cover the indemnity
and hold harmless obligations of United to SkyMall under this Agreement except
for third party patents, (E) to contain a waiver of subrogation clause in favor
of SkyMall and all other additional insureds, and (F) to contain a provision
requiring the insurers to provide SkyMall with a written notice of any
cancellations or adverse material change in such insurance, and providing that
the same shall not be effective as to the benefit and/or interest of SkyMall for
thirty (30) days after written notice of such cancellation or adverse material
change is received by SkyMall.
C. Acceptable Insurers. Procure and keep in force all
insurance required to be maintained under this Agreement from insurers with an
independent rating of A or better.
D. Certificates. Furnish certificates evidencing the insurance
coverage required under this Agreement to SkyMall at an address to be furnished
to United by SkyMall.
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14.0 MISCELLANEOUS.
14.1 AGREEMENT.
This COPYRIGHTED AND CONFIDENTIAL AIRLINE CUSTOMER SERVICES AGREEMENT
consists of the TITLE PAGE, TABLE OF CONTENTS, MAIN SECTIONS INCLUDING BUT NOT
LIMITED TO RECITALS and AGREEMENTS, the EXHIBITS and any subsequent duly signed
AMENDMENTS (the "Agreement"). This Agreement may not be reproduced, copied, or
disclosed or published to any third parties without the prior written consent of
SkyMall. This Agreement states the entire agreement and understanding of the
Parties regarding the subject matters contemplated in this Agreement, and
supersedes all pre-existing oral or written agreements or commitments regarding
these matters. No Party shall be bound by or be deemed to have made any
agreement, representation or warranty except as set forth in this Agreement.
14.2 AGREEMENT - AMENDMENTS AND WAIVERS.
This Agreement may not be amended, changed or modified except by an
amending agreement in writing signed by a duly authorized representative of each
Party (the "Amendment"). All AMENDMENTS, if any, shall be construed and be
deemed to be attached to this Agreement, and they are fully incorporated herein
and are made part of the Agreement. No waiver of any provision or any breach of
this Agreement by either Party, whether expressed or implied, shall be effective
unless stated in writing and signed by a duly authorized representative of the
Party alleged to have waived such provision or breach. Any single waiver shall
not operate as a continuing waiver or waive any other provision or breach of
this Agreement, whether in the past or in the future.
14.3 AGREEMENT - FAILURE OF ENFORCEMENT.
The failure of either Party to enforce any agreement, condition,
covenant or term of this Agreement by reason of breach by the other Party, after
notice had, shall not be deemed to void or affect the right of such Party to
enforce the same or any other agreement, condition, covenant or term on the
occasion of a subsequent breach or default by the other Party.
14.4 ASSIGNMENTS AND SUCCESSIONS.
SkyMall and United may assign this Agreement to a wholly owned
subsidiary, to a successor of substantially all of its business or assets, and
in the case of United to its parent corporation. Neither SkyMall nor United may
otherwise assign, whether in whole or in part, or delegate any of their
respective rights or obligations under this Agreement, whether by operation of
law or otherwise, without the prior written consent of the other Party.
14.5 BENEFITS OF PARTIES, SUCCESSORS AND ASSIGNS.
This Agreement shall be binding on, and inure to the benefit of, the
Parties and, subject to the SECTION ON ASSIGNMENTS AND SUCCESSIONS, on their
respective heirs, executors, administrators, legal representatives, successors
and assigns. Nothing in this Agreement, expressed or implied, is intended to or
shall confer on any person other than the Parties or their respective heirs,
executors, administrators, legal representatives, successors or assigns, any
rights, obligations, remedies or liabilities under this Agreement.
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14.6 BREACH OR DEFAULT.
Subject to SECTIONS on FORCE MAJEURE EXCUSING PERFORMANCE, BREACH AND
DEFAULT REMEDIES, and TERMINATION, the existence or occurrence of any one or
more of the following shall constitute a breach or default under this Agreement
unless such breach or default is promptly cured within any applicable grace
periods provided and written notices required, all as stated below:
A. Confidential Information. The Parties agree that in the
event of a threatened breach or actual breach of the provisions of the SECTIONS
ON CONFIDENTIAL INFORMATION AND NO-COMPETITION, that the non-defaulting Party's
remedies at law would be inadequate and will cause the other Party irreparable
injury and damage. Therefore, the non-defaulting Party shall be entitled to a
temporary restraining order or injunction (without any bond or other security
being required) to prevent disclosure or use of the Confidential Information
pursuant to the SECTION ON BREACH AND DEFAULT REMEDIES.
B. Non-Payment. Either Party's refusal, failure, or neglect in
making any required payment or performing any monetary term, condition,
covenant, warranty or representation within fifteen (15) days after its due date
under this Agreement, and written notice thereof from the other Party;
C. Performance or Condition. Either Party's refusal, failure,
or neglect in the performance of, or breach of, any non-monetary term,
condition, covenant, warranty or representation contained in this Agreement
shall have occurred and be continuing for thirty (30) days after written notice
thereof from the other Party; provided however that such thirty (30) day period
may be extended if, within such period, a duly authorized representative of the
defaulting Party delivers to the other Party a certificate stating that the
breach is not susceptible of cure within such thirty (30) day period but can be
cured within a period of ninety (90) days from receipt of the initial notice and
further stating the actions being taken and to be taken to effect a cure, then
the defaulting Party shall be entitled to a total period of up to ninety (90)
days from the initial notice to cure such breach, but only for as long as the
defaulting Party diligently and vigorously pursues such cure, then, without
further notice, the non-defaulting Party may pursue any and all rights and
remedies available to it;
D. Bankruptcy or Insolvency. Either Party: (a) Becomes
insolvent; (b) Does not pay its bills when due without just cause; (c) Takes any
material steps leading to its cessation as a going concern; (d) Ceases or
suspends operations; (e) Makes a general assignment for the benefit of
creditors, or there is filed by or against a Party a voluntary or involuntary
petition or application for a custodian, or the appointment of a receiver,
provided, however, that any Party against whom an involuntary petition is filed
shall have sixty (60) days to secure the dismissal thereof before the filing
shall be deemed a default under this Agreement; or (f) Commences any action
under any law relating to bankruptcy, insolvency, reorganization or relief of
debtors, or proceedings for a Party's relief, or for the composition, extension,
arrangement or adjustment of any of a Party's obligations, or affecting any
significant portion of a Party's property, provided, however, that if any of the
foregoing actions are filed against a Party involuntarily, such Party shall have
sixty (60) days to secure dismissal thereof before such filing shall be deemed
to be a default under this Agreement;
E. Bankruptcy - Non-Defaulting Party. If bankruptcy
proceedings are commenced with respect to the defaulting Party and if this
Agreement has not otherwise terminated, then the non-defaulting Party may
suspend all further performance of this Agreement, other than making payments
which are due under this Agreement, until the defaulting Party assumes or
rejects this Agreement pursuant to SECTION 365 of the United States "Bankruptcy
Code", or any similar or successor provision. Any such suspension
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of further performance by the non-defaulting Party pending the defaulting
Party's assumption or rejection will not be a breach of this Agreement and will
not affect the non-defaulting Party's right to pursue or enforce any of its
rights under this Agreement or otherwise.
14.7 BREACH AND DEFAULT REMEDIES.
Subject to the SECTIONS on FORCE MAJEURE EXCUSING PERFORMANCE and
TERMINATION, upon the occurrence of any breach or default of this Agreement as
defined in the SECTION on BREACH OR DEFAULT which is not cured within any
applicable grace periods provided and written notices required, the
non-defaulting Party may, consistent with applicable laws, at its option, do one
or more of the following:
A. Temporary Restraining Order or Injunction. Proceed
immediately, when Confidential Information or No-Competition Requirements are
involved, to obtain a temporary restraining order or injunction (without any
bond or other security being required) to prevent disclosure or use of any
Confidential Information or No-Competition information respectively identified
under the SECTIONS on CONFIDENTIAL INFORMATION and NO-COMPETITION, recognizing
that the Parties have agreed that remedies at law would be inadequate for such
threatened or actual breaches; provided, however, the foregoing shall not be
construed to preclude the non-defaulting Party from pursuing any action or
further remedy, at law or in equity, for any breach or threatened breach of such
provisions or any other provisions of this Agreement, including, but not limited
to, the recovery of damages, reasonable attorneys' fees, costs and other
expenses in connection with the actions;
B. Damages for Breach. Proceed by appropriate court action(s)
at law or equity to recover damages for the breach of this Agreement, including
reasonable attorneys' fees, costs and other expenses in connection with the
breach of any obligations stated in the SECTION on INDEMNIFICATIONS;
C. Other Remedies. Exercise any other right, privilege or
remedy available under this Agreement, or in law or equity; and
D. Terminate the Agreement. By written notice to the
defaulting Party immediately terminate this Agreement.
14.8 CONSEQUENTIAL DAMAGES.
EXCEPT AS PROVIDED UNDER THE SECTION ON INDEMNIFICATIONS, ABOVE,
NEITHER PARTY WILL BE LIABLE FOR, AND EACH PARTY WAIVES AND RELEASES ANY CLAIMS
AGAINST THE OTHER PARTY FOR, ANY SPECIAL, INCIDENTAL, OR CONSEQUENTIAL DAMAGES,
INCLUDING, WITHOUT LIMITATION, LOST REVENUES, LOST PROFIT, OR LOSS OF
PROSPECTIVE ECONOMIC ADVANTAGE, RESULTING FROM ITS PERFORMANCE OR FAILURE TO
PERFORM OR ITS ACTS OR OMISSIONS, UNDER THIS AGREEMENT.
14.9 COUNTERPARTS.
This Agreement may be executed in any number of counterparts, each of
which shall be deemed an original, and all counterparts so executed shall
constitute one and the same Agreement which is binding upon all Parties even
though all Parties do not sign the same counterpart.
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14.10 DAYS.
The word days in this Agreement shall mean calendar days unless the
text in a provision expressly provides for business days.
14.11 DEALINGS WITH THIRD PARTIES.
No Party is, nor shall any Party hold itself out to be, vested with any
power or right to represent, act on behalf of, or contractually bind any other
Party as its agent, partner, or otherwise.
14.12 EXHIBITS.
All Exhibits to this Agreement, identified as such and attached to this
Agreement are fully incorporated herein and are made part of this Agreement.
14.13 FORCE MAJEURE EXCUSING PERFORMANCE.
Notwithstanding anything in this Agreement to the contrary, no Party
shall be liable to the other Party for any failure or delay in performing all or
any part of this Agreement and shall be excused to the extent that such
non-performance or delay arises out of any cause beyond the reasonable control
of either Party by reasons including, without limitation, loss of facilities,
breach by suppliers of supply agreements, fires, floods, strikes, labor unrest,
embargoes, civil commotion, rationing or other governmental orders or
requirements, acts of civil or military authorities, war, acts of God,
unavoidable accidents, acts or omissions of sovereign states, or seriously
adverse weather conditions. All requirements of notice and other performance
required by this Agreement within a specified period shall be automatically
extended to accommodate the period of pendency of any such contingency which
interferes with such performance, provided, however, that within thirty (30)
days of the conclusion of any Force Majeure cause a duly authorized
representative of the Party invoking such--cause delivers to the other Party a
certificate stating such cause, the performance of this Agreement which it
delayed, the reasonable efforts taken to overcome such cause, and the period of
time such cause was in effect.
14.14 FURTHER ACTIONS AND ASSURANCES.
Each Party agrees that it shall cooperate in good faith to take such
further actions and duly sign, acknowledge and deliver, or cause to be so done,
all further documents, assurances and certificates as may be necessary or
expedient, or as either Party may reasonably request of the other, in order to
carry out the purpose and intent of this Agreement. In addition, each Party
agrees that it shall not take any action which would adversely affect any right
granted by it to the other Party by this Agreement.
14.15 GOVERNING LAW.
It is the express intention of the Parties that this Agreement is to be
governed and interpreted under the laws of the State of Arizona.
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14.16 HEADINGS AND INTERPRETATION.
The headings contained in this Agreement are for convenience and
reference only, and are not to be considered in interpreting this Agreement.
When the context so requires in this Agreement, the singular number includes the
plural, and vice versa.
14.17 JOINT VENTURE OR PARTNERSHIP.
Nothing in this Agreement, expressed or implied, is intended to or
shall constitute, create or establish any agency, joint venture, or partnership
relationship between the Parties. The Parties are independent contractors.
14.18 LIMITATION OF ACTIONS.
EACH PARTY IS HEREBY BARRED FROM ASSERTING, AND EACH PARTY HEREBY
WAIVES AND RELEASES THE OTHER PARTY FROM, ANY CLAIM IT MAY HAVE UNDER THIS
AGREEMENT AGAINST THE OTHER PARTY THAT IS NOT ASSERTED IN A PROCEEDING COMMENCED
WITHIN TWO (2) YEARS FOLLOWING THE TERMINATION OF THIS AGREEMENT.
14.19 NOTICES.
All notices, requests, demands and other communications under this
Agreement shall be in writing and shall be deemed to have been duly given on the
date of delivery if delivered personally to the Party to whom notice is to be
given, or seventy-two (72) hours after mailing, if mailed to the Party to whom
notice is to be given by United States first class mail, registered or
certified, with return receipt requested, postage prepaid, and properly
addressed to the Party at the address set forth below, or at any other address
that any Party may designate by written notice to the other Party.
United Air Lines, Inc.
1200 East Algonquin Road
Elk Grove Township, Illinois 60007
Attention: Vice President-Purchasing
SkyMall, Inc.
1520 East Pima Street
Phoenix, Arizona 85034
Attention: Robert M. Worsley, President
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With a copy to:
Lewis and Roca
40 North Central Avenue
Phoenix, Arizona 85004-1129
Attention: Kevin L. Olson, Esquire
14.20 SURVIVAL.
See the SECTION on TERM OF AGREEMENT; and SURVIVAL.
14.21 TERMINATION.
A. Termination. Subject to the requirements of the SECTIONS on
TERM OF AGREEMENT and TERMINATION - TERMINATION RIGHTS AND OBLIGATIONS, either
United or SkyMall may terminate this Agreement for any reason without cause by
written notice to the other Party one-hundred and twenty (120) days prior to the
date upon which United or SkyMall desires termination to be effective.
(a). SkyMall Termination. Upon any termination by
SkyMall, SkyMall shall (i) be solely responsible for all merchandise inventory
for United including any shipping, handling and restocking charges, (ii) fulfill
all United customer orders arising from SkyMall(R) Services Catalogs distributed
prior to termination, for a period of ninety (90) days following the effective
date of termination, and pay United the corresponding Sales Commissions due
United for Net Sales made during this time period, and (iii) if SkyMall
terminates this Agreement before the end of the Initial Term, or in any
Continuing Term during the time period in which SkyMall is preparing a new
edition of the Catalog (the "Catalog Lead Time") or for the period of time a new
edition of the SkyMall(R) Services Catalog is or would have been distributed
aboard the United Domestic Fleets (the "Catalog Distribution Time"), then
SkyMall shall be solely responsible for all costs, damages, liabilities and
claims arising from, in connection with, or allocable to Catalog design,
printing and distribution. For purposes of this Agreement, a Catalog Lead Time
is generally one hundred and twenty (120) days, and a Catalog Distribution Time
is generally ninety (90) days. Upon receipt of any termination notice by
SkyMall, United shall use all reasonable commercial efforts to mitigate its
costs and damages in connection with the termination of this Agreement. In any
termination, United will be solely responsible for disposing of all SkyMall(R)
Services Catalogs in its possession at the time of termination.
(b). United Termination. Upon any termination by United (i)
SkyMall will take all reasonable commercial efforts to cancel orders for, sell,
or return the merchandise inventory for United and to otherwise mitigate
SkyMall's costs and damages related to such inventory for one hundred and twenty
(120) days from SkyMall's receipt of the notice of termination; and (ii) if
United terminates this Agreement before the end of the Initial Term, or in any
Continuing Term during the time period in which SkyMall is preparing a new
edition of the Catalog (the "Catalog Lead Time") or for the period of time a new
edition of the SkyMall(R) Services Catalog is or would have been distributed
aboard the United Domestic Fleets (the "Catalog Distribution Time"), then United
shall pay SkyMall for all costs, damages, liabilities and claims arising from,
in connection with, or allocable to Catalog design, printing and distribution.
For purposes of this Agreement, a Catalog Lead Time is generally one hundred and
twenty (120) days, and a Catalog Distribution Time is generally ninety (90)
days. Upon receipt of any termination notice by United, SkyMall shall use all
reasonable commercial efforts to mitigate its costs and
21
<PAGE> 32
damages in connection with the termination of this Agreement. In any
termination, United will be solely responsible for disposing of all SkyMall(R)
Services Catalogs in its possession at the time of termination.
B. Termination Rights and Obligations. Subject to the
applicable SECTIONS of this Agreement, any termination of this Agreement, with
or without cause, shall not affect any rights or obligations of the Parties
which are of a continuing nature or which shall have accrued prior to the
effective date of such termination including, without limitation, the SECTIONS
ON TERMINATION, CONFIDENTIAL INFORMATION, INDEMNIFICATION, INSURANCE, SALES
COMMISSIONS AND FEES, MINIMUM FUEL PAYMENT, and ADJUSTMENTS TO MINIMUM FUEL
PAYMENTS.
14.22 TIME.
Time is of the essence of this Agreement and each of its provisions.
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22
<PAGE> 33
IN WITNESS WHEREOF, the duly authorized representatives of Parties with full
power and authority have duly signed and executed this Airline Customer Services
Agreement as of the date first written above.
UNITED AIR LINES, INC
By:_____________________________
Name: James V. Sines
Title: Vice President-Purchasing
SKYMALL, INC.
By:_____________________________
Name: Robert M. Worsley
Title: President
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23
<PAGE> 34
EXHIBIT A
MINIMUM CATALOG PRODUCTION FORMULA
PART OF THE AIRLINE CUSTOMER SERVICES AGREEMENT BETWEEN
UNITED AND SKYMALL
The Minimum Catalog Production Formula is as follows:
Minimum Catalog Production Formula
A. Definitions
(a) Actual Number of Aircraft in Total Fleet is defined
as the number of United Domestic Fleet aircraft type
weighted by the months those aircraft are in service
during the year.
(b) Actual Seats per Aircraft is defined as the number of
seats per aircraft weighted by the number of similar
aircraft of each size and type in the fleet.
(c) Catalog Period is defined as the time period during
which United will distribute and board the
corresponding edition of the SkyMall(R) Services
Catalog. Catalog Periods are generally four (4)
months. A Catalog Lead Time to prepare a new edition
of the Catalog is generally three (3) months.
(d) United Multiplier is three and three-tenths (3.3).
B. Calculation Formula:
Minimum Catalog Production Quantities to be printed for a
Catalog Period =
(a) Actual Number of Aircraft in Total Fleet.
X (b) Actual Seats per Aircraft.
X (c) The Catalog Period.
X (d) 3.3 United Multiplier.
C. Example:
425 Aircraft X 161 Seats X 4 X 3.3 = 903,210 Catalogs
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A-1
<PAGE> 35
EXHIBIT B
UNITED PAGES REIMBURSEMENT FORMULA
PART OF THE AIRLINE CUSTOMER SERVICES AGREEMENT BETWEEN
UNITED AND SKYMALL
The United Pages Reimbursement Formula is as follows:
United Pages Reimbursement Formula
A. Definitions:
(a) United Pages are defined as those pages offered by
SkyMall to United in the SkyMall(R) Services Catalog
which advertise United's Trademarked Merchandise and
United's Advertising that United chooses to place on
those pages.
B. Calculation Formula:
United's Reimbursement to SkyMall =
(a) $750.00
X (b) The number of United Pages
X (c) The number of 100,000 Catalog increments printed.
C. Example:
$750.00 X 4 United Pages X 8 = $24,000 of Reimbursement due
SkyMall.
D. Payment: All such reimbursement costs shall be paid to SkyMall
within thirty (30) days of SkyMall's presentation of the
invoice for such costs to United.
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B-1
<PAGE> 36
EXHIBIT C
NET SALES FORMULA
PART OF THE AIRLINE CUSTOMER SERVICES AGREEMENT BETWEEN
UNITED AND SKYMALL
The Net Sales Formula is as follows:
Net Sales Formula
A. Definitions:
(a) Gross SkyMall(R) Catalog Merchandise Sales is defined
as all gross merchandise sales from the SkyMall(R)
Services Catalog for United (but not sales to
United's Employees, nor sales of United Trademarked
Merchandise or United Services from United Pages
unless SkyMall and United have entered into a
separate United Pages Agreement for SkyMall to
process and account for such sales from United
Pages).
(b) SkyMall(R) Concierge Services Fees is defined as the
charge SkyMall collects from United customers for
each concierge service request and is exclusive of
the price of goods or services acquired to fulfill
each customer's request (the "SkyMall(R) Concierge
Services Fees").
(c) Returned Merchandise Revenue is defined as the sale
amounts on all returned merchandise or refunds from
United customers and applicable restocking charge.
(d) Canceled SkyMall(R) Concierge Services Fees is
defined as any SkyMall(R) Concierge Services Fees
charged by SkyMall for services rendered and
thereafter canceled by United customers, and the cost
to cancel or return the applicable service or
product.
(e) Sales, Excises Taxes and Duties is defined as all
applicable sales and excise taxes and duties on
SkyMall(R) Catalog merchandise and services paid by
SkyMall for United customers
(f) Shipping and Handling Charges is defined as all
shipping, handling and insurance costs for all
SkyMall(R) Catalog merchandise and services sold to
United customers.
(g) Giftwrapping and Monogramming Charges is defined as
all extra and special services requested and paid by
United customers.
C-1
<PAGE> 37
(h) Bad Debts is defined as all bad debts incurred by
SkyMall in administering the SkyMall(R) Programs for
United.
B. Calculation Formula:
Net Sales =
(a) Gross SkyMall(R) Catalog Merchandise Sales
+ (b) SkyMall(R) Concierge Services Fees
+ (e) Sales, Excises Taxes and Duties
+ (f) Shipping and Handling Charges
+ (g) Giftwrapping and Monogramming Charges
(Less):
- (c) Returned Merchandise Revenue
- (d) Canceled SkyMall(R) Concierge Services Fees
- (e) Sales, Excises Taxes and Duties
- (f) Shipping and Handling Charges
- (g) Giftwrapping and Monogramming Charges
- (h) Bad Debts
C. Example:
<TABLE>
<S> <C>
Merchandise Sales $3,100,000
Concierge Fees $ 100,000
Taxes $ 192,000
Shipping & Handling $ 320,000
Giftwrapping $ 30,000
----------
Subtotal $3,742,000
</TABLE>
(Less):
<TABLE>
<S> <C>
Merchandise Returns $160,000
Canceled Fees $ 5,000
Taxes $192,000
Shipping & Handling $320,000
Giftwrapping $ 30,000
Bad Debts $ 32,000
--------
Subtotal $ 739,000
---------
TOTAL NET SALES $3,003,000
</TABLE>
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C-2
<PAGE> 38
*Confidential portion has been
omitted and filed separately
with the Commission.
EXHIBIT D
MINIMUM FUEL PAYMENT FORMULA
PART OF THE AIRLINE CUSTOMER SERVICES AGREEMENT BETWEEN
UNITED AND SKYMALL
The Minimum Fuel Payment Formula is as follows:
Minimum Fuel Payment Formula
A. Definitions:
(a) Actual Number of Aircraft in Total Fleet is defined as the
actual number of United Domestic Fleet by aircraft type as
scheduled on the first day of each month as stated in the
United Domestic Fleet Monthly Fuel Report.
(b) Actual Seats per Aircraft is defined as the number of seats
per aircraft by aircraft type as stated in the United Domestic
Fleet Monthly Fuel Report.
(c) Actual Incremental Fuel Cost per Pound per Aircraft is defined
as the actual fuel cost to carry one pound one year by
aircraft type as stated in the United Domestic Fleet Monthly
Fuel Report.
(d) Catalog Weight as a Percent of One (1) Pound (which is subject
to change) is currently 41.9% (6.7 ounces divided by 16 ounces
equals 41.9%).
(e) Ratio of "Catalog-Stocked" Seats is defined as the percent of
"stocked seatback pockets" throughout the day (passengers are
encouraged to remove copies after United's morning crews
perform restocking efforts).
(f) SkyMall Multiplier is * percent (*%) of
the incremental fuel cost to carry the SkyMall Catalog.
B. Calculation Formula:
Minimum Payment =
(a) Actual Number of Aircraft in Total Fleet
X (b) Actual Seats per Aircraft
X (c) Actual Incremental Fuel Cost per Pound to Carry
One Pound DIVIDED BY TWELVE (12)
X (d) Catalog Weight as a Percent of One (1) Pound
D-1
<PAGE> 39
* Confidential portion has been
omitted and filed separately
with the Commission.
X (e) Ratio of "Catalog-Stocked" Seats (Agreed to be
93%)
X (f) SkyMall Multiplier (Agreed to *%)
C. Example for ONE MONTH:
<TABLE>
<CAPTION>
Actual
Annual
Incre-
mental Catalog
Actual Fuel Weight
Number of Actual Cost (Number As A Ratio of Monthly
Aircraft Seats Per Lb. of months Percent Catalog- SkyMall Minimum
Fleet in Total per Per In a of One Stocked Multi- Fuel
Type Fleet Aircraft Aircraft Year) Pound Seats plier Amount
---- ----- -------- -------- ------- ----- ----- ----- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
B727-100 7 108 12.13 12 0.419 0.93 * *
B727-200 21 147 9.14 12 0.419 0.93 * *
B727-200A 75 147 13.85 12 0.419 0.93 * *
B737-200 73 109 12.54 12 0.419 0.93 * *
B737-300 95 128 9.22 12 0.419 0.93 * *
B737-300W 6 128 9.20 12 0.419 0.93 * *
B757-500 29 108 8.45 12 0.419 0.93 * *
B757-200 0 194 7.18 12 0.419 0.93 * *
B757-200A 46 188 6.85 12 0.419 0.93 * *
B767-200W 10 188 7.79 12 0.419 0.93 * *
B767-200 11 204 9.43 12 0.419 0.93 * *
DC-10 . 28 287 10.51 12 0.419 0.93 * *
DC-100W 18 287 15.24 12 0.419 0.93 * *
-- --- ----- -- ----- ---- --- -----
Totals 419 *
=== ======
</TABLE>
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D-2
<PAGE> 1
EXHIBIT 10.4
[LOGO]MERRILL LYNCH No. 72A-07912
WCMA(R) NOTE AND LOAN AGREEMENT
WCMA NOTE AND LOAN AGREEMENT ("Loan Agreement") dated as of October 11, 1996,
between SKYMALL, INC., a corporation organized and existing under the laws of
the State of Arizona having its principal office at 1520 East Pima Street,
Phoenix, AZ 85034 ("Customer"), and MERRILL LYNCH BUSINESS FINANCIAL SERVICES
INC., a corporation organized and existing under the laws of the State of
Delaware having its principal office at 33 West Monroe Street, Chicago, IL 60603
("MLBFS").
In accordance with that certain WORKING CAPITAL MANAGEMENT(R) ACCOUNT AGREEMENT
NO. 72A-07912 ("WCMA Agreement") between Customer and MLBFS' affiliate, MERRILL
LYNCH, PIERCE, FENNER & SMITH INCORPORATED ("MLPF&S"), Customer has subscribed
to the WCMA Program described in the WCMA Agreement. The WCMA Agreement is by
this reference incorporated as a part hereof. In conjunction therewith and as
part of the WCMA Program, Customer has requested that MLBFS provide, and subject
to the terms and conditions herein set forth MLBFS has agreed to provide, a
commercial line of credit for Customer (the "WCMA Line of Credit").
Accordingly, and in consideration of the premises and of the mutual covenants of
the parties hereto, Customer and MLBFS hereby agree as follows:
1. DEFINITIONS
(a) SPECIFIC TERMS. In addition to terms defined elsewhere in this Loan
Agreement, when used herein the following terms shall have the following
meanings:
(i) "Activation Date" shall mean the date upon which MLBFS shall cause the WCMA
Line of Credit to be fully activated under MLPF&S' computer system as part of
the WCMA Program.
(ii) "Additional Agreements" shall mean all agreements, instruments, documents
and opinions other than this Loan Agreement, whether with or from Customer or
any other party, which are contemplated hereby or otherwise reasonably required
by MLBFS in connection herewith, or which evidence the creation, guaranty or
collateralization of any of the Obligations or the granting or perfection of
liens or security interests upon any collateral for the Obligations.
(iii) "Business Day" shall mean any day other than a Saturday, Sunday, federal
holiday or other day on which the New York Stock Exchange is regularly closed.
(iv) "Commitment Expiration Date" shall mean November 11, 1996.
(v) "General Funding Conditions" shall mean each of the following conditions to
any WCMA Loan by MLBFS hereunder: (A) no Event of Default, or event which with
the giving of notice, passage of time, or both, would constitute an Event of
Default, shall have occurred and be continuing or would result from the making
of any WCMA Loan hereunder by MLBFS; (B) there shall not have occurred any
material adverse change in the business or financial condition of Customer or
any Guarantor; (C) all representations and warranties of Customer or any
Guarantor herein or in any Additional Agreements shall then be true and correct
in all material respects; (D) MLBFS shall have received this Loan Agreement and
all of the Additional Agreements, duly executed and filed or recorded where
applicable, all of which shall be in form and substance reasonably satisfactory
to MLBFS; (E) MLBFS shall have received evidence reasonably satisfactory to it
as the ownership of and the perfection and priority of MLBFS' liens and security
interests on any collateral for the Obligations furnished pursuant to any of the
Additional Agreements; and (F) any additional conditions specified in the "WCMA
Line of Credit
<PAGE> 2
Approval" letter executed by MLBFS with respect to the transactions contemplated
hereby shall have been met to the reasonable satisfaction of MLBFS.
(vi) "Guarantor" shall mean a person or entity who has either guaranteed or
provided collateral for any or all of the Obligations.
(vii) "Interest Rate" shall mean a variable per annum rate of interest equal to
the sum of 2.60% and the 30-Day Commercial Paper Rate. The "30-Day Commercial
Paper Rate" shall mean, as of the date of any determination, the interest rate
from time to time published in the "Money Rates" section of The Wall Street
Journal for 30-day high-grade unsecured notes sold through dealers by major
corporations. The Interest Rate will change as of the date of publication in The
Wall Street Journal of a 30-Day Commercial Paper Rate that is different from
that published on the preceding Business Day. In the event that The Wall Street
Journal shall, for any reason, fail or cease to publish the 30-Day Commercial
Paper Rate, MLBFS will choose a reasonably comparable index or source to use as
the basis for the Interest Rate.
(viii) "Line Fee" shall mean a fee of $20,000.00 payable to MLBFS in connection
with the WCMA Line of Credit for the period from the Activation Date to and
including the last day of December in the year immediately following the year in
which the Activation Date shall occur, and payable again for each 12-month
period thereafter to the Maturity Date.
(ix) "Maturity Date" shall mean December 31, 1998, or such later date as may be
consented to in writing by MLBFS.
(x) "Maximum WCMA Line of Credit" shall mean an amount equal to the lesser of:
(A) 100% of the immediate liquidation value of all cash, instruments, securities
and other property of whatever kind or description now and hereafter in or
controlled by any Merrill Lynch securities accounts which have been assigned to
MLBFS as security for the Obligations, or (B) $4,000,000.00. Increases and
decreases in the Maximum WCMA Line of Credit may be made by MLBFS pursuant to
said formula at any time or times without notice. However, MLBFS will not in any
event be obligated to make any increase in the Maximum WCMA Line of Credit
pursuant to said formula more than once in any calendar month.
(xi) "Obligations" shall mean all liabilities, indebtedness and other
obligations of Customer to MLBFS, howsoever created, arising or evidenced,
whether now existing or hereafter arising, whether direct or indirect, absolute
or contingent, due or to become due, primary or secondary or joint or several,
and, without limiting the foregoing, shall include interest accruing after the
filing of any petition in bankruptcy, and all present and future liabilities,
indebtedness and obligations of Customer under this Loan Agreement.
(xii) "WCMA Account" shall mean and refer to the Working Capital Management
Account of Customer with MLPF&S identified as Account No. 72A-07912.
(xiii) "WCMA Loan" shall mean each advance made by MLBFS pursuant to this Loan
Agreement.
(b) OTHER TERMS. Except as otherwise defined herein: (i) all terms used in this
Loan Agreement which are defined in the Uniform Commercial Code of Illinois
("UCC") shall have the meanings set forth in the UCC, and (ii) capitalized terms
used herein which are defined in the WCMA Agreement shall have the meaning set
forth in the WCMA Agreement.
2. WCMA PROMISSORY NOTE
FOR VALUE RECEIVED, Customer hereby promises to pay to the order of MLBFS, at
the times and in the manner set forth in this Loan Agreement, or in such other
manner and at such place as MLBFS may hereafter designate in writing, the
following: (a) on the Maturity Date, the aggregate unpaid principal amount of
all WCMA Loans (the "WCMA Loan Balance"); (b) interest at the Interest Rate on
the outstanding WCMA Loan Balance, from and including the date on which the
initial WCMA Loan is made until the date of payment of all WCMA Loans in full;
and (c) on demand, all other sums payable pursuant to this Loan Agreement,
including, but not limited to, the Line Fee and any late charges. Except as
-2-
<PAGE> 3
otherwise expressly set forth herein, Customer hereby waives presentment, demand
for payment, protest and notice of protest, notice of dishonor, notice of
acceleration, notice of intent to accelerate and all other notices and
formalities in connection with this WCMA Promissory Note and this Loan
Agreement.
3. WCMA LOANS
(a) ACTIVATION DATE. Provided that: (i) the Commitment Expiration Date shall not
then have occurred, and (ii) Customer shall have subscribed to the WCMA Program
and its subscription to the WCMA Program shall then be in effect, the Activation
Date shall occur on or promptly after the date, following the acceptance of this
Loan Agreement by MLBFS at its office in Chicago, Illinois, upon which each of
the General Funding Conditions shall have been met or satisfied to the
reasonable satisfaction of MLBFS. No activation by MLBFS of the WCMA Line of
Credit for a nominal amount shall be deemed evidence of the satisfaction of any
of the conditions herein set forth, or a waiver of any of the terms or
conditions hereof.
(b) WCMA LOANS. Subject to the terms and conditions hereof, during the period
from and after the Activation Date to the Maturity Date: (i) MLBFS will make
WCMA Loans to Customer in such amounts as Customer may from time to time request
in accordance with the terms hereof, up to an aggregate outstanding amount not
to exceed the Maximum WCMA Line of Credit, and (ii) Customer may repay any WCMA
Loans in whole or in part at any time without premium or penalty, and request a
re-borrowing of amounts repaid on a revolving basis. Customer may request WCMA
Loans by use of WCMA Checks, FTS, Visa(R) charges, wire transfers, or such other
means of access to the WCMA Line of Credit as may be permitted by MLBFS from
time to time; it being understood that so long as the WCMA Line of Credit shall
be in effect, any charge or debit to the WCMA Account which but for the WCMA
Line of Credit would under the terms of the WCMA Agreement result in an
overdraft, shall be deemed a request by Customer for a WCMA Loan.
(c) CONDITIONS OF WCMA LOANS. Notwithstanding the foregoing, MLBFS shall not be
obligated to make any WCMA Loan, and may without notice refuse to honor any such
request by Customer, if at the time of receipt by MLBFS of Customer's request:
(i) the making of such WCMA Loan would cause the Maximum WCMA Line of Credit to
be exceeded; or (ii) the Maturity Date shall have occurred, or the WCMA Line of
Credit shall have otherwise been terminated in accordance with the terms hereof;
or (iii) Customer's subscription to the WCMA Program shall have been terminated;
or (iv) an event shall have occurred and is continuing which shall have caused
any of the General Funding Conditions to not then be met or satisfied to the
reasonable satisfaction of MLBFS. The making by MLBFS of any WCMA Loan at a time
when any one or more of said conditions shall not have been met shall not in any
event be construed as a waiver of said condition or conditions or of any Event
of Default, and shall not prevent MLBFS at any time thereafter while any
condition shall not have been met from refusing to honor any request by Customer
for a WCMA Loan.
(d) FORCE MAJEURE. MLBFS shall not be responsible, and shall have no liability
to Customer or any other party, for any delay or failure of MLBFS to honor any
request of Customer for a WCMA Loan or any other act or omission of MLBFS,
MLPF&S or any of their affiliates due to or resulting from any system failure,
error or delay in posting or other clerical error, loss of power, fire, Act of
God or other cause beyond the reasonable control of MLBFS, MLPF&S or any of
their affiliates unless directly arising out of the willful wrongful act or
active gross negligence of MLBFS. In no event shall MLBFS be liable to Customer
or any other party for any incidental or consequential damages arising from any
act or omission by MLBFS, MLPF&S or any of their affiliates in connection with
the WCMA Line of Credit or this Loan Agreement.
(e) INTEREST. The WCMA Loan Balance shall bear interest at the Interest Rate.
Interest shall be computed for the actual number of days elapsed on the basis of
a year consisting of 360 days. Notwithstanding any provision to the contrary in
this Agreement or any of the Additional Agreements, no provision of this
Agreement or any of the Additional Agreements shall require the payment or
permit the collection of any amount in excess of the maximum amount of interest
permitted to be charged by law ("Excess Interest"). If any Excess Interest is
provided for, or is adjudicated as being provided for, in this Agreement or any
of the Additional Agreements, then: (a) Customer shall not be obligated to pay
any Excess Interest; and (b) any
-3-
<PAGE> 4
Excess Interest that MLBFS may have received hereunder or under any of the
Additional Agreements shall, at the option of MLBFS, be: (i) applied as a credit
against the then unpaid balance of the WCMA Line of Credit, (ii) refunded to the
payer thereof, or (iii) any combination of the foregoing. Except as otherwise
provided herein, accrued and unpaid interest on the WCMA Loan Balance shall be
payable monthly on the last Business Day of each calendar month, commencing with
the last Business Day of the calendar month in which the Activation Date shall
occur. Customer hereby irrevocably authorizes and directs MLPF&S to pay MLBFS
such accrued interest from any available free credit balances in the WCMA
Account, and if such available free credit balances are insufficient to satisfy
any interest payment due, to liquidate any investments in the Money Accounts
(other than any investments constituting any Minimum Money Accounts Balance
under the WCMA Directed Reserve program) in an amount up to the balance of such
accrued interest, and pay to MLBFS the available proceeds on account thereof. If
available free credit balances in the WCMA Account and available proceeds of the
Money Accounts are insufficient to pay the entire balance of accrued interest,
and Customer otherwise fails to make such payment when due, MLBFS may, in its
sole discretion, make a WCMA Loan in an amount equal to the balance of such
accrued interest and pay the proceeds of such WCMA Loan to itself on account of
such interest. The amount of any such WCMA Loan will be added to the WCMA Loan
Balance. If MLBFS declines to extend a WCMA Loan to Customer under these
circumstances, Customer hereby authorizes and directs MLPF&S to make all such
interest payments to MLBFS from any Minimum Money Accounts Balance. If there is
no Minimum Money Accounts Balance, or it is insufficient to pay all such
interest, MLBFS will invoice Customer for payment of the balance of the accrued
interest, and Customer shall pay such interest as directed by MLBFS within 5
Business Days of receipt of such invoice.
(f) PAYMENTS. All payments required or permitted to be made pursuant to this
Loan Agreement shall be made in lawful money of the United States. Unless
otherwise directed by MLBFS, payments on account of the WCMA Loan Balance may be
made by the delivery of checks (other than WCMA Checks), or by means of FTS or
wire transfer of funds (other than funds from the WCMA Line of Credit) to MLPF&S
for credit to Customer's WCMA Account. Notwithstanding anything in the WCMA
Agreement to the contrary, Customer hereby irrevocably authorizes and directs
MLPF&S to apply available free credit balances in the WCMA Account to the
repayment of the WCMA Loan Balance prior to application for any other purpose.
Payments to MLBFS from funds in the WCMA Account shall be deemed to be made by
Customer upon the same basis and schedule as funds are made available for
investment in the Money Accounts in accordance with the terms of the WCMA
Agreement. All funds received by MLBFS from MLPF&S pursuant to the aforesaid
authorization shall be applied by MLBFS to repayment of the WCMA Loan Balance.
The acceptance by or on behalf of MLBFS of a check or other payment for a lesser
amount than shall be due from Customer, regardless of any endorsement or
statement thereon or transmitted therewith, shall not be deemed an accord and
satisfaction or anything other than a payment on account, and MLBFS or anyone
acting on behalf of MLBFS may accept such check or other payment without
prejudice to the rights of MLBFS to recover the balance actually due or to
pursue any other remedy under this Loan Agreement or applicable law for such
balance. All checks accepted by or on behalf of MLBFS in connection with the
WCMA Line of Credit are subject to final collection.
(g) EXCEEDING THE MAXIMUM WCMA LINE OF CREDIT. In the event that the WCMA Loan
Balance shall at any time exceed the Maximum WCMA Line of Credit, Customer shall
within 1 Business Day of the first to occur of (i) any request or demand of
MLBFS, or (ii) receipt by Customer of a statement from MLPF&S showing a WCMA
Loan Balance in excess of the Maximum WCMA Line of Credit, deposit sufficient
funds into the WCMA Account to reduce the WCMA Loan Balance below the Maximum
WCMA Line of Credit.
(h) LINE FEE; EXTENSIONS. (i) In consideration of the extension of the WCMA Line
of Credit by MLBFS to Customer during the period from the Activation Date to and
including the last day of December in the year immediately following the year in
which the Activation Date shall occur, Customer has paid or shall pay the
initial Line Fee to MLBFS. If such fee has not heretofore been paid by Customer,
Customer hereby authorizes MLBFS, at its option, to either cause said fee to be
paid with a WCMA Loan which is added to the WCMA Loan Balance, or invoice
Customer for said fee (in which event Customer shall pay said fee within 5
Business Days after receipt of such invoice). No delay in the Activation Date,
howsoever caused, shall entitle Customer to any rebate or reduction in the Line
Fee or extension of the Maturity Date. Customer shall pay an additional Line Fee
for each 12-month period thereafter to the Maturity
-4-
<PAGE> 5
Date, and in connection therewith hereby authorizes MLBFS, at its option, to
either cause each such additional Line Fee to be paid with a WCMA Loan which is
added to the WCMA Loan Balance, or invoice Customer for such Line Fee, as
aforesaid, on or at any time after the first Business Day of the first month of
such 12-month period.
(ii) In the event MLBFS and Customer, in their respective sole discretion, agree
to renew the WCMA Line of Credit beyond the current Maturity Date, Customer
agrees to pay a renewal Line Fee or Line Fees (if the Maturity Date is extended
for more than one 12-month period), in the amount per 12-month period or other
applicable period then set forth in the writing signed by MLBFS which extends
the Maturity Date; it being understood that any request by Customer for a WCMA
Loan or failure of Customer to pay any WCMA Loan Balance outstanding on the
immediately prior Maturity Date, after the receipt by Customer of a writing
signed by MLBFS extending the Maturity Date, shall be deemed a consent by
Customer to both the renewal Line Fees and the new Maturity Date. If no renewal
Line Fees are set forth in the writing signed by MLBFS extending the Maturity
Date, the renewal Line Fee for each 12-month period shall be deemed to be the
same as the immediately preceding periodic Line Fee. Each such renewal Line Fee
may, at the option of MLBFS, either be paid with a WCMA Loan which is added to
the WCMA Loan Balance or invoiced to Customer, as aforesaid, on or at any time
after the first Business Day of the first month of the 12-month period for which
such fee is due.
(i) STATEMENTS. MLPF&S will include in each monthly statement it issues under
the WCMA Program information with respect to WCMA Loans and the WCMA Loan
Balance. Any questions that Customer may have with respect to such information
should be directed to MLBFS; and any questions with respect to any other matter
in such statements or about or affecting the WCMA Program should be directed to
MLPF&S.
(j) USE OF LOAN PROCEEDS; SECURITIES TRANSACTIONS. The proceeds of each WCMA
Loan shall be used by Customer solely for working capital in the ordinary course
of its business, or, with the prior written consent of MLBFS, for other lawful
business purposes of Customer not prohibited hereby. CUSTOMER AGREES THAT UNDER
NO CIRCUMSTANCES WILL FUNDS BORROWED FROM MLBFS THROUGH THE WCMA LINE OF CREDIT
BE USED: (I) FOR PERSONAL, FAMILY OR HOUSEHOLD PURPOSES OF ANY PERSON
WHATSOEVER, (II) TO PURCHASE, CARRY OR TRADE IN SECURITIES, INCLUDING SHARES OF
THE MONEY ACCOUNTS, OR (III) TO REPAY DEBT INCURRED TO PURCHASE, CARRY OR TRADE
IN SECURITIES; NOR WILL ANY SUCH FUNDS BE REMITTED, DIRECTLY OR INDIRECTLY, TO
AN ACCOUNT OF CUSTOMER WITH MLPF&S OR ANY OTHER BROKER OR DEALER IN SECURITIES,
BY WCMA CHECK, CHECK, FTS, WIRE TRANSFER, OR OTHERWISE.
4. REPRESENTATIONS AND WARRANTIES
Customer represents and warrants to MLBFS that:
(a) ORGANIZATION AND EXISTENCE. Customer is a corporation, duly organized and
validly existing in good standing under the laws of the State of Arizona and is
qualified to do business and in good standing in each other state where the
nature of its business or the property owned by it make such qualification
necessary.
(b) EXECUTION, DELIVERY AND PERFORMANCE. The execution, delivery and performance
by Customer of this Loan Agreement and by Customer and each Guarantor of such of
the Additional Agreements to which it is a party: (i) have been duly authorized
by all requisite action, (ii) do not and will not violate or conflict with any
law or other governmental requirement, or any of the agreements, instruments or
documents which formed or govern Customer or any such Guarantor, and (iii) do
not and will not breach or violate any of the provisions of, and will not result
in a default by Customer or any such Guarantor under, any other agreement,
instrument or document to which it is a party or by which it or its properties
are bound.
(c) NOTICES AND APPROVALS. Except as may have been given or obtained, no notice
to or consent or approval of any governmental body or authority or other third
party whatsoever (including, without limitation, any other creditor) is required
in connection with the execution, delivery or performance by
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<PAGE> 6
Customer or any Guarantor of such of this Loan Agreement and the Additional
Agreements to which it is a party.
(d) ENFORCEABILITY. This Loan Agreement and such of the Additional Agreements to
which it is a party are the legal, valid and binding obligations of Customer and
each Guarantor, enforceable against it or them, as the case may be, in
accordance with their respective terms, except as enforceability may be limited
by bankruptcy and other similar laws affecting the rights of creditors generally
or by general principles of equity.
(e) FINANCIAL STATEMENTS. Except as expressly set forth in Customer's financial
statements, all financial statements of Customer furnished to MLBFS have been
prepared in conformity with generally accepted accounting principles,
consistently applied, are true and correct, and fairly present the financial
condition of it as at such dates and the results of its operations for the
periods then ended; and since the most recent date covered by such financial
statements, there has been no material adverse change in any such financial
condition or operation. All financial statements furnished to MLBFS of any
Guarantor are true and correct and fairly represent such Guarantor's financial
condition as of the date of such financial statements, and since the most recent
date of such financial statements, there has been no material adverse change in
such financial condition.
(f) LITIGATION. No litigation, arbitration, administrative or governmental
proceedings are pending or, to the knowledge of Customer, threatened against
Customer or any Guarantor, which would, if adversely determined, materially and
adversely affect the liens and security interests of MLBFS hereunder or under
any of the Additional Agreements, the financial condition of Customer or any
such Guarantor or the continued operations of Customer.
(g) TAX RETURNS. All federal, state and local tax returns, reports and
statements required to be filed by Customer and each Guarantor have been filed
with the appropriate governmental agencies and all taxes due and payable by
Customer and each Guarantor have been timely paid (except to the extent that any
such failure to file or pay will not materially and adversely affect either the
liens and security interests of MLBFS hereunder or under any of the Additional
Agreements, the financial condition of Customer or any Guarantor, or the
continued operations of Customer).
Each of the foregoing representations and warranties are continuing and shall be
deemed remade by Customer concurrently with each request for a WCMA Loan.
5. FINANCIAL AND OTHER INFORMATION
Customer shall furnish or cause to be furnished to MLBFS during the term of this
Loan Agreement all of the following:
(a) ANNUAL FINANCIAL STATEMENTS. Within 120 days after the close of each fiscal
year of Customer, Customer shall furnish or cause to be furnished to MLBFS: (i)
a copy of the annual audited financial statements of Customer consisting of at
least a balance sheet as at the close of such fiscal year and related statements
of income, retained earnings and cash flows, certified by its current
independent certified public accountants or other independent certified public
accountants reasonably acceptable to MLBFS, and (ii) the balance sheet of each
individual Guarantor as of said fiscal year-end, certified by such Guarantor.
(b) INTERIM FINANCIAL STATEMENTS. Within 45 days after the close of each fiscal
quarter of Customer, Customer shall furnish or cause to be furnished to MLBFS:
(i) a statement of profit and loss for the fiscal quarter then ended, and (ii) a
balance sheet as at the close of such fiscal quarter; all in reasonable detail
and certified by its chief financial officer.
(c) OTHER INFORMATION. Customer shall furnish or cause to be furnished to MLBFS
such other information as MLBFS may from time to time reasonably request
relating to Customer or any Guarantor.
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<PAGE> 7
6. OTHER COVENANTS
Customer further agrees during the term of this Loan Agreement that:
(a) FINANCIAL RECORDS; INSPECTION. Customer will: (i) maintain at its principal
place of business complete and accurate books and records, and maintain all of
its financial records in a manner consistent with the financial statements
heretofore furnished to MLBFS, or prepared on such other basis as may be
approved in writing by MLBFS; and (ii) permit MLBFS or its duly authorized
representatives, upon reasonable notice and at reasonable times, to inspect its
properties (both real or personal), operations, books and records.
(b) TAXES. Customer and each Guarantor will pay when due all taxes, assessments
and other governmental charges, howsoever designated, and all other liabilities
and obligations, except to the extent that any such failure to pay will not
materially and adversely affect either any liens and security interests of MLBFS
under any Additional Agreements, the financial condition of Customer or any
Guarantor or the continued operations of Customer.
(c) COMPLIANCE WITH LAWS AND AGREEMENTS. Neither Customer nor any Guarantor will
violate any law, regulation or other governmental requirement, any judgment or
order of any court or governmental agency or authority, or any agreement,
instrument or document to which it is a party or by which it is bound, if any
such violation will materially and adversely affect either any liens and
security interests of MLBFS under any Additional Agreements, the financial
condition of Customer or any Guarantor, or the continued operations of Customer.
(d) CONTINUITY. Except upon the prior written consent of MLBFS, which consent
will not be unreasonably withheld: (i) Customer will not be a party to any
merger or consolidation with, or purchase or otherwise acquire all or
substantially all of the assets or stock of, or any material partnership or
joint venture interest in, any person or entity, or sell, transfer or lease all
or any substantial part of its assets if any such action causes a material
change in its control or principal business, or a material adverse change in its
financial condition or operations; (ii) Customer will preserve its existence and
good standing in the jurisdictions of establishment and operation, and will not
operate in any material business other than a business substantially the same as
its business as of the date of application by Customer for credit from MLBFS;
and (iii) Customer will not cause or permit any material change in its
controlling ownership, controlling senior management or, except upon not less
than 30 days prior written notice to MLBFS, its name or principal place of
business.
7. EVENTS OF DEFAULT
The occurrence of any of the following events shall constitute an "Event of
Default" under this Loan Agreement:
(a) FAILURE TO PAY. Customer shall fail to pay to MLBFS or deposit into the WCMA
Account when due any amount owing or required to be deposited by Customer under
this Loan Agreement, or shall fail to pay when due any other Obligations, and
any such failure shall continue for more than 5 Business Days after written
notice thereof shall have been given by MLBFS to Customer.
(b) FAILURE TO PERFORM. Customer or any Guarantor shall default in the
performance or observance of any covenant or agreement on its part to be
performed or observed under this Loan Agreement or any of the Additional
Agreements (not constituting an Event of Default under any other clause of this
Section), and such default shall continue unremedied for 10 Business Days after
written notice thereof shall have been given by MLBFS to Customer.
(c) BREACH OF WARRANTY. Any representation or warranty made by Customer or any
Guarantor contained in this Loan Agreement or any of the Additional Agreements
shall at any time prove to have been incorrect in any material respect when
made.
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<PAGE> 8
(d) DEFAULT UNDER OTHER AGREEMENT. A default or Event of Default by Customer or
any Guarantor shall occur under the terms of any other agreement, instrument or
document with or intended for the benefit of MLBFS, MLPF&S or any of their
affiliates, and any required notice shall have been given and required passage
of time shall have elapsed.
(e) BANKRUPTCY, ETC. A proceeding under any bankruptcy, reorganization,
arrangement, insolvency, readjustment of debt or receivership law or statute
shall be filed by Customer or any Guarantor, or any such proceeding shall be
filed against Customer or any Guarantor and shall not be dismissed or withdrawn
within 60 days after filing, or Customer or any Guarantor shall make an
assignment for the benefit of creditors, or Customer or any Guarantor shall
become insolvent or generally fail to pay, or admit in writing its inability to
pay, its debts as they become due.
(f) MATERIAL IMPAIRMENT. Any event shall occur which shall reasonably cause
MLBFS to in good faith believe that the prospect of payment or performance by
Customer or any Guarantor has been materially impaired.
(g) ACCELERATION OF DEBT TO OTHER CREDITORS. Any event shall occur which results
in the acceleration of the maturity of any indebtedness of $100,000.00 or more
of Customer or any Guarantor to another creditor under any indenture, agreement,
undertaking, or otherwise.
8. REMEDIES
(a) REMEDIES UPON DEFAULT. Upon the occurrence and during the continuance of any
Event of Default, MLBFS may at its sole option do any one or more or all of the
following, at such time and in such order as MLBFS may in its sole discretion
choose:
(i) TERMINATION. MLBFS may without notice terminate the WCMA Line of Credit and
all obligations to provide the WCMA Line of Credit or otherwise extend any
credit to or for the benefit of Customer; and upon any such termination MLBFS
shall be relieved of all such obligations.
(ii) ACCELERATION. MLBFS may declare the principal of and interest on the WCMA
Loan Balance, and all other Obligations to be forthwith due and payable,
whereupon all such amounts shall be immediately due and payable, without
presentment, demand for payment, protest and notice of protest, notice of
dishonor, notice of acceleration, notice of intent to accelerate or other notice
or formality of any kind, all of which are hereby expressly waived.
(b) SET-OFF. MLBFS shall have the further right upon the occurrence and during
the continuance of an Event of Default to set-off, appropriate and apply toward
payment of any of the Obligations, in such order of application as MLBFS may
from time to time and at any time elect, any cash, credit, deposits, accounts,
securities and any other property of Customer which is in transit to or in the
possession, custody or control of MLBFS, MLPF&S or any agent, bailee, or
affiliate of MLBFS or MLPF&S, including, without limitation, the WCMA Account
and any Money Accounts, and all cash and securities therein or controlled
thereby, and all proceeds thereof. Customer hereby collaterally assigns and
grants to MLBFS a security interest in all such property as additional security
for the Obligations. Upon the occurrence and during the continuance of an Event
of Default, MLBFS shall have all rights in such property available to collateral
assignees and secured parties under all applicable laws, including, without
limitation, the UCC.
(c) REMEDIES ARE SEVERABLE AND CUMULATIVE. All rights and remedies of MLBFS
herein are severable and cumulative and in addition to all other rights and
remedies available in the Additional Agreements, at law or in equity, and any
one or more of such rights and remedies may be exercised simultaneously or
successively.
9. MISCELLANEOUS
(a) NON-WAIVER. No failure or delay on the part of MLBFS in exercising any
right, power or remedy pursuant to this Loan Agreement or any of the Additional
Agreements shall operate as a waiver thereof,
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<PAGE> 9
and no single or partial exercise of any such right, power or remedy shall
preclude any other or further exercise thereof, or the exercise of any other
right, power or remedy. Neither any waiver of any provision of this Loan
Agreement or any of the Additional Agreements, nor any consent to any departure
by Customer therefrom, shall be effective unless the same shall be in writing
and signed by MLBFS. Any waiver of any provision of this Loan Agreement or any
of the Additional Agreements and any consent to any departure by Customer from
the terms of this Loan Agreement or any of the Additional Agreements shall be
effective only in the specific instance and for the specific purpose for which
given. Except as otherwise expressly provided herein, no notice to or demand on
Customer shall in any case entitle Customer to any other or further notice or
demand in similar or other circumstances.
(b) DISCLOSURE. Customer and each Guarantor hereby irrevocably authorizes MLBFS
and each of its affiliates, including without limitation MLPF&S, to at any time
(whether or not an Event of Default shall have occurred) obtain from and
disclose to each other any and all financial and other information about
Customer or any Guarantor.
(c) COMMUNICATIONS. All notices and other communications required or permitted
hereunder shall be in writing, and shall be either delivered personally, mailed
by postage prepaid certified mail or sent by express overnight courier or by
facsimile. Such notices and communications shall be deemed to be given on the
date of personal delivery, facsimile transmission or actual delivery of
certified mail, or one Business Day after delivery to an express overnight
courier. Unless otherwise specified in a notice sent or delivered in accordance
with the terms hereof, notices and other communications in writing shall be
given to the parties hereto at their respective addresses set forth at the
beginning of this Loan Agreement, or, in the case of facsimile transmission, to
the parties at their respective regular facsimile telephone number.
(d) COSTS, EXPENSES AND TAXES. Customer shall upon demand pay or reimburse MLBFS
for: (i) all Uniform Commercial Code filing and search fees and expenses
incurred by MLBFS in connection with the verification, perfection or
preservation of MLBFS' rights hereunder or in any collateral for the
Obligations; (ii) any and all stamp, transfer and other taxes and fees payable
or determined to be payable in connection with the execution, delivery and/or
recording of this Loan Agreement or any of the Additional Agreements; and (iii)
all reasonable fees and out-of-pocket expenses (including, but not limited to,
reasonable fees and expenses of outside counsel) incurred by MLBFS in connection
with the enforcement of this Loan Agreement or any of the Additional Agreements
or the protection of MLBFS' rights hereunder or thereunder, excluding, however,
salaries and expenses of MLBFS' employees. The obligations of Customer under
this paragraph shall survive the expiration or termination of this Loan
Agreement and the discharge of the other Obligations.
(e) RIGHT TO PERFORM OBLIGATIONS. If Customer shall fail to do any act or thing
which it has covenanted to do under this Loan Agreement or any representation or
warranty on the part of Customer contained in this Loan Agreement shall be
breached, MLBFS may, in its sole discretion, after 5 days written notice is sent
to Customer (or such lesser notice, including no notice, as is reasonable under
the circumstances), do the same or cause it to be done or remedy any such
breach, and may expend its funds for such purpose. Any and all reasonable
amounts so expended by MLBFS shall be repayable to MLBFS by Customer upon
demand, with interest at the Interest Rate during the period from and including
the date funds are so expended by MLBFS to the date of repayment, and all such
amounts shall be additional Obligations. The payment or performance by MLBFS of
any of Customer's obligations hereunder shall not relieve Customer of said
obligations or of the consequences of having failed to pay or perform the same,
and shall not waive or be deemed a cure of any Event of Default.
(f) LATE CHARGE. Any payment required to be made by Customer pursuant to this
Loan Agreement not paid within 10 days of the applicable due date shall be
subject to a late charge in an amount equal to the lesser of: (i) 5% of the
overdue amount, or (ii) the maximum amount permitted by applicable law. Such
late charge shall be payable on demand, or, without demand, may in the sole
discretion of MLBFS be
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<PAGE> 10
paid by a WCMA Loan and added to the WCMA Loan Balance in the same manner as
provided herein for accrued interest.
(g) FURTHER ASSURANCES. Customer agrees to do such further acts and things and
to execute and deliver to MLBFS such additional agreements, instruments and
documents as MLBFS may reasonably require or deem advisable to effectuate the
purposes of this Loan Agreement or any the Additional Agreements.
(h) BINDING EFFECT. This Loan Agreement and the Additional Agreements shall be
binding upon, and shall inure to the benefit of MLBFS, Customer and their
respective successors and assigns. Customer shall not assign any of its rights
or delegate any of its obligations under this Loan Agreement or any of the
Additional Agreements without the prior written consent of MLBFS. Unless
otherwise expressly agreed to in a writing signed by MLBFS, no such consent
shall in any event relieve Customer of any of its obligations under this Loan
Agreement or the Additional Agreements.
(i) HEADINGS. Captions and section and paragraph headings in this Loan Agreement
are inserted only as a matter of convenience, and shall not affect the
interpretation hereof.
(j) GOVERNING LAW. This Loan Agreement, and, unless otherwise expressly provided
therein, each of the Additional Agreements, shall be governed in all respects by
the laws of the State of Illinois.
(k) SEVERABILITY OF PROVISIONS. Whenever possible, each provision of this Loan
Agreement and the Additional Agreements shall be interpreted in such manner as
to be effective and valid under applicable law. Any provision of this Loan
Agreement or any of the Additional Agreements which is prohibited or
unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective
only to the extent of such prohibition or unenforceability without invalidating
the remaining provisions of this Loan Agreement and the Additional Agreements or
affecting the validity or enforceability of such provision in any other
jurisdiction.
(l) TERM. This Loan Agreement shall become effective on the date accepted by
MLBFS at its office in Chicago, Illinois, and, subject to the terms hereof,
shall continue in effect so long thereafter as the WCMA Line of Credit shall be
in effect or there shall be any Obligations outstanding.
(m) INTEGRATION. THIS LOAN AGREEMENT, TOGETHER WITH THE ADDITIONAL AGREEMENTS,
CONSTITUTES THE ENTIRE UNDERSTANDING AND REPRESENTS THE FULL AND FINAL AGREEMENT
BETWEEN THE PARTIES WITH RESPECT TO THE SUBJECT MATTER HEREOF, AND MAY NOT BE
CONTRADICTED BY EVIDENCE OF PRIOR WRITTEN AGREEMENTS OR PRIOR, CONTEMPORANEOUS
OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL
AGREEMENTS OF THE PARTIES. WITHOUT LIMITING THE FOREGOING, CUSTOMER ACKNOWLEDGES
THAT: (i) NO PROMISE OR COMMITMENT HAS BEEN MADE TO IT BY MLBFS, MLPF&S OR ANY
OF THEIR RESPECTIVE EMPLOYEES, AGENTS OR REPRESENTATIVES TO EXTEND THE
AVAILABILITY OF THE WCMA LINE OF CREDIT OR THE DUE DATE OF THE WCMA LOAN BALANCE
BEYOND THE CURRENT MATURITY DATE, OR TO INCREASE THE MAXIMUM WCMA LINE OF
CREDIT, OR OTHERWISE EXTEND ANY OTHER CREDIT TO CUSTOMER OR ANY OTHER PARTY;
(ii) NO PURPORTED EXTENSION OF THE MATURITY DATE, INCREASE IN THE MAXIMUM WCMA
LINE OF CREDIT OR OTHER EXTENSION OR AGREEMENT TO EXTEND CREDIT SHALL BE VALID
OR BINDING UNLESS EXPRESSLY SET FORTH IN A WRITTEN INSTRUMENT SIGNED BY MLBFS;
AND (iii) EXCEPT AS OTHERWISE EXPRESSLY PROVIDED HEREIN, THIS LOAN AGREEMENT
SUPERSEDES AND REPLACES ANY AND ALL PROPOSALS, LETTERS OF INTENT AND APPROVAL
AND COMMITMENT LETTERS FROM MLBFS TO CUSTOMER, NONE OF WHICH SHALL BE CONSIDERED
AN ADDITIONAL AGREEMENT. NO AMENDMENT OR MODIFICATION OF THIS AGREEMENT OR ANY
OF THE ADDITIONAL AGREEMENTS TO WHICH CUSTOMER IS A PARTY SHALL BE EFFECTIVE
UNLESS IN A WRITING SIGNED BY BOTH MLBFS AND CUSTOMER.
(n) JURISDICTION; WAIVER. CUSTOMER ACKNOWLEDGES THAT THIS LOAN AGREEMENT IS
BEING ACCEPTED BY MLBFS IN PARTIAL CONSIDERATION OF MLBFS' RIGHT AND OPTION, IN
ITS SOLE DISCRETION, TO ENFORCE THIS LOAN AGREEMENT AND THE ADDITIONAL
AGREEMENTS IN EITHER THE STATE OF ILLINOIS OR IN ANY OTHER JURISDICTION WHERE
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<PAGE> 11
CUSTOMER OR ANY COLLATERAL FOR THE OBLIGATIONS MAY BE LOCATED. CUSTOMER CONSENTS
TO JURISDICTION IN THE STATE OF ILLINOIS AND VENUE IN ANY STATE OR FEDERAL COURT
IN THE COUNTY OF COOK FOR SUCH PURPOSES, AND CUSTOMER WAIVES ANY AND ALL RIGHTS
TO CONTEST SAID JURISDICTION AND VENUE. CUSTOMER FURTHER WAIVES ANY RIGHTS TO
COMMENCE ANY ACTION AGAINST MLBFS IN ANY JURISDICTION EXCEPT IN THE COUNTY OF
COOK AND STATE OF ILLINOIS. MLBFS AND CUSTOMER HEREBY EACH EXPRESSLY WAIVE ANY
AND ALL RIGHTS TO A TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM
BROUGHT BY EITHER OF THE PARTIES AGAINST THE OTHER PARTY WITH RESPECT TO ANY
MATTER RELATING TO, ARISING OUT OF OR IN ANY WAY CONNECTED WITH THE WCMA LINE OF
CREDIT, THIS LOAN AGREEMENT, ANY ADDITIONAL AGREEMENTS AND/OR ANY OF THE
TRANSACTIONS WHICH ARE THE SUBJECT MATTER OF THIS LOAN AGREEMENT.
IN WITNESS WHEREOF, this Loan Agreement has been executed as of the day and year
first above written.
SKYMALL, INC.
By: /s/ David Wirthlin /s/ John Hurley
____________________________________________________________________________
Signature (1) Signature (2)
David A. Wirthlin John H. Hurley
________________________________________________________________________________
Printed Name Printed Name
CFO and Vice President of Finance V.P. of Operations
________________________________________________________________________________
Title Title
Accepted at Chicago, Illinois:
MERRILL LYNCH BUSINESS FINANCIAL
SERVICES INC.
By: /s/ Signature illegible
____________________________________
Sr. V.P.
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<PAGE> 1
EXHIBIT 10.5
FORM OF TAX INDEMNIFICATION AGREEMENT
THIS AGREEMENT is made and entered into as of this ___ day of _______,
1996, by and among SKYMALL, INC., a Nevada corporation (the "Company"), and
Robert M. and Christi M. Worsley, Alan C. and Karen Ashton, Bert A. Getz,
Richard and Mary O'Riley, Fairfax Cone O'Riley, Henry M. O'Riley, James K.
O'Riley, Rowan T. O'Riley and Gertrude M. O'Riley (the "Stockholders") to become
effective as of the Termination Date (as defined below).
RECITALS
For the period commencing on November 16, 1989 through the Termination
Date (the "S Corporation Period"), the Company was subject to an election to be
taxed as an "S" corporation under Section 1362 of the Internal Revenue Code of
1986, as amended (the "Code"), and under similar provisions of state income tax
laws. During the S Corporation Period, the Company did not incur any material
income tax liability for federal and state income taxes and the Company's items
of income, loss and deductions were passed through to the Stockholders in
varying percentages, depending upon the respective periods that they owned the
shares of the Common Stock of the Company during the S Corporation Period. The
Stockholders included such items on their respective income tax returns. The
Company's election to be taxed as an S Corporation for federal and state income
tax purposes will terminate in connection with a private placement and sale of
shares of the Common Stock of the Company (the "Termination Date"). Accordingly,
the parties desire to set forth their agreement with respect to certain income
taxes which may be imposed upon one or more of the Stockholders or the Company
after the Termination Date as a result of the conduct of the Company's business
during the S Corporation Period.
IT IS, THEREFORE, AGREED:
1. Indemnification. In the event any governmental taxing authority,
including, without limitation, the Internal Revenue Service, the Arizona
Department of Revenue or any other state taxing authority (a "Taxing
Authority"), adjusts, for any reason whatsoever, a Stockholder's taxable income
or loss, tax credits or recapture of tax credits on account of any of the
activities of the Company during the S Corporation Period (an "Adjustment"), the
Company shall pay, on demand, to such Stockholder from time to time an amount
which equals the sum of (a) the additional federal and state income taxes
actually paid by the Stockholder as a result of the Adjustment, as certified by
the Stockholder in writing, including the aggregate amount of any interest,
penalties or additions to tax paid by the Stockholder as a result of such
Adjustment, plus (b) the aggregate amount of all expenses, including reasonable
attorneys' fees and accountants' fees, incurred by the Stockholder in connection
with or as a result of the Adjustment, including the total amount of any such
expenses or fees incurred in connection with the enforcement of this Agreement,
plus (c) an amount, computed using the highest generally applicable marginal
federal and state income tax rates applicable to individuals, which will provide
the Stockholder, as reasonably determined by the Company, with an after tax
payment equal to the sum of the amounts described in Sections l(a) and (b)
above. For purposes of this Agreement, an "Adjustment" does not include any
increase or decrease in a Stockholder's taxable income or loss as a result of
the purchase or sale by the Stockholder of any shares of the Common Stock of the
Corporation.
<PAGE> 2
2. Tax Contest; No Settlement. The Company may, at its own expense,
upon written notice to a Stockholder, require such Stockholder to contest any
Adjustment proposed by a Taxing Authority, and the Stockholders shall, at the
Company's expense, contest the proposed Adjustment or permit the Company and its
representatives, at the Company's request and expense, to contest the proposed
Adjustment (including pursuing all remaining administrative and judicial
appeals). The Stockholders shall fully cooperate with the Company in any such
contest. The Company shall pay to the Stockholders on demand all costs, damages
and expenses (including, without limitation, reasonable attorneys' and
accountants' fees) arising or resulting from or in connection with contesting
the proposed Adjustment. A Stockholder shall not make, accept or enter into a
settlement or other compromise with respect to any Adjustment, or forego or
terminate any proceeding otherwise required hereunder, without the consent of
the Company, which shall not be unreasonably withheld.
3. Repayment to Company. Notwithstanding anything to the contrary
contained herein, in the event a Stockholder receives a refund resulting from an
Adjustment from any Taxing Authority with respect to any of the activities of
the Company during the S Corporation Period, the Stockholder shall promptly
deliver such refund to the Company, including any portion of such refund
representing interest.
4. Miscellaneous.
(a) Survival. The covenants and agreements of the parties set
forth in this Agreement shall survive indefinitely.
(b) Notices. All notices, requests, demands and other
communications which are required or which may be given under this Agreement
shall be in writing.
(c) Entire Agreement. This Agreement constitutes the entire
agreement between the parties hereto with respect to the subject matter hereof
and supersedes all prior agreements and undertakings, oral and written, between
the parties hereto with respect to the subject matter hereof.
(d) Binding Effect. This Agreement shall inure to the benefit
of and be binding upon the parties hereto and their respective successors and
assigns.
(e) Amendments. No provision of this Agreement may be amended,
waived or otherwise modified without the prior written consent of each of the
parties hereto.
(f) Governing Law. This Agreement shall be governed by, and
construed in accordance with, the laws of the State of Arizona, without
reference to the principles of conflicts of law.
(g) Counterparts. This Agreement may be executed by any number
of counterparts, each of which shall be deemed to be an original and all of
which together shall be deemed to be one and the same instrument.
2
<PAGE> 3
IN WITNESS WHEREOF, this Tax Indemnification Agreement has been duly
executed as of the day and year first above written.
SKYMALL, INC.,
a Nevada corporation
By:____________________________
Its:________________________
_______________________________
Robert M. Worsley
_______________________________
Christi M. Worsley
_______________________________
Alan C. Ashton
_______________________________
Karen Ashton
_______________________________
Bert A. Getz
_______________________________
Richard O'Riley
_______________________________
Mary O'Riley
3
<PAGE> 4
_______________________________
Fairfax Cone O'Riley
_______________________________
Henry M. O'Riley
_______________________________
James K. O'Riley
_______________________________
Rowan T. O'Riley
_______________________________
Gertrude M. O'Riley
4
<PAGE> 1
EXHIBIT 10.8a
LEASE
THIS LEASE made this 24th day of June , 1960, between PASQUALETTI
PROPERTIES, INC., an Arizona corporation, hereinafter referred to as Lessor, and
SMITTY'S SUPER VALU, INC., an lowa corporation, hereinafter referred to as
Lessee.
WITNESSETH:
1. The Lessor, in consideration of the rents and covenants hereinafter
specified to be paid, kept and performed by the Lessee, hereby demises and
leases to Lessee, and Lessee in consideration of the covenants and agreements to
be kept and performed by Lessor, hereby leases from Lessor all of the following
described premises and property situated and being in the City of Phoenix,
County of Maricopa, State of Arizona, to wit:
That part of the Northeast quarter of the Northeast quarter of Section
sixteen (16), Township One (1) North, Range Three (3) East of the Gila
and Salt River Base and Meridian, described aa follows:
BEGINNING South 45 degrees 0 minutes West 46.88 feet from the Northeast
corner of said Section 16, and the true point of beginning; thence
Southerly 1310.47 feet to a point 33 feet West of the East line of said
Section 16, thence Westerly 652.40 feet to a point that is 1316.25 feet
South of the North line of said Section 16, thence Westerly 225.36 feet
to a point that is 1318.59 feet South of the North line of said section
16; thence Northerly 1285.59 feet to a point 33 feet South of the North
line of said Section 16; thence Easterly parallel to the North line of
said Section 16, a distance of 855.44 feet to the truepoint of
beginning.
ALSO KNOWN as a portion of Tracts One (1) and Two (2) of State Plat No.
2, according to the plat of record in the office of the County Recorder
of Maricopa County, Arizona, in Book 8 of Maps, page 24.
together with all of the rights, privileges, easements and
appurtenances thereunto appertaining.
2. The term of this lease shall commence upon the date on which the
Lessee shall first commence the transaction of business in the building which is
to be constructed upon said premises by Lessee for the conduct by it of a market
business or upon the expiration of six (6) months from the date of this lease,
whichever shall first occur, and shall continue for a term of fifty-five (55)
years thereafter, hereinafter referred to as the "primary term", with the right
on the part of Lessee to renew or extend the term of this lease for an
additional period of fifty (50) years from and after the expiration of the
primary term, as hereinafter set forth, and at the rental hereinafter specified;
except, however that any period of delay in the completion of
<PAGE> 2
said construction work which may be occasioned by acts of God or action of the
elements or general shortage of labor, equipment facilities, materials or
supplies in the open market, strikes or orders of governmental or civil or
military or naval authorities, shall operate to postpone the commencement of the
term of this lease for a period or periods commensurate with any such period of
delay.
3. Lessee covenants and agrees to pay Lessor as the rental for the
leased premises the sum of $__________ per year, (subject to modifications as
hereinafter provided), payable monthly in advance at the rate of $______ per
month on the 1st day of each and every month during the term of this lease, with
appropriate adjustment for any period lease than one (1) month from the
commencement of the term until the first rental payment shall be due. Lessor
hereby acknowledges receipt from Lessee of the sum of $__________ representing
the rental for the first month and the last eleven months of the primary term.
4. The rental for the second five (5) years of the term of this lease
shall be $__________ per year, or an amount per year determined by tbe cost of
living formula hereinafter set forth, whichever amount shall be the lesser, and
the rental for the third five (5) years of the term of this lease shall be the
sum of $__________ per year, or an amount per year determined by the said cost
of living formula, whichever shall be the lesser; and the rental for the
remainder of the primary term and for the extended term, if this lease shall be
renewed or extended, shall be determined by said cost of living formula. In no
event shall the determined rent be less than per $__________ per annum unless a
part of the premises be taken under eminent domain, or the access thereto be
limited, as hereinafter provided at paragraph 25.
5. The amount of rental determined by said cost of living formula
shall be computed and determined as follows: Upon the expiration of the first
five (5) years of the term of this lease and upon the expiration of each
successive five (5) year period of the primary term and of the extended term, if
this lease shall be renewed or extended, the rental for the next succeeding five
(5) lease-years shall be adjusted as follows:
(a) The parties hereto shall ascertain the then current
index number for all items set forth in the Consumer's Price Index
of the Bureau of Labor Statistics, United States Department of
Labor (1947-1949 equals 100) combined for all cities in the United
States for the most recent month for which such index has been
published by the Bureau of Labor Statistics (the then current index
number is represented by the letter "C" in the formula set forth
below).
(b) The adjusted annual rental for each of the next
succeeding five lease-years (represented by the
2
<PAGE> 3
letter "R" in the formula set forth below) shall be equal to the
then current index number "C" divided by 126.2, the present index
number, and multiplied by
--------.
This computation is expressed by the following mathematical
formula
R = C X
--------------- ------
126.2
The annual rental as above specified or computed shall be payable in
equal monthly installments.
6. In the event the publication of said Index shall be discontinued in
its present form or by the Bureau of Labor Statistics, any other price index
published by any other Federal agency or in any other form which can be
correlated to the said Consumer's Price Index by interpolation or conversion
shall be used in lieu of said Consumer's Price Index, but if no such price index
shall be available, then the adjusted annual rental to be paid by Lessee for
each successive five (5) lease-years shall be agreed upon by the parties at the
beginning of each such five-year period, and if the parties are unable to agree
within fifteen (15) days immediately prior to the commencement of each five-year
period, then the amount of such adjusted rental shall be determined by
arbitration, in which event Lessor shall immediately appoint one arbitrator and
Lessee shall immediately appoint one arbitrator, and the two arbitrators so
appointed shall promptly select a third arbitrator. In the event the two
arbitrators so appointed fail to agree on the appointment of a third arbitrator
within twenty (20) days, then such third arbitrator shall be appointed by the
then presiding Judge of the United States District Court for the District of
Arizona, Phoenix Division. In determining the amount of the adjusted annual
rental for any such five-year period, the arbitrators shall be guided by the
principles of the formula outlined above. The decision of the arbitrators shall
be rendered within fifteen (15) days after the appointment of the third
arbitrator. The decision in writing signed by two or more of the said
arbitrators shall be binding and conclusive upon the parties hereto with respect
to the adjustment of rental for the particular five-year period under
consideration. The cost of such arbitration shall be borne equally by Lessor and
Lessee.
7. Any income by way of rentals or otherwise which may accrue from
said premises during the period between the date of the execution of this lease
and the date of the commencement of the lease term shall belong to the Lessor,
it being understood, however, that Lessor shall from time to time during said
period, at the request of Lessee, terminate the tenancies of any or all tenants
who may not be in possession, of said premises or any part thereof in the manner
provided by law.
3
<PAGE> 4
8. The Lessee will keep the leased premises and all buildings and
improvements thereon and every part thereof, and every right, title and interest
therein, or in or to any part thereof, at all times during the term of this
lease free and clear of mechanics' liens and other liens for labor, services,
supplies, equipment or material, and the Lessee will at all times fully pay and
discharge and save harmless the Lessor, its successors and assigns against any
and all claims which may or could ripen into such liens, and against all
reasonable attorney's fees and costs and all expenses, damages or outlays which
may or might be incurred by the Lessor or the Lessee by reason of any such liens
or claims or the assertion or filing thereof.
9. Lessee during the continuance of this lease covenants and agrees to
indemnify and save harmless the Lessor from each and every loss, cost, damage
and expense arising out of any accident or other occurrence, causing injury to
or death of persons or damage to property by reason of the construction or
maintenance of the buildings or any additions thereto, or due to the condition
of the leased premises or sidewalks, or the use or neglect thereof by the Lessee
or any subtenant of Lessee. Lessee further agrees during the continuance of this
lease to also indemnify and save harmless the Lessor and its interest in the
leased premises from all damages and penalties arising out of any failure of the
Lessee to comply with any of the Lessee's obligations hereunder.
10. Lessee agrees to provide, pay for and maintain public liability
insurance of not less than One Hundred Thousand and no/100ths Dollars ($100,000)
with respect to bodily injury or death to any one person and of not less than
Three Hundred Thousand and no/100ths Dollars ($300,000) with respect to bodily
injury or death to any number of persons in one accident, for the protection of
the Lessor and Lessee against liability that may or might arise from any
accident resulting in injury to or death of any person. Lessee further agrees to
furnish Lessor with certificates of insurance or other evidence that such
insurance is in effect.
11. In addition to the rent herein agreed to be paid, the Lessee agrees
to pay before delinquency all charges for all utilities used by the Lessor or
charged to said leased premises or any part thereof, including (without limiting
the generality of the foregoing) water, gas, heating, cooling, electricity and
power, and Lessee agrees not to permit any charges of any kind to accumulate or
become a lien against said premises.
12. In addition to the rent herein agreed to be paid, the Lessee agrees
to pay all taxes and assessments of every kind or character which are or may be
at any time during the term of this lease levied or assessed on the leased
premises and the improvements thereon, including all personal property taxes,
assessments and other charges levied upon or assessed against the
4
<PAGE> 5
equipment, furniture, furnishing and fixtures owned by Lessee and located on
said premises, and including, but not by way of limitation, all such taxes and
assessments which may be levied or assessed against the leased premises or
improvements thereon by the United States, the State of Arizona, County of
Maricopa, City of Phoenix, or any other governmental authority, commencing with
the calendar year 1961 and continuing thereafter during the term of this lease,
including the extended term if this lease shall be renewed or extended. All such
taxes and assessments shall be paid by Lessee before the same become delinquent
and all such taxes and assessments for the year to which this lease commences
and the year in which it terminates shall be apportioned and adjusted on a pro
rata time basis between the Lessor, upon the request of Lessee. Lessee agrees to
exhibit to Lessor, upon the request of Lessor, receipts for the payment of such
taxes and assessments.
13. The Lessee shall have the right to assign this lease or sublet said
premises to whole or in part without the written consent of the Lessor, provided
that any such assignment or subletting shall not release the Lessee of any of
its obligations hereunder, unless the Lessor shall expressly consent to such
release in writing. Upon any such assignment of this lease, or the subletting of
the entire leased premises under this lease, there shall be delivered to Lessor
a written notice thereof and of the assumption by the assignee or the sublessee
of the Lessee's obligations hereunder, but such notice shall not be required for
any subleasing by the Lessee to a sublessee of any areas or areas less than the
whole of the leased premises whereunder the sublessee does not assume the
obligations of the Lessee.
14. Lessee shall have and is hereby given the privilege and option to
renew or extend the term of this lease for an additional period of fifty (50)
years from and after the expiration of the primary term and, in the event of the
exercise by Lessee of said option, Lessee shall notify the Lessor in writing not
less than ninety (90) days prior to the expiration of said primary term of its
intention so to do, such renewal or extension to be upon the same terms and
conditions as set forth in this lease.
15. If at any time during the primary term or extended term of this
lease the Lessor, its successors or assigns, shall receive a bona fide offer to
purchase the demised premises which is acceptable to Lessor and which Lessor
desires to accept, Lessee or its successors or assigns shall have the first
right to purchase the demised premises upon the same terms and conditions
specified in such offer provided, however, that Lessee, its successors or
assigns, shall exercise said right to purchase within thirty (30) days following
the receipt by Lessee, or its successors or assigns, of written notice from the
Lessor of said bona fide offer to purchase and of Lessor's desire to accept said
offer.
5
<PAGE> 6
16. It is the mutual desire of the Lessor and the Lessee that the
existing railroad spur track located on the westerly portion of the demised
premises shall be built and extended onto the property immediately west of the
demised premises within a period of twenty-four (24) months after the date of
this lease, and to that end Lessor and Lessee agree within said period to do any
and all things necessary or advisable to accomplish said purpose and to execute
and delivery any and all agreements or papers incidental to providing the
necessary right of way over the demised premises for said railroad track,
provided that Lessee shall have the privilege of designating the point of
connection of said new track with the existing track and the course to be
followed by said new track on the leased premises, and provided further that the
owner or owners of the property adjoining the leased premises on the west shall
pay all costs and expenses incurred in building and extending said railroad
track.
17. The Lessor agrees that the Lessee, having paid the rent and duly
performed all of the obligations contained herein upon the part of the Lessee,
shall and may peaceably and quietly have, hold and enjoy said leased premises
and the whole thereof during the full term of this lease. Said Lessors will
furnish to Lessee a guaranteed certificate of title showing a good and
sufficient title in the Lessor, said certificate of title to be furnished on the
execution of this agreement.
18. Lessee agrees that at the expiration of the full term of this lease
or the earlier termination thereof, peaceable possession of the leased premises
and all improvements thereon will be delivered to the Lessor, except that Lessee
shall have the right to remove any of the buildings now on the leased premises
or which may be placed thereon during the first forty-five (45) years of the
primary term of this lease; but such right of renewal shall not extend to the
last ten (10) years of the primary term unless the Lessee shall elect at any
time during said last ten (10) year period to renew or extend the term of this
lease as herein provided and in the event of such renewal or extension, then the
Lessee shall have the right to remove, alter, improve or replace any building,
structure or improvement theretofore placed upon the leased premises.
19. If Lessee at any time during the term of this lease shall default
in the performance of any covenant or agreement herein contained and shall fail
to cure such default within forty-five (45) days, as to the payment of rent or
any other money payment, or within sixty (60) days, as to any other covenant or
agreement, after the date of receipt of written notice from Lessor to Lessee of
any such default, or if the default is of such a character, other than the
payment of money, as to require more than sixty (60) days to cure and Lessee
fails to proceed diligently to cure such default, or if Lessee is adjudicated a
bankrupt, Lessor shall have the right at its election at any time thereafter to
reenter and take complete and peaceable possession of the demised premises and
to expel Lessee
6
<PAGE> 7
and every person in or upon the demised premises, using such force as may be
necessary, and to declare the term of this lease ended, whereupon the right,
title and interest of Lessee hereunder as to the demised premises and all
improvements thereon shall terminate. In such event Lessor shall have the right
to sue for and recover all rents and other sums accrued up to the time of such
termination, including damages on account of the loss of rent for the balance of
the term hereof and all damages arising out of any breach on the part of Lessee.
No right or remedy herein conferred upon or reserved to Lessor is intended to be
exclusive of any other right or remedy herein or by law provided and each shall
be cumulative and in addition to any right or remedy given herein or now or
hereafter existing at law or in equity, or by statute.
20. If Lessee shall default in the performance of any of its covenants
hereunder, Lessor may, sixty (60) days after receipt of written notice by
Lessee, perform the same for the account and at the expense of Lessee, if Lessee
should fail to so perform. If Lessor at any time is compelled to pay or elects
to pay any sum of money or do any act which will require Lessor to incur any
expense or pay any sum of money by reason of the failure to Lessee to comply
with any provision hereof, the sum or sums so paid by Lessor shall be deemed to
be additional rent hereunder and shall be due from Lessee to Lessor on demand
provided, however, that Lessee shall not be deemed to be in default if Lessee
shall have and assert a bona fide defense against any wrongful or disputed
claims made against the Lessee and if the Lessee shall diligently assert such
legal defense as it may have against any such claim, the Lessor shall in no way
interfere with the assertion of Lessee's defense unless or until such defense
shall have been judicially determined to be without merit.
21. If Lessor shall commence any legal proceedings against Lessee for
the recovery of rent or to recover possession or for relief because of any
default by Lessee and shall prevail therein, Lessee shall in each and every such
instance pay to Lessor all expense thereof, including reasonable attorney's
fees.
If Lessee shall commence any legal proceedings against Lessor for
relief because of any default by Lessor and shall prevail therein, Lessor shall
in each and every such instance pay to Lessee all expense thereof, including
reasonable attorney's fees.
22. Any notices or demands which shall be required or permitted by law
or by any of the provisions of this lease shall be in writing, and if the same
are to be served upon Lessor they may be personally delivered to an officer of
Lessor or may be deposited in the United States mail, registered or certified,
postage prepaid, addressed to Lessor at P.O. Box 453, Phoenix, Arizona, or at
such other address as Lessor may designate in writing.
7
<PAGE> 8
If such notices or demands are to be served upon Lessee, they may be
personally delivered to the Lessee or may be deposited in the United States
mail, registered or certified, postage prepaid, addressed to Lessee at Phoenix
Realty Corp., 317 N. Central Avenue, Phoenix, or at such other address as Lessee
may designate in writing.
23. Waiver by either party of any default on the part of the other
party shall not be deemed in any manner a waiver of any subsequent default, nor
shall any delay upon the part of either party in enforcing any of the provisions
hereof preclude such party at any subsequent time from promptly enforcing the
provisions hereof.
24. The covenants and agreements herein contained shall extend to and
be binding upon the heirs, executors, administrators, successors and assigns of
the parties hereto.
25. If any portion of the leased premises shall be taken by virtue of
the exercise of the power of eminent domain, or by condemnation of any
Government, Government agency or corporation or if the right of access to any
portion of the leased premises shall be substantially limited, the amount of the
rental to be paid for the remainder of the term of the lease for the portion of
the premises not so taken shall be determined by agreement between the parties
hereto and if the parties are unable to so agree, the amount of such rental
shall be determined by arbitration by arbitrators to be appointed and who shall
act according to the arbitration provisions of paragraph 6 of this lease,
provided, however, that no adjustment of rental shall be required or made by
reason of the condemnation or dedication of the South 40 feet or less of the
leased premises for road or street purposes.
26. If the Lessor shall at any time during the primary or extended term
of the lease permit the leased premises to be encumbered in such manner as to
threaten the validity of this lease or Lessee is right to possession of the
leased premises, then, and in any such event, the Lessee shall have the right,
after ten (10) days' notice to Lessor and Lessor's failure within said period to
act, to make any payment or payments on behalf of Lessor in order to remove any
such encumbrance from the leased premises and to deduct from the rentals
thereafter due to the Lessor the amount of money so paid by Lessee with legal
interest thereon and any amount so paid shall be credited to the account of the
Lessee as payment of rental hereunder.
27. The Lessee shall have the power and authority to assign, sublet,
mortgage or in any other manner encumber any or all of the improvements,
buildings, structures, equipment, fixtures or other items placed on the leased
premises by the Lessee and in each such instance the Lessor's lien for rent
shall be subject to the rights of the mortgagor or person or corporation holding
any such encumbrance, but nothing herein
8
<PAGE> 9
contained shall authorize or empower the Lessee to encumber the title to the
leased premises and the Lessee shall have the right at all times to pledge as
security this lease or any part thereof.
IN WITNESS WHEREOF, Lessor has caused this instrument to be executed by
its officers thereunto duly authorized, and Lessee has hereunto set its hand the
day and year first above written.
PASQUALETTI PROPERTIES, INC.,
a corporation,
By:
--------------------------------
Its President
Lessor
ATTEST:
/s/ Edna Pasqualetti
- -----------------------------------
Secretary
SMITTY'S SUPER-VALU, INC., a
corporation
By /s/ Clyde B. Smith
--------------------------------
Its President
Lessee
ATTEST:
/s/ Helen R. Smith
- -----------------------------------
Secretary
9
<PAGE> 10
STATE OF ARIZONA )
) ss.
COUNTY OF MARICOPA )
This instrument was acknowledged before me this 24th day of June, 1960,
by Amos Pasqualetti as the President and by Edna Pasqualetti as the secretary of
Pasqualetti Properties, Inc., a corporation.
/s/ George Wahland
-----------------------------------------
Notary Public
My Commission Expires:
1-24-64
- ------------------------------
STATE OF IOWA )
) ss.
COUNTY OF MARSHALL )
This instrument was acknowledged before me this 9th day of June, 1960,
by Clyde B. Smith as the President and by Helen R. Smith as the secretary of
Smitty's Super-Valu, Inc., a corporation.
/s/ Sara Waples
-----------------------------------------
Notary Public
My Commission Expires:
July 4, 1960
- ------------------------------
10
<PAGE> 1
EXHIBIT 10.8b
AGREEMENT
THIS AGREEMENT made and entered into this 2nd day of March, 1961, by
and between ROSE PASQUALETTI PERKINS, some times called ROSE PASQUALETTI
JENKINS, AMOS PASQUALETTI, husband of Edna Pasqualetti, ANTHONY PASQUALETTI,
also known as Tony Pasqualetti, a single man and BEN PASQUALETTI, JR., a single
man, hereinafter referred to as First Parties, and SMITTY'S SUPER VALU, INC., an
Iowa corporation hereinafter referred to as Second Party.
WITNESSETH:
WHEREAS, on June 29, 1960, Pasqualetti Properties, Inc., an Arizona
corporation, as Lessor, leased to Second Party, as Lessee, the property
described as follows:
That part of the Northeast quarter of the Northeast quarter of
Section Sixteen (16), Township One (1) North, Range Three (3)
East of the Gila and Salt River Base and Meridian, described
as follows:
BORDERING South 45 degrees 0 minutes West 46.88 feet from the
Northeast corner of said Section 16, and the true point of
beginning; thence Southerly 1310.47 feet to a point 33 feet
West of the East line of said Section 16; thence Westerly
652.40 feet to a point that is 1316.25 feet South of the North
line of said section 16, thence Westerly 225.36 feet to a
point that is 1318.59 feet South of the North line of said
section 16; thence Northerly 1285.59 feet to a point 33 feet
South of the North line of said Section 16; thence Easterly
parallel to the North line of said Section 16, a distance of
855.44 feet to the true point of beginning.
ALSO KNOWN as a portion of tracts One (1) and Two (2) of STATE
PLAT NO. 2, according to the plat of record in the office of
the County Recorder of Maricopa County, Arizona in Book 8 of
Maps, page 24.
said Lease being recorded in Docket 5329, page 85, in the office of the County
Recorder of
<PAGE> 2
Maricopa County, Arizona;
AND WHEREAS, the First Parties are the successors in interest as
Lessors of the above described property by Warranty Deed recorded in Docket
________, page ___, records of Maricopa County Arizona:
AND WHEREAS, the Parties hereto are desirous of placing said Lease in
escrow with Lawyers Title of Phoenix, an Arizona Corporation, so that Lawyers
Title may receive payment from the Second Party under said Lease and in turn pay
the First Parties the respective amount due each;
NOW THEREFORE, it is mutually understood and agreed as follows:
1. Lawyers Title of Phoenix shall receive from the Second Party
the payments due on the Lease each month and in turn shall pay
said amount to the First parties.
2. The First Parties shall each receive one-fourth of the monthly
rental due under said Lease.
3. That at the date hereof Lawyers Title now holds the sum of
________ for disposition to the parties, which constitutes
the rent of the leased premises, from January 24, 1961 to
March 1, 1961.
4. That said sum will be disbursed equally to the First Parties
after payment of legal fees totaling the sum of _____________
which have been presented to Lawyers Title for payment.
5. That the aforesaid Lease provides for a recomputation of the
monthly rental after the first 5 years as determined by a
"Cost of Living" formula as set forth therein; that said
Company shall have no responsibility for determining the
amount due as rent as each successive 5 year period
terminates, but instead First Parties and Second Party shall
by written agreement to said Company designate the amount that
shall be paid as rent in said successive 5 year period.
2
<PAGE> 3
6. That Lawyers Title shall have no added duties other than the
collection and disbursement of the rent as aforesaid unless it
specifically agrees to assume additional duties upon the
request of the parties hereto.
7. That when a collection fee is due Lawyers Title for its
services rendered hereunder, said fees shall be deducted on a
pro-rata basis from the individual collection sent to the
First Parties in the month in which said fee becomes due and
payable.
IN WITNESS WHEREOF, the Parties hereto have executed this Agreement the
day and year first above written.
/s/ Rose Pasqualetti Jenkins
------------------------------------
Rose Pasqualetti Jenkins
/s/ Amos Pasqualetti
------------------------------------
Amos Pasqualetti
SMITTY'S SUPER VALU, INC., AN
Iowa corporation,
by: /s/ Clyde B. Smith /s/ Anthony Pasqualetti
----------------------------- ------------------------------------
Anthony Pasqualetti
Second Party
/s/ Ben Pasqualetti
by Victor F. Krohn, guardian
------------------------------------
Ben Pasqualetti
First Parties
3
<PAGE> 1
EXHIBIT 10.8c
ADDENDUM TO LEASE
DATE: May 11, 1966
PARTIES: (1) AMOS PASQUALETTI, husband of Edna Pasqualetti, BEN S. PASQUALETTI
(sometimes known as BEN PASQUALETTI, JR.), a single man, ROSE
PASQUALETTI JENKINS, a single woman, and FIRST NATIONAL BANK OF
ARIZONA, a national banking association, Executor of the Estate of
ANTHONY J. PASQUALETTI, deceased, LESSORS, successors in interest
of PASQUALETTI PROPERTIES, INC., an Arizona corporation, LESSOR.
(herein referred to as "Lessor")
(2) SMITTY'S SUPER-VALU, INC., an Iowa corporation (herein referred
to as "Lessee")
RECITALS:
Lessor and Lessee hereto have heretofore on June 24, 1960, made and
entered into a Lease Agreement for the property described in Exhibit "A" and
depicted on Exhibit "C" attached hereto, and by reference made a part hereto,
which Lease was recorded June 28, 1960, in the Office of the Maricopa County
Recorder, Phoenix, Arizona, in Docket 3329 at Page 85 thereof. This Lease is
herein referred to as the "Master Lease." By Warranty Deed dated February 16,
1961, and recorded in Docket 3630, Pages 427-428, in the Office of the Maricopa
County Recorder, Phoenix, Arizona, Lessor conveyed its interest in the premises
therein leased to AMOS PASQUALETTI, BEN PASQUALETTI, JR., ROSE PASQUALETTI
JENKINS, and ANTHONY J. PASQUALETTI, Lessors. On December 3, 1964, ANTHONY J.
PASQUALETTI died, and on January 29, 1965, Letters Testamentary in his estate
were issued to FIRST NATIONAL BANK OF ARIZONA, a national banking association.
Lessee is now desirous of subleasing a portion of the parcel of land described
therein. In order to provide for the consummation of such sublease and the
recognition thereof by LESSORS, and also to provide a means for LESSEE to obtain
financing for the construction of certain improvements on the subleased parcel,
the Parties have made and entered into this Addendum to the Master Lease
mentioned above.
COVENANTS:
(1) Sublease: Subject only to the form of sublease being approved in
writing by LESSORS, LESSEE shall be and is hereby permitted to enter into a
Sublease Agreement with the Walgreen Arizona Drug Co., herein called
"Sublessee", for a period of 35 years, covering that certain portion of the land
included in the Master Lease, said subleased parcel being described in Exhibit
"B" and depicted on Exhibit "C" attached hereto.
(2) Rental: That portion of the total rental due under the Master
Lease which shall be applicable to the subleased premises described above is
hereby deemed to be a rental of ______ per year,
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<PAGE> 2
payable in monthly installments of _________ each, in advance, on the 1st day of
each month so long as this Addendum shall be in effect.
(3) Default of LESSEE on Master Lease: If LESSEE defaults in the terms
and conditions of the Master Lease for any reason including bankruptcy, and as a
result of such default said Master Lease is terminated, or if LESSORS or someone
acting under authority or direction of LESSORS for any reason, take possession
of the leased premises of which the subleased premises described in Paragraph
(1) hereof are a part, then and in that event LESSORS agree that the Sublease
shall remain in full force and effect and Sublessee may remain in possession of
the subleased premises, providing that and so long as it shall comply with the
terms of said Sublease and the LESSORS shall receive the rentals as provided
hereinafter.
(4) Financing and Construction: It is understood and agreed that LESSEE
will be obligated to construct certain improvements on the subleased premises as
provided in the Sublease and, in order to do so, must obtain financing therefor
from _______________ (hereinafter called the COMPANY). The financing required
will involve LESSEE borrowing approximately _________ from the COMPANY. In
consideration for such loan, the COMPANY will require a promissory note executed
by LESSEE, together with (1) an assignment of LESSEE'S interest in the Sublease,
together with rentals provided thereunder, and (2) an assignment or mortgage of
LESSEE'S interest in and to the subleased premises as described above, as part
of the leased premises covered by the Master Lease.
(5) Assignment of Leasehold Interest by LESSEE, and Rental: It is
agreed that in order to secure repayment of the finance money as described in
Paragraph (4) hereof, LESSEE may assign or mortgage to the COMPANY all of
LESSEE'S leasehold interest in the subleased premises described above. In the
event that the COMPANY forecloses its mortgage therein or exercises its rights
as assignee thereof as provided, LESSORS shall recognize such rights in the
COMPANY, provided that and so long as the COMPANY shall pay to LESSORS a rental
therefor in the sum of _________ per year payable in monthly installments or
_______ per month in advance, on the 1st day of each month during the
continuance of such rights, and also the compliance by the COMPANY with all
other obligations of LESSEE under the provisions of the Master Lease, as they
pertain to the subleased premises described herein.
(6) Default of LESSEE on obligation to the COMPANY. In the event that
LESSEE shall default in payment of its obligation to the COMPANY as herein
provided, the COMPANY may then exercise its rights as provided in Paragraph (5)
hereof and may take possession of the subleased premises, providing that it
shall make payment of the rentals as provided in Paragraph (5) above, and in
addition thereto may exercise any and all rights of a mortgagee of such
leasehold interest. These rights of the COMPANY shall be and
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<PAGE> 3
continue in duration only until such time as the COMPANY shall have received
full payment o(pound) that certain promissory note given by LESSEE to the
COMPANY and described in Paragraph (4) hereof, or until June 30, 2000, whichever
shall earlier occur. It is agreed that the COMPANY shall apply the proceeds of
any rents or any other income from the leased premises to the payment of said
note. At such time as such note is paid in full or on July 1, 2000, whichever
shall first occur, LESSORS shall have the right to resume the exercise of all
rights of owners and lessors of the subleased premises, subject only to the
continuance of the sublease, and all rental payments therefrom shall be paid
directly to LESSORS by the Sublessee or its successor in interest for the
balance of the term thereof.
(7) Miscellaneous: It is specifically understood and agreed that
LESSORS by agreeing to the terms and conditions of this Addendum do not obligate
themselves in any manner nor degree in connection with the repayment of any
obligations whatsoever imposed upon the LESSEE under the provisions of any
agreement between LESSEE and the COMPANY, and, further, that LESSORS do not
undertake any obligations of LESSEE as may be contained in the Sublease
excepting only the recognition of the rights of Sublessee therein.
It is understood and agreed that FIRST NATIONAL BANK OF ARIZONA,
Executor of the Estate of ANTHONY J. PASQUALETTI, deceased, is acting solely in
a fiduciary capacity and that its obligations as a Lessor herein are obligations
of the estate in which the said premises are held, and that FIRST NATIONAL BANK
OF ARIZONA, Executor of the Estate of ANTHONY J. PASQUALETTI, deceased, as a
Lessor does not assume any individual or personal liability upon any of the
covenants in this Addendum to Lease contained, except it warrants that it has
authority to enter into this Addendum to Lease.
LESSORS:
/s/ Amos Pasqualetti
------------------------------------
Amos Pasqualetti
/s/ Rose Pasqualetti Jenkins
------------------------------------
Rose Pasqualetti Jenkins
/s/ James A. Leonard
------------------------------------
James A. Leonard, Guardian of the
Estate of Ben S. Pasqualetti, an
incompetent
FIRST NATIONAL BANK OF ARIZONA,
Executor of the Estate of Anthony J.
Pasqualetti, deceased.
By /s/ Jack Garretson
---------------------------------
By /s/ Jeff Garfield
---------------------------------
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<PAGE> 4
LESSEE:
SMITTY'S SUPER-VALU, INC.,
an Iowa corporation
By /s/ Clyde B. Smith
---------------------------------
Its President
ATTEST:
/s/ Helen R. Smith
- ------------------------------
Secretary
STATE OF ARIZONA )
) ss.
COUNTY OF MARICOPA )
On this ____ day of May , 1966, before me, the undersigned Notary
Public, personally appeared AMOS PASQUALETTI and acknowledged that he executed
the foregoing instrument for the purposes therein contained.
IN WITNESS WHEREOF, I hereunto set my hand and official seal.
------------------------------------
Notary Public
My Commission Expires:
- ------------------------------
STATE OF ARIZONA )
) ss.
COUNTY OF MARICOPA )
On this ____ day of May , 1966, before me, the undersigned Notary
Public, personally appeared JAMES A. LEONARD, Guardian of the estate of Ben S.
Pasqualetti, an incompetent, and acknowledged that he, as such Guardian,
executed the foregoing instrument for the purposes therein contained.
IN WITNESS WHEREOF, I hereunto set my hand and official seal.
------------------------------------
Notary Public
My Commission Expires:
- ------------------------------
4
<PAGE> 5
STATE OF ARIZONA )
) ss.
COUNTY OF MARICOPA )
On this 11 day of May, 1966, before me, the undersigned Notary Public,
personally appeared ROSE PASQUALETTI JENKINS, and acknowledged that she executed
the foregoing instrument for the purposes therein contained.
IN WITNESS WHEREOF, I hereunto set my hand and official seal.
/s/ Robert D. Allen
------------------------------------
Notary Public
My Commission Expires:
Jan. 29, 1970
- ------------------------------
STATE OF ARIZONA )
) ss.
COUNTY OF MARICOPA )
On this 1 day of June, 1966, before me, the undersigned Notary Public,
personally appeared the above-named officers who acknowledged themselves to be
the Vice President and Trust Officer, respectively, of FIRST NATIONAL BANK OF
ARIZONA, a national banking association, and that they executed the foregoing
instrument for the purposes therein contained.
IN WITNESS WHEREOF, I hereunto set my hand and official seal.
/s/ Norma H. McNeal
------------------------------------
Notary Public
My Commission Expires:
June 24, 1967
- ------------------------------
STATE OF ARIZONA )
) ss.
COUNTY OF MARICOPA )
On this 9th day of June, 1966, before me, the undersigned Notary
Public, personally appeared CLYDE B. SMITH who acknowledged himself to be the
President of SMITTY'S SUPER VALU, INC., an Iowa corporation, and that he
executed the foregoing instrument for the purposes therein contained.
IN WITNESS WHEREOF, I hereunto set my hand and official seal.
/s/
------------------------------------
Notary Public
My Commission Expires:
1/24/68
- ------------------------------
5
<PAGE> 6
EXHIBIT "A"
That part of the Northeast quarter of the Northeast quarter of Section Sixteen
(16), Township One (1) North, Range Three (3) East of the G&SRB&M, Maricopa
County, Arizona, described as follows:
BEGINNING South 45 degrees 0 minutes West 46.88 feet from the Northeast corner
of said Section 16, and the true point of beginning; thence Southerly 1310.47
feet to a point 33 feet West of the East line of said Section 16; thence
Westerly 652.40 feet to a point that is 1316.25 feet South of the North line of
said Section 16, thence Westerly 225.36 feet to a point that is 1318.59 feet
South of the North line of said Section 16; thence Northerly 1285.59 feet to a
point 33 feet South of the North line of said Section 16; thence Easterly
parallel to the North line of said Section 16, a distance of 855.44 feet to the
true point of beginning.
ALSO KNOWN as a portion of Tracts One (1) and Two (2) of State Plat No. 2,
according to the plat of record in the office of the County Recorder of Maricopa
County, Arizona in Book 8 of Maps, page 24.
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EXHIBIT "B"
That part of the Northeast quarter, Section Sixteen (16), Township One (1)
North, Range Three (3) East of the G&SRB&M, Maricopa County, Arizona, described
as follows:
BEGINNING at the Northeast corner of the Northeast quarter of said Section 16,
thence North 89(degree) 59' 00" West along the North line of said Northeast
quarter 33.00 ft.; thence South parallel to and 33.00 ft. West of the East line
of said Northeast quarter 576.86 ft. to the TRUE POINT OF BEGINNING; thence
South 89(degree) 55' 17" West along the South face of a concrete block building
(existing September 20, 1965) and prolongations thereof 523.00 ft. to a point
that bears South 577.73 ft. from the North line of said Northeast quarter;
thence South 195.00 ft.; thence North 89(degree) 55' 17" East 523.00 ft.; thence
North 195.00 ft. to the TRUE POINT OF BEGINNING.
7
<PAGE> 1
EXHIBIT 10.8d
7/11/84
SUBLEASE
SUBLEASE entered into as of this 1st day of August 1984, between SMITTY'S SUPER
VALU, INC., a Delaware corporation (hereafter "Smitty's") and SCHWAN BROTHERS
PROPERTIES, an Arizona general Partnership (hereafter "Partnership").
Recitals
A. Smitty's is lessee under a ground lease dated June 24, 1960, with
Pasqualetti Properties, Inc., an Arizona corporation, (hereafter the "Master
Lease"), for a primary period of 55 years for property located at 16th Street
and Pima in the city of Phoenix as more particularly described on Exhibit A
attached and outlined in red on Exhibit C attached.
B. Partnership wishes to sublease from Smitty's approximately seven
acres of such property and develop the same on the terms and conditions set
forth herein.
NOW, THEREFORE, the parties agree as follows:
1. Premises. Smitty's hereby sublease to Partnership and Partnership
leases from Smitty's the real property located at 16th Street and Pima in
Phoenix, Maricopa County, Arizona, more particularly described on Exhibit B and
outlined in green on Exhibit C (hereafter the "Subleased Premises") and includes
305,729 square feet calculated on a gross basis and 279,547 square feet net of
dedication for street right of way for Pima Street.
2. Term. The term shall commence August, 1984 and shall expire December
22, 2015.
3. Option to Extend Term. Provided that Partnership is not in default
under this sublease and further provided that Smitty's exercises its renewal
right under the Master Lease, Partnership shall have the option to extend the
original term on the same provisions and conditions contained in this Sublease
for an additional period of fifty (50) years expiring on December 22, 2065. Such
renewal shall be exercised by giving notice in writing to Smitty's no less than
one hundred fifty (150) days prior to the expiration of the original term.
4. Rent. Partnership shall pay to Smitty's for the Leased Premises a
base annual rental of $24,107 provided however that for the first 30 months of
the term the base rent payable shall be as follows:
<TABLE>
<S> <C> <C>
1. For the first six months - $10.00
2. For the 7th through 12th months - $470 per month
3. For the 13th through 18th months - $940 per month
4. For the 19th through 24th months - $1,410 per month
5. For the 24th through 30th months - $1,880 per month
</TABLE>
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<PAGE> 2
If at the date of a rent increase as provided above Partnership shall have
developed a greater proportion of the Leased Premises than the proportion of
full rental to be paid for the following six month period then the rental for
such period shall be the next higher rental amount. For the purpose of this
calculation the word developed. means property which has been improved with
buildings, parking lots or drives and is ready for occupancy.
In addition to the rent provided above, commencing with the month following the
dedication of land for the construction of Pima Street, Partnership shall pay an
additional rental of $1,200 per annum.
All rental payments shall be made monthly in advance and in addition Partnership
shall include any sales, franchise or rental tax due on the rental payments.
5. Rent Increase. The rents provided for in paragraph 4 shall be
subject to increase each time that there is an increase in the rent payable by
Smitty's or any successor in interest under the Master Lease. Such increase
shall be calculated as follows:
Upon an increase of the rent under the Master Lease, the increase in rent
payable by Partnership until the next rent increase shall be calculated by
multiplying the dollar amount of the increase in Smitty's rent by a fraction,
the numerator of which shall be the total square footage of the Leased Premises
and the denominator of which is the total square footage being leased by
Smitty's under the Master Lease. No such increase shall be payable prior to the
earlier of the full development of the property or 30 months from the
commencement date of this sublease but upon such date the rental may be
increased by the proportionate amount of any increase in rent under the Master
Lease effected between the date hereof and such date.
6. Taxes. Commencing January l, 1985 Partnership shall pay all real
property taxes and general and special assessments placed on the Subleased
Premises. Smitty's shall use reasonable efforts to cause the buildings, other
improvements and land on the Subleased Premises to be separately assessed from
the balance of the property leased by Smitty's. If Smitty's is unable to obtain
a separate assessment, the assessor's valuation placed on the buildings, other
improvements and land of which the SubLeased Premisses are a part shall be used
in determining the real property taxes. If this valuating is not available, the
parties shall equitably allocate the real property taxes between the buildings
and other improvements on the Subleased,Premises and land included within the
Subleased Premises and all buildings, other improvements and land included in
the tax bill, based upon a reasonable evaluation of the factors that determine
the amount of real property taxes. Partnership's proportionate share shall be
determined by multiplying the total real property taxes levied and
2
<PAGE> 3
assessed against the land of which the Subleased Premises are a part by a
fraction, the numerator of which shall be the total square footage of the
Subleased Premises ana the denominator of which shall be the total number of
square feet leased by Smitty's. Partnership shall pay all taxes levied and
assessed against the buildings or other improvements placed on the Subleased
Premises by Partnership.
7. Utilities. Partnership shall pay for all utilities and services
furnished to or used by it.
8. Subject to Master Lease. The lease is subject to the Master Lease, a
copy of which has been delivered to Partnership. Smitty's represents that any
provisions of this lease that are in conflict with provisions of the Master
Lease have been consented to by the Master Landlord.
If the Master Lease terminates for any reason, this lease shall terminate
immediately. In the event of such termination, the parties shall be released
from all liabilities and obligations under this lease except that, if this lease
terminates as a result of Smitty's being in default of its obligations under the
Master Lease, Smitty's shall be liable to Partnership for all damages
Partnership has suffered as a result of the termination including but not
limited to the increased rental payable to the Master Landlord. Smitty's shall
not agree to or consent directly or indirectly to a termination of the Master
Lease without making provision with the Master Landlord to honor this Sublease
at the then existing rental rate. If Smitty's purchases the property this
sublease shall not terminate.
As long as Partnership is not in default of any provision of this lease,
Smitty's shall be obligated to perform all its obligations under the Master
Lease, and during the term of this lease Partnership shall have quiet enjoyment
of the Subleased Premises.
9. Warranties of Smitty's. Smitty's warrants the following to
Partnership provided that Partnership is not in default under the terms of this
Sublease:
(a) Smitty's is not currently in default under the Master Lease and the
Master Landlord has no right to terminate the Master Lease;
(b) Smitty's shall pay all rent due under the Master Lease as it
becomes due and will keep the Master Lease in force;
(c) There are no liens or encumbrances on the Subleased Premises other
than the Master Lease.
10. Right of First Refusal. If the Landlord in the Master Lease
presents Smitty's with the option to purchase the entire property as provided in
paragraph 15 of the Master Lease and Smitty's decides not to exercise the
option, it will promptly
3
<PAGE> 4
notify Partnership of the existence of such right prior to the expiration
thereof and if Partnership, after such notification and prior to the expiration
of such option, advises Smitty's that it wishes to purchase the entire property,
Smitty's shall promptly and timely exercise the right to purchase under the
Master Lease and assign the same to Partnership. Partnership shall thereupon
have the obligation to purchase the entire property upon the terms and
conditions offered to Smitty's and shall also pay Smitty's an amount equal to 3%
of the purchase price .
11. Attornment Agreement. Smitty's shall obtain the Master Lease
landlord's signature on a Recognition and Attornment Agreement in the form
attached as exhibit D and agrees that if Smitty's defaults under the Master
Lease Partnership may pay its rent directly to the master landlord. In the event
Smitty's defaults in the payment of its rent under the Master Lease, Partnership
may make such payment on Smitty's behalf and claim such amount from Smitty's.
12. Assignment and Subletting. So long as it is not in default
hereunder Partnership shall have the right to assign this lease or sublet the
Subleased Premises in whole or in part provided that such assignment or
subletting shall not release Partnership from any of its obligations hereunder
unless Smitty's shall expressly consent to such release in writing.
13. Dedications and Easements. Smitty's acknowledges that in developing
the property, the City of Phoenix and others may require certain street
dedications and easements for utilities. Smitty's shall join Partnership in such
ordinary and necessary dedication for Pima Street only and such easements as may
be necessary to develop the property and shall use all reasonable efforts to
obtain the consent of the Master Landlord to any such dedications and easements.
In the event satisfactory dedications or easements cannot be agreed upon within
a period of 12 months from the sublease commencement date, Partnership may, at
its option, cancel this Sublease without any claims, penalty or damages of
either party against the other. Partnership acknowledges that any interior
streets shall not be dedicated but shall be created only by easements in favor
of the neighboring land.
14. Condemnation. If any portion of the Subleased Premises is taken by
condemnation, this lease shall remain in effect, except that Partnership may
elect to terminate this lease if 25% or more of the square footage of the
Subleased Premises are taken or may elect to partially terminate with respect to
any building lot where more than 25% of the square footage of any building or
other improvements are taken. If Partnership elects to terminate or partially
terminate this lease, Partnership must exercise its right pursuant to this
paragraph by giving notice to Smitty's within 60 days after the nature and the
extent of the taking have been finally determined. If Partnership elects to
terminate or partially terminate this lease as provided in this paragraph,
Partnership shall also notify Smitty's of the date of termination,
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<PAGE> 5
which date shall not be earlier than 30 days nor later than 60 days after
Partnership has notified Smitty's of its election to terminate; except that this
lease shall terminate or partially terminate on the date of taking if the date
of taking falls on a date before the date of termination as designated by
Partnership.
If Partnership does not terminate or partially terminate this lease, the lease
shall continue in full force, except that the monthly rent shall be reduced by
an amount that is in the same ratio to the monthly rent as the total number of
square feet in the Subleased Premises bears to the total number of square feet
in the Subleased Premises immediately before the date of taking.
If Partnership, as result of condemnation proceedings, elects to partially
terminate this lease for any building lot, the lease shall remain in full force
and effect for the remaining property except that the rent shall be reduced by
an amount that is equal to the rental per square foot the building lot for which
the lease has been terminated.
The portion of any condemnation award that is attributed to the land shall be
paid to the Master Landlord, that portion of any condemnation award attributable
to improvements or to Partnership's leasehold interest shall be paid to
Partnership.
15. Subordination. Smitty's hereby acknowledges that Partnership shall
have the power and authority to mortgage or in any other manner encumber any or
all the improvements, buildings, structures, equipment, fixtures or other items
placed on the Sublease Premises by Partnership, and in each such instance,
Smitty's lien for rent shall be subject and subordinate to the rights of the
mortgagor or person or corporation holding any such encumbrance. Smitty's shall
have the right at all times to pledge as security this Sublease or any part
thereof.
16. Improvements. Partnership represents to Smitty's that it intends to
develop the Subleased Premises for industrial purposes, the use of which shall
be in accordance with the present zoning. Initial construction and development
of the Subleased Premises shall, commence by October 1, 1984, (subject to
unavoidable delay not caused by the fault of Partnership) failing which this
Sublease shall be cancelled and null and void. Partnership shall submit its
plans and specifications for all such improvement and development to Smitty's
for approval, which approval shall not be unreasonably withheld. Approval shall
be deemed to be given for any plans or specifications which are nor disapproved
by Smitty's within fifteen (15) days of receipt. All costs and expenses incurred
with respect to the development of the Subleased Premises, including the
construction of Pima Street, shall be the responsibility of Partnership.
partnership will keep the Subleased Premises and all buildings and improvements
thereon and every part thereof at all times during the term of this Sublease
properly maintained and free and clear of mechanics' liens and other liens for
labor, services, supplies, or material, and at all times will fully pay and
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<PAGE> 6
discharge and hold harmless, Smitty's its successors and assigns, against any
and all claims which may or could ripen into such liens, and against all
reasonable attorneys' fees, costs and all expenses, damages or outlays which may
or might be incurred by Smitty's or Partnership by reason of such liens or
claims or the assertion or filing thereof.
Partnership agrees that at the expiration of original term of this Sublease if
not extended or the earlier termination thereof, peaceable possession of the
Subleased Premises and all improvements thereon will be delivered to Smitty's,
except that Partnership shall have the right to remove any of the buildings
which may be placed on the Subleased Premises during the first twenty (20) years
of the original term of this Sublease; such right of removal shall not extend to
buildings and improvements constructed during the last ten (10) years of the
original term unless Smitty's shall elect at any time during said last ten (10)
year period to renew or extend the term of the Master Lease as therein provided
and in such event Partnership shall have the right to remove, alter, improve or
replace any building, structure or improvement thereof placed upon the Subleased
Premises.
17. Default. If Partnership at any time during the term of this
Sublease shall default in the performance of any covenant or agreement herein
contained and shall fail to cure such default within thirty (30) days as to the
payment of rent or any other money payment, or within forty-five (45) days as to
any other covenant or agreement, after the date of receipt of written notice of
any such default, or if the default is of such a character, other than the
payment of money, as to require more than forty-five (45) days to cure and
Partnership fails to proceed diligently to cure such default or Partnership is
adjudicated a bankrupt, Smitty's shall have the right at its election at any
time thereafter to reenter and take complete and peaceable possession of the
Subleased Premises and to expel Partnership and every person in or upon the
Subleased Premises, using such force as may be necessary, and to declare the
term of this lease ended, whereupon the right, title and interest of Partnership
hereunder as to the Subleased Premises and all improvements thereon shall
terminate. In such event Smitty's shall have only the right to sue for and
recover all rents and other sums accrued up to the time of such termination. No
right or remedy herein conferred upon or reserved to Smitty's is intended to be
exclusive of any other right or remedy herein or by law provided and each shall
be cumulative and in addition to any right or remedy given herein or now or
hereafter existing at law or in equity, or by statute.
If Partnership shall default in the performance of any of its covenants or
obligations hereunder, Smitty's, following a forty-five (45) day written
notice to that effect, may perform the same for the account and at the expense
of Partnership and Partnership shall repay Smitty's such amount as additional
rent hereunder.
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<PAGE> 7
If either party shall commence any other party for relief because of party shall
pay to the other party reasonable attorney's fees.
Smitty's agrees that the dissolution of Partnership shall not constitute an
event of default under this Sublease and that the successors and assigns of the
dissolved Partnership may continue as sub-tenant under this Sublease.
18. Restrictions. No portion of any building to be constructed on the
Subleased Premises shall be closer to Sixteenth Street than the present Yellow
Front/Checker Auto Building. No part of the Subleased Premises may be used by
Partnership, its successors Assignees or Subleases as a food supermarket, meat
or fish market, a store selling fresh produce, a drug store or pharmacy.
Partnership acknowledges that these restrictions are essential conditions for
Smitty's to enter into this Sublease and that any breach thereof will give rise
to injunctive relief, damages and may result in cancellation of this Sublease.
19. Hold Harmless. Partnership during the term of this Sublease
covenants and agrees to indemnify and save harmless Smitty's from each and every
loss, cost, damage and expense arising out of any accident or other occurrence,
causing in jury to or death of persons or damage to property by reason of the
fault or negligence of Partnership or any subtenant of Partnership. Partnership
further agrees during the term of this Sublease to indemnify and save harmless
Smitty's from all damages and penalties arising out of any failure of
Partnership to comply with any obligations hereunder.
Smitty's during the term of this Sublease covenants and agrees to indemnify and
save harmless Partnership from each and every loss, cost, damage and expense
arising out of any accident or other occurrence, causing injury to or death of
persons or damage to property by reason of the fault or negligence of Smitty's.
Smitty's further agrees during the term of this Sublease to indemnify and save
harmless Partnership from all damages and penalties arising out of any failure
of Smitty's to comply with any of its obligations hereunder.
20. Insurance. Partnership agrees to provide, pay for and maintain
public liability insurance of not less than One Million Dollars ($1,000,000)
with respect to bodily injury or death to any one person and of not less than
Three Million Dollars ($3,000,000) with respect to bodily injury or death to any
number of persons in one accident, against liability that may or might arise
from any accident resulting in injury to or death of any person. Partnership
agrees to provide, pay for and maintain fire insurance, with extended perils
coverage, and boiler and machinery insurance for the full replacement value on
all buildings erected on the Subleased Premises. Partnership further agrees,
upon demand, to furnish Smitty's with certificates of insurance or other
evidence that such insurance is in effect. All such insurance shall name
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<PAGE> 8
Smitty's and the Master Landlord as additional insured parties as their
interests may appear.
21. Interest. Any payment of rental or other amounts due by Partnership
to Smitty's shall, when overdue by more than ten (10) days, be subject to
interest payable at the rate of two percent (2%) per annum above the then
current prime rate charged by the Valley National Bank to its major commercial
accounts.
22. Notice. Any notice or demand which is required by law or by the
provisions of this Sublease shall be in writing and may be personally delivered
or deposited in the United States mail, registered or certified, postage paid
and shall be deemed to have been received on the day personally delivered or on
the second business day following the mailing and shall be addressed as follows:
1. To Smitty's Smitty's Super Valu, Inc.
2626 South Seventh Street
Phoenix, Arizona 85034
2. To Partnership Schwan Brothers Properties
2701 North Sixteenth Street
Phoenix, Arizona
or to such other address as may be designated in writing by either party from
time to time.
23. Successors. This Sublease shall be binding on and inure to the
benefit of the parties and their successors, heirs, administrators and assigns.
24. Effect of Waiver of Conditions or Covenants. No waiver of any
conditional or covenant in this Sublease by Smitty's shall be deemed to imply or
constitute a further waiver of any other or like condition or covenant in this
Sublease.
25. Miscellaneous. Neither this agreement nor the Lessor-Lessee
relationship created hereby shall in any way be construed to create a
partnership or joint venture between Smitty's and Partnership, nor any agency
relationship whatsoever. This agreement is made and entered into under and
pursuant to and shall be governed, interpreted and enforced under and pursuant
to the laws of the State of Arizona. This agreement sets forth the entire
understanding of the parties and it shall not be changed or terminated orally.
26. Effect of Master Lease. It is the acknowledged intention of the
parties hereto that no term or provision of this Sublease, nor the exercise of
any right by either party hereto, shall constitute or effect a breach by
Smitty's under the terms of the Master Lease, and the Sublease shall be
construed accordingly, insofar as possible; provided, however, that any such
term or provision or exercise of any right contained herein which would
8
<PAGE> 9
result in such a breach shall be deemed null and void, and of no effect
whatsoever.
Recordation
27. Either party may record a memorandum of this lease and each party
agrees to cooperate with the other in the preparation, signing and recording of
such memorandum.
IN WITNESS WHEREOF the parties have executed this Sublease Agreement as
of this 1st day of August, 1984.
SCHWAN BROTHERS PROPERTIES SMITTY'S SUPER VALU, INC.
By: /s/ Jos. S. Schwan By:/s/ Stanley J. English-Vice President
----------------------------- -------------------------------------
Partner
/s/ Stanley V. Schwan
------------------------
Partner
------------------------
Partner
------------------------
Partner
9
<PAGE> 10
Exhibit "A"
LEGAL DESCRIPTION - STORE 1
That part of the Northeast quarter of the Northeast quarter of Section 16,
Township 1 North, Range 3 East of the Gila and Salt River Base and Meridian,
Maricopa County, Arizona, described as follows:
BEGINNING South 45 degrees 0 minutes West 46.88 feet from the Northeast corner
of said Section 16, and the true point of beginning; thence Southerly 1310.47
feet to a point 33 feet West of the East line of said Section 16; thence
Westerly 652.40 feet to a point that is 1316.25 feet South of the North line of
said Section 16; thence Westerly 225.36 feet to a point that is 1318.59 feet
South of the North line of said Section 16; thence Northerly 1285.59 feet to a
point 33 feet South of the North line of said Section 16; thence Easterly
parallel to the North line of said Section 16, a distance of 855.44 feet to the
true point of beginning.
Also known as a portion of Tracts 1 and 2 of State Plat No. 2, according to the
plat of record in the office of the County Recorder of Maricopa County, Arizona,
in Book 8 of Maps, Page 24;
EXCEPT the East 40 feet of the Northeast quarter of the Northeast quarter of
said Section 16, lying within said property; and
EXCEPT any portion thereof lying within the following described property: A
tract of land situate in the Northeast quarter of the Northeast quarter Section
16, Township 1 North, Range 3 East of the Gila and Salt River Base and Meridian,
Maricopa County, Arizona, more particularly described as follows:
From the Northwest corner of said Northeast quarter of the Northeast quarter of
Section 16, run South 25 degrees 52 minutes 00 seconds East 36.67 feet; thence
East, parallel to the North line of said Section 16, a distance of 427.52 feet
to the Northwest corner of that parcel of land described as Parcel No. 3 in
Warranty Deed recorded in Docket 3630, Page 427, Records of Maricopa County,
Arizona, the true point of beginning; thence South 1 degree 01 minute 16 seconds
West along the West line of said Parcel No. 3, a distance of 960.00 feet; thence
East parallel to the North line of said Section 16, a distance of 100.00 feet;
thence North 1 degree 01 minute 16 seconds East, 960.00 feet; thence West,
parallel to the North line of Section 16, a distance of 150.00 feet to the point
of beginning;
10
<PAGE> 11
EXHIBIT B
LEGAL DESCRIPTION OF SUBLEASE PROPERTY
That part of the N.E. 1/4 N.E. 1/4, Section 16, T. 1 N. R. 3 E., G.
& S. R. B. & M., Maricopa County, Arizona, described as follows:
From the Southeast corner of the said N.E. 1/4 N.E. 1/4, Section,
16, measure S. 89(degree) 53' 38" W. Along the South line of the said N.E.
1/4 N.E. 1/4, Section 16, a distance of 40.00 feet to the point of
beginning; thence continuing S. 89(degree) 53' 38" W. 870.12 feet; thence
N. 00(degree) 59' 46" E. 322.22 feet; thence East 250.00 feet; thence N.
00(degree) 59' 46" E. 219.49 feet; thence East 331.72 feet; thence S. 00(degree)
01' 06" W. 385.00 feet; thence East 279.11 feet to a point 40.00
feet Westerly from the East line of the said N.E. 1/4 N.E. 1/4,
Section 16; thence South 155.31 feet to the point of beginning.
Subject to easements and right of way of record.
Net Area: 305,727 S.F. or 7.0185 Ac.
11
<PAGE> 1
EXHIBIT 10.8e
ADDENDUM TO SUBLEASE
WHEREAS Smitty's Super Valu, Inc. as Landlord as Landlord and Schwan
Brothers Properties as Tenant, entered into a Sublease dated as of August 1,
1984 for real property located at 16th Street and Pima Street in the City of
Phoenix, Maricopa County, Arizona, (the "Sublease"); and
WHEREAS the parties desire to amend the Sublease;
NOW THEREFORE it is agreed as follows:
In the event The Arizona Bank, as creditor under that Deed of Trust
entered into between The Arizona Bank and Schwan Brothers Properties on the
_____ day of January, 1985 secured against the subleased property, forecloses
said Deed of Trust, The Arizona Bank shall have the right to attorn to Smitty's
Super Valu, Inc. and perform all Tenant obligations under the Sublease and
Smitty's Super Valu, Inc. shall recognize The Arizona Bank as Tenant under the
Sublease.
Executed at Phoenix, Arizona
this 21st day of January,
1985.
SMITTY'S SUPER VALU, INC.
By: /s/ Stanley J. English
------------------------
Vice President
SCHWAN BROTHERS PROPERTIES
By: /s/ Jos. P. Schwan
------------------------
Partner
By: /s/ Anthony V. Schwan
------------------------
Partner
The Arizona Bank
By: /s/ James S. Anderson
--------------------------
Its: Vice President
--------------------------
<PAGE> 1
EXHIBIT 10.8f
LEASE AMENDING AGREEMENT
WHEREAS the Predecessors in title of the Parties hereto entered into a
Lease Agreement on the 24th day of June 1960 for land situated in the City of
Phoenix, Maricopa County, Arizona, as more fully described on Appendix A
attached hereto, for an initial or primary term of 55 years with a right of the
Lessee to renew for an additional 50 years; and
WHEREAS the Parties hereto and Partnership have this day entered into a
Recognition and Attornment Agreement respecting a sublease of a portion of the
leased land; and
WHEREAS the development of the subleased property referred to above
will require the dedication of certain lands for street purposes; and
WHEREAS the Parties hereto desire to amend the Lease Agreement By
increasing the rent paid thereunder;
NOW THEREFORE it is agreed as follows:
1. The Parties hereto hereby consent to the dedication of land for the
development of Pima Street as described on Appendix B attached hereto.
2. In the event the dedication of the property referred to in paragraph
1 hereof occurs prior to the next scheduled quinquennial adjustment the rental
payable under the Lease Agreement shall be increased effective with the first
day of the month following such dedication by the amount of Two thousand four
hundred twenty-eight dollars and eighty-four cents ($2,428.84) annually which
shall be paid by monthly installments in advance of Two hundred two dollars and
forty cents ($202.40).
3. The increased rental effective as of the date above mentioned shall
then be _____________________________________ ($______) per annum or
______________________________________ ($______) per month.
4. In the event the dedication of the property referred to in paragraph
1 hereof occurs subsequent to the effective date of the next scheduled
quinquennial adjustment the amounts referred to in paragraphs 2 and 3 hereof
shall be adjusted appropriately and the Parties shall enter into a further Lease
Amending Agreement.
5. The increased rental shall be subject to quinquennial "cost of
living" adjustment at the same time and on the same basis as provided in
paragraph 5 of the Lease Agreement.
6. This Agreement may be executed in counterparts.
1
<PAGE> 2
7. Each of the parties referred to collectively of the Lessor hereby
declares that he or she is the owner of the undivided fractional interest in the
ownership of the property set forth below and each respectively declares for
himself or herself only that he or she has the capacity and authority to enter
into this agreement in such capacity.
Name Fractional Interest
Pasquo Investments - a limited 10/32
partnership with Amos & Edna
Pasqualetti as general partners.................
Amos Pasqualetti, trustee for Amos 2/32
Pasqualetti and Victoria McFarland..............
James Leonard, as guardian of Ben 8/32
Pasqualetti.....................................
Marion R. Jenkins, with proceeds assigned 6/32
to Irma Lisenmeyer..............................
Stephen A. Pasqualetti................................... 4/32
Great Western Bank - Lutrich Trust for 1/32
R. N. Bernstein.................................
James A. Yankee.......................................... 1/32
In Witness Whereof the Parties have executed this Lease Amending Agreement as of
the 1st day of October, 1984.
Lessee:
Smitty's Super Valu, Inc.
a Delaware Corporation
By /s/ Stanley J. English-Vice President
-------------------------------------
Lessor:
Pasquo Investments - a limited Amos Pasqualetti,-trustee for Amos
- ------------------------------- ----------------------------------
partnership with Amos & Edna Pasqualetti and Victoria McFarland
Pasqualetti as general partners /s/ Amos Pasqualetti
- ------------------------------- ----------------------------------
/s/ Amos Pasqualetti
/s/ Edna Pasqualetti
- ------------------------------- ----------------------------------
-------------------------
2
<PAGE> 3
LEGAL DESCRIPTION -- STORE 1
That part of the Northeast quarter of the Northeast quarter of Section 16,
Township 1 North, Range 3 East of the Gila and Salt River Base and Meridian,
Maricopa County, Arizona, described as follows:
BEGINNING South 45 degrees 0 minutes West 46.88 feet from the Northeast corner
of said Section 16, and the true point of beginning; thence Southerly 1310.47
feet to a point 33 feet West of the East line of said Section 16; thence
Westerly 652.40 feet to a point that is 1316.25 feet South of the North line of
said Section 16, thence Westerly 225.36 feet to a point that is 1318.59 feet
South of the North line of said Section 16; thence Northerly 1285.59 feet to a
point 33 feet South of the North line of said Section 16; thence Easterly
parallel to the North line of said Section 16, a distance of 855.44 feet to the
true point of beginning.
Also known as a portion of Tracts 1 and 2 of State Plat No. 2, according to the
plat of record in the office of the County Recorder of Maricopa County, Arizona,
in Book 8 of Maps, Page 24
EXCEPT the East 40 feet of the Northeast quarter of the Northeast quarter of
said Section 16, lying within said property; and
EXCEPT any portion thereof lying within the following described property: A
tract of land situate in the Northeast quarter of the Northeast quarter of
Section 16, Township 1 North, Range 3 East of the Gila and Salt River Base and
Meridian, Maricopa County, Arizona, more particularly described as follows:
From the Northwest corner of said Northeast quarter of the Northeast quarter of
Section 16, run South 25 degrees 52 minutes 00 seconds East 36.67 feet; thence
East, parallel to the North line of said Section 16, a distance of 427.52 feet
to the Northwest corner of that parcel of land described as Parcel No. 3 in
Warranty Deed recorded in Docket 3630, Page 427, Records of Maricopa County,
Arizona, the true point of beginning; thence South 1 degree 01 minute 16 seconds
West along the West line of said Parcel No. 3, a distance of 960.00 feet; thence
East parallel to the North line of said Section 16, a distance of 150.00 feet;
thence North 1 degree 01 minute 16 seconds East, 960.00 feet thence West,
parallel to the North line of Section 16, a distance of 150.00 feet to the point
of beginning;
3
<PAGE> 1
EXHIBIT 10.8g
When recorded, return to:
SKYMALL, INC.
c/o LEWIS & ROCA LAW FIRM
40 N. Central Ave., Suite 1900
Phoenix, AZ 85003
Attn: Mr. Paul Ellsworth
ASSIGNMENT
BY THIS ASSIGNMENT ("Assignment"), the undersigned PIMA PARTNERS, an
Arizona general partnership "Assignor"), for valuable consideration, the
receipt and adequacy of which is hereby acknowledged, does assign, transfer, and
convey to SKYMALL, INC., an Arizona corporation ("Assignee") all of Assignor's
right, title and interest in and to, that certain real property located in
Maricopa County, Arizona, and more particularly described on Exhibit "A" hereto
(the "Property"), including, without limitation, all of Assignor's right, title
and interest under that certain Sublease of the property dated as of August 1,
1984, between Smitty's Super Valu, Inc., a Delaware corporation, as sublessor,
and Schwan Brothers Properties, an Arizona general partnership ("Schwan"), as
sublessee, as amended by that certain Addendum to Sublease dated January 21,
1985 and recorded February 20, 1985, as Instrument No. 85-073893, Official
Records of Maricopa County, Arizona (collectively, the "Sublease").
Together with Seller's right, title and interest in and to appurtenances,
privileges, easements, and rights-of-way belonging to the Property or any part
thereof.
Assignor warrants as against all of Assignor's acts and no other acts and
subject to current taxes and assessments, reservations, easements,
rights-of-way, covenants, conditions and restrictions, liens, encumbrances, all
matters as may appear of record, and matters that would be disclosed by an
inspection of survey of the Property.
This Assignment incorporates the limitation of warranties contained in paragraph
(28) of that certain First American Title Insurance Company of Arizona Escrow
Instructions and Additional Terms to Escrow Instructions dated June 26, 1990,
for Escrow No. 201-800-521205 between Assignee as Buyer and assignor as Seller,
which limitation survives close of escrow and execution and delivery of this
Assignment.
1
<PAGE> 2
DATED this 12th day of July, 1990.
ASSIGNOR:
PIMA PARTNERS, an Arizona general
partnership
By: /s/ James D. Harrison
--------------------------------------------
James D. Harrison, its General
Partner
By: /s/ Ted Nicholson
--------------------------------------------
Ted Nicholson, its General
Partner
STATE OF ARIZONA )
) ss.
County of Maricopa )
The foregoing instrument was acknowledged before me this the 12th day
of July, 1990, by James O. Harrison and Ted Nicholson as General Partners of
PIMA PARTNERS, an Arizona partnership, for and on behalf of the partnership.
/s/ Michelle L. Fischer
-------------------------------
Notary Public
My Commission Expires:
Dec. 17, 1990
- ---------------------------------
2
<PAGE> 3
EXHIBIT "A"
No. 201-000-521265
PARCEL NO. 1:
That part of the Northeast quarter of the Northeast quarter of Section 16,
Township 1 North, Range 3 East of the Gila and Salt River Base and Meridian,
Maricopa County, Arizona, described as follows:
From the southeast corner of the said Northeast quarter of the Northeast quarter
of said Section 16, measure South 89 degrees 53 minutes 38 seconds West along
the South line of said Northeast of the Northeast quarter of Section 16 a
distance of 910.12 feet; thence North 00 degrees 59 minutes 46 seconds East a
distance of 30.00 feet to the True Point of Beginning; thence continuing North
00 degrees 59 minutes 46 seconds East a distance of 292.31 feet; thence North 90
degrees 00 minutes 00 seconds East a distance of 250.00 feet; thence South 00
degrees 59 minutes 46 seconds West a distance of 291.75 feet; thence South 89
degrees 53 minutes 38 seconds West a distance of 250.00 feet to the Point of
Beginning.
PARCEL NO. 2:
That part of the Northeast quarter of the Northeast quarter of Section 16,
Township 1 North, Range 3 East of the Gila and Salt River Base and Meridian,
Maricopa County, Arizona, described as follows:
Commencing at the Southeast corner of said Northeast quarter of the Northeast
quarter of Section 16, thence South 89 degrees 53 minutes 38 seconds West along
the South line of said Northeast quarter of the Northeast quarter for a distance
of 660.11 feet; thence North 00 degrees 59 minutes 46 seconds East 30.00 feet to
a point on the North right-of-way line of Pima Street and the True Point of
Beginning; thence continuing North 00 degrees 59 minutes 46 seconds East 511.24
feet; thence North 90 degrees 00 minutes 00 seconds East 331.72 feet; thence
South 00 degrees 01 minutes 06 seconds West 510.53 feet; thence South 89 degrees
53 minutes 38 seconds West 340.44 feet to the Point of Beginning.
PARCEL NO. 3:
That part of the NorthEast quarter of the Northeast quarter of Section 16,
Township 1 North, Range 3 East of the Gila and Salt River Base and Meridian,
Maricopa County, Arizona, described as follows:
Commencing at the Southeast corner of said Northeast quarter of the Northeast
quarter of Section 16; thence South 89 degrees 53 minutes
3
<PAGE> 4
38 seconds West along the South line of said Northeast quarter for a distance of
319.16 feet; thence North 00 degrees 01 minutes 06 seconds East 30.00 feet to a
point on the North right-of-way line of Pima Street and the True Point of
Beginning; thence continuing North 00 degrees 01 minutes 06 seconds East 125.53
feet; thence North 90 degrees 00 minutes 00 seconds East 279.11 feet to the West
right-of-way line of the East 40 feet of the Northeast quarter of the Northeast
quarter of Section 16; thence South 00 degrees 00 minutes 00 seconds West along
said West right-of-way line 105.05 feet to a point of tangency with the arc of a
circle, the center of which bears North 90 degrees 00 minutes 00 seconds West
20.00 feet therefrom; thence Southwesterly along said arc 31.38 feet; thence
South 89 degrees 53 minutes 38 seconds West 259.19 feet to the point of
Beginning.
Above Parcels also known as a portion of Tracts One, and Two of STATE PLAT NO.
2, according to the plat of record in the office of the County Recorder of
Maricopa County, Arizona, in Book 8 of Maps, Page 24.
4
<PAGE> 1
EXHIBIT 23.1
[LETTERHEAD OF ARTHUR ANDERSEN LLP]
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our report
and to all references to our firm included in or made part of this registration
statement.
Arthur Andersen LLP
Phoenix, Arizona,
November 5, 1996.
