AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 2, 1999
COLLECTORS UNIVERSE, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 7389 33-0846191
(STATE OF OTHER JURISDICTION PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
OF INCORPORATION OR CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
ORGANIZATION)
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1936 DEERE STREET, SANTA ANA, CALIFORNIA 92705
(949) 567-1234
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
LOUIS M. CRAIN, CHIEF EXECUTIVE OFFICER
COLLECTORS UNIVERSE, INC.
1936 DEERE STREET
SANTA ANA, CALIFORNIA 92705
(949) 567-1234
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
COPIES TO:
BEN A. FRYDMAN, ESQ VICTOR A. HEBERT, ESQ.
CHRISTOPHER D. IVEY, ESQ PAUL H. GREINER, ESQ.
MICHAEL D. COBB, ESQ RANDALL B. SCHAI, ESQ.
STRADLING YOCCA CARLSON & RAUTH, HELLER EHRMAN WHITE & MCAULIFFE
A PROFESSIONAL CORPORATION 601 SOUTH FIGUEROA STREET
660 NEWPORT CENTER DRIVE, SUITE 1600 LOS ANGELES, CALIFORNIA 90017-5758
NEWPORT BEACH, CALIFORNIA 92660-6441 (213) 689-0200
(949) 725-4000
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after this Registration Statement becomes effective.
If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box. [ ]
If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [ ]
CALCULATION OF REGISTRATION FEE
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PROPOSED MAXIMUM
TITLE OF EACH AGGREGATE OFFERING AMOUNT OF
CLASS OF SECURITIES TO BE REGISTERED PRICE (1) REGISTRATION FEE (1)
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Common Stock ($0.001 par value)(2)......................... $46,000,000 $ 12,788
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(1) Estimated pursuant to Rule 457(o) solely for the purpose of calculating the registration fee.
The information in this preliminary prospectus is not complete and may be changed. These securities may not be sold until the registration statement filed with the Securities and Exchange Commission becomes effective. This preliminary prospectus is not an offer to sell these securities nor does it seek offers to buy these securities in any jurisdiction where the offer or sale is not permitted.
SUBJECT TO COMPLETION, DATED , 1999
PROSPECTUS
[ ] SHARES
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[LOGO]
COLLECTORS UNIVERSE, INC.
COMMON STOCK
We are offering shares of common stock with this prospectus. Prior to this offering, there has been no public market for the common stock. We expect the initial public offering price to be between $ and $ per share. We have applied for quotation of our common stock on the Nasdaq National Market under the symbol "CLCT."
INVESTING IN THE COMMON STOCK INVOLVES CERTAIN RISKS. SEE "RISK FACTORS"
BEGINNING ON PAGE 4.
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PER SHARE TOTAL
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Initial Public Offering Price............................... $ $
Underwriting Discount....................................... $ $
Proceeds, before expenses, to Collectors Universe........... $ $
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The underwriters may also purchase up to an additional shares from us at the public offering price, less the underwriting discount, within 30 days from the date of this prospectus, to cover over-allotments.
The Securities and Exchange Commission and state securities regulators have not approved or disapproved of these securities or determined if this prospectus is truthful or complete. It is illegal for any person to tell you otherwise.
NEEDHAM & COMPANY, INC. FIRST SECURITY VAN KASPER
The date of this Prospectus is , 1999
Inside Cover
Contains pictures of the following collectibles with the captions indicated:
Picture Caption
------- -------
Baseball Card 1941 Play Ball Joe DiMaggio Sportscard. Graded
and sold at auction by Collectors Universe for
$109,250
1804 Silver Dollar The Eliasberg 1804 Silver Dollar. Graded by
Collectors Universe and later sold for
$1,800,000
Baseball Mark McGwire's 70th Home Run Ball. Authenticated
by Collectors Universe and later sold for
$3,000,000
Album Cover The Beatles "Butcher" Album Cover. Sold by
Collectors Universe for $38,500
$1,000 Bill 1890 $1,000 "Grand Watermelon" Note. Sold by
Collectors Universe for $792,000
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Inside Fold
Contains a banner at the top of the page that states, "The leading full-service provider of value-added services to high-end collectibles markets," and pictures of various collectibles that are authenticated, graded or auctioned by Collectors Universe. Also includes displays of our logos which include, as part of the logos, the captions indicated:
Logo Caption included within logo
---- ----------------------------
Professional Sports Authenticator The Standard for the Sports
Collectibles Industry
PSA/DNA Get Real
PCGS The Standard for the Rare Coin Industry
Collectors Universe Auctions N/A
Superior Sports Auctions The World's Finest Sports Collectibles
Good Rockin' Tonight The World's Finest Music Collectibles
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Collectors Universe Representing Life's
One-of-a-Kind Auction Unique Treasures
Lyn Knight Currency Auctions Building Collections
for Collectors
Kingswood Coin Auctions The World's Finest Rare Coins
Also includes the following text:
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Collectors demand to know that the high-end collectibles they are buying are genuine. The expertise, impartiality, credibility, and reputation of an authenticator are critical to the willingness of buyers to purchase high-end collectibles sight-unseen.
Collectors need consistently applied uniform grading standards and assurances that collectibles have not been tampered with or artificially enhanced, in order to compare a collectible's relative condition.
Our authentication and grading services provide a collector with confidence that the collectible is as represented by the seller.
When combined with the rarity and pricing information we compile and publish, our services eliminate the need to personally inspect collectibles, and facilitate their sale sight-unseen, at prices approximating live auction prices.
The Collectors Universe website is a place where content and commerce come together.
We conduct over a dozen simultaneous weekly Internet auctions for the buying and selling of collectibles in numerous categories. Premium auctions, which occur over 15 times a year, are tailored to people who are interested in particularly rare, unique and valuable items ion a single category, such as coins, currency, sportscards and sports memorabilia, records, and one-of-a-kind items.
Our multi-venue auction format offers collectors the flexibility and convenience of choosing the venue that is most comfortable for them. Currently, buyers and sellers may simultaneously participate by phone, computer-assisted phone, in person, and via the Internet.
In addition, we offer fixed price galleries for those buyers who may not wish to purchase items by auction.
TABLE OF CONTENTS
PAGE
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Prospectus Summary.......................................... 1
Summary Consolidated Financial Data......................... 3
Risk Factors................................................ 4
Forward-Looking Statements.................................. 12
The Reorganization.......................................... 12
Use of Proceeds............................................. 12
Dividend Policy............................................. 13
Capitalization.............................................. 14
Dilution.................................................... 15
Selected Consolidated Financial Data........................ 16
Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. 18
Business.................................................... 24
Management.................................................. 41
Certain Transactions........................................ 48
Principal Stockholders...................................... 50
Description of Capital Stock................................ 51
Shares Eligible for Future Sale............................. 53
Underwriting................................................ 54
Legal Matters............................................... 55
Experts..................................................... 56
Available Information....................................... 56
Index to Consolidated Financial Statements.................. F-1
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You should rely only on the information contained in this prospectus. We have not, and the underwriters have not, authorized any other person to provide you with different information. If anyone provides you with different or inconsistent information, you should not rely on it. We are not, and the underwriters are not, making an offer to sell these securities in any jurisdiction where the offer or sale is not permitted.
This prospectus contains forward-looking statements. The outcome of the events described in these forward-looking statements is subject to risks and actual results could differ materially. The sections entitled "Risk Factors," "Management's Discussion and Analysis of Financial Condition and Results of Operations" and "Business" contain a discussion of the factors that could contribute to those differences.
Collectors Universe, PCGS, PSA, PSA/DNA and Good Rockin' Tonight are registered trademarks of Collectors Universe. See "Business" for a list of other trademarks of Collectors Universe, including Collectors.com, Coin Universe, Lyn Knight Currency Auctions, Superior Sports Auctions, Kingswood Coin Auctions, Record Universe, Sports Collectors Universe and Currency Universe. Each of the logos associated with such names are trademarks of Collectors Universe. All other brand names or trademarks appearing in this prospectus are the property of their respective owners.
PROSPECTUS SUMMARY
You should read the following summary together with the more detailed information and financial statements and notes thereto appearing elsewhere in this prospectus. Except as otherwise indicated, the information in this prospectus assumes the underwriters do not exercise their over-allotment option and assumes any outstanding options to purchase shares of common stock have not been exercised.
COLLECTORS UNIVERSE
Collectors Universe is the leading full-service provider of value-added services to dealers and collectors of coins, sportscards, sports memorabilia, rare currency and rare records. We authenticate and grade the quality of coins and sportscards, authenticate autographs and memorabilia, compile and publish authoritative information and conduct traditional and Internet-based auctions. At our website, www.collectors.com, collectors and dealers access authoritative information on collectibles and buy and sell collectibles at our premium and weekly auctions.
We have established the preeminent brand names in coin grading
(Professional Coin Grading Service or PCGS), sportscard grading (Professional
Sports Authenticator or PSA), rare currency auctions (Lyn Knight Currency
Auctions) and rare record auctions (Good Rockin' Tonight). We also have
established widely recognized brand names in sportscard auctions (Superior
Sports Auctions), autograph authentication and collectible certification
(PSA/DNA Authentication Services), rare coin auctions (Kingswood Coin Auctions)
and Internet coin auctions (Coin Universe).
We believe we have developed an unequaled reputation for the accuracy of our authentication and grading services within the collectibles markets we serve. Since 1986, we have authenticated and graded more than 7.1 million collectible coins and sportscards with a declared insured value of approximately $8.7 billion. We estimate that, based on the number of items submitted for authentication and grading in each of our last five fiscal years, we have captured approximately a 50% share of the coin authentication and grading market and approximately a 90% share of the sportscard authentication and grading market. In our most recent quarter, we processed over 200,000 individual items each month.
Our reputation and the breadth of our value-added services provide collectors and dealers with the confidence to buy and sell high-end collectibles without physical inspection (commonly referred to as sight-unseen) through Internet and telephone auctions by providing answers to the following questions:
- "Is it real?" We authenticate collectible coins, sportscards and autographs to confirm that they are genuine.
- "What's the quality?" We grade the quality of collectible coins and sportscards in accordance with consistently applied uniform standards.
- "What's the value?" We compile and publish price guides, rarity reports, market indices and other authoritative content regarding collectibles that enable buyers and sellers to make more informed decisions.
- "How do I buy or sell it?" As an increasing part of our business, we conduct integrated multi-venue auctions that enable buyers and sellers of high-end collectibles to participate in simultaneous Internet, telephonic and in-person auctions.
We believe that we have earned the trust and confidence of dealers and collectors of high-end collectibles as demonstrated by the following:
- we authenticated, graded and auctioned for $109,000 a 1941 Joe DiMaggio sportscard and we certified the authenticity of Mark McGwire's 70th home run baseball and Hank Aaron's 715th home run baseball and bat;
- we authenticated and graded an 1804 silver dollar that was recently auctioned for approximately $4.1 million;
- we obtained by consignment and sold at one of our recent auctions a limited edition Beatles album for $38,500; and
- we will be auctioning at our inaugural "One-of-a-Kind" auction in October 1999, the basketball court where Michael Jordan took the last shot of his NBA career to win the 1998 NBA Championship.
Internet auction providers also recognize that our authentication and grading services facilitate the purchase and sale of collectibles by their customers. For example, eBay has entered into a strategic relationship with us that enables all of its users to access our authentication and grading services by simply clicking on one of our logos that are prominently displayed on eBay's home pages for coins, sportscards and sports collectibles.
Our objective is to become the full-service marketplace of choice for high-end collectibles. To achieve this objective, we intend to: leverage our authentication and grading leadership to increase our auction business; cross-sell our services and products to our established customer base; penetrate other collectibles markets; expand recognition of the Collectors Universe(R) brand; and use proprietary technology to expand and enhance the services we provide.
Our principal executive offices are located at 1936 East Deere Street, Santa Ana, California 92705, and our telephone number is (949) 567-1234. Our website can be found at www.collectors.com. The information on our website is not incorporated by reference into this prospectus.
THE OFFERING
Common stock offered by Collectors
Universe................................ shares
Common stock to be outstanding after the
Offering................................ shares
Use of proceeds........................... To increase our advertising and marketing programs,
to provide working capital for purchases of
collectibles for resale in our auctions and for other
general corporate purposes. See "Use of Proceeds."
Proposed Nasdaq National Market symbol.... CLCT
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SUMMARY CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE AND OTHER DATA)
FISCAL YEAR ENDED JUNE 30,
--------------------------------------------------------
1995 1996 1997 1998 1999
-------- -------- -------- -------- --------
CONSOLIDATED STATEMENTS OF INCOME DATA:
Net revenues........................................ $ 9,265 $ 8,432 $ 9,393 $ 10,989 $ 22,563
Cost of revenues.................................... 2,451 2,623 2,651 2,915 8,654
-------- -------- -------- -------- --------
Gross profit........................................ 6,814 5,809 6,742 8,074 13,909
Operating income.................................... 2,961 532 514 906 37
Interest income (expense), net...................... (62) 72 33 26 30
Minority interest................................... -- (11) (6) (46) (28)
-------- -------- -------- -------- --------
Income before provision (benefit) for income
taxes............................................. 2,899 593 541 886 39
Provision (benefit) for income taxes(1)............. 43 9 36 13 (348)
-------- -------- -------- -------- --------
Historical net income(2)............................ $ 2,856 $ 584 $ 505 $ 873 $ 387
======== ======== ======== ======== ========
Historical net income per share, basic and
diluted........................................... $ 0.18 $ 0.04 $ 0.03 $ 0.05 $ 0.02
======== ======== ======== ======== ========
Weighted average shares outstanding:
Basic............................................. 16,565 16,154 16,217 16,064 17,644
Diluted........................................... 16,565 16,154 16,217 16,064 18,765
SUPPLEMENTAL DATA(3):
Historical income before provision for income
taxes............................................. $ 2,899 $ 593 $ 541 $ 886 $ 39
Supplemental provision for income taxes(4).......... 1,160 237 216 354 16
-------- -------- -------- -------- --------
Supplemental net income............................. $ 1,739 $ 356 $ 325 $ 532 $ 23
======== ======== ======== ======== ========
Supplemental net income per share, basic and
diluted........................................... $ --
========
Weighted average shares outstanding:
Basic............................................. 17,644
Diluted........................................... 18,765
OTHER DATA:
Number of coins graded.............................. 425,900 419,900 400,200 428,500 521,500
Number of cards graded.............................. 12,500 32,100 93,500 167,600 898,800
Average selling price for all collectibles
auctions.......................................... $ 249
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AT JUNE 30, 1999
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ACTUAL AS ADJUSTED(5)
------- --------------
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents................................... $ 1,852 $
Working capital............................................. 2,330
Total assets................................................ 14,898
Total stockholders' equity.................................. 9,449
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(2) Historical net income is not comparable for all periods shown. Prior to February 5, 1999, we were not taxable as an entity because stockholders had elected to be taxed individually based upon their percentage ownership of the outstanding stock.
(3) Supplemental income data presents income taxes computed as if we were subject to federal and state income taxes for fiscal years ended June 30, 1995 through June 30, 1999. See Note 2 to Consolidated Financial Statements.
(4) Amounts reflect adjustments for federal and state income taxes as if we had been treated as a C corporation rather than an S corporation during all of the fiscal years presented above.
(5) Adjusted to give effect to the sale by the company of shares of common stock offered hereby and the application of the estimated net proceeds therefrom. See "Use of Proceeds" and "Capitalization."
RISK FACTORS
Before you invest in our common stock, you should be aware that there are various risks, including those described below. Additional risks and uncertainties not presently known to us or that we currently deem immaterial may also impair our business operations. If any of the following risks actually occur, our business could be harmed. In such case, the trading price of our common stock could decline and you may lose all or part of your investment. You should consider carefully these risk factors together with all of the other information included in this prospectus before you decide to purchase shares of our common stock.
A DECLINE IN THE POPULARITY OF HIGH-END COLLECTIBLES COULD IMPACT OUR BUSINESS
The popularity of certain categories of collectibles may vary over time due to perceived scarcity, subjective value, general consumer trends, changes in the prices of precious metals, interest rates and other general economic conditions. We derive a significant portion of our revenues from fees paid by collectors for our authentication and grading services, commissions paid to us upon the sale of collectibles in our auctions and sales of collectibles from our own inventory. A decline in popularity of high-end collectibles would likely cause a decrease in the number of items submitted to us for authentication and grading.
Since our authentication and grading revenues are based on the volume of collectibles submitted and not the value of the collectibles submitted, a reduction in demand for authentication and grading services would have a negative effect on our revenues. Additionally, a decline in the popularity of collectibles, and coins and sportscards in particular, would result in fewer transactions in our auctions and fewer sales from our inventory, reducing our revenue from auction sales.
Temporary consumer popularity or "fads" among collectors may temporarily inflate the volume of certain types of collectibles that we authenticate, grade, auction and sell. These trends may result in significant fluctuations in our operating results from one quarter to the next. Any decline in the popularity of the collectibles we authenticate, grade, auction and sell as a result of changes in consumer trends could harm our business. In particular, the market for authentication and grading is relatively new and the volume of sportscards we receive has increased significantly in the past five fiscal quarters. However, there is no guarantee that the level of trading in sportscards will continue to grow or maintain its current level.
OUR FUTURE OPERATING RESULTS ARE SUBJECT TO FLUCTUATIONS
Our operating results are unpredictable and we expect them to fluctuate in the future due to a number of factors, many of which are outside our control. These factors include:
- consumer trends affecting the popularity of collectibles;
- our ability to significantly increase our customer base;
- our ability to obtain consignments of and to purchase collectibles to offer at our auctions;
- our ability to re-sell our inventory of collectibles in a timely manner;
- our ability to maintain gross margins;
- our ability to maintain customer satisfaction;
- the general availability and pricing of high-end collectibles;
- costs relating to the expansion of our operations and the introduction of new types of services;
- services offered by our competitors and the success of our competitors;
- technical difficulties with consumers' use of our website or service interruptions; and
- general economic conditions and economic conditions specific to the prices of high-end collectibles.
Our future operating results are also dependent on the success of our Internet website and the amount of resources that we will need to devote to the development of our website. Our Internet operations currently are not profitable. We will need to achieve significant growth in our Internet business in order for the Internet operations to become profitable. We are in the early stages of development of several new portions of our website which will offer content and auctions for collectibles that may have a lower average selling price than many of the collectibles in the markets we currently serve. Continued development of our website will require significant resources. There is a risk that the planned expansion of our website will not result in increased revenues which would have a negative impact on our business.
WE MAY INCUR LOSSES AS A RESULT OF ACCUMULATING INVENTORY
In addition to auctioning collectibles on consignment, currently approximately 30% of the aggregate sales prices of collectibles sold at our auctions are from our own inventory. We purchase these collectibles from dealers and collectors and assume the inventory and price risks of these items until they are sold. If we were unable to resell our purchased collectibles when we want or need to, or at prices sufficient to generate a profit on their resale, or if the market value of our inventory of purchased collectibles were to decline, our operating results would be negatively affected.
THERE ARE LIMITED SUPPLIES OF COLLECTIBLES
Our business is substantially dependent upon obtaining collectible coins, sportscards, records and other high-end collectibles for authentication, grading and auction. We depend upon dealers and collectors submitting collectibles for authentication and grading and there is no guarantee that the current rate of submission will continue. In particular, we have recently experienced a significant increase in the rate of sportscard submissions which may indicate that the sportscard market for authentication and grading may be approaching maturity. Although there are numerous dealers and collectors from whom we are able to obtain collectibles for our auctions, there are only a limited number of dealers with the capacity to submit high-end collectibles for auction on a regular basis. To provide incentives to these suppliers to consign collectibles to us, we have granted them stock options and we sometimes offer them discounts on our fees. A change in our relationships with suppliers or dealers could negatively impact our ability to obtain or auction high-end collectibles in the quantities and at the times we desire. This could impair our ability to attract a sufficient number of people interested in high-end collectibles to our auctions, which would harm our business. Additionally, in order to attract consignors of certain extraordinary collectibles, we have occasionally provided the consignor with an advance against a guaranteed or non-guaranteed minimum auction price. If consigned collectibles do not generate sales prices in excess of the amounts advanced by us, we may realize a loss on those advances.
WE FACE COMPETITION IN ATTRACTING COLLECTORS TO OUR INTERNET WEBSITE
The market for Internet auctions is highly competitive and most major Internet websites of such companies as Yahoo!, Inc., eBay Inc., Onsale, Inc. and Excite, Inc., a subsidiary of At Home Corporation, host Internet auctions where collectibles are frequently traded. Barriers to entry to the Internet auction market are relatively low, and current and new competitors can launch new websites at a relatively low cost using commercially available software. We potentially face competition from a number of large Internet communities and services that have expertise in developing Internet
commerce, such as Amazon.com, Inc., America Online, Inc. and Microsoft Corporation. Other large companies with strong brand name recognition, substantial resources and experience in Internet commerce, such as Cendant Corporation, QVC, Inc. and other large media companies may also seek to compete in the Internet auction market. In addition to currently or potentially competing for auction services with major Internet commerce companies, we also compete with a number of other small service providers including those that specifically serve the collectibles markets. Competitive pressures created by any one of these companies, or by our competitors collectively, could harm our business.
Some of our current competitors and many of our potential competitors have longer operating histories in Internet commerce, larger customer bases, greater brand name recognition and significantly greater financial, marketing, technical and other resources. In addition, other Internet trading services may be acquired by or enter into commercial relationships with larger, well- established and well-financed companies as use of the Internet increases. Further, there is a risk that someone could create a website that draws auction information from numerous auction websites to create a consolidated auction. Such an "auction supermarket" could reduce the amount of traffic we receive on our website and have a negative effect on our Internet business.
OUR TRADITIONAL AUCTION BUSINESS IS HIGHLY COMPETITIVE
Our traditional auction business is also highly competitive. We compete directly with other companies that specialize in collectibles and have an industry reputation for hosting premium collectibles auctions, including Heritage Numismatic Auctions, Inc., Auctions by Bowers & Merena and Mastro Fine Sports Auctions as well as other companies such as Sotheby's, Inc., Christie's, Inc. and Greg Manning Auctions, Inc., which do not specialize in but do conduct, coin and sportscard auctions. These competitors each have the ability to attract buyers to their auctions as a result of their reputation and the quality collectibles they obtain through their industry connections. In addition, other reputable auction companies that do not presently engage in auctions for coins or sportscards or other collectibles that are the focus of our business may decide to enter our markets to compete with us. These companies have greater name recognition and have greater financial and marketing resources than we do. If these auction companies are successful in entering the specialized high-end collectibles markets in which we participate or dealers participate less in our auctions, we may attract fewer buyers and our business could be harmed.
OUR AUTHENTICATION AND GRADING BUSINESS IS SUBJECT TO INTENSE COMPETITION
There are few major competitors in the collectibles authentication and grading markets. However, competition is intense in these markets. Existing authentication and grading companies could attempt to capture greater market share by lowering prices for services or increasing advertising, marketing or other costs of sales. Additionally, established auction companies could expand their services to include authentication and grading of collectibles, or unanticipated competitors could enter the grading and authentication markets. Such increased competition could have a negative impact on our business.
GROWTH AND ACQUISITIONS MAY STRAIN OUR MANAGEMENT, OPERATIONAL AND FINANCIAL RESOURCES
We are currently experiencing a period of significant expansion and we anticipate that we must expand further and continue to develop our business plan to address potential growth in our customer base and market opportunities. Our expansion has placed, and we expect it to continue to place, a significant strain on our management, operational and financial resources. Also, as our business plan evolves, we risk distracting management away from expanding currently profitable operations and
decreasing interest of suppliers and customers to our core authentication and grading business. We cannot assure you that our current and planned facilities, computer systems, personnel and inventory controls will be adequate to support our future operations. In addition, there is a risk that we may not be able to expand our sportscard and coin authentication and grading operations to allow for additional capacity at the same rate as market demand may be created.
If appropriate opportunities present themselves, we also intend to acquire businesses, technologies, services or products that we believe will help us develop and expand our business. The process of integrating an acquired business, technology, service or product may result in operating difficulties and expenditures which we cannot anticipate and may absorb significant management attention that would otherwise be available for further development of our existing business. Moreover, the anticipated benefits of any acquisition may not be realized. Any future acquisitions of other businesses, technologies, services or products might require us to obtain additional equity or debt financing, which might not be available to us on favorable terms or at all, and might be dilutive. Additionally, we may not be able to successfully identify, negotiate or finance future acquisitions or to integrate acquisitions with our current business.
WE HAVE A SHORT HISTORY AS AN INTEGRATED COMPANY
We were founded in 1986 as Professional Coin Grading Service, Inc. or PCGS and began operating primarily as a coin grading service to the collectible coin market. In 1991, principals of our company founded Professional Sports Authenticator or PSA, an authentication and grading service for the sportscards trading market. In 1998, principals of our company founded PSA/DNA, an authentication service for sports memorabilia and other high-end collectibles. In February 1999, we combined PCGS, PSA and PSA/DNA and several other established auction businesses in the collectible coin market, sportscard market, sports memorabilia market, currency market and other high-end collectibles markets into Collectors Universe. As a result, while parts of our business have a longer operating history, in our present state, we have only a limited operating history as an integrated company on which our business may be evaluated. Because of our limited operating history as an integrated company, we believe that period-to-period comparisons of our operating results are not necessarily meaningful and you should not rely upon them as indications of our future performance.
WE COULD SUFFER SIGNIFICANT LOSSES ON AUTHENTICATION AND GRADING WARRANTIES
We offer a warranty covering the coins and sportscards authenticated and graded by us. Under the terms of our warranty, any coin or sportscard that was originally graded by us and which subsequently receives a lower grade upon resubmittal to our company, obligates us either to purchase the coin or sportscard or pay the difference in value of the item at its original grade as compared with its lower grade. We have a reserve of $232,000 at June 30, 1999 to satisfy claims made under our warranty. To the extent that our actual warranty expense exceeds that amount, we would incur unanticipated expenses. In addition, we have no insurance coverage to protect us from adverse warranty expenses.
WE RUN A RISK OF SYSTEM CAPACITY CONSTRAINTS AND SYSTEM FAILURE
We seek to generate a high volume of traffic and transactions on our website. If we generate too much traffic to our website, our website will exceed its capacity, load slowly and be less responsive. This may potentially drive away customers. We must continually enhance and improve these systems in order to accommodate the level of use of our websites. Our inability to integrate additional software and hardware or to develop and further upgrade our existing technology to accommodate increased traffic on our websites or increased transaction volume through our processing systems may
cause unanticipated system disruptions, slower response times, degradation in levels of customer service, impaired quality of the user's experience on our websites, and delays in reporting accurate financial information.
Any system interruptions that result in the unavailability of our service or reduced customer activity would reduce the volume of collectibles listed and auctions completed and could affect the selling price of collectibles listed for sale. Thus, we depend upon our communications and computer hardware, substantially all of which is currently located at our leased facility in Santa Ana, California. We will be moving into new facilities in April 2000, which move may have a disruptive effect on our computer systems. We have experienced periodic system interruptions, which we believe will continue to occur from time to time. Our systems are vulnerable to damage from earthquake, fire, flood, power loss, telecommunication failure, break-in and similar catastrophic events. A substantial interruption in these systems would harm our business.
THE LOSS OF KEY PERSONNEL COULD ADVERSELY AFFECT OPERATIONS
Our performance is greatly dependent on the performance of our senior management and key employees. The loss of the services of any of our executive officers or other key employees could harm our business. Some of our executive officers and key employees are experts in the collectibles markets and have industry-wide reputations for authentication and of grading collectibles, purchasing collectibles and preparing auctions that will be attractive to buyers of high-end collectibles. The loss of these executive officers or key employees could have a negative effect on our reputation for expertise in the collectibles markets. Additionally, we must identify, attract, hire, train, retain and motivate other highly skilled technical, managerial, marketing and customer service personnel, including programmers and authenticators and graders of collectibles. Competition for highly skilled technical, managerial, marketing and customer service personnel is intense. We may not be able to successfully attract, integrate or retain sufficiently qualified personnel, which failure could harm our business.
WE DEPEND ON ACCEPTANCE OF THE COLLECTORS UNIVERSE BRAND NAME AND THE INTEGRATION OF EXISTING BRAND NAMES
We believe that brand name recognition is extremely important in the collectibles services industry. Authentication and grading services are based to a large degree on the reputation of the company providing the services, and recognizable branding is crucial to maintain customer loyalty. In the auctions industry, many collectors look for brands that are associated with auctions that provide high-end collectibles for sale. Our existing brand names, such as PCGS, PSA, Kingswood Coin Auctions, Lyn Knight Currency Auctions and Superior Sports Auctions are widely recognized in the collectibles and auctions industries. However, the Collectors Universe brand name has only been in existence for a short period of time, and brand recognition associated with one of our existing brands may not carry over to the Collectors Universe brand. We must work to tie customer awareness of each of our existing brands to our new brand. We run the risk that we will not be able to accomplish such an integration at all, or that we will dilute the awareness of our existing brand names. If our established brand names dissipate, or if we are unsuccessful in promoting, integrating and maintaining our brand names, our business could be harmed.
WE ARE DEPENDENT ON THE CONTINUED GROWTH OF INTERNET COMMERCE
Our business could be harmed if any of the following situations occur:
- the use of the Internet does not continue to grow or grows more slowly than expected;
- the Internet's infrastructure does not effectively support the growth that may occur; and
- the Internet does not become a viable commercial marketplace.
The market for the sale of goods over the Internet is a new and emerging market. Rapid growth in the use of, and interest in, the Internet is a recent phenomenon and may not continue to develop.
INSECURE TRANSMISSION OF CONFIDENTIAL INFORMATION AND THIRD PARTY MISCONDUCT COULD HURT CUSTOMER CONFIDENCE IN INTERNET COMMERCE
Many consumers are concerned about transmitting confidential information, such as credit card numbers, over the Internet. Public confidence in secure transmissions is a significant barrier to Internet commerce and communications. We rely on encryption technology licensed from third parties to transmit confidential information, including customer credit card numbers. In addition, our servers are vulnerable to computer viruses, physical or electronic break-ins, deliberate attempts by third parties to exceed the capacity of our systems and similar disruptive problems. Computer viruses, break-ins or other problems caused by third parties could lead to interruptions, delays, loss of data or cessation in service to users of our services and products. The law relating to the liability of Internet service companies for information carried on or disseminated through their services is currently unsettled. It is possible that claims could be made against Internet service companies under both U.S. and foreign law for defamation, libel, invasion of privacy, negligence, copyright or trademark infringement, or other theories based on the nature and content of the materials disseminated through their services. Concerns regarding liability for information disseminated over the Internet and the adoption of any additional laws or regulations may decrease the growth of the Internet, which could decrease the demand for our Internet auctions and other services.
ADDITIONAL REGULATIONS COULD BE IMPOSED ON OUR INDUSTRY
AUTHORITIES COULD IMPOSE ADDITIONAL REGULATIONS ON COLLECTIBLES AND AUCTION MARKETS. The collectible coin and other high-end collectibles markets are not currently subject to direct federal, state or local regulation, although auctions in general and the sale of certain artwork and autographed sports memorabilia are regulated in some states. However, from time to time authorities discuss additional regulations which could impose restrictions on the collectibles industry, such as regulating collectibles as securities or requiring collectibles dealers to meet certain registration or reporting requirements, and impose restrictions on the conduct of auction businesses. Adoption of laws or regulations of this nature could increase the complexity and costs of conducting auctions, which might decrease our ability to attract sellers and buyers. In addition, due to the increasing popularity and use of the Internet, laws and regulations may be adopted with respect to the Internet that could significantly limit our Internet auction business or otherwise harm our business.
WE ARE SUBJECT TO AN FTC CONSENT DECREE. In a consent decree with the Federal Trade Commission (FTC) dated August 1990, PCGS consented to certain restrictions in the operation of the PCGS business. Under the consent decree, PCGS agreed that it will make no representations that are untrue with respect to the objectivity of its services or the marketability of coins. In addition, PCGS agreed not to improperly adjust its grading standards, nor to permit any coin graders to knowingly grade coins in which the graders have a financial interest or to discuss grading procedures
with persons not authorized by PCGS. If the FTC determines that we have violated this agreement, they may seek additional restrictions or penalties or otherwise limit our operations.
STATES COULD IMPOSE OBLIGATIONS TO COLLECT SALES TAXES. Generally, we do not collect sales or other similar taxes on goods sold by users through our Internet auction service. However, one or more states may seek to impose sales tax collection obligations on out-of-state companies such as ours, which engage in or facilitate Internet commerce, and a number of proposals have been made at the state and local level that would impose additional taxes on the sale of goods and services through the Internet. If adopted, these proposals could substantially impair the growth of Internet commerce, and could adversely affect our ability to profit from Internet commerce. Moreover, a successful assertion by one or more states or any foreign country that we should collect sales or other taxes on the exchange of merchandise on our system could harm our business.
WE DEPEND ON OUR ABILITY TO PROTECT AND ENFORCE OUR INTELLECTUAL PROPERTY RIGHTS
We believe that our trademarks and other proprietary rights are important to our success and competitive position. We rely on a combination of trademark, copyright and trade secret laws, as well as confidentiality agreements, non-competition agreements and technical measures to establish and protect our proprietary rights. However, the actions we take to establish and protect our trademarks and other proprietary rights may be inadequate to prevent imitation of our services or products or to prevent others from claiming violations of their trademarks and proprietary rights by us. In addition, others may develop similar technology independently or assert rights in our trademarks and other proprietary rights. The laws of other countries may afford us little or no effective protection of our intellectual property.
FAILURE TO SOLVE YEAR 2000 COMPLIANCE PROBLEMS MAY IMPACT OUR BUSINESS
The computer systems of many businesses face the risk of malfunction in the year 2000. This malfunction is the result of computer programs that were designed to use two digits rather than four digits to define an applicable year. These computer programs may recognize the year 2000 as the year 1900, or be completely unable to recognize the year 2000. A malfunction of this type could result in a system failure or miscalculations in the processing of data. System failure or miscalculations in the processing of data would cause disruptions in business operations and could cause the temporary inability to process transactions, bill activities, send invoices or engage in other normal business transactions.
In our authentication and grading business we use certain proprietary software that we developed which is not yet year 2000 compliant. We expect to complete the required modifications to make the proprietary software year 2000 compliant and to complete verification testing by the end of October 1999. We estimate that the cost to make our proprietary software year 2000 compliant will be approximately $50,000. In the event that we encounter any disruptions in the operation of our proprietary software due to year 2000 issues, the time required to grade coins and sportscards would increase and the number of coins and sportscards we could grade would decrease, which could harm our business.
In addition to our internally developed software, we utilize software and hardware developed by third parties for both our network and internal information systems. We also rely on the Internet for customers to access our websites. There is no guarantee that our third party software and hardware providers or the operation of the Internet itself will be unaffected by the year 2000. Failure of third-party equipment or software to properly process dates for the year 2000 and thereafter, or any similar impact on the Internet, could require us to incur unanticipated expenses to remedy any problems, which could harm our business.
WE ARE LARGELY CONTROLLED BY MANAGEMENT
Our officers and directors currently own or control a substantial majority of our outstanding common stock. If they act in concert, they will continue to be able to exercise voting control over Collectors Universe for the foreseeable future and will be able to elect the entire Board of Directors, set dividend policy and otherwise generally determine our management. This management control could prevent, or make more difficult, a sale of our company that is not on terms acceptable to our management.
WE RELY ON THIRD PARTIES FOR VARIOUS INTERNET AND PROCESSING SERVICES
In addition to our merchandise suppliers, our operations depend on a number of third parties for Internet access, delivery services and credit card processing. We have limited control over these third parties and no long-term relationships with any of them. For example, we do not own a gateway onto the Internet, but instead, rely on Internet service providers to connect our website to the Internet. Should the third parties that we rely on for Internet access, delivery services or credit card processing services be unable to serve our needs for a sustained time period as a result of a strike, natural disaster or other reason, our business could be harmed.
YOU WILL INCUR SUBSTANTIAL DILUTION
If you purchase shares of our common stock, you will incur immediate and substantial dilution in pro forma net tangible book value. We estimate this dilution to be approximately $ per share, or approximately %, assuming an initial public offering price of $ per share. If other security holders exercise options or warrants to purchase our capital stock, you will suffer further dilution. See "Dilution" for a description of how dilution was calculated.
A SIGNIFICANT NUMBER OF SHARES ARE ELIGIBLE FOR SALE AND THEIR SALE COULD DEPRESS OUR STOCK PRICE
The sale of a large number of shares could harm our stock price. After this offering, we will have outstanding shares of common stock, a majority of which will be held by existing stockholders and will become eligible for resale shortly after this offering. Our existing stockholders have agreed not to sell their shares for a period of 180 days after the date of this prospectus without the prior written consent of Needham & Company, Inc. Upon expiration of the 180 day lock-up period, 20,425,076 shares of our common stock held by existing stockholders will become available for sale in the public market (subject to certain volume restrictions imposed by federal securities laws).
PROVISIONS IN OUR CHARTER DOCUMENTS MAY MAKE AN ACQUISITION OF US MORE DIFFICULT
Provisions of our Amended and Restated Certificate of Incorporation, Bylaws and Delaware law could make it more difficult for a third party to acquire us, even if doing so would be beneficial to stockholders. See "Description of Capital Stock" for a description of provisions that could impede or prevent an acquisition.
FORWARD-LOOKING STATEMENTS
Some of the information in this prospectus contains forward-looking statements. These statements can be identified by the use of forward-looking terms such as "may," "will," "expect," "anticipate," "estimate," "continue" or other similar words. These statements discuss future expectations, projections of results of operations or of financial condition or state other "forward- looking" information. When considering these forward-looking statements, you should keep in mind the risk factors and other cautionary statements in this prospectus. The risk factors noted under the heading "Risk Factors" and other factors noted throughout this prospectus could cause our actual results to differ materially from those contained in any forward-looking statement.
THE REORGANIZATION
In February 1999 we incorporated in Delaware under the name Collectors Universe. This was accomplished to enable PCGS, our predecessor corporation to acquire Lyn F. Knight Rare Coins, Inc., Kingswood Coin Auctions, LLC and minority interests in two majority owned subsidiaries of PCGS. The primary purposes of these acquisitions were to expand the variety of collectibles that we sell, bring us additional expertise from the former owners of those businesses (who will continue to manage the acquired businesses for us), and add to our customer base and sources of supply. In the reorganization, we paid $2.1 million in cash to the owners of the acquired companies and issued to the owners of our predecessor and the acquired companies an aggregate of approximately 19 million shares of our common stock. Certain officers and directors of Collectors Universe also were owners of Kingswood Coin Auctions and as a result, received a proportionate share of the consideration that was payable to the Kingswood Coin Auctions' owners in the reorganization. See "Certain Transactions."
Prior to the reorganization, PCGS was an S corporation for federal and state income tax purposes. Individual owners of an S corporation are obligated to pay taxes on their proportionate share of the earnings of the S corporation. In anticipation of the reorganization, one of the effects of which would be to cause a termination of PCGS' S corporation status, PCGS declared an S corporation dividend to its stockholders on January 24, 1999. This dividend was in the aggregate amount of $2.2 million and represented a substantial portion, but not all, of the accumulated earnings of PCGS that had been taxable to the PCGS stockholders individually. The S corporation dividend was paid by delivery of promissory notes to the PCGS stockholders. Those notes were paid with proceeds from the sale of shares in the March 1999 private placement.
USE OF PROCEEDS
We estimate that the net proceeds to us from the sale of the shares of common stock offered by this prospectus will be approximately $ million ($ if the underwriters' over-allotment option is exercised in full), at an assumed initial public offering price of $ per share, and, after deducting the underwriting discounts and commissions and estimated offering expenses payable by us. The principal purposes of this offering are:
- to increase our advertising and marketing programs;
- to provide working capital for purchases of collectibles for resale in our auctions; and
- for other general corporate purposes. In addition, we may use a portion of the net proceeds to acquire or invest in complementary businesses, technologies, services or products. However, we currently have no commitments or agreements with respect to any such transactions.
As of the date of this prospectus, we cannot specify with certainty the particular uses for the net proceeds to be received upon completion of the offering. Accordingly, our management will have broad discretion in the application of the net proceeds.
Until used, the net proceeds will be invested in short-term investment-grade investments, certificates of deposit or direct or guaranteed obligations of the U.S. government.
DIVIDEND POLICY
We do not intend to declare or pay cash dividends in the foreseeable future. Our current policy is to retain all earnings to support future growth and expansion.
CAPITALIZATION
The following table sets forth our capitalization at June 30, 1999 adjusted to give pro forma effect to the sale of shares of common stock being offered by us at an assumed initial public offering price of $ per share after deducting underwriters' discount and estimated offering expenses to be paid by us:
AT JUNE 30, 1999
----------------------
ACTUAL AS ADJUSTED
------- -----------
(IN THOUSANDS)
Stockholders' equity:
Preferred stock, $.001 par value; 3,000,000 shares
authorized; no shares issued and outstanding........... $ -- $ --
Common stock, $0.001 par value, 30,000,000 shares
authorized; 20,281,800 shares issued and outstanding
(actual); shares issued and outstanding (as
adjusted)(1)........................................... 20 --
Additional paid-in capital.................................. 10,614 --
Retained deficit............................................ (1,185) --
------- -------
Total stockholders' equity............................. 9,449 --
------- -------
Total capitalization................................... $ 9,449 $ --
======= =======
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(1) Excludes 2,106,000 shares of common stock issuable pursuant to the exercise of stock options and warrants outstanding as of June 30, 1999, at a weighted average exercise price of $3.53 per share, 1,069,000 of which have become exercisable.
DILUTION
At June 30, our 1999 net tangible book value was approximately $ or $ per share. Net tangible book value per share represents the amount of our total tangible assets less total liabilities divided by the number of shares of common stock outstanding at June 30, 1999.
Net tangible book value dilution per share represents the difference between the amount per share paid by purchasers of shares of common stock offered by this prospectus and the net tangible book value per share of common stock immediately after completion of the offering. After giving effect to the sale of the shares of common stock at an assumed initial public offering price of $ per share and deducting the underwriting discount and commission and estimated offering expenses payable by us, our net tangible book value at June 30, 1999 would have been $ or $ per share. This represents an immediate increase in net tangible book value of $ per share to existing stockholders and an immediate dilution in net tangible book value of $ per share to new investors purchasing common stock offered by this prospectus. These changes are illustrated in the following table:
Assumed initial public offering price per share............. $
Net tangible book value per share at June 30, 1999........ $
Increase per share attributable to new investors..........
-----
Net tangible book value per share after this offering.......
-----
Dilution per share to new investors......................... $
=====
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The following table summarizes the difference between the existing stockholders and the purchasers of shares of common stock offered by this prospectus. This table uses an assumed price of $ per share, with respect to the number of shares purchased from us, the total consideration paid and the average price per share paid.
TOTAL
SHARES PURCHASED(1) CONSIDERATION(2)
------------------- ------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
-------- ------- -------- ------- -------------
Existing Stockholders............ % $ % $
New Investors....................
-------- --- -------- ---
Total....................... 100% 100%
======== === ======== ===
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(1) The number of shares excludes 2,106,000 shares of common stock issuable pursuant to the exercise of stock options outstanding as of June 30, 1999, at a weighted average exercise price of $3.53 per share, 1,069,000 of which are exercisable. To the extent options are exercised, there will be further dilution to new investors. See "Management -- Employee Benefit Plans" and Note 10 to the Consolidated Financial Statements.
(2) Does not reflect any deductions for commissions or expenses paid or incurred in connection with the issuance of such shares of common stock.
SELECTED CONSOLIDATED FINANCIAL DATA
The consolidated statements of income data and balance sheets data for each of the fiscal years shown below include the operations of Collectors Universe Inc. and its predecessor, Professional Coin Grading Service, Inc. The consolidated statements of income data for the fiscal year ended, and balance sheet data at June 30, 1999, also include the operations of Lyn F. Knight Rare Coins, Inc. and Kingswood Coin Auctions, LLC from February 5, 1999, when those operations were acquired by Collectors Universe. The consolidated statements of income data for each of the fiscal years in the three years ended June 30, 1999, and the balance sheets data at June 30, 1998 and 1999 are derived from consolidated financial statements that have been audited by Deloitte & Touche LLP, independent accountants, and are contained elsewhere in this prospectus. The consolidated statements of income data for the fiscal years ended June 30, 1995 and 1996, and the balance sheets data at June 30, 1995, 1996 and 1997 are derived from consolidated financial statements that also have been audited but are not contained in this prospectus. The following data should be read in conjunction with our consolidated financial statements and the related notes thereto and "Management's Discussion and Analysis of Financial Condition and Results of Operations" included elsewhere in this prospectus.
FISCAL YEAR ENDED JUNE 30,
--------------------------------------------
1995 1996 1997 1998 1999
------ ------ ------ ------- -------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
CONSOLIDATED STATEMENTS OF INCOME DATA:
Net revenues........................................ $9,265 $8,432 $9,393 $10,989 $22,563
Cost of revenues.................................... 2,451 2,623 2,651 2,915 8,654
------ ------ ------ ------- -------
Gross profit........................................ 6,814 5,809 6,742 8,074 13,909
Operating expenses:
Supplier compensation cost(1)..................... -- -- -- -- 585
Selling, general and administration............... 3,853 5,277 6,228 7,168 13,287
------ ------ ------ ------- -------
Total operating expenses....................... 3,853 5,277 6,228 7,168 13,872
Operating income.................................... 2,961 532 514 906 37
Other income (expense):
Interest income (expense), net...................... (62) 72 33 26 30
Minority interest................................... -- (11) (6) (46) (28)
------ ------ ------ ------- -------
Total other income (expense)................... (62) 61 27 (20) 2
------ ------ ------ ------- -------
Income before provision (benefit) for income
taxes............................................. 2,899 593 541 886 39
Provision (benefit) for income taxes(2)............. 43 9 36 13 (348)
------ ------ ------ ------- -------
Historical net income(3)............................ $2,856 $ 584 $ 505 $ 873 $ 387
====== ====== ====== ======= =======
Historical net income per share, basic and
diluted........................................... $ 0.18 $ 0.04 $ 0.03 $ 0.05 $ 0.02
====== ====== ====== ======= =======
Weighted average shares outstanding:
Basic............................................. 16,565 16,154 16,217 16,064 17,644
Diluted........................................... 16,565 16,154 16,217 16,064 18,765
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FISCAL YEAR ENDED JUNE 30,
--------------------------------------------
1995 1996 1997 1998 1999
------ ------ ------ ------- -------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
SUPPLEMENTAL DATA(4):
Historical income before provision for income
taxes............................................. $2,899 $ 593 $ 541 $ 886 $ 39
Supplemental provision for income taxes(5).......... 1,160 237 216 354 16
------ ------ ------ ------- -------
Supplemental net income............................. $1,739 $ 356 $ 325 $ 532 $ 23
====== ====== ====== ======= =======
Supplemental net income per share, basic and
diluted........................................... $ --
=======
Weighted average shares outstanding:
Basic............................................. 17,644
Diluted........................................... 18,765
=======
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AT JUNE 30,
--------------------------------------------
1995 1996 1997 1998 1999
------ ------ ------ ------- -------
(IN THOUSANDS)
CONSOLIDATED BALANCE SHEETS DATA:
Cash and cash equivalents........................... $2,312 $ 542 $ 372 $ 612 $ 1,852
Working capital..................................... (51) 50 346 975 2,330
Total assets........................................ 5,114 2,075 2,513 3,104 14,898
Short-term debt..................................... 1,550 -- -- -- --
Total stockholders' equity.......................... 2,487 861 1,070 1,562 9,449
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(2) In each of the fiscal years in the four year period ended June 30, 1998, a provision for income taxes was made for California state franchise taxes payable at a rate of 1.5% on the income of California S corporations. The amount of the provision for fiscal 1999 includes both a provision for such California franchise tax for the period from July 1, 1998 to February 5, 1999 and a provision for federal and state corporate income taxes after February 5, 1999, when we became a C corporation for income tax purposes.
(3) Historical net income is not comparable for all periods shown. Prior to February 5, 1999, we were not taxable as an entity because stockholders had elected to be taxed individually based upon their percentage ownership of the outstanding stock.
(4) Supplemental income data presents income taxes computed as if we were subject to federal and state income taxes for fiscal years ended June 30, 1995 through June 30, 1999. See Note 2 to Consolidated Financial Statements.
(5) Amounts reflect adjustments for federal and state income taxes as if we had been taxed as a C corporation rather than an S corporation during all of the fiscal years presented above.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
You should read this section in combination with "Selected Financial Data" and our consolidated financial statements and the notes thereto included elsewhere in this prospectus. In addition to the historical information in this section, this prospectus contains forward-looking statements that involve risks and uncertainties which could cause our actual results to differ, possibly materially, from our historical and anticipated results. Factors that could cause or contribute to such differences include those discussed in the section of the prospectus entitled "Risk Factors."
OVERVIEW
Collectors Universe provides authentication and grading services for rare coins and sportscards and authentication services for autographs. In most instances, fees for authentication and grading services are prepaid. We also conduct Internet, telephone and in-person auctions of rare coins, sportscards, sports memorabilia, rare currency, rare records and other high-end collectibles. See "Business." Collectibles constituting approximately 70% of the aggregate sales prices of collectibles sold at our auctions are consigned to us by third parties and we receive commissions, usually from both sellers and buyers, when the consigned collectibles are sold. The remaining 30% have been purchased by us and upon resale we record the sales prices of those collectibles as revenues.
It is our practice to extend discounts to qualified coin dealers that submit rare coins to us for authentication and grading. Those discounts are deducted from our gross revenues to arrive at net revenues. In fiscal 1999, these discounts declined as a percentage of gross revenues because of an increase in sportscard authentication and grading submissions on which we do not extend discounts and an increase in auction revenues that grew at a greater rate than did authentication and grading revenues.
The gross margin on sales of consigned collectibles is significantly higher than the gross margin on sales of purchased collectibles, because we realize commissions on sales of consigned collectibles without having to incur any significant associated costs. By contrast, upon the sale of purchased collectibles, we record the costs of acquiring those collectibles which are usually a significant percentage of the selling price. As a result, the sale of purchased collectibles reduces our overall auction margins to a level that is below that realized for authentication and grading services. Consequently, our gross margin in future periods will depend not only upon the mix of auction revenues and grading revenues, but also upon the mix of consigned and purchased collectibles sold at auction.
Collectors Universe was organized to enable PCGS, its predecessor corporation, to acquire additional businesses engaged in providing services to the collectibles markets. See "The Reorganization." On February 5, 1999, we acquired the currency auction business of Lyn F. Knight Rare Coins, Inc. ("Lyn Knight") and the coin auction business of Kingswood Coin Auctions, LLC ("Kingswood"). These acquisitions were accounted for under the purchase method of accounting and, accordingly, their operating results are included in our financial statements only for periods from the date of acquisition. On February 5, 1999, we also acquired the minority interests in two majority owned subsidiaries of PCGS the results of which were consolidated in our financial statements with appropriate minority interests accounting to the date of acquisition. See Note 3 to Consolidated Financial Statements.
Prior to these acquisitions, PCGS was an S corporation for federal and state income tax purposes. It ceased to be an S corporation and became a C corporation on February 5, 1999 with the completion of the reorganization. In January 1999, while still an S corporation, PCGS declared a
dividend payable to its stockholders in an aggregate amount of $2.2 million, which represented a substantial portion of S corporation accumulated earnings that were taxed or taxable to PCGS' stockholders individually. The dividend was paid in cash in April 1999.
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, certain financial data expressed as a percentage of net revenues:
FISCAL YEARS ENDED JUNE 30,
-----------------------------
1997 1998 1999
------- ------- -------
Net revenues................................................ 100.0% 100.0% 100.0%
Cost of revenues............................................ 28.2 26.5 38.4
----- ----- -----
Gross profit................................................ 71.8 73.5 61.6
Operating expenses:
Supplier compensation cost................................ -- 2.6
Selling, general & administrative expenses................ 66.3 65.3 58.9
----- ----- -----
Total operating expenses............................... 66.3 65.3 61.5
----- ----- -----
Operating income............................................ 5.5 8.2 0.1
Interest income, net........................................ 0.4 0.2 0.1
Minority interest........................................... (0.1) (0.4) (0.1)
----- ----- -----
Income before provision (benefit) for income taxes.......... 5.8 8.0 0.1
Provision (benefit) for income taxes(1)..................... 0.4 0.1 (1.6)
----- ----- -----
Net income.................................................. 5.4% 7.9% 1.7%
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COMPARISON OF YEARS ENDED JUNE 30, 1999, 1998 AND 1997
NET REVENUES. Net revenues increased 105% to $22.6 million in fiscal 1999 from $11.0 million in the prior year. Authentication and grading revenues for coins and sportscards increased 84% to $17.7 million in fiscal 1999 from $9.6 million in fiscal 1998 primarily due to significantly higher sportscard authentication and grading submittals. Auction revenues increased 250% to $4.9 million in fiscal 1999 from $1.4 million in fiscal 1998. This increase was attributable to an increase in the number of collectibles auctions we conducted, particularly Internet auctions, and an increase in the number of collectibles sold at each of our auctions. Also contributing to higher auction revenues for fiscal 1999 were auctions conducted by Lyn Knight and Kingswood subsequent to their acquisitions.
Net revenues increased 17% to $11.0 million in fiscal 1998 from $9.4 million in fiscal 1997. This increase was primarily attributable to an increase in authentication and grading revenues for
sportscards and, to a lesser extent, for coins, and an increase in revenues from auctions of rare records.
GROSS PROFIT. Gross profit increased by 72% to $13.9 million in fiscal 1999 from $8.1 million in fiscal 1998. This increase was largely attributable to an increase in net revenues both from authentication and grading services and auctions and an increase in margins realized on authentication and grading services. As a percentage of net revenues gross margin declined to 61.6% in fiscal 1999 from 73.5% in fiscal 1998. This decrease is primarily attributable to the increase, as a percentage of total revenues, in auction sales of purchased collectibles on which we realize lower margins than on our sales of consigned collectibles. Partially offsetting the lower gross margin on auction sales in fiscal 1999 was an increase in the gross margin that we realized on revenues generated from authentication and grading services.
In fiscal 1998, gross profit as a percent of net revenues increased to 73.5% in fiscal 1998 from 71.8% in fiscal 1997. This increase was principally related to higher authentication and grading revenues, which enabled us to achieve economies in providing those services.
SUPPLIER COMPENSATION EXPENSE. In fiscal 1999, we incurred a non-cash expense of $585,000 that was attributable to grants of stock options to experts for their agreements to supply collectibles or content over multi-year periods.
SELLING, GENERAL AND ADMINISTRATION. Selling, general and administration ("SG&A") expenses primarily include wages and payroll related expenses, advertising and promotional expenses, travel and entertainment costs, facility rental expenses and security related charges. SG&A increased 85% to $13.3 million in fiscal 1999, as compared with $7.2 million in fiscal 1998. We increased expenditures to enhance the look and the functionality of our Internet website. We also added to our management and upgraded information systems to support the growth of our authentication and grading and auction businesses. However, as a percentage of net revenues, SG&A expenses declined to 58.9% in fiscal 1999 as compared with 65.3% in fiscal 1998.
SG&A expenses increased to $7.2 million in fiscal 1998, from $6.2 million in the prior fiscal year, primarily because of increased expenditures to enhance our Internet website and increases in the number of auctions conducted in fiscal 1998. As a percentage of net revenues, SG&A expenses declined slightly in fiscal 1998 to 65.3% from 66.3% in fiscal 1997.
Subsequent to June 30, 1999, we entered into a lease for a new 54,000 sq. ft. facility that will consolidate all California-based operations in April 2000. We anticipate that SG&A expense, following the move, will be higher due to increased rent we will be paying under the new lease as compared with the rent that we are paying under our current leases. We also expect to incur relocation costs. See "Business -- Facilities" and Note 12 to the Consolidated Financial Statements contained elsewhere in this prospectus.
MINORITY INTEREST. During fiscal 1999, we acquired the minority ownership interests in two businesses in which we were the majority owners, making those businesses wholly owned subsidiaries. Under applicable accounting principles, for periods prior to our acquisition of those minority interests, we included the operating results of those businesses, in their entirety, in our consolidated statements of income, and then reduced our consolidated income by the minority owners' share of those earnings.
INCOME TAXES. The provision for income taxes in fiscal 1997 and 1998 are attributable to a California franchise tax of 1.5% on the earnings of our predecessor S corporation. For periods from February 5, 1999, our income tax liability was determined on the basis of the applicable federal and state corporate rates at which C corporations are taxed. As a result, the provision for fiscal 1999 included both a provision for California franchise tax at 1.5% and federal and state corporation
income taxes at applicable C corporation tax rates. The tax benefit of $348,000 recorded in fiscal 1999 was attributable to deferred tax assets recorded on our conversion to a C corporation and losses from operations incurred subsequent to that conversion.
QUARTERLY RESULTS OF OPERATIONS AND SEASONALITY
The following table presents unaudited quarterly financial information for each of the eight quarters beginning September 30, 1997 and ending on June 30, 1999. The information has been prepared by us on a basis consistent with our audited financial statements appearing elsewhere in this prospectus. The information includes all necessary adjustments (consisting only of normal recurring adjustments) that management considers necessary for a fair presentation of the unaudited quarterly results when read in conjunction with the consolidated financial statements and the notes thereto appearing elsewhere in this prospectus. These operating results are not necessarily indicative of results that may be expected for any subsequent periods. See "Risk Factors -- Our future operating results are subject to fluctuations."
QUARTER ENDED
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SEPT. 30, DEC. 31, MAR. 31, JUNE 30, SEPT. 30, DEC. 31, MAR. 31, JUNE 30,
1997 1997 1998 1998 1998 1998 1999 1999
--------- -------- -------- -------- --------- -------- -------- --------
(IN THOUSANDS)
Net revenues........................... $2,475 $ 2,575 $ 2,780 $ 3,159 $3,957 $4,194 $6,193 $ 8,219
Cost of revenues....................... 646 712 719 838 1,337 1,515 1,869 3,933
------ -------- -------- -------- ------ ------ ------ -------
Gross profit........................... 1,829 1,863 2,061 2,321 2,620 2,679 4,324 4,286
Operating expenses..................... 1,545 2,095 1,614 1,914 2,378 2,737 3,543 5,214
Operating income (loss)................ 284 (232) 447 407 242 (58) 781 (928)
Interest income (expense), net......... 5 8 4 9 6 7 (13) 30
Minority interest...................... (51) (35) (9) 49 (32) (12) 16 --
------ -------- -------- -------- ------ ------ ------ -------
Income (loss) before provision
(benefit) for income taxes........... 238 (259) 442 465 216 (63) 784 (898)
Provision (benefit) for income taxes... -- 16 -- (3) 3 (1) 108 (458)
------ -------- -------- -------- ------ ------ ------ -------
Net income (loss)...................... $ 238 $ (275) $ 442 $ 468 $ 213 $ (62) $ 676 $ (440)
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We have experienced and expect to continue to experience quarterly variations in our net revenues as a result of a number of factors, including the number and size of the premium auctions that we conduct, the dates of major coin and sports conventions at which we authenticate and grade coins and sportscards submitted by persons attending those conventions, overall increases in authentication and grading submittals and expansion of our e-commerce website, www.collectors.com. In addition, it has been our experience that authentication and grading submissions also tend to be somewhat lower in the holiday period between Thanksgiving and New Year's Day, than during other periods of the year.
LIQUIDITY AND CAPITAL RESOURCES
Prior to fiscal 1999, we financed our operations and capital requirements through cash flows generated from operations. In fiscal 1999, we sold approximately 1.3 million common shares in a private placement and raised net proceeds of $6.4 million. Proceeds from this private placement were used to fund the PCGS cash dividend declared prior to the reorganization, to extinguish debt incurred
for the acquisitions completed in fiscal 1999 and to provide additional working capital to fund the growth of our business. Working capital was $2.3 million at June 30, 1999 and $975,000 at June 30, 1998.
Cash provided by operating activities was $823,000 in fiscal 1998 compared with $811,000 in fiscal 1999. In fiscal 1999, cash was used primarily to fund increases in accounts receivable and purchases of collectibles for purposes of resale at our auctions, whereas cash was provided by increases in accounts payable and in deferred revenue. In fiscal 1999, we used $1.5 million of cash for investing activities, including funds used for the fiscal 1999 acquisitions and for computer related capital expenditures. We expect capital expenditures to be approximately $1.0 million in fiscal 2000. However, we will be relocating to a new facility during the fourth fiscal quarter of fiscal 2000 and it may become necessary to fund a portion of the tenant improvements and other relocation costs in connection with that move. See "Business -- Facilities."
The private placement of shares, completed in March 1999, provided cash in the amount of $6.4 million. We used $2.6 million of cash to pay the S corporation dividend declared by PCGS in fiscal 1999. We currently do not have a credit facility and, therefore, we do not have any borrowing availability.
We believe that the net proceeds from the sale of common stock in this offering, existing cash balances and internally generated funds will be sufficient to fund our operations and financing requirements for at least the next twelve months. However, the amount of our cash requirements will be affected by several factors, including our growth rate, the need to increase collectibles inventories for our auctions and capital expenditures to enhance the capacity and functionality of our computer systems. Depending on our growth and cash requirements, we may require additional financing in the future through conventional bank financing or sales of debt or equity securities. Such financing may or may not be available or may be dilutive. Our ability to obtain additional financing will depend on our operating results, financial condition, future business prospects and conditions then prevailing in the relevant capital markets.
At June 30, 1999, we had a retained deficit of approximately $1.2 million because of S corporation dividends and a deemed distribution of $550,000 representing the portion of the cash consideration received in the Kingswood acquisition by certain members of Kingswood who are stockholders of Collectors Universe.
YEAR 2000 ISSUE
Many currently installed computer systems and software products are dependent upon internal calendars. However, most of those systems and products were coded to accept only two digit entries in the date code field. As a result, unless those computer software systems and products are upgraded or modified to accept four digit entries in their date code fields (that is, made Y2K compliant), computer errors and failures could occur when processing date sensitive information beginning with the year 2000 (Y2K).
We have developed and use certain proprietary software, in the grading of rare coins and sportscards that is not yet Y2K compliant. We expect to complete the required modifications to make those products Y2K compliant and to complete verification testing by the end of October 1999. We estimate that the cost to make our proprietary software Y2K compliant will be approximately $50,000. Nevertheless, in the event that we encounter any disruptions in the operation of that software due to Y2K issues, we believe our coin and sportscard graders have sufficient knowledge, skills and experience to continue providing grading services without the operation of our computerized grading system until those issues are resolved. However, during such a period, the time required to
grade coins and sportscards would increase and, as a result, we would experience a reduction of our revenues.
In addition to our internally developed software, we utilize software and hardware developed by third parties for both our network and internal information systems. To date, we have not performed any testing of these third party software products to determine Y2K compliance. We have, however, obtained a "statement of Year 2000 compliance" or other forms of assurance of Y2K compliance, from our most important third party providers.
We rely on third party network infrastructure providers to gain access to the Internet. In a reasonable worst case scenario, if such providers experienced business interruptions as a result of any Y2K issues, our ability to maintain access to and the functionality of our website could be impaired, which could require us to incur unanticipated expenses and disrupt our auction business and our ability to process customer credit card transactions. Such expenses and disruptions could have a material adverse effect on our business, results of operations and financial condition. We do not presently have a contingency plan in place if one of our third party providers, such as Internet backbone providers, should experience system failure due to failure to comply with year 2000 issues, and we do not intend to establish such a contingency plan.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the FASB issued SFAS No. 131, "Disclosure About Segments of an Enterprise and Related Information" ("SFAS No. 131"). SFAS No. 131 establishes standards for the way companies report information about operating segments in annual financial statements. It also establishes standards for related disclosure about products and services, geographic areas and major customers. We adopted SFAS No. 131 on July 1, 1998. We conduct our business activity principally in two service segments: the authentication and grading of collectibles and auctions of collectibles.
In June 1998, the FASB issued SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities (SFAS No. 133), which the Company is required to adopt effective for its fiscal year beginning July 1, 2000. SFAS No. 133 will require the Company to record all derivatives on the balance sheet at fair value. We do not have any derivative instruments nor do we engage in hedging activities. Therefore, the adoption of SFAS No. 133 is not expected to have an impact on our financial position, results of operations or cash flows.
In March 1998, the Accounting Standards Executive Committee issued Statement of Position No. 98-1 or SOP 98-1, "Accounting for the Costs of Computer Software Developed or Obtained for Internal Use," which provides guidance on accounting for the cost of computer software developed or obtained for internal use. SOP 98-1 is effective for financial statements for fiscal years beginning after December 15, 1998. We are is currently evaluating the impact of SOP 98-1 on our financial statements and related disclosures.
BUSINESS
COLLECTORS UNIVERSE
Collectors Universe is the leading full-service provider of value-added services to dealers and collectors of coins, sportscards, sports memorabilia, rare currency and rare records. We authenticate and grade the quality of coins and sportscards, authenticate autographs and memorabilia, compile and publish authoritative information and conduct traditional and Internet-based auctions. We charge fees for authentication and grading services, earn proceeds from the sale of our own inventory of collectibles and receive revenues from our auctions in the form of agent commissions from buyers and sellers.
We have established the preeminent brand names in coin grading
(Professional Coin Grading Service or PCGS), sportscard grading (Professional
Sports Authenticator or PSA), rare currency auctions (Lyn Knight Currency
Auctions) and rare record auctions (Good Rockin' Tonight). We also have
established widely recognized brand names in sportscard auctions (Superior
Sports Auctions), autograph authentication and collectible certification
(PSA/DNA Authentication Services), rare coin auctions (Kingswood Coin Auctions)
and Internet coin auctions (Coin Universe).
We believe we have developed an unequaled reputation for the accuracy of our authentication and grading services within the collectibles markets we serve. The reputation and breadth of our value-added services provide collectors and dealers with the confidence to buy and sell high-end collectibles without physical inspection (commonly referred to as sight-unseen) through telephone and Internet auctions. We offer dealers and collectors a full-service solution that provides answers to the following questions:
- "Is it real?" We authenticate collectible coins, sportscards and autographs to confirm that they are genuine.
- "What's the quality?" We grade the quality of collectible coins and sportscards in accordance with consistently applied uniform standards.
- "What's the value?" We compile and publish price guides, rarity reports, market indices and other authoritative content regarding collectibles that enable buyers and sellers to make more informed decisions.
- "How do I buy or sell it?" As an increasing part of our business, we conduct integrated multi-venue auctions that enable buyers and sellers of high-end collectibles to participate in simultaneous Internet, telephonic and in-person auctions.
At our website, www.collectors.com, collectors and dealers access our authoritative information on collectibles and buy and sell collectibles at our premium and weekly auctions. We currently have approximately 90,000 users who are approved to participate in our Internet auctions. Visitors to our website spend an average of 14 minutes per visit.
INDUSTRY BACKGROUND
DEVELOPMENT OF COLLECTIBLES MARKETS. The sight-unseen market for high-end coins was practically non-existent prior to the development of consistently applied uniform quality grading standards. Previously, buyers needed to actually see a coin before purchase to determine whether its quality justified the asking price. Even when buyers could view coins before purchase, they often lacked the knowledge to determine, with confidence, the authenticity or quality of a coin. As a result, a system for grading coins developed among dealers by which they used either descriptive terms, such as "uncirculated," "brilliant uncirculated" and "gem brilliant uncirculated," or a numerical scale
ranging from 1-70 (with higher numbers denoting a higher quality). However, whether using a descriptive or numeric system, grading varied significantly from dealer to dealer, depending on a dealer's subjective criteria. Moreover, dealers were hardly disinterested or independent since, as the buyers or sellers of the coins they were grading, they stood to benefit financially from the assignment of a particular grade. As a result, grading standards were often inconsistently applied and many collectors were vulnerable to fraudulent practices. These conditions severely limited the growth of the rare coin market and created a barrier to the participation of new collectors who lacked the expertise necessary to buy and sell with confidence.
In response to these conditions, in 1986 we pioneered the practice of employing expert graders who were independent of the buyers and sellers of coins, thereby providing impartiality in the grading process. We established consistent standards of quality measured against an actual "benchmark" set of coins kept at our office, and we provided a warranty as to the accuracy of our authentication and grading. We placed each graded coin in a tamper-evident holder, so that any prospective buyer would know that it is a PCGS authenticated and graded coin.
As a result, dealers were able to trade PCGS graded coins sight-unseen and an electronic teletype network called the Certified Coin Exchange developed and was used by dealers to buy and sell rare coins electronically before the Internet became viable. In addition, we began to provide a range of authoritative content on coin collecting to inform and communicate with the collector community including guides that tracked the price and rarity of PCGS graded coins.
In the sportscard market, misrepresentations of authenticity and quality were also a barrier to market growth. Using the skills and credibility we established with PCGS in the coin market, we pioneered a similar authentication and grading system for sportscards. Our authentication and grading services improved the marketability of sportscards by removing the barrier created by misrepresentations of authenticity or quality. The sportscard market continuously creates new collectibles as card companies produce new cards and variations. Moreover, athletes create interest or they achieve new records and milestones. Each time an athlete establishes a new record or rises in popularity, demand for authentication and grading for that athlete's cards increases. Although the most valuable cards are the vintage cards from players such as Mantle, DiMaggio and Ruth, modern cards have become very popular as collectors try to obtain the cards of new generations of stars.
We believe that today the markets for autographs, records, stamps and other collectibles are positioned much like coins and sportscards were positioned prior to the establishment of accepted authentication and grading practices. As buying and selling of collectibles over the Internet becomes more common, we believe that there will be increased demand for authentication and grading services and that collectors will be willing to pay a premium for collectibles that have been authenticated and graded.
The number and dollar value of transactions in all the collectibles markets we serve are not easily ascertainable. However, we estimate the annual dollar value of transactions for certain collectibles markets as follows:
MARKET MARKET SIZE
------ -------------
Modern commemorative and gold coins......................... $20.0 billion
Rare coins (U.S. only)...................................... $ 1.0 billion
Sports sportscards and other sport memorabilia.............. $ 0.5 billion
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GROWTH OF INTERNET COMMERCE AND THE ONLINE AUCTION MARKETPLACE. Dealers and collectors have traditionally used classified advertisements, collectibles shows, auction houses, local dealer shops,
garage sales and flea markets to purchase and sell collectibles. These markets are highly inefficient because:
- they are fragmented and local in nature, which limits the variety of items available and makes it difficult and expensive for buyers and sellers to meet;
- buyers often lack the information needed to determine the quality or value of the goods being sold; and
- transaction costs for any single transaction are often relatively high due to the number of intermediaries involved.
The Internet offers an opportunity to create a compelling global marketplace that overcomes the inefficiencies associated with these traditional trading forums while offering the benefits of Internet-based commerce. An Internet-based trading market facilitates the listing of items for sale, the exchange of information, the interaction of buyers and sellers and ultimately the consummation of transactions. The Internet also offers significant convenience, allowing trading at all hours and providing continually-updated information. As evidenced by the increasing number of auction transactions conducted over the Internet, we believe that the Internet has been accepted as a valid forum for conducting auctions.
However, particularly with respect to high-end collectibles, Internet commerce raises concerns about the authenticity of items, the credibility of buyers and sellers, the legitimacy of bids and the delays and risks involved in the shipment of collectibles to buyers and in the payment of sales proceeds to sellers.
THE HIGH-END COLLECTIBLES MARKET OPPORTUNITY
We believe that the high-end collectibles market will continue to grow as a result of increased nostalgia for memorabilia, an increase in leisure and disposable income, the desirability of owning collectibles and investor confidence that collectibles will appreciate in value. We also believe that the convenience and efficiency of the Internet will stimulate further substantial growth in the high-end collectibles market. It is also our view that this growth is dependent upon the availability of reliable authentication and grading services, authoritative information necessary to value collectibles and a trading forum that enables buyers and sellers of collectibles to maximize the value of their collectibles. As the leading provider of these services to the collectibles markets, we have the opportunity to benefit directly from such growth in terms of increased demand for our services.
THE AUTHENTICATION REQUIREMENT. Dealers and collectors demand to know that the high-end collectibles they are buying are genuine. The expertise, impartiality, credibility and reputation of an authenticator are critical to the willingness of buyers to purchase high-end collectibles sight-unseen. This is particularly important for collectibles which are more easily forged and counterfeited, such as autographs.
THE GRADING REQUIREMENT. Quality is a key factor in determining value. In order to determine a collectible's quality collectors need consistently applied uniform grading standards as well as assurances that collectibles have not been tampered with or artificially enhanced. For example, on our PSA scale from 1 to 10, a 1952 Mickey Mantle baseball card graded PSA 8 recently sold for $31,050, while the same card graded PSA 10 recently sold for $160,000. The expertise, impartiality, credibility and reputation of the organization grading the collectible is therefore critical to the willingness of buyers to purchase high-end collectibles sight-unseen.
THE INFORMATION REQUIREMENT. Access to authoritative information, compiled by a credible third party, is critical to enable buyers and sellers to make informed decisions regarding the value of collectibles. Before completing a transaction, collectors use this information to assess the characteristics that affect the value of a collectible, including:
- rarity;
- historical and recent selling prices;
- quality or grades; and
- the identification of sets and series of collectibles, such as sportscards of baseball Hall of Fame pitchers.
Therefore, we believe informed buyers and sellers are crucial to the development and maintenance of a strong and efficient collectibles marketplace. Additionally, information about the origins of a collectible, or about the people and events with which a collectible is associated, enhances its marketability and value and increases the enjoyment of the collecting experience for both buyers and sellers.
THE COMMERCE REQUIREMENT. Dealers and collectors need a readily available and dependable marketplace within which to purchase and sell their collectibles sight-unseen. Traditionally, the exchange of goods between individuals has been conducted through inefficient trading forums such as classified advertisements, collectibles shows, auction houses, local dealer shops, garage sales and flea markets. The Internet has enabled the creation of a much more efficient and less costly market for collectibles that is far more accessible, particularly to private collectors, than traditional markets. Despite the accessibility of these new markets, dealers and collectors who buy and sell over the Internet still have concerns with respect to the authenticity of collectibles, the credibility of participants, the legitimacy of bids, the delays and risks involved in the shipment of collectibles to buyers and in the payment of sales proceeds to sellers.
THE COLLECTORS UNIVERSE SOLUTION
We believe that we provide the leading full-service solution for buyers and sellers of high-end collectibles. We also believe that the number of items, participants and transactions in the collectibles markets will increase to the extent that the authentication, grading, information and commerce requirements are addressed. Our services provide collectors and dealers with authentication, grading and authoritative information in addition to multi-venue auctions of an extensive selection of high-end collectibles.
Our authentication and grading services provide a collector with confidence that the collectible is genuine and that its quality is as represented. When combined with the scarcity and pricing information that we compile and publish, our services substantially eliminate the need to personally inspect collectibles and facilitate their sale sight-unseen at prices approximating in-person auction prices. For example, The Coin Dealer Newsletter, a leading independent newspaper reporting on the collectibles coin market, has consistently reported over the past two years that, on average, coin dealers would purchase sight-unseen a coin graded by Collectors Universe for approximately 93% of the price that would be paid following the physical inspection of a coin of comparable quality, as compared with an average of approximately 80% for a coin authenticated and graded by our closest grading competitor and an average of no more than 67% for a coin authenticated and graded by any other of our major competitors.
Our full-service solution provides answers to the following fundamental questions commonly asked by collectors:
MARKET REQUIREMENT SOLUTION
------------------ --------
"Is it real?" We can determine whether your collectible is fake or
real.
"What's the quality?" We assign a grade to your collectible based upon
consistently applied uniform quality standards.
"What's the value?" We compile and publish price guides and rarity
reports which contain authoritative information
concerning rarity, historic and recent selling prices
and historical origins of collectibles.
"How do I buy or sell it?" We conduct auctions where you can buy or sell
collectibles in a multi-venue format with the benefit
of our information services.
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Our suite of services, content and commerce is intended to make the collecting experience exciting and memorable. The following flow chart illustrates the value-added services we provide to the collectibles community:
[FLOW CHART]
OUR BUSINESS STRATEGY
Our objective is to become the full-service marketplace of choice for high-end collectibles. To achieve this objective we intend to:
LEVERAGE OUR AUTHENTICATION AND GRADING LEADERSHIP TO INCREASE OUR AUCTION BUSINESS. Our leadership position in authentication and grading of high-end collectibles as well as our focus on providing a full complement of services allows us to attract serious collectors to our auctions. When we receive a collectible, we leverage this expertise to maximize value for the seller. These services include describing and photographing the item, marketing and creating catalogues, selecting an optimal auction venue, advertising and fulfillment (including escrow services) to ensure completion of transactions.
CROSS-SELL OUR SERVICES AND PRODUCTS TO OUR ESTABLISHED CUSTOMER BASE. Collectors who use our authentication or grading services often have a need for authoritative information or auctions. Additionally, our experience has shown that collectors of one kind of collectible frequently are interested in other types of collectibles. We therefore intend to cross-sell our services and products to our customer base of dealers and collectors.
PENETRATE OTHER COLLECTIBLES MARKETS. There are other high-end collectibles markets in which growth has been hampered due to the absence of independent authentication and grading services. We intend to use our reputation and expertise in authentication and grading to penetrate such markets. Recently, PSA/DNA inaugurated a program to certify the authenticity of autographs to enable dealers and collectors to trade autographs sight unseen. We also believe that authentication, grading and information services can be extended to other collectibles to attract new groups of collectors to use our services. In addition, we may choose to sublicense our DNA technology to help manufacturers authenticate their collectibles products.
EXPAND RECOGNITION OF THE COLLECTORS UNIVERSE(R)BRAND. We have established the preeminent brands within select collectibles markets, including PCGS, PSA, Lyn Knight Currency Auctions and Good Rockin' Tonight. We intend to use the reputations of these brands to promote Collectors Universe as the premier brand in the high-end collectibles industry. In addition, we are launching new services under our Collectors Universe brand name such as One-of-a-Kind auctions which are unique, create excitement and attract press coverage.
USE PROPRIETARY TECHNOLOGY TO EXPAND AND ENHANCE THE SERVICES WE PROVIDE. We intend to use new technologies, such as our exclusively licensed DNA authentication technology, to enhance our existing services and to facilitate the marketability of additional kinds of collectibles. The use of our DNA technology will also facilitate the identification of limited edition collectibles of all kinds. In addition, we have developed proprietary software which increases the efficiency and accuracy of our coin grading operations while reducing costs in the handling of consigned items.
SERVICES
We provide authentication and grading services to the coin and sportscard markets. In addition, we verify the authenticity of autographs and sports memorabilia. As an independent authenticator and grader of collectibles, we provide increased peace of mind for buyers and sellers, particularly those who buy and sell collectibles sight-unseen. The written warranty that we extend with each coin or sportscard that we authenticate or grade adds to the credibility of our services. Our expertise in grading and authenticating coins, sportscards, autographs and sports memorabilia provides us with both the capabilities and the credibility to penetrate other high-end collectibles markets.
PROFESSIONAL COIN GRADING SERVICE. Since our inception in 1986, we have graded more than 5.9 million coins with a declared insured value of more than $8.5 billion. We estimate that, based on the number of items submitted for authentication and grading in each of our last five fiscal years, we have captured approximately a 50% share of the coin authentication and grading market. We authenticate and grade approximately 40,000 coins per month and, depending on the customer's requested turnaround time, we typically charge between $12 and $40 per coin for this service. We have graded, either before or after sale, four of the five highest priced U.S. coins ever sold at public auction, including an 1804 silver dollar that was purchased for approximately $4.1 million. We also have been named as the official grading service of the Professional Numismatists Guild, the most prominent national coin dealer trade organization.
At PCGS, the grading of coins is a very exacting and standardized process. We receive coins from dealers and collectors and enter them into our proprietary computerized inventory system which
tracks the coins at every stage of the grading process. The coins are graded by experts with years of coin grading experience who follow our benchmarked grading standards. Coins enter the grading process without any markings that could identify the owner of the coin ensuring that our graders are completely objective. Graders also examine the coins independently from one another. Based upon the type of coin and the results of the grading process, our proprietary software determines whether additional graders will examine the coin to assign a final grade. The coin is then sonically sealed in our specially designed holder which also encases the grade, the description of the coin and the PCGS hologram and brand name. The coin, grade and description are then verified by one or more experts who have the authority to resubmit the coin for further review, if necessary. Only after the grading phase is complete is the coin reunited with its invoice, thus keeping the grading process independent of the identity of the owner and the history of the coin.
The number of coins submitted to us for authentication and grading over the
last two fiscal years is shown below.
[Number of Coins Graded by Fiscal Quarter graphic]
DECEMBER 31, MARCH 31, SEPTEMBER 30, DECEMBER 31, MARCH 31,
SEPTEMBER 30, 1997 1997 1998 JUNE 30, 1998 1998 1998 1999
------------------ ------------ --------- ------------- ------------- ------------ ---------
93325 100602 109198 125327 112516 122337 129645
SEPTEMBER 30, 1997 JUNE 30, 1999
------------------ -------------
93325 156957
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PROFESSIONAL SPORTS AUTHENTICATOR. We estimate that, based on the number of items submitted for authentication and grading in each of our last five fiscal years, we have captured approximately a 90% share of the sportscard authentication and grading market. We typically charge between $8 and $40 per card for this service, depending on the customer's requested turnaround time. We employ similar authentication and grading procedures and provide warranties of accuracy that are similar to the procedures employed and warranties given in authentication and grading of coins. In addition to baseball cards, we authenticate and grade football, hockey and basketball sportscards and other collectible cards.
The number of cards submitted to us for authentication and grading in the
past two fiscal years is shown below.
[Number of Cards Graded by Fiscal Quarter graphic]
DECEMBER 31, MARCH 31, SEPTEMBER 30, DECEMBER 31, MARCH 31,
SEPTEMBER 30, 1997 1997 1998 JUNE 30, 1998 1998 1998 1999
------------------ ------------ --------- ------------- ------------- ------------ ---------
28846 31434 47903 59415 96256 171657 291907
SEPTEMBER 30, 1997 JUNE 30, 1999
------------------ -------------
28846 339000
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PSA/DNA AUTHENTICATION SERVICES. The value of many sportscards, autographed items and other memorabilia is significantly dependent on the buyer's confidence as to the authenticity of the collectible. We offer buyers and sellers of these collectibles a service by which collectibles determined by us to be genuine can be permanently marked using a proprietary liquid containing synthetic DNA. The marking is invisible but can be viewed using a laser operating at a specified wavelength. We apply the DNA material to the collectible, along with a non-transferable serial number sticker. In addition, the owner is furnished with a certificate confirming the authentication by PSA/DNA.
In addition, when a collectible is marked in this manner, a computerized record is created identifying the collectible, the date of its authentication and the mark that was applied to it. As a result, a prospective buyer may contact us to verify the authenticity of the collectible before purchasing it. Mark McGwire's 70th home run baseball and Hank Aaron's 715th home run baseball and bat were authenticated by PSA/DNA using this DNA marker. We also plan to apply this DNA marker to each of the collectibles to be auctioned in our One-of-a-Kind auctions, including, for example, the basketball court where Michael Jordan took the last shot of his NBA career to win the 1998 NBA Championship.
The DNA marking process has been developed and patented by DNA Technologies, Inc., an unaffiliated company. In 1998, we obtained from DNA Technologies a six-year exclusive license (subject to limited exceptions and extensions) to use the synthetic DNA marking process for the authentication of items manufactured as collectibles and items which are more than one year old. DNA Technologies retained the rights to all other applications, including anti-counterfeiting measures such as the DNA marking of tickets and security passes at the 2000 Olympic Games in Australia.
Our license also allows us to sublicense this technology to others for authentication of collectibles, subject to the obligation to share any sublicensing revenue with DNA Technologies.
We also use our DNA technology to offer a "signed in the presence of" service as well as vintage autograph certification and vintage memorabilia authentication services, employing experts in handwriting recognition and memorabilia identification to certify authenticity.
CONTENT
Through our Internet site, www.collectors.com, and our other publications, we provide a broad range of authoritative information to the collector community.
PRICE GUIDES. We provide a wide variety of authoritative price guides for a number of collectible markets. For example, we track the value of the 3000 most actively traded U.S. coins with information dating back to 1970. We compile and publish this information in a widely recognized collectible coin index, the CU3000.
MARKET MOVEMENT REPORTS. Changes in prices are highlighted in market movement reports. This makes it possible for a card collector, for example, to quickly identify that certain cards have increased in value while others have dropped.
RARITY REPORTS. Three primary characteristics drive the market value of many collectibles: relative rarity, grade and significance to collectors. We compile and publish reports that list the total number of sportscards and coins we have graded since our inception in 1986, categorized by item type and grade determination. We can publish, for example, the exact number of MS67-grade 1881-S Morgan silver dollars we have graded. Collectors can utilize this information to make informed decisions regarding the purchase of particular coins.
ARTICLES. Collecting is a passion for many and has nuances and anecdotes that are well suited to a library of articles for each category of collectible. We write informative articles and publish them on our website. A sense of community is also important to collectors. We therefore encourage our users to communicate and to write articles that can be made available to all collectors.
HISTORICAL CONTENT. Collecting is often about history, and in many instances, the collectible's history is what makes it valuable. For example, the Beatles "Yesterday . . . And Today" album was originally to be released with an album cover depicting the Fab Four in butchers' smocks with cuts of raw meat and dismembered toy doll parts. After distributing a few copies to the media, Capitol Records deemed the cover too controversial and recalled the album. As a result there are only seven known sealed copies of the stereo version of the album with the "butcher" cover, and we recently auctioned one of them for $38,500. There are hundreds of such stories that help to make collecting entertaining.
SETS AND SERIES. In many instances, collectors try to obtain a full set of related items. For example, a set may be comprised of all of Mickey Mantle's baseball cards, every issue of $20 gold pieces or all of the vinyl 45's that Elvis recorded. We make such lists available to help collectors maximize their enjoyment.
NEWS. We provide the information that collectors and dealers need to track recent events, trends and developments in the collectibles markets we serve. For example, new collectibles are constantly being created, certain collectibles increase in popularity and other collectibles sell at record prices.
COMMERCE
We conduct auctions in a variety of formats that allow collectors to choose the format with which they are most comfortable. At our multi-venue auctions buyers can place bids over the Internet, by telephone, by computer-assisted telephone and in-person.
We believe our method of operation is superior to other Internet auction companies because we take physical possession of most collectibles and ensure fulfillment of the transaction. Also, unlike most of our competitors, we ensure that upon delivery the auctioned item will meet the description made in our auction materials to the buyer's complete satisfaction. If the buyer is not satisfied, we will refund to the buyer the amount paid for the item. In addition to addressing concerns of buyers, we also arrange for prompt payment to sellers of the proceeds of transactions completed in our auctions. Thus, our method of operation eliminates the concerns of buyers and sellers in completing sight-unseen transactions.
Our auctions are offered in two forms, premium auctions and weekly auctions. The following table shows the average selling price of our auctioned collectibles, including premium auctions for the three-month period ended August 31, 1999.
AVERAGE
COLLECTIBLE SELLING PRICE
----------- -------------
Coins............................................... $ 409
Sportscards......................................... 115
Currency............................................ 1,172
Records............................................. 215
Miscellaneous....................................... 58
All collectibles............................... 249
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PREMIUM AUCTIONS. Premium auctions feature special or unique collectibles that are sold in a multi-venue auction format. In most of our premium auctions, we utilize "callback bidding" where bidders can choose to be called back by a phone operator immediately after the close of the first auction phase to be given the opportunity to participate in the final bidding phase.
We require consignors in our premium auctions to ship their collectibles to us prior to auction. We photograph and prepare descriptions for all items consigned to us for auction and compile and publish a catalog of all items to be auctioned in advance of each of our premium auctions. Collectors can thus view all of the collectibles to be auctioned, along with complete descriptions, either by visiting our website and viewing online, or by ordering a catalog to receive the catalog in hardcopy format. At the conclusion of the auction, we handle shipping and payment transactions.
Our premium auctions include:
AVERAGE SELLING PRICE
DURING THREE-MONTH
PERIOD ENDED
PREMIUM AUCTIONS AUGUST 31, 1999 ITEMS RECENTLY SOLD
---------------- --------------------- -------------------
Kingswood Coins......... $1,629 High-end collectible coins, such as the 1886-O Morgan
Dollar sold in August 1994 for $126,500.
Superior Sports......... $1,511 Rare sportscards and sports memorabilia, such as the July
1999 auction of a 1941 Joe DiMaggio baseball card which
sold for $109,250.
Lyn Knight Currency..... $1,686 Rare high-end currency, such as an 1890 $1,000 bill sold
in December 1998 for $792,000.
Good Rockin' Tonight.... $ 270 Rare records, such as an original Beatles album in a
limited edition album cover that was withdrawn from
circulation by Capitol Records, which sold for $38,500.
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Beginning in October 1999, we will be auctioning unique, One-of-a-Kind items such as the only Grammy(R) awarded to John Lennon, the 500th home run balls of Mark McGwire and Mickey Mantle and the basketball court where Michael Jordan took the last shot of his NBA career to win the 1998 NBA championship.
We began conducting auctions in a multi-venue format in July 1999. With collectors simultaneously submitting bids over the Internet and telephone, the July 1999 Superior Sports Auction generated $1.2 million. It was the first sportscard auction in history to sell two sportscards for more than $100,000 each. The first was a 1941 Joe DiMaggio, which was graded PSA 9 and sold for $109,250 to an Internet bidder. The second card was a 1933 Babe Ruth, which was graded PSA 9 and sold for $100,050 to a telephone bidder. Each of these auctions concluded with a spirited "callback bidding" session. Internet bidders accounted for approximately 14% of the participants and 19% of the total amount bid in the July 1999 auction.
WEEKLY AUCTIONS. Our weekly auctions feature collectibles consigned to us by individuals and by dealers of quality collectibles, as well as collectibles from our own inventory. All weekly auctions are conducted over the Internet and enable collectors to sell their high-end collectibles in a more timely manner.
COLLECTIBLES GALLERY. In addition to our auctions, we offer consigned collectibles and collectibles from our inventory for sale at a set price. By offering items at a set price, we offer an alternative to customers who may not feel comfortable buying or selling at an auction.
SUPPLIERS AND INVENTORY
Currently approximately 70% of aggregate sales prices of collectibles sold at our auctions are derived from collectibles obtained on consignment from third parties. A large portion of these collectibles are supplied to us by selected dealers who possess the expertise, integrity and the capacity to provide to us with high-end collectibles for auction on a regular basis. In certain cases we have contractual arrangements with these suppliers that require them to supply us a minimum dollar value of collectibles during each contract period. Some of these suppliers are also stockholders of the Collectors Universe. Although we have established relationships with these suppliers, we believe that there are other dealers capable of supplying high-end collectibles for auction. See "Risk Factors -- There are limited suppliers of collectibles."
Currently approximately 30% of aggregate sales prices of collectibles sold at our auctions are derived from collectibles that have been acquired by us for resale. Acquiring inventories of collectibles provides us with greater control over the quality and value of the collectibles we can make available for sale at our auctions and enables us to take advantage of opportunities to purchase highly sought after collectibles at favorable pricing. To avoid conflicts of interest, we only acquire collectibles that have been previously graded or authenticated, and such collectibles are sold without being regraded by us. Maintaining inventories of collectibles, however, presents valuation risks because of potential fluctuations in their market prices. We strive to mitigate the market risk of our inventory through frequent turnover. Our average inventory turnover, excluding rare records, is fewer than 120 days. However, from time to time, we may acquire a large quantity of collectibles when available, often at significant discounts. We believe we have taken adequate reserves against a loss due to our accumulation of inventory. See "Risk Factors -- We may incur losses as a result of accumulating inventory."
SALES AND MARKETING
MARKETING STRATEGY. To achieve our goal of becoming the full-service marketplace of choice for high-end collectibles, we intend to aggressively promote our brands to attract more dealers and collectors to utilize our authentication and grading services and our auctions. Currently, our marketing strategy consists of several components described below.
First, we publicize and attract people to our Collectors Universe Internet website through Internet advertising, our color catalogs and print advertisements placed in weekly and monthly trade publications targeted at collectors whose areas of interest are addressed by our products. These advertisements take advantage of the name recognition enjoyed by our preeminent brands, such as PCGS, PSA, Lyn Knight Currency Auctions and Good Rockin' Tonight and promote our Collectors Universe brand by designating each business as a "Collectors Universe" company.
Second, the millions of collectibles we have authenticated and graded are each prominently labeled with our brand names such as PCGS and PSA. This has helped to establish us as a leader in authentication and grading. For example, at both the National Sports Collectors Show in Atlanta in July 1999 and Sportsfest '99 in Chicago, a vast majority of the premium priced sportscards sold by various vendors bore our PSA brand name.
Third, by providing our authentication and grading services to collectors through our relationship with eBay, we increase customer awareness of our services and perpetuate our reputation as the industry leader in authentication and grading.
Fourth, we expect that our One-of-a-Kind auctions will attract significant media coverage and promote awareness of Collectors Universe as well as our premium and weekly auctions.
Finally, we maintain an industry-leading presence at most major collectibles trade shows, with the cornerstone of our presence being our exhibit booth. Our eye-catching booth affords a substantial product display area that is typically the largest at the trade shows in which we participate. Having seen the items on display in our booth, visitors log on to our website at the booth and participate in auctions by bidding on products online. The design of our booth enables us to easily tailor our presence on a show-by-show basis so that we can feature a specific collectible category (e.g., coins, sportscards and sports memorabilia), while cross-marketing our collectibles universes in other categories.
CUSTOMER SUPPORT. We devote significant resources to providing personalized, customer service and support in a timely manner. The first level of support is our electronic and automated communications with customers, consignors and bidders. This keeps buyers and sellers updated on the status of auctions and collectibles submitted for authentication and grading. The next level of support is our proprietary computer-assisted telephone and Internet information system, through which we track the status of approximately 200,000 collectibles we receive each month. In addition, customers or prospective buyers can confirm the authenticity of the over 7.1 million collectibles we have graded. Customers can also choose to telephone or email our general support staff. We also make available specialists and experts who are capable of handling virtually any issue our customers may encounter when using our services.
STRATEGIC RELATIONSHIPS
CO-BRANDING. eBay has entered into a strategic relationship with us that enables all of its users to access our authentication and grading services by simply clicking on one of our logos that are prominently displayed on eBay's home pages for coin, sportscards and sports collectibles. Once selected, eBay's customers gain immediate access to our co-branded website and our database. At this
website customers can readily determine via our searchable database whether an item was authenticated and graded by Collectors Universe, and, if graded, the quality of the item. The co-branded website does not promote our own auctions or link to the Collectors Universe website, but it makes our authentication and grading services available to a wider market. In addition, eBay users may choose to join our Collectors Clubs, which entitle them to receive collectibles authentication, grading and information services from us for a package price.
We also intend to team with other leading Internet collectibles auctioneers to provide our authentication and grading services to their online buyers and sellers.
EXPERT CONSULTANTS. We have established relationships with 59 of the leading experts in high-end collectibles markets. Some of these experts provide us with collectibles, while others create content such as price guides and authoritative information in their areas of expertise for our publications and our website. In return, we have granted these experts options to purchase an aggregate of 622,102 shares of our common stock.
OPERATIONS AND TECHNOLOGY
We believe our proprietary grading software and systems are the most sophisticated in the collectibles markets in which we compete. Our grading software uses complex algorithms to determine the number of independent gradings required to determine the grade of a coin. We also maintain computerized process control over each step in the grading system which enables us to provide accurate and timely customer support services.
We have built a robust, scalable user interface and transaction processing system that is based on internally developed proprietary software combined with industry standard system components. Our system currently maintains data records for approximately 90,000 registered users and has the capacity to meet anticipated growth in registered users for the foreseeable future. During July 1999, our system supported 14 auctions per week and provided data with respect to the 50 auctions completed during the previous month. For the six-month period ended August 31, 1999, our website had over 70 million page views. Nearly all of the pages on our website are continuously updated at the time of viewing through interaction with our database servers.
Our system handles all aspects of the auction process and enables users to follow and participate in the bidding during the course of the auction. Our auction system is integrated with additional internal software systems to provide full support of our auction processes including: an inventory management system that keeps track of consigned collectibles as they progress through the system from receipt, to photography, to auction creation and all the way to final shipment; a customer information system; and a corporate accounting system. This integrated system creates and sends bidder invoices and consignor sales information immediately after completion of an auction. The system supports credit card transactions for the winning bidders.
Our system has been designed with industry standard architectures and components and has been engineered to reduce downtime in the event of outages or catastrophic occurrences. Our service is designed to provide 24 hours per day, seven days per week availability. Our primary systems utilize wide-band fiber optic cable and have been designed to provide mission critical service with no single point-of-failure locations.
COMPETITION
The trading of collectibles over the Internet is new, rapidly evolving and intensely competitive. In the Internet auctions business generally, our competitors include eBay, Amazon.com, Yahoo!, Onsale, Auction Universe, a division of Classified Ventures, Inc. and Excite. Our competitors in the Internet collectibles auction business include Collectit.net, Collectors Supermall, Numismatists Online, Philatelists Online, Teletrade, Inc., Wow Auction, Inc., The BoxLot Company and GoMainline.com. Large corporations with recognized capabilities in business-to-consumer commerce, including America Online, Microsoft, Cendant and QVC, have large resources which could also be directed to compete in the Internet auction market. Barriers to entry are relatively low and current and new competitors can launch new sites at a relatively low cost using commercially available software. We believe that the principal competitive factors in our Internet auction business are expertise in the collectibles offered for sale; quality of collectibles content; population of buyers and sellers that use the service; availability of related services, such as authentication and grading, customer service and staff expertise; reliability of delivery and timely payment; brand name recognition; and website convenience and accessibility.
Our traditional auction business is also highly competitive. We compete directly with other companies that specialize in collectibles and have an industry reputation for hosting premium collectibles auctions. Our competitors in traditional auction markets include Heritage Numismatic Auctions, Auctions by Bowers & Merena, and Mastro Fine Sports Auctions as well as other reputable companies such as Sotheby's, Christie's and Greg Manning Auctions, which do not specialize in, but do conduct coin and sportscard auctions. In addition, other significant auction companies that do not presently engage in auctions for coins or sportscards or other collectibles that are the focus of our business may decide to enter our markets to compete with us. These companies have greater name recognition than us and have access to more financial and marketing resources than we do. We believe that the principal competitive factors in the traditional auction business are the reputation of the company hosting the auction, the hosting party's ability to attract buyers to the auction and the quality of collectibles available for sale at the auction.
There are few competitors in the coin and sportscard authentication and grading markets and the costs of entering such markets are substantial. However, other collectibles companies could expand their line of services into coins or sportscards, new entrants into the market could deplete our market share and auction companies could expand their service offerings to include the grading of coins, sportscards and other collectibles. Our competitors in the coin grading and authentication market include Numismatic Guaranty Corporation of America, Inc. and ANACS, a subsidiary of Amos Press, Inc. In the sportscard grading and authentication business, our competitors include Beckett, Certified Sports Authentication, Inc. and Sportscard Guarantee L.L.C.
INTELLECTUAL PROPERTY
We rely on a combination of trademark, copyright and trade secret laws, as well as confidentiality agreements and non-competition agreements to establish and protect our proprietary rights.
The following table sets forth a list of our trademarks, both unregistered and registered, that are currently being used in the conduct of our business:
UNREGISTERED TRADEMARKS REGISTERED TRADEMARKS ----------------------- --------------------- Coin Universe Collectors Universe Collectors.com PCGS Lyn Knight Currency Auctions PSA Superior Sports Auctions PSA/DNA Kingswood Coin Auctions Good Rockin' Tonight Record Universe Sports Collectors Universe Currency Universe One-of-a-Kind Auctions |
We have not conducted an exhaustive search of possible prior users of the unregistered trademarks listed above and, therefore, it is possible that our use of some of these trademarks may conflict with others.
Collectors Universe has an exclusive six-year license (subject to limited exceptions) with DNA Technologies, Inc. to use its patented DNA authentication technology for the authentication of collectibles. If we meet certain royalty obligations during the initial six-year term, we will be entitled to extend the term of the agreement, subject to negotiation of royalty payments. Additionally, our exclusive license will allow us to sublicense this technology (subject the sharing of such sublicense revenue with DNA Technologies) to other major companies who can benefit from the security afforded by the DNA authentication technique, such as manufacturers or distributors of various limited edition merchandise or collectibles. If the patent for the DNA Technology were challenged successfully, we could lose our exclusive license to use this technology in the collectibles market.
As part of our confidentiality procedures, we generally enter into agreements with our employees and consultants and limit access to and distribution of our software, documentation and other proprietary information. Notwithstanding the precautions we take, it might be possible for a third party to copy or otherwise obtain and use our software or other proprietary information without authorization or to develop similar software independently. Policing unauthorized use of our technology is difficult, particularly because the global nature of the Internet makes it difficult to control the ultimate destination or security of software or other data transmitted. The laws of other countries may afford us little or no effective protection of our intellectual property.
Our proprietary auction software is protected by copyright laws and under applicable trade secret laws. We may in the future receive notices from third parties claiming infringement by our software or other aspects of our business. Any such claim, with or without merit, could result in significant litigation costs and diversion of resources, including the attention of management, and require us to enter into royalty and licensing agreements. Such royalty and licensing agreements, if required, may not be available on terms acceptable to us or at all. In the future, we may also need to file lawsuits to enforce our intellectual property rights, to protect our trade secrets or to determine the validity and scope of the proprietary rights of others. Such licensing or litigation, whether successful or unsuccessful, could result in substantial costs and diversion of resources, which could harm our business.
GOVERNMENT REGULATION
We are not currently subject to direct federal, state or local regulation, and laws or regulations applicable to access to or commerce on the Internet, other than regulations applicable to businesses generally. However, due to the increasing popularity and use of the Internet and other online services, it is possible that a number of laws and regulations may be adopted with respect to the Internet or other online services covering issues such as user privacy, freedom of expression, pricing, content and quality of products and services, taxation, advertising, intellectual property rights and information security. Several states have also proposed legislation that would limit the uses of personal user information gathered online or require online services to establish privacy policies. The FTC has also initiated action against at least one online service regarding the manner in which personal information is collected from users and provided to third parties. Changes to existing laws or the passage of new laws intended to address these issues, including some recently proposed changes, could create uncertainty in the marketplace that could reduce demand for our services or increase the cost of doing business as a result of litigation costs or increased service delivery costs. Numerous states, including the State of California in which our headquarters are located, have regulations regarding the manner in which "auctions" may be conducted and the liability of "auctioneers" in conducting such auctions. We do not believe that such regulations, which were adopted prior to the advent of the Internet, govern the operations of our business and no state has filed a claim asserting that we are subject to such legislation. Although we have received no communications from the State of California or any other state, no legal determination has been made with respect to the applicability of the California regulations to our business to date and little precedent exists in this area. However, a state could attempt to impose these regulations upon us in the future, which could have a material adverse effect on our business, results of operations and financial condition.
Generally, we do not collect sales tax or other similar taxes on goods sold by users through our online service. However, one or more states may seek to impose sales tax collection obligations on out-of-state companies such as ours, which engage in or facilitate online commerce, and a number of proposals have been made at the state and local level that would impose additional taxes on the sale of goods and services through the Internet. Since the Internet is worldwide, other jurisdictions may seek to tax or otherwise burden our business with regulatory requirements. If adopted, these proposals could substantially impair the growth of electronic commerce, and could adversely affect our ability to profit from Internet commerce.
Applicability to the Internet of existing laws governing issues such as property ownership, copyrights and other intellectual property issues, taxation, libel, obscenity and personal privacy is uncertain. The vast majority of such laws were adopted prior to the advent of the Internet and related technologies and, as a result, do not contemplate or address the unique issues of the Internet and related technologies.
In a consent decree with the FTC dated August 1990, PCGS consented to certain restrictions in the operation of the PCGS business. Under the consent decree, PCGS agreed that it will make no representations that are untrue with respect to the objectivity of its services or the marketability of coins. In addition, PCGS agreed not to improperly adjust its grading standards, nor to permit any coin graders to knowingly grade coins in which the graders have a financial interest or to discuss grading procedures with persons not authorized by PCGS. We believe the consent decree imposes no unduly burdensome restrictions on our business. See "Risk Factors -- Additional regulations could be imposed on our industry."
EMPLOYEES
As of August 15, 1999, we had 237 employees, including 115 in grading and authentication, 60 in auctions, 15 in product development, 10 in sales and marketing and 37 in other business and administrative services. We have never had a work stoppage, and no employees are represented under collective bargaining agreements. We consider our relations with our employees to be good.
FACILITIES
Our existing lease of approximately 35,000 square feet will expire in March 2000 and these facilities are inadequate to accommodate the anticipated growth of our business. Accordingly, we have entered into a lease for a facility of approximately 54,000 square feet that will accommodate our anticipated future growth needs. The lease will commence upon termination of our existing lease, with a term of eight years. The expenditures and other costs of moving to the new facility are expected to range from approximately $200,000 to $400,000 and may temporarily have a disruptive effect on our operations.
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth certain information regarding our directors and executive officers:
NAME AGE POSITION
---- --- --------
David G. Hall........................... 52 Chairman of the Board and Director
Louis M. Crain.......................... 52 President, Chief Executive Officer and
Director
Gary N. Patten.......................... 52 Chief Financial Officer and Secretary
Stephen H. Mayer........................ 52 Senior Vice President and Director
Richard E. Caselli...................... 55 Vice President, Sales and Business
Development
David E. Gioia.......................... 49 Vice President, Marketing
Van D. Simmons.......................... 48 Director
Armen R. Vartian........................ 41 Director
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(2) Member of Compensation Committee
Following completion of the offering, we plan to appoint two additional directors who are not employees or otherwise affiliated with Collectors Universe.
DAVID G. HALL has served as Chairman of the Board and a director since founding Collectors Universe in February 1986. From 1986 to January 1999, he also served as our President and Chief Executive Officer. Mr. Hall was honored by COINage Magazine as Numismatist of the Century along with 14 others. In 1990, Mr. Hall was named an Orange County Entrepreneur of the Year by INC. magazine. In addition, he has written A Mercenary's Guide to the Rare Coin Market, a book dedicated to coin collecting. Mr. Hall is also a member of the Professional Numismatists Guild.
LOUIS M. CRAIN has served as our President and Chief Executive Officer and a director since January 1999. From 1992 to 1998, Mr. Crain served as President, Chief Executive Officer and a director of MARC Analysis Research Corporation, a leading supplier of high-technology engineering software for structural analysis. Mr. Crain founded Symmetric Software, Inc. in 1989 and served as its Chief Executive Officer until 1992. From 1975 to 1989, Mr. Crain served as Vice President and a director of PDA Engineering, where he developed and managed the growth of PATRAN, a popular software product used in the analysis of stress in structural systems. Mr. Crain received a B.S. degree from the Massachusetts Institute of Technology.
GARY N. PATTEN has served as our Vice President, Chief Financial Officer and Secretary since March 1999. From June 1995 to March 1999, Mr. Patten was Vice President, Chief Financial Officer and Secretary of Unit Instruments, Inc., a manufacturer of component products for the semiconductor equipment industry. From 1986 to 1995, Mr. Patten served as Vice President, Chief Financial Officer and Secretary of Optical Radiation Corporation, a diversified manufacturer of consumer products, medical devices and industrial products. Mr. Patten holds an M.B.A. degree from the University of California at Los Angeles.
STEPHEN H. MAYER has served as our Senior Vice President since January 1999 and has been a director since 1987. From 1988 to 1998, Mr. Mayer served as Chief Operations Officer of Collectors
Universe. From 1986 to 1988, Mr. Mayer served as Director of Operations. Mr. Mayer holds a B.A. degree from Central Oklahoma State University.
RICHARD E. CASELLI serves as our Vice President of Sales and Business Development. For the five years prior to joining Collectors Universe in March 1999, Mr. Caselli was the President of his own consulting company which specialized in sales and marketing training for technology companies. From 1992 to 1994, he served as the Chief Operating Officer and Vice President of North American Sales for MARC Analysis Research Corporation. In addition, Mr. Caselli was the Vice President of Worldwide Sales for PDA Engineering. Mr. Caselli received his B.S.E.E. degree from the University of Detroit.
DAVID E. GIOIA joined Collectors Universe in August 1999 as the Vice President of Marketing. From 1988 to August 1999, Mr. Gioia was a freelance director, writer and producer of advertising and corporate and marketing communications materials. From 1983 to 1988, Mr. Gioia was President, Executive Producer and Creative Director of Luna Park Productions, Inc. Mr. Gioia received his B.A. degree from Emerson College in Boston.
VAN D. SIMMONS has served as a director of Collectors Universe since its founding in 1986. Mr. Simmons has been the Chairman of the Board of David Hall's North American Trading, LLC, a retailer of rare coins, since February 1997. From 1981 to 1997 he served as President of David Hall Rare Coins and Collectibles, a retailer of rare coins.
ARMEN R. VARTIAN has served as a director for Collectors Universe since February 1999. Mr. Vartian has a law practice specializing in matters relating to art and collectibles. He has represented auction houses, dealers and collectors and has also served as Special Counsel at the request of the Federal Trade Commission. Mr. Vartian has also served as General Counsel to the Professional Numismatists Guild and the American Numismatic Association. Mr. Vartian is the author of Legal Guide to Buying and Selling Art and Collectibles. Mr. Vartian holds a B.A. degree from The City University of New York and a J.D. degree from Harvard University.
OTHER KEY EMPLOYEES
The following table sets forth certain information regarding other key employees:
NAME AGE POSITION
---- --- --------
Richard S. Montgomery..................... 37 President, Professional Coin Grading
Service
Stephen Rocchi............................ 41 President, Professional Sports
Authenticator
Lyn F. Knight............................. 49 President, Lyn Knight Currency Auctions
Gregory B. Bussineau...................... 34 President, Superior Sportcard Auctions, LLC
Brent L. Gutekunst........................ 39 Vice President, e-commerce
Gordon J. Wrubel.......................... 56 President, Good Rockin' Tonight
Michael W. Sherman........................ 44 President, Kingswood Coin Auctions
Jason E. Meyerson......................... 32 President, PSA/DNA
Michael D. Barnes......................... 29 President, One-of-a-Kind Auctions
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RICHARD S. MONTGOMERY serves as the President of PCGS, a position he has held since 1997. Prior to joining Collectors Universe as an authenticator and grader in 1987, Mr. Montgomery held several positions at American Numismatic Association Certification Service between 1980 and 1985, and ultimately served as a director.
STEPHEN ROCCHI serves as the President of PSA, a position he has held since 1996. Mr. Rocchi joined Collectors Universe in 1986 as our first employee and served as Operations Manager from 1988 until 1996. Mr. Rocchi received a B.S. degree from California State University, Long Beach.
LYN F. KNIGHT has served as the President of Lyn Knight Currency Auctions since February 1999, when Collectors Universe acquired the currency auction business of Lyn F. Knight Rare Coins, Inc. Mr. Knight was the founder, and from its inception in 1985, served as the President, of Lyn F. Knight Rare Coins, Inc., which was engaged in the marketing and selling rare currency. In addition, Mr. Knight is a founder and past President of the Professional Currency Dealers Association.
GREGORY B. BUSSINEAU is the founder of and has served as the President of Superior Sportcard Auctions, LLC, a subsidiary of Collectors Universe, since its inception in 1995. Mr. Bussineau has been a dealer of sportscards since 1983 and is the owner of Superior Sportscard, Inc., a retail dealer of sportscards and other sports collectibles.
BRENT L. GUTEKUNST has served as our Vice President of e-commerce since February 1999. He also served as Vice President of Internet Universe, LLC from August 1996 to February 1999 and as a director of Collectors Universe from February 1999 to August 1999. Prior to August 1996, Mr. Gutenkunst was the President of Info Exchange, Inc., an Internet content and auction company, during which time he created the website known as Coin Universe. From 1988 to 1990, Mr. Gutekunst was the Managing Trustee for Income Properties Equity Trust, a publicly held real estate investment trust. Mr. Gutekunst holds an M.B.A. degree from Northwestern University and a B.S. degree from the University of Kansas.
GORDON J. WRUBEL has served as President of Good Rockin' Tonight, our rare records division, since 1996. In addition, from 1986 to August 1999, Mr. Wrubel served as a director and Secretary of Collectors Universe. From 1986 to 1995, Mr. Wrubel was the Director of Grading for Collectors Universe.
MICHAEL W. SHERMAN, the President of Kingswood Coin Auctions, joined Collectors Universe in May 1999. From March 1998 to May 1999, Mr. Sherman served as the Vice President of Jefferson Coin and Bullion, Inc. Prior to that time, Mr. Sherman served as the General Manager of Heritage Numismatic Auctions, Inc. for 18 years. He has also been a contributor to the Guide Book of United States Coins Mr. Sherman holds a B.S. degree from the University of Virginia and an M.B.A. degree from Washington University in St. Louis.
JASON E. MEYERSON has served as President of PSA/DNA since April 1999. From 1993 to April 1999, Mr. Meyerson served as Sales and Brand Manager for Veltec Sports, Inc., a sales and distribution company for the bicycle industry.
MICHAEL D. BARNES has served as President of One-of-a-Kind since March 1999. Mr. Barnes was the managing partner of Creative Properties Management Group, a sports and entertainment agency from April 1996 to March 1999. He received a B.A. degree from the University of Missouri and a J.D. degree from St. Louis University.
BOARD COMMITTEES AND DIRECTOR COMPENSATION
The Audit Committee of the Board of Directors will consist of two members of the Board of Directors who will be appointed prior to the offering. The Audit Committee recommends to the Board of Directors the independent public accountants to be selected to audit our annual financial statements and approves any special assignments given to such accountants. The Audit Committee also reviews the planned scope of the annual audit and the independent accountants' letter of
comments and management's response thereto, any major accounting changes made or contemplated and the effectiveness and efficiency of our internal accounting staff.
The Compensation Committee of the Board of Directors will consist of two members of the Board of Directors who will be appointed prior to the offering. The Compensation Committee determines the compensation payable to the executive officers of Collectors Universe. Prior to the formation of our Compensation Committee, our Board of Directors made decisions relating to compensation of executive officers.
EXECUTIVE COMPENSATION
The following table sets forth summary information concerning compensation earned for all services rendered to us in all capacities during the fiscal year ended June 30, 1999, for our Chief Executive Officer and each of our other most highly compensated executive officers whose salary and bonus exceeded $100,000 (the "Named Executive Officers").
SUMMARY COMPENSATION TABLE
LONG TERM
ANNUAL COMPENSATION
COMPENSATION AWARDS
------------------ SECURITIES UNDERLYING
NAME AND PRINCIPAL POSITION SALARY BONUS OPTIONS(#)
--------------------------- -------- ------- ---------------------
David G. Hall, Chairman(1).......................... $330,000 $ -- 0
Louis M. Crain, President and Chief Executive
Officer(2)........................................ 180,000 -- 950,000
Stephen H. Mayer, Senior Vice President............. 134,944 71,944 25,000
Gary N. Patten, Chief Financial Officer
and Secretary(3).................................. 36,000 12,000 180,000
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(1) Prior to January 1999, Mr. Hall was also Chief Executive Officer of Collectors Universe.
(2) Mr. Crain began his employment with us in January 1999. His annual salary is $360,000.
(3) Mr. Patten began his employment with us in March 1999. His annual salary is $156,000.
STOCK OPTION GRANTS IN FISCAL YEAR 1999
POTENTIAL
INDIVIDUAL GRANTS REALIZABLE VALUE
--------------------------------------------------- AT ASSUMED
NUMBER OF ANNUAL RATES OF
SECURITIES PERCENT OF STOCK PRICE
UNDERLYING TOTAL OPTIONS EXERCISE APPRECIATION FOR
OPTIONS GRANTED TO PRICE OPTION TERM(2)
GRANTED EMPLOYEES IN ($ PER EXPIRATION ----------------
NAME (#)(1) FISCAL YEAR(%) SHARE) DATE 5% 10%
---- ---------- -------------- -------- ---------- ------ -------
(IN THOUSANDS)
David G. Hall................. -- -- -- -- -- --
Louis M. Crain................ 950,000 45.1% $2.11 01/04/09 $5,738 $10,298
Stephen H. Mayer.............. 25,000 1.2 5.00 04/01/09 79 199
Gary N. Patten................ 180,000 8.5 5.00 04/01/09 567 1,431
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(1) Mr. Crain's stock options were fully vested on the grant date. Mr. Mayer's stock options were fully vested on the grant date. Mr. Patten's stock options vest with respect to 36,000 shares on the grant date, 8,000 shares per month between April 1999 and December 1999 and 6,000 shares per month thereafter until fully vested.
(2) Potential realizable value is based on the assumption that our common stock appreciates at the annual rate shown, compounded annually, from the date of grant until the expiration of the ten-year option term as applicable. These numbers are calculated based on Securities and Exchange Commission requirements and do not reflect our projection or estimate of future stock price growth. Potential realizable values are computed by multiplying the number of shares of common stock subject to a given option by the exercise price, as determined by our Board of Directors, assuming that the aggregate stock value derived from that calculation compounds at the annual 5% or 10% rate shown in the table for the entire term of the option and subtracting from that result the aggregate option and exercise price.
EMPLOYMENT AGREEMENTS
Mr. Crain is employed as the Chief Executive Officer of Collectors Universe under a three year employment agreement. The employment agreement provides for the payment to him of a base salary of $360,000 per year, and annual incentive compensation equal to 2% of the pre-tax profit of Collectors Universe. Mr. Crain also received a one-time $100,000 payment for relocation expenses, and a loan in the principal amount of $180,000, bearing interest at a rate of 9% per year. The employment agreement provides that, for each year of his employment with Collectors Universe, $30,000 of the principal amount of that loan will be forgiven.
Mr. Patten is employed under a three year employment agreement as the Chief Financial Officer of Collectors Universe. The employment agreement provides for the payment of an annual base salary of $156,000, which will increase to $180,000 in 2000 and to $192,000 in 2001. He also will be entitled to annual incentive or bonus compensation in an amount up to 30% of his annual base salary if mutually agreed-on performance goals are established. Collectors Universe also has entered into a severance compensation agreement with Mr. Patten that will entitle him to two and one half years' annual base compensation and bonus in the event his employment is terminated following a sale or change of control of Collectors Universe.
EMPLOYEE BENEFIT PLANS
STOCK INCENTIVE PLANS. We adopted the PCGS 1999 Stock Incentive Plan in January 1999 (the "PCGS Plan"). As of August 31, 1999, there were options to purchase 1,608,415 shares outstanding under the PCGS Plan and no shares available for future option grants. In February 1999, we adopted our 1999 Stock Incentive Plan (the "1999 Plan"). The 1999 Plan covers an aggregate of 1,748,585 shares of common stock. As of August 31, 1999, there were options to purchase 886,150 shares outstanding under the 1999 Plan and 862,435 shares available for future option grants.
The PCGS Plan and the 1999 Plan provide for the granting of "incentive stock options," within the meaning of Section 422 of the Internal Revenue Code of 1986, as amended (the "Code"), nonstatutory options and restricted stock grants to directors, officers, employees and consultants of Collectors Universe, except that incentive stock options may not be granted to non-employee directors or consultants. The purpose of the 1999 Plan is to provide participants with an opportunity to acquire an equity interest in Collectors Universe that will give them incentive to continue to provide services to Collectors Universe. The PCGS Plan and the 1999 Plan are administered by the Board of Directors, which has sole discretion and authority, consistent with the provisions of the PCGS Plan and the 1999 Plan, to determine which eligible participants will receive options, the time when options will be granted, the terms of options granted and the number of shares which will be subject to options granted under the PCGS Plan and the 1999 Plan.
EMPLOYEE STOCK PURCHASE PLAN. In September 1999, our board of directors adopted our Employee Stock Purchase Plan, to be effective upon completion of this offering. A total of 200,000 shares of common stock have been reserved for issuance under our Employee Stock Purchase Plan. Our Employee Stock Purchase Plan, which is intended to qualify under Section 423 of the Internal Revenue Code of 1986, as amended, will be administered by the Board of Directors or by a committee appointed by the Board. Employees are eligible to participate if they are customarily employed for at least 20 hours per week and for more than five months in any calendar year. Employees who own more than 5% of our outstanding stock may not participate. Our Employee Stock Purchase Plan permits eligible employees to purchase common stock through payroll deductions which may not exceed the lesser of 15% of an employee's compensation, or $25,000. Our Employee Stock Purchase Plan will be implemented through offerings occurring each six-month period with purchases at the end of each six-month period commencing on the effective date of this offering. The purchase price of the common stock under our Employee Stock Purchase Plan will be equal to 85% of the fair market value per share of common stock on either the start date of the offering period or on the purchase date, whichever is less.
401(K) PLAN. Collectors Universe established an employee benefit plan, effective July 1992, that features a 401(k) salary reduction provision, covering all employees who meet eligibility requirements. Eligible employees can elect to defer up to 15% of compensation or the statutorily prescribed annual limit. Collectors Universe can, at its discretion, make contributions to the plan.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During the fiscal year ended June 30, 1999, the Board of Directors established the levels of compensation for our executive officers. David G. Hall, who is also a director of Collectors Universe, participated in the deliberations of the Board regarding executive compensation that occurred during the fiscal year ended June 30, 1999. See "Certain Transactions" for a description of transactions between Collectors Universe and certain members of the Board of Directors or their affiliates.
LIMITATIONS ON DIRECTORS' LIABILITY AND INDEMNIFICATION
The Bylaws of Collectors Universe provide that Collectors Universe will indemnify its directors and officers and may indemnify its employees and other agents to the fullest extent permitted by law. We believe that indemnification under our Bylaws covers at least negligence and gross negligence by indemnified parties and permits us to advance litigation expenses in the case of stockholder derivative actions or other actions, against an undertaking by the indemnified party to repay such advances if it is ultimately determined that the indemnified party is not entitled to indemnification. Following this offering of common stock, we expect to have in place liability insurance coverage for our directors and officers.
In addition, the Amended and Restated Certificate of Incorporation of Collectors Universe provides that, pursuant to Delaware law, its directors shall not be liable for monetary damages for breach of the directors' fiduciary duty as a director to Collectors Universe and its stockholders. This provision in our Amended and Restated Certificate of Incorporation does not eliminate the directors' fiduciary duty, and in appropriate circumstances equitable remedies such as injunctive or other forms of non-monetary relief will remain available under Delaware law. In addition, each director will continue to be subject to liability for breach of the director's duty of loyalty to Collectors Universe for acts or omissions not in good faith or involving intentional misconduct, for knowing violations of law, for actions leading to improper personal benefit to the director, and for payment of dividends or approval of stock repurchases or redemptions that are unlawful under Delaware law. The provision also does not affect a director's responsibilities under any other law, such as the federal securities laws or state or federal environmental laws.
Collectors Universe has entered into separate indemnification agreements with its directors and executive officers. These agreements require Collectors Universe, among other things, to indemnify them against certain liabilities that may arise by reason of their status or service as directors or officers (other than liabilities arising from actions not taken in good faith or in a manner the indemnitee believed to be opposed to the best interests of Collectors Universe), to advance their expenses incurred as a result of any proceeding against them as to which they could be indemnified and to obtain directors' insurance if available on reasonable terms. Insofar as indemnification for liabilities arising under the Securities Act of 1933 (Securities Act) may be permitted to directors, officers or persons controlling our company pursuant to the foregoing provisions, Collectors Universe has been informed that in the opinion of the Securities and Exchange Commission, such indemnification is against public policy as expressed in the Securities Act and is therefore unenforceable. We believe that our Amended and Restated Certificate of Incorporation and Bylaw provisions and indemnification agreements are necessary to attract and retain qualified persons as directors and officers.
CERTAIN TRANSACTIONS
In February 1999, we completed the reorganization in which we issued shares of our common stock. See "The Reorganization." In the reorganization, certain officers and directors of Collectors Universe received shares of our common stock in the following amounts: David Hall, director and Chairman of the Board, received 8,252,980 shares; Van Simmons, director, received 2,136,956 shares; Stephen Mayer received 229,632 shares; Gordon Wrubel received 1,965,191 shares; and Louis Crain, director and President and Chief Executive Officer, received 100,808 shares.
Before completing the reorganization, while still an S corporation for tax purposes, PCGS declared a dividend payable to its stockholders in the aggregate amount of $2.2 million, which represented a substantial portion of S corporation accumulated earnings that had been taxed to the individual stockholders of PCGS. Upon completion of the reorganization, PCGS ceased to be an S corporation. The dividend was paid by us in April 1999, and the following officers and directors received the amounts indicated as payment of their proportionate share of the dividend to which they were entitled as former stockholders of PCGS: David Hall received $1.0 million; Van Simmons received $272,000; Stephen Mayer received $29,000; Gordon Wrubel received $250,000; and Louis Crain received $13,000.
In addition, as part of the reorganization, we acquired several companies, including Kingswood. David Hall, Van Simmons and David Hall's North American Trading or DHNAT (which is owned by Mr. Hall and Mr. Simmons) were the owners of 55% of Kingswood's ownership interest. Therefore as a result of this acquisition, they received shares of our common stock and cash: Mr. Hall received 28,500 shares and $150,000 in cash; Mr. Simmons received 28,500 shares and $150,000 in cash; and DHNAT received 47,500 shares and $250,000 in cash.
In March 1999, Collectors Universe issued 1,281,800 shares at $5.00 per share for an aggregate of $6,409,000. Officers and directors of Collectors Universe or entities affiliated with them purchased 91,600 shares for an aggregate of $458,000 issued to an affiliate of David Hall (20,000 shares), Gordon Wrubel (1,600 shares), Gary N. Patten (50,000 shares) and Richard E. Caselli (20,000 shares). The proceeds from this offering were used, among other things, to pay the S corporation dividend to the former stockholders of PCGS and the promissory note issued in the acquisition of Kingswood, both of which are described above.
Certain officers of Collectors Universe and certain of companies affiliated with them, including DHNAT and David Hall Rare Coins and Collectibles or DHRCC, have purchased coins, records and other collectibles at auctions conducted by Collectors Universe. Those purchases were made on materially the same terms as those that apply to purchases of collectibles by other customers that are not affiliated with Collectors Universe or any of its officers or directors. We recently adopted a new policy that prohibits employees and their affiliates, including DHNAT and DHRCC, from bidding on collectibles in our auctions. Our employees and their affiliates may from time to time consign collectibles to us to be sold in our auctions or galleries.
DHNAT, which is owned by Mr. Hall and Mr. Simmons, is primarily engaged in the retail sale of coins through a direct sales force. Although DHNAT does not conduct auctions, it may sell coins to collectors who also buy or sell coins at auctions conducted by Collectors Universe. It also purchases rare coins for resale through a sole source supplier. Therefore, DHNAT indirectly competes with Collectors Universe in connection with the purchase and sale of rare coins. DHNAT and Mr. Hall have entered into an agreement with Collectors Universe under which DHNAT has agreed to restrict its business activities to those currently conducted. In addition, under that agreement, Mr. Hall has agreed not to solicit any potential buyers of rare coins on behalf of DHNAT other than to its existing customers.
Mr. Hall and Mr. Simmons also own DHRCC. DHRCC was primarily engaged in the purchase and sale of rare coins, records and other collectibles. From time to time prior to the consummation of the February 1999 reorganization, PCGS advanced funds to DHRCC to help fund its acquisitions of collectibles, some of which were sold at auctions conducted by PCGS. As of June 30, 1999, the balance of such advances was paid-in-full. We have adopted a policy which prohibits any further advances to DHRCC in the future. In addition, DHRCC has entered into an agreement with Collectors Universe under which DHRCC has agreed not to purchase any additional collectibles upon completion of this offering, to sell its existing inventory of collectibles exclusively at auctions conducted by Collectors Universe and to discontinue operations as soon as is reasonably practicable following completion of this offering.
Mr. Hall has entered into a non-compete agreement with Collectors Universe under which he has agreed not to buy or sell collectibles, nor own any equity interest in another business engaged in such activity, except under limited circumstances, including those described above.
John Dannreuther, a beneficial owner of more than 5% of the outstanding shares of common stock, is the sole owner of J.D.R.C., Inc., which has received payments in the amounts of $295,000 in fiscal 1997, $173,000 in fiscal 1998 and $152,000 in fiscal 1999 for research and consulting services related to our coin authentication and grading services.
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information with respect to the beneficial ownership of common stock as of August 31, 1999 by (i) each person (or group of affiliated persons) who is known to own beneficially 5% or more of our common stock, (ii) each of the directors of Collectors Universe, (iii) each of the Named Executive Officers, and (iv) all directors and Named Executive Officers of Collectors Universe as a group.
% OF SHARES
BENEFICIALLY OWNED
-----------------------
SHARES BEFORE AFTER
NAME AND ADDRESS OF BENEFICIAL OWNERS BENEFICIALLY OWNED(1) OFFERING OFFERING(2)
------------------------------------- --------------------- -------- -----------
David G. Hall................................. 8,332,355(3) 39.1% %
Van D. Simmons................................ 2,204,456(4) 10.3% %
Gordon J. Wrubel.............................. 1,966,769 9.2% %
John W. Dannreuther........................... 1,618,906 7.6% %
868 Mount Moriah, Suite 202
Memphis, Tennessee 38117
Steve Cyrkin.................................. 1,142,420 5.4% %
1936 Deere Street
Santa Ana, California 92705
Brent L. Gutekunst............................ 1,130,927(5) 5.3% %
1936 Deere Street
Santa Ana, California 92705
Louis M. Crain................................ 1,050,807(6) 4.9% %
Gary N. Patten................................ 142,000(7) * *
Armen R. Vartian.............................. -- * *
Stephen H. Mayer.............................. 239,632(8) 1.1% %
All Directors and Named Executive Officers as
a Group (6 persons)(6)(7)(8)................ 11,969,250 56.1% %
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(1) Beneficial ownership is determined in accordance with the rules of the Securities and Exchange Commission and generally includes voting or investment power with respect to securities. Shares of common stock subject to options or warrants currently exercisable, or exercisable within 60 days of August 31, 1999, are deemed outstanding for computing the percentage of the person holding such options or warrants but are not deemed outstanding for computing the percentage of any other person. Except as indicated by footnote and subject to community property laws where applicable, to the knowledge of Collectors Universe the persons named in the table have sole voting and investment power with respect to all shares of common stock shown as beneficially owned by them.
(2) Assumes that the Underwriters' over-allotment option is not exercised.
(3) Includes 31,875 shares held by North American Trading, Inc., an entity in which Mr. Hall holds an ownership interest. Mr. Hall disclaims beneficial ownership of the shares owned by North American Trading Company, Inc., except to the extent of his pecuniary interest therein.
(4) Includes 31,875 shares held by North American Trading, Inc., an entity in which Mr. Simmons holds an ownership interest. Mr. Simmons disclaims beneficial ownership of the shares owned by North American Trading, Inc., except to the extent of his pecuniary interest therein.
(5) Includes 269,817 shares subject to options which will become exercisable upon completion of this offering.
(6) Includes 807,000 shares subject to options currently exercisable.
(7) Includes 92,000 shares subject to option exercisable within 60 days of August 31, 1999.
(8) Includes 10,000 shares subject to options currently exercisable.
DESCRIPTION OF CAPITAL STOCK
Upon the completion of the Offering the authorized capital stock of Collectors Universe will consist of 45,000,000 shares of common stock, $0.001 par value, and 5,000,000 shares of preferred stock, $0.001 par value.
COMMON STOCK
As of August 31, 1999, there were 20,425,076 shares of common stock outstanding held of record by 90 stockholders. There will be shares of common stock outstanding after the sale of the shares of common stock offered by this prospectus.
Holders of common stock are entitled to one vote per share on all matters to be voted upon by the stockholders. Subject to preferences that may be applicable to the holders of outstanding shares of preferred stock, if any, the holders of common stock are entitled to receive such lawful dividends as may be declared by the Board of Directors. In the event of liquidation, dissolution or winding up of Collectors Universe, and subject to the rights of the holders of outstanding shares of preferred stock, if any, the holders of shares of common stock shall be entitled to receive all of the remaining assets of Collectors Universe available for distribution to its stockholders after satisfaction of all its liabilities and the payment of any liquidation preference of any outstanding preferred stock. There are no redemption or sinking fund provisions applicable to the common stock. All outstanding shares of common stock are fully paid and nonassessable, and all shares of common stock to be issued pursuant to this offering shall be fully paid and nonassessable.
PREFERRED STOCK
As of August 31, 1999, no shares of preferred stock were outstanding. The Board of Directors has the authority, without further action by the stockholders, to issue the authorized shares of preferred stock in one or more series and to fix the rights, preferences and privileges thereof, including voting rights, terms of redemption, redemption prices, liquidation preferences, number of shares constituting any series or the designation of such series, without further vote or action by the stockholders. Although it presently has no intention to do so, the Board of Directors, without stockholder approval, may issue preferred stock with voting and conversion rights which could adversely affect the voting power of the holders of common stock. This provision may be deemed to have a potential anti-takeover effect, and the issuance of preferred stock in accordance with such provision may delay or prevent a change of control of Collectors Universe.
DELAWARE LAW AND CERTAIN CHARTER PROVISIONS
Certain provisions of Delaware law and our Amended and Restated Certificate of Incorporation and Bylaws could make more difficult our acquisition by means of a tender offer, a proxy contest or otherwise and the removal of our incumbent officers and directors. These provisions, summarized below, are expected to discourage certain types of coercive takeover practices and inadequate takeover bids and to encourage persons seeking to acquire control of Collectors Universe to first negotiate with us. We believe that the benefits of increased protection of our potential ability to negotiate with the proponent of an unfriendly or unsolicited proposal to acquire or restructure us outweigh the disadvantages of discouraging such proposals because, among other things, negotiation of such proposals could result in an improvement of their terms.
We are subject to Section 203 of the Delaware General Corporation Law, an anti-takeover law. In general, Section 203 prohibits a publicly held Delaware corporation from engaging in a "business combination" with an "interested stockholder" for a period of three years following the date the person became an interested stockholder, unless (with certain exceptions) the "business combination" or the transaction in which the person became an interested stockholder is approved in a prescribed manner. Generally, a "business combination" includes a merger, asset or stock sale, or other transaction resulting in a financial benefit to the interested stockholder. Generally, an "interested stockholder" is a person who, together with affiliates and associates, owns (or within three years prior to the determination of interested stockholder status, did own) 15% or more of a corporation's voting stock. The existence of this provision would be expected to have an anti-takeover effect with respect to transactions not approved in advance by the Board of Directors, including discouraging attempts that might result in a premium over the market price for the shares of common stock held by stockholders.
Our Amended and Restated Certificate of Incorporation eliminates the right of stockholders to act by written consent without a meeting. The Amended and Restated Certificate of Incorporation and Bylaws of Collectors Universe do not provide for cumulative voting in the election of directors. The authorization of undesignated preferred stock makes it possible for the Board of Directors to issue preferred stock with voting or other rights or preferences that could impede the success of any attempt to change our control. These and other provisions may have the effect of deterring hostile takeovers or delaying changes in our control of management.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for our common stock is U.S. Stock Transfer Corporation, Glendale, California.
SHARES ELIGIBLE FOR FUTURE SALE
Prior to this offering, there has been no public market for the common stock. Future sales of substantial amounts of common stock in the public market could adversely affect prevailing market prices and adversely affect our ability to raise additional capital in the capital markets at a time and price favorable to us.
Upon completion of this offering, we will have shares of common stock outstanding. Of these shares, the shares sold in the offering will be freely tradable without restriction or further registration under the Securities Act, unless they are purchased by "affiliates" of Collectors Universe as that term is used under the Securities Act of 1933. The remaining 20,425,076 shares held by existing stockholders will be "restricted securities" as defined in Rule 144 under the Securities Act ("Restricted Shares"). Restricted Shares may be sold in the public market only if registered or if they qualify for an exemption from registration under Rule 144 promulgated under the Securities Act, which is summarized below. Sales of Restricted Shares in the public market, or the availability of such shares for sale, could adversely affect the market price of our common stock.
In general, under Rule 144, beginning 90 days after the effective date of the offering, any person (or persons whose shares are aggregated) who has beneficially owned Restricted Shares for at least one year is entitled to sell, within any three-month period, a number of shares that does not exceed the greater of 1% of the then outstanding shares of our common stock (approximately shares immediately after this offering) or the average weekly trading volume during the four calendar weeks preceding such sale. Sales under Rule 144 are also subject to certain requirements as to the manner of sale, notice and availability of current public information about Collectors Universe. In addition, Restricted Shares, which have been beneficially owned for at least two years and which are held by non-affiliates, may be sold free of any restrictions under Rule 144.
All officers, directors and stockholders and certain option holders have agreed that they will not sell any common stock of Collectors Universe owned by them for a period of 180 days after the effective date of this offering without the prior written consent of Needham & Company, Inc. A total of 20,425,076 shares of common stock are subject to the 180-day lock-up. Upon the expiration of the 180-day lock-up (or earlier upon the consent of Needham & Company, Inc.), Restricted Shares will become eligible for sale subject to the volume and other restrictions of Rule 144. Of these Restricted Shares, shares will be held by affiliates of Collectors Universe.
Pursuant to a Registration Rights Agreement, as amended, by and among Collectors Universe and the holders of 20,425,076 shares of our common stock, such stockholders have the right, beginning one year from the effective date of this offering, to cause us to register their shares under the Securities Act by providing a written demand from the holders of at least 15% of the shares of common stock. The registration rights will terminate five years following the closing of this offering.
We intend to file a registration statement on Form S-8 under the Securities Act to register shares of common stock reserved for issuance under its stock option plans, thus permitting the resale by non-affiliates of shares issued under the plan in the public market without restriction under the Securities Act. Such registration statement will become effective immediately upon filing which is expected on or shortly after the closing of this offering. As of the closing of this offering, options or rights to purchase 2,637,565 shares of common stock will be outstanding under our stock option plans, of which 2,020,515 shares are subject to lock-up agreements described above.
UNDERWRITING
Subject to the terms and conditions of the Underwriting Agreement, the Underwriters named below (the "Underwriters"), for whom Needham & Company, Inc. and First Security Van Kasper are acting as representatives (the "Representatives"), have severally agreed to purchase an aggregate of shares of common stock from Collectors Universe at the initial public offering price less the underwriting discounts and commissions set forth on the cover page of this prospectus, in the amounts set forth opposite their respective names below.
UNDERWRITER PARTICIPATION
----------- -------------
Needham & Company, Inc......................................
First Security Van Kasper...................................
---------
Total..................................................
=========
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The Underwriting Agreement provides that the obligations of the Underwriters are subject to certain conditions precedent and that the Underwriters will purchase all shares of common stock offered hereby if any of those shares are purchased.
Collectors Universe has been advised by the Representatives that the Underwriters propose to offer the shares of common stock directly to the public at the initial public offering price set forth on the cover page of this prospectus, and to certain securities dealers at that price less a concession of not more than $ per share. The Underwriters may allow, and those dealers may reallow, a concession not in excess of $ per share to certain other dealers. After the shares of common stock are released for sale to the public, the offering price and other selling terms may from time to time be varied by the Underwriters. No change in those terms shall change the amount of proceeds to be received by Collectors Universe as set forth on the cover page of this prospectus.
Collectors Universe has granted to the Underwriters an option, exercisable within 30 days after the date of this prospectus, to purchase up to additional shares of common stock at the public offering price less the underwriting discounts and commissions set forth on the cover page of this prospectus. The Underwriters may exercise that option solely to cover over-allotments, if any, made in connection with the sale of common stock offered hereby. To the extent that the Underwriters exercise the over-allotment option, each Underwriter will be committed, subject to certain conditions, to purchase a number of additional shares of common stock which is proportionate to that Underwriter's initial commitment as set forth in the table above.
Collectors Universe, its officers and directors and current stockholders have agreed that, during the period beginning from the date of this prospectus and continuing to and including the date 180 days after the date of this prospectus, they will not offer, sell, contract to sell or otherwise dispose of any shares of common stock, any securities of Collectors Universe which are substantially similar to the shares of common stock or which are convertible or exchangeable for securities which are substantially similar to the shares of common stock without the prior written consent of Needham & Company, Inc., except for the shares of common stock offered in connection with this offering.
The Representatives have informed Collectors Universe that they do not expect sales to accounts over which the Underwriters exercise discretionary authority to exceed 5% of the total number of shares of common stock offered by them.
Prior to this offering, there has not been a public market for the common stock of Collectors Universe. Consequently, the initial public offering price of the common stock was determined by arms' length negotiation between Collectors Universe and the Representatives of the Underwriters. Among the factors to be considered by Collectors Universe and the Representatives in pricing the common stock are the results of operations, the current financial condition and future prospects of Collectors Universe, the experience of management, the amounts of ownership to be retained by the current stockholders, the general condition of the economy and the securities markets, the demand for similar securities of companies considered comparable to Collectors Universe and other factors deemed relevant.
Collectors Universe has agreed to indemnify the Underwriters against certain liabilities, including liabilities under the Securities Act, or to contribute to payments that the Underwriters may be required to make in respect thereof.
In connection with the offering, certain Underwriters and selling group members and their respective affiliates may engage in transactions that stabilize, maintain or otherwise affect the market price of the common stock. Those transactions may include stabilization transactions effected in accordance with the Exchange Act pursuant to which such persons may bid for or purchase common stock for the purpose of stabilizing its market price. The Underwriters also may create a short position for the account of the Underwriters by selling more common stock in connection with the offering than they are committed to purchase from Collectors Universe, and in such case may purchase common stock in the open market following completion of the offering to cover all or a portion of those shares of common stock or may exercise the Underwriters' over-allotment option referred to above. In addition, the Representatives, on behalf of the Underwriters, may impose "penalty bids" under the contractual arrangements with the Underwriters whereby the Representatives may reclaim from an Underwriter (or dealers participating in the offering), for the account of the other Underwriters, the selling concession with respect to common stock that is distributed in the offering but subsequently purchased for the account of the Underwriters in stabilization or syndicate covering transactions or otherwise. Any of these activities may stabilize or maintain the price of the common stock at a level above which might otherwise prevail in the open market. None of the transactions described in this paragraph is required, and if they are undertaken they may be discontinued at any time.
Two investment funds which are managed by and affiliates of Needham & Company, Inc. own a total of 100,000 shares of Collectors Universe common stock, which they purchased in March 1999 for $500,000 as part of the private placement of 1,281,800 shares at $5.00 per share.
LEGAL MATTERS
The validity of the common stock offered hereby will be passed upon for Collectors Universe by Stradling Yocca Carlson & Rauth, a Professional Corporation, Newport Beach, California. Certain legal matters in connection with this offering will be passed upon for the underwriters by Heller Ehrman White & McAuliffe, Los Angeles, California. Members of Stradling Yocca Carlson & Rauth own a total of 23,000 shares of common stock.
EXPERTS
The consolidated financial statements of Collectors Universe, Inc. and subsidiaries as of June 30, 1998 and 1999 and for each of the three years in the period ended June 30, 1999, included in this prospectus, and the related financial statement schedule included elsewhere in the registration statement have been audited by Deloitte & Touche LLP, independent auditors, as stated in their reports appearing herein and elsewhere in the registration statement, and are included in reliance upon the reports of such firm given upon their authority as experts in accounting and auditing.
The financial statements of the auction business of Lyn F. Knight Rare Coins, Inc. for the years ended December 31, 1997 and 1998, included in this prospectus, have been audited by Deloitte & Touche LLP, independent auditors, as stated in their report appearing in this prospectus, and are included in reliance upon the report of such firm given upon their authority as experts in accounting and auditing.
The financial statements of Kingswood Coin Auctions, LLC for the year ended December 31, 1998, included in this prospectus, have been audited by Deloitte & Touche LLP, independent auditors, as stated in their report appearing in this prospectus, and are included in reliance upon the report of such firm given upon their authority as experts in accounting and auditing.
AVAILABLE INFORMATION
We have filed with the SEC a registration statement on Form S-1 under the Securities Act with respect to the shares of common stock offered by this prospectus. This prospectus, which constitutes a part of the registration statement, does not contain all the information set forth in the registration statement and the exhibits and schedules thereto. For further information with respect to Collectors Universe and the common stock offered by this prospectus, reference is made to the registration statement and to the exhibits and schedules filed with the registration statement. A copy of the registration statement may be inspected without charge at the public reference facilities of the SEC located at 450 Fifth Street, N.W., Washington, D.C. 20549, and at the regional offices of the SEC located at 7 World Trade Center, Suite 1300, New York, New York 10048, and 500 West Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of all or any part of the registration statement may be obtained at the prescribed rates from the Public Reference Section of the SEC at 450 Fifth Street, N.W., Washington, D.C. 20549 and its public reference facilities in New York, New York and Chicago, Illinois, upon the payment of the fees prescribed by the SEC. The registration statement is also available through the Commission's Website on the World Wide Web at http://www.sec.gov.
INDEX TO FINANCIAL STATEMENTS
UNAUDITED PRO FORMA INFORMATION
PAGE
----
Unaudited Pro Forma Statement of Income -- Narrative
Overview.................................................. F-2
Unaudited Pro Forma Consolidated Statement of Income........ F-3
COLLECTORS UNIVERSE, INC. AND SUBSIDIARIES
Independent Auditors' Report................................ F-4
Consolidated Balance Sheets................................. F-5
Consolidated Statements of Income........................... F-6
Consolidated Statements of Stockholders' Equity............. F-7
Consolidated Statements of Cash Flows....................... F-8
Notes to Consolidated Financial Statements.................. F-10
AUCTION BUSINESS OF LYN F. KNIGHT RARE COINS, INC.
Independent Auditors' Report................................ F-26
Statements of Income and (Deficiency) Equity................ F-27
Statements of Cash Flows.................................... F-28
Notes to Financial Statements............................... F-29
KINGSWOOD COIN AUCTIONS, LLC
Independent Auditors' Report................................ F-31
Statement of Income and Retained Earnings................... F-32
Statement of Cash Flows..................................... F-33
Notes to Financial Statements............................... F-34
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UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF INCOME
The Unaudited Pro Forma Consolidated Statement of Income for the year ended June 30, 1999 gives effect to the Lyn F. Knight Rare Coins, Inc. (Lyn Knight) and Kingswood Coin Auctions, LLC (Kingswood) acquisitions and the acquisitions of minority ownership interests in Superior Sportscard Auctions, LLC (Superior) and Internet Universe, LLC (IU), as if such transactions had occurred on July 1, 1998. The Unaudited Pro Forma Consolidated Statement of Income also includes an adjustment for the income taxes which would have been recorded if Collectors Universe had been a C corporation, based on the tax laws in effect during the year.
The pro forma adjustments reflect Collectors Universe's determination of all adjustments necessary to present fairly Collectors Universe's pro forma results of operations. These adjustments are based on available information and assumptions Collectors Universe considers reasonable under the circumstances. The Unaudited Pro Forma Consolidated Statement of Income is provided for informational purposes only. This information is not necessarily indicative of the results of operations of Collectors Universe had the transactions referred to above occurred on the dates specified. In addition, this information is not necessarily indicative of the results of operations which may occur in the future. You should read the unaudited pro forma consolidated statement of income information together with the historical consolidated financial statements of Collectors Universe, its predecessor, and acquired companies and the related notes included elsewhere in this Prospectus.
COLLECTORS UNIVERSE, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF INCOME
FOR THE YEAR ENDED JUNE 30, 1999
(IN THOUSANDS, EXCEPT PER SHARE DATA)
PRO FORMA PRO FORMA
HISTORICAL(A) ACQUISITIONS(B) ADJUSTMENTS CONSOLIDATED
------------- --------------- ----------- ------------
Net revenues........................... $22,563 $988 $ $23,551
Cost of revenues....................... 8,654 124 8,778
------- ---- ----- -------
Gross profit........................... 13,909 864 14,773
Supplier compensation cost............. 585 -- 585
Selling, general and administrative
expenses............................. 13,287 289 204(c) 13,780
------- ---- ----- -------
Operating income....................... 37 575 (204) 408
Interest income, net................... 30 -- 30
Minority interest...................... (28) -- 28(d) --
------- ---- ----- -------
Income before (benefit) provision for
income taxes......................... 39 575 (176) 438
(Benefit) provision for income taxes... (348) -- 563(e) 215
------- ---- ----- -------
Net income............................. $ 387 $575 $(739) $ 223
======= ==== ===== =======
Per share information:
Net income per share, basic and
diluted........................... $ 0.02 $ 0.01
======= =======
Weighted average shares outstanding:
Basic................................ 17,644 19,232
Diluted.............................. 18,765 20,352
|
(a) Reflects the historical results of operations of Collectors Universe as derived from Collectors Universe's audited historical statement of income for the year ended June 30, 1999.
(b) Reflects the historical results of operations of Lyn Knight and Kingswood as derived from the unaudited statements of income for the period from July 1, 1998 through February 4, 1999. The operations of Superior and IU, both of which were majority owned subsidiaries of PCGS for the period July 1, 1998 through February 4, 1999, are included in the historical operations of the Company for such period, and were accounted for under minority interest accounting. All operating results of Lyn Knight, Kingswood, Superior and IU for the period from February 5, 1999 through June 30, 1999 are included in the Collectors Universe's statement of income for the year ended June 30, 1999.
(c) Reflects the additional amortization of goodwill that would have been recognized had the acquisitions occurred on July 1, 1999, based on a 15-year amortization period.
(d) Reflects the elimination of minority interest in operations of Superior and IU for the period July 1, 1998 through February 4, 1999.
(e) Reflects adjustment for the income taxes which would have been recorded if Collectors Universe had been a C corporation, based on the tax laws in effect during the year. The adjustment also applies a provision for income taxes for acquired companies, each of which operated as an S corporation or limited liability corporation prior to acquisition by the Collectors Universe.
INDEPENDENT AUDITORS' REPORT
TO THE STOCKHOLDERS AND BOARD OF DIRECTORS OF
COLLECTORS UNIVERSE, INC.
We have audited the accompanying consolidated balance sheets of Collectors Universe, Inc. and subsidiaries (the Company) as of June 30, 1998 and 1999, and the related consolidated statements of income, stockholders' equity, and cash flows for each of the three years in the period ended June 30, 1999. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of Collectors Universe, Inc. and subsidiaries as of June 30, 1998 and 1999, and the results of their operations and their cash flows for each of the three years in the period ended June 30, 1999, in conformity with generally accepted accounting principles.
Deloitte & Touche LLP
Costa Mesa, California
August 27, 1999
(September 1, 1999 as to Note 14)
COLLECTORS UNIVERSE, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
JUNE 30,
-----------------
1998 1999
------ -------
ASSETS
Current assets:
Cash and cash equivalents................................. $ 612 $ 1,852
Accounts receivable, net.................................. 782 2,026
Inventories, net.......................................... 762 3,148
Prepaid expenses and other................................ 297 514
Deferred taxes............................................ -- 239
------ -------
Total current assets................................... 2,453 7,779
Property and equipment, net............................... 392 1,201
Notes receivable from related parties..................... 101 178
Other assets.............................................. 103 167
Goodwill, net............................................. 55 5,226
Deferred taxes............................................ -- 347
------ -------
$3,104 $14,898
====== =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.......................................... $ 465 $ 2,430
Accrued liabilities....................................... 283 856
Accrued compensation and benefits......................... 201 524
Deferred revenue.......................................... 521 1,616
Income taxes payable...................................... 8 23
------ -------
Total current liabilities.............................. 1,478 5,449
Minority interest........................................... 64 --
Commitments and contingencies (Note 12)
Stockholders' equity:
Preferred stock, $.001 par value; 3,000 shares............ -- --
authorized; no shares issued or outstanding............... -- --
Common stock, $.001 par value; 30,000 shares authorized;
16,074 and 20,282 issued and outstanding at June 30,
1998 and 1999.......................................... 20 20
Additional paid-in capital................................ 70 10,614
Retained earnings (deficit)............................... 2,077 (1,185)
Less: treasury stock...................................... (605) --
------ -------
Total stockholders' equity............................. 1,562 9,449
------ -------
$3,104 $14,898
====== =======
|
The accompanying notes are an integral part of the consolidated financial statements.
COLLECTORS UNIVERSE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE DATA)
YEAR ENDED JUNE 30,
-----------------------------
1997 1998 1999
------- ------- -------
Net revenues.............................................. $ 9,393 $10,989 $22,563
Cost of revenues.......................................... 2,651 2,915 8,654
------- ------- -------
Gross profit.............................................. 6,742 8,074 13,909
Supplier compensation cost................................ -- -- 585
Selling, general and administrative expenses.............. 6,228 7,168 13,287
------- ------- -------
Operating income.......................................... 514 906 37
Interest income, net...................................... 33 26 30
Minority interest......................................... (6) (46) (28)
------- ------- -------
Income before provision (benefit) for income taxes........ 541 886 39
Provision (benefit) for income taxes...................... 36 13 (348)
------- ------- -------
Net income................................................ $ 505 $ 873 $ 387
======= ======= =======
Net income per share, basic and diluted................... $ 0.03 $ 0.05 $ 0.02
======= ======= =======
Weighted average shares outstanding:
Basic................................................ 16,217 16,064 17,644
Diluted.............................................. 16,217 16,064 18,765
SUPPLEMENTAL DATA (UNAUDITED) (NOTE 2):
Historical income before provision for income taxes....... $ 541 $ 886 $ 39
Supplemental provision for income taxes................... 216 354 16
------- ------- -------
Supplemental net income................................... $ 325 $ 532 $ 23
======= ======= =======
Supplemental net income per share, basic and diluted...... $ --
=======
Weighted average shares outstanding:
Basic................................................ 17,644
Diluted.............................................. 18,765
|
The accompanying notes are an integral part of the consolidated financial statements.
COLLECTORS UNIVERSE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT PER SHARE DATA)
COMMON STOCK ADDITIONAL RETAINED TREASURY STOCK
---------------- PAID-IN EARNINGS ----------------
SHARES AMOUNT CAPITAL (DEFICIT) SHARES AMOUNT TOTAL
------ ------- ---------- --------- ------- ------ -------
Balance at July 1, 1996.............. 20,667 $ 20 $ 70 $ 1,269 4,363 $(499) $ 860
Dividends to stockholders............ (170) (170)
Purchase of treasury stock........... 230 (125) (125)
Net income........................... 505 505
------ ------- ------- ------- ------- ----- -------
Balance at June 30, 1997............. 20,667 20 70 1,604 4,593 (624) 1,070
Dividends to stockholders............ (400) (400)
Sale of treasury stock............... (230) 61 61
Purchase of treasury stock........... 230 (42) (42)
Net income........................... 873 873
------ ------- ------- ------- ------- ----- -------
Balance at June 30, 1998............. 20,667 20 70 2,077 4,593 (605) 1,562
Dividends to stockholders............ (2,610) (2,610)
Sale of treasury stock............... (318) 116 116
Cancellation of treasury stock....... (3,356) (3) 3 (489) (3,356) 489
Issuance of shares in acquisition.... 1,689 2 3,566 (550) (919) 3,018
Issuance of common stock in private
placement.......................... 1,282 1 6,390 6,391
Compensation expense related to stock
options granted.................... 585 585
Net income........................... 387 387
------ ------- ------- ------- ------- ----- -------
Balance at June 30, 1999............. 20,282 $ 20 $10,614 $(1,185) -- -- $ 9,449
====== ======= ======= ======= ======= ===== =======
|
The accompanying notes are an integral part of the consolidated financial statements.
COLLECTORS UNIVERSE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
YEAR ENDED JUNE 30,
-----------------------
1997 1998 1999
----- ----- -------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income................................................ $ 505 $ 873 $ 387
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization.......................... 184 169 407
Supplier compensation cost............................. -- -- 585
Provision for bad debts................................ 29 -- 51
Provision for inventory writedown...................... -- 2 161
Accrued interest income from related party............. (9) (3) (13)
Write-off and forgiveness of note receivable from
related party......................................... -- 134 15
Loss on disposal of property and equipment............. 3 32 74
Minority interest...................................... 7 46 28
Deferred income taxes.................................. -- -- (586)
Changes in operating assets and liabilities:
Accounts receivable.................................. (557) (16) (1,295)
Inventories.......................................... (210) (271) (2,547)
Prepaid expenses and other........................... (53) (207) (217)
Income tax refund receivable......................... 19 9 --
Other assets......................................... -- -- (64)
Accounts payable..................................... 168 (184) 1,965
Accrued liabilities.................................. 95 (31) 427
Accrued compensation and benefits.................... 80 (41) 323
Deferred revenue..................................... (73) 302 1,095
Income tax payable................................... -- 9 15
----- ----- -------
Net cash provided by operating activities......... 188 823 811
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of property and equipment.............. 10 -- 84
Advances on notes receivable from related parties......... (83) (100) (180)
Capital expenditures...................................... (138) (109) (1,211)
Cash paid for acquisitions................................ -- -- (262)
Collections on notes receivable from related parties...... 55 7 101
----- ----- -------
Net cash used in investing activities............. (156) (202) (1,468)
|
COLLECTORS UNIVERSE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
(IN THOUSANDS)
YEAR ENDED JUNE 30,
-----------------------
1997 1998 1999
----- ----- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Dividends to stockholders................................. (170) (400) (2,610)
Sales (purchases) of treasury stock....................... (32) (42) 116
Repayment of acquisition notes payable.................... -- -- (2,000)
Proceeds from sale of common stock........................ -- -- 6,391
Proceeds from sale of treasury stock...................... -- 61 --
----- ----- -------
Net cash (used in) provided by financing
activities..................................... (202) (381) 1,897
----- ----- -------
Net (decrease) increase in cash and cash equivalents........ (170) 240 1,240
Cash and cash equivalents at beginning of year.............. 542 372 612
----- ----- -------
Cash and cash equivalents at end of year.................... $ 372 $ 612 $ 1,852
===== ===== =======
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the year for:
Interest.................................................. $ -- $ -- $ 27
Income taxes.............................................. $ 18 $ 5 $ 223
SUPPLEMENTAL SCHEDULE OF NONCASH TRANSACTIONS:
During the year ended June 30, 1997, the Company accepted
common stock valued at $93 from a stockholder as payment
of a stockholder advance of $93.
During the year ended June 30, 1999, the Company acquired
certain businesses as follows (Note 3):
Common stock issued......................................... $ 3,568
Debt issued................................................. 2,000
Cash paid in acquisitions................................... 262
Minority interest........................................... (92)
Liabilities assumed......................................... 146
Predecessor carryover basis adjustment...................... (550)
-------
Goodwill.................................................... $ 5,334
=======
|
The accompanying notes are an integral part of the consolidated financial statements.
COLLECTORS UNIVERSE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED JUNE 30, 1997, 1998 AND 1999
(IN THOUSANDS, EXCEPT PER SHARE DATA)
1. ORGANIZATION AND NATURE OF BUSINESS:
ORGANIZATION
Collectors Universe, Inc. (Collectors Universe) is a Delaware corporation that was organized on February 5, 1999 for the purpose of enabling Professional Coin Grading Service, Inc. (PCGS or the Predecessor) to acquire other businesses that, like PCGS, provide services to the collectibles markets. On February 5, 1999 Collectors Universe issued 17,311 shares of common stock in exchange for all of the outstanding shares of PCGS. As a result of that exchange, the former stockholders of PCGS became stockholders of Collectors Universe, with each of them receiving a number of our shares based on his or her percentage ownership of the shares of PCGS. Prior to this exchange, Collectors Universe had no operating assets or liabilities and had not yet conducted any operations. The assets and liabilities acquired were recorded at the predecessor basis as the transaction represented a transfer of assets and liabilities between entities under common control.
Concurrently with the exchange transaction with PCGS, Collectors Universe acquired the assets of the auction businesses of Lyn F. Knight Rare Coins, Inc., Lyn Knight and Kingswood Coin Auctions, LLC (Kingswood) and the minority ownership interests in Superior Sportscard Auctions, LLC (Superior), and Internet Universe, LLC (IU), both of which were majority owned subsidiaries of PCGS at the time these acquisitions were consummated.
NATURE OF THE BUSINESS
Collectors Universe provides grading and authentication services for rare coins, sportscards, sports memorabilia, autographs and other collectible items. We also conduct Internet, telephone and in-person auctions of high-end collectibles. Our main sources of revenue are from grading and authentication, sales of collectibles and auction commissions.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements for periods prior to the fiscal year ended June 30, 1999 include the accounts of our predecessor corporation, PCGS, and its majority-owned subsidiaries, Superior and IU, in which PCGS had a 60% and 55% ownership interest, respectively. The consolidated financial statements for the fiscal year ended June 30, 1999 include the accounts of PCGS for the entire fiscal year and the accounts of Lyn Knight and Kingswood, from the date of their acquisitions. During 1999, we acquired the remaining ownership interests in Superior and IU, which resulted in the full consolidation of these entities from the date of acquisition. All significant intercompany accounts and transactions have been eliminated in consolidation.
CASH AND CASH EQUIVALENTS
We consider all highly liquid investments with original maturities of three months or less at the date of purchase to be cash equivalents.
COLLECTORS UNIVERSE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
CONCENTRATION OF CREDIT RISK
Our financial instruments that are exposed to concentrations of credit risk consist primarily of accounts receivable and cash deposits and other cash equivalents that are in excess of federally insured limits. Generally, payment for grading services or collectibles sold at auction are received before items are shipped. However, we do extend credit to selected customers but generally retain possession of purchased items until payment is received. We maintain an allowance for doubtful accounts and regularly review the adequacy of this reserve. The allowance for doubtful accounts was $0 and $38 at June 30, 1998 and 1999, respectively.
FAIR VALUE OF FINANCIAL INSTRUMENTS
Our consolidated balance sheets include the following financial instruments: cash and cash equivalents, accounts receivable, notes receivable, accounts payable and accrued liabilities. We consider the carrying value of cash and cash equivalents, accounts receivable, accounts payable and accrued liabilities in the consolidated financial statements to approximate fair value for these instruments because of the relatively short period of time between origination of the instruments and their expected realization. Based on current market rates, the fair value of the note receivable from a related party at June 30, 1999 approximated its carrying value.
INVENTORIES
We account for collectible inventories under the specific identification method. Inventories are carried at the lower of cost or market, where market is generally determined by published price guides.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Depreciation and amortization are provided using the straight-line method over the estimated useful lives ranging from three to seven years. Leasehold improvements are amortized over the shorter of the estimated useful lives of the improvements or the term of the related lease. Repair and maintenance costs are expensed as incurred.
GOODWILL
Goodwill represents the excess of the purchase price over the fair value of net assets acquired and is amortized using the straight-line method over periods ranging from five to fifteen years. We periodically evaluate the recoverability of goodwill by determining whether the amortization of the balance over its remaining useful life can be recovered through projected undiscounted future operating cash flows. Based on our most recent analysis, we believe that no impairment exists at June 30, 1999. Accumulated amortization of goodwill was $45 and $208 at June 30, 1998 and 1999, respectively.
COLLECTORS UNIVERSE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
LONG-LIVED ASSETS
We account for the impairment and disposition of long-lived assets in accordance with Statement of Financial Accounting Standards (SFAS) No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of (SFAS No. 121). In accordance with SFAS No. 121, long-lived assets to be held are reviewed for events or changes in circumstances which indicate that their carrying value may not be recoverable through projected undiscounted future operating cash flows. The Company periodically reviews the carrying value of long-lived assets to determine whether an impairment to such value has occurred. At June 30, 1999, there was no impairment of long-lived assets.
REVENUE RECOGNITION
The Company's revenue is primarily derived from grading and authentication services and sales of collectible items through auctions. Grading and authentication services include coin and sportscard grading along with authentication of collectibles and autographs. Commissions from buyers and sellers are derived from the sale of consigned inventory that is sold or auctioned by the Company. Collectible sales represent sales of inventory purchased by the Company for sale at auction or in galleries.
Grading and authentication revenue is recognized when the grading and authentication services are performed and the collectibles have been returned to the submitting party. Advance payments received for grading and authentication services are recorded as deferred revenue until such time as the services are performed and the graded items are shipped. Costs associated with grading and authentication activities are expensed as incurred. In most instances we offer dealers a discount on coins submitted for grading which reduces revenue by the amount of the discounts. Discounts aggregated $1,697, $1,740 and $1,528 for fiscal years 1997, 1998 and 1999, respectively. Auction and gallery sales, along with commissions earned, are recognized when the collectible is shipped to the customer.
We generally offer a five day return privilege on collectibles bought through our auctions. We calculate the necessity for, and the amount of an allowance for estimated future returns based on historical experience. No return allowances have been required for the years ended June 30, 1997, 1998 and 1999.
WARRANTY COSTS
Collectors Universe offers a warranty covering the coins and sportscards it authenticates and grades. Under the terms of the warranty, any coin or sportscard originally graded by us, which subsequently receives a lower grade upon resubmittal to us, obligates us to either purchase the coin or sportscard or pay the difference in value of the item at its original grade as compared with its lower grade. We accrue for estimated warranty costs based on historical trends and related experiences.
ADVERTISING COSTS
Advertising costs are expensed as incurred and amounted to approximately $198, $250 and $612 for the three years ended June 30, 1997, 1998 and 1999, respectively.
COLLECTORS UNIVERSE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
INCOME TAXES
We account for income taxes in accordance with SFAS No. 109, Accounting for Income Taxes. Deferred taxes on income result from temporary differences between the reporting of income and expense for financial statements and tax reporting purposes. A valuation allowance related to a deferred tax asset is recorded when it is more likely than not that some portion or all of the deferred tax asset will not be realized. Prior to February 5, 1999, we elected to be treated as an S corporation under the Internal Revenue Code and California Revenue and Taxation Code. Accordingly, the provision for income taxes for the years ended June 30, 1997 and 1998 is computed by applying the California franchise tax rate for S corporations of 1.5% to our income before tax. Effective February 5, 1999, we converted to a C corporation and became a taxable entity subject to regular federal and state income taxes on an ongoing basis.
STOCK-BASED COMPENSATION
We account for stock-based awards to employees, using the intrinsic value method in accordance with Accounting Principles Board (APB) Opinion No. 25, Accounting for Stock Issued to Employees, and complies with the disclosure provisions of SFAS No. 123, Accounting for Stock-Based Compensation (SFAS No. 123).
We account for equity instruments issued to non-employees in accordance with the provisions of SFAS No. 123 and Emerging Issues Task Force (EITF) Issue No. 96-18, Accounting for Equity Instruments that are Issued to Other Than Employees for Acquiring, or in Conjunction with Selling Goods or Services. All transactions in which goods or services are the consideration received for the issuance of equity instruments are accounted for based on the fair value of the consideration received or the fair value of the equity instrument issued, whichever is more reliably measurable. The measurement date of the fair value of the equity instrument issued is the earlier of the date on which the third-party performance is complete or the date on which it is probable that performance will occur.
NET INCOME PER SHARE
We compute net income per share in accordance with SFAS No. 128, Earnings Per Share (SFAS No. 128). SFAS No. 128 requires the presentation of basic and diluted earnings per share. Basic earnings per share is computed by dividing net income available to common stockholders by the weighted average number of common shares outstanding during the periods presented. Diluted net income per share is computed by dividing net income available to common stockholders by the weighted average number of common and common equivalent shares outstanding during the periods presented assuming the exercise of all outstanding stock options and other dilutive securities. The
COLLECTORS UNIVERSE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
following is a reconciliation between the number of shares used in the basic and diluted net income per share calculations for the years ended June 30:
1997 1998 1999
------ ------ ------
Basic net income per share:
Weighted average number of common shares outstanding...... 16,217 16,040 17,644
Effect of dilutive securities -- stock options............ -- -- 1,121
------ ------ ------
Diluted net income per share:
Weighted average number of common shares outstanding...... 16,217 16,040 18,765
====== ====== ======
|
SUPPLEMENTAL NET INCOME
Supplemental net income represents the results of operations adjusted to reflect a provision for income tax on historical income before provision for income taxes, as if we had been taxed as a C corporation. The difference between the pro forma income tax rates utilized and federal statutory rate of 34% relates primarily to state income taxes (approximately 6%, net of federal tax benefit).
SUPPLEMENTAL NET INCOME PER SHARE
Supplemental net income per share has been computed by dividing supplemental net income by the weighted average number of shares of common stock outstanding during the period.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenue and expenses during reporting years. Actual results could differ from those estimates.
NEW ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board (FASB) issued SFAS No. 131, Disclosure About Segments of an Enterprise and Related Information (SFAS No. 131). SFAS No. 131 establishes standards for the way companies report information about operating segments in annual financial statements. It also establishes standards for related disclosure about products and services, geographic areas and major customers. We adopted SFAS No. 131 on July 1, 1998. We conduct our business activity in two service segments: authentication and grading of collectibles and auctions of collectibles.
In June 1998, the FASB issued SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities (SFAS No. 133), which the Company is required to adopt effective for its fiscal year beginning July 1, 2001. SFAS No. 133 will require the Company to record all derivatives on the balance sheet at fair value. The Company does not have any derivative instruments nor does the Company engage in hedging activities. Therefore, the adoption of SFAS No. 133 is not expected to have an impact on the Company's financial position.
COLLECTORS UNIVERSE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
In March 1998, the Accounting Standards Executive Committee (AcSEC) issued Statement of Position No. 98-1, Accounting for the Costs of Computer Software Developed or Obtained for Internal Use (SOP No. 98-1), which provides guidance on accounting for the cost of computer software developed or obtained for internal use. SOP 98-1 is effective for financial statements for fiscal years beginning after December 15, 1998. We currently expense all internal development costs and we are evaluating the impact of SOP 98-1 on our financial statements and related disclosures.
RECLASSIFICATIONS
Certain reclassifications have been made to the 1997 and 1998 financial statements to conform to the 1999 presentation.
3. ACQUISITIONS
On January 25, 1999, PCGS acquired an additional 40% membership interest in IU. PCGS exchanged 919 shares of its common stock valued at $1,199 for the 40% membership interest of IU. The acquisition was accounted for under the purchase method of accounting. The total purchase price of $1,293, including transaction costs of $37, was allocated to goodwill.
On February 5, 1999, we acquired certain assets of Lyn Knight related to Lyn Knight's currency auction business for $100 in cash, a promissory note of $1,000, payable within six months of the closing, and 760 shares of the Company's common stock valued at $1,064. The acquisition was accounted for under the purchase method of accounting and the entire purchase price of $2,201, including transaction costs of $37 was allocated to goodwill. The results of operations of Lyn Knight have been included in our consolidated financial statements from the date of acquisition. During the fourth quarter ended June 30, 1999, we paid in full the outstanding amount due on the promissory note.
On February 5, 1999, we acquired certain assets of Kingswood for a promissory note of $1,000, payable within six months of closing, and 190 shares of the Company's common stock valued at $120. The acquisition was accounted for under the purchase method of accounting and took into account that certain members of Kingswood (affiliated Stockholders) also had a 54.7% ownership interest in Collectors Universe at the time of the acquisition. Accordingly, the assets acquired and liabilities assumed were recorded at their estimated fair values with the exception of those assets and liabilities attributed to the affiliated Stockholders which were recorded at the carryover basis in accordance with generally accepted accounting principles. The new basis of reporting for the Company's net assets using fair market values at the date of the acquisition was reduced by $550 to reflect the carryover basis of the former stockholders of Kingswood. This carryover basis is reflected as a reduction in retained earnings in the accompanying consolidated balance sheets. The excess of the purchase price of $604 was allocated to goodwill. The results of operations of Kingswood have been included in our consolidated financial statements from the date of acquisition. During the fourth quarter ended June 30, 1999, we paid in full the outstanding amount due on the promissory note.
On February 5, 1999, we acquired the remaining 40% membership interest of Superior not already owned by the Company. We exchanged 631 shares of the Company's common stock valued at $1,034 for the remaining 40% membership interest of Superior not already owned by the Company. The acquisition was accounted for under the purchase method of accounting. The total purchase price
COLLECTORS UNIVERSE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
of $1,060, including transaction costs of $26 and a minority interest liability of $149 was allocated to goodwill.
On February 5, 1999, we acquired the remaining 5% membership interest of IU not already owned by us in exchange for 108 shares of our common stock valued at $151. The acquisition was accounted for under the purchase method of accounting. The total purchase price of $179 including transaction costs of $28, was allocated to goodwill.
The following unaudited pro forma consolidated results of operations give effect to the above acquisitions as though such acquisitions had occurred on July 1, 1997. The pro forma information is provided for informational purposes only. It is based on historical information and does not necessarily reflect the actual results that would have occurred and is not necessarily indicative of future results of operations of the combined companies.
YEAR ENDED JUNE 30,
-----------------------------
1997 1998 1999
------- ------- -------
UNAUDITED
Total revenues.................................... $10,302 $12,035 $23,551
======= ======= =======
Net income........................................ $ 632 $ 1,081 $ 636
======= ======= =======
Pro forma net income per share:
Basic and diluted............................... $ 0.04 $ 0.07 $ 0.03
|
4. INVENTORIES
Inventories consist of the following at June 30:
1998 1999
---- ------
Coins and currency.......................................... $134 $1,551
Sportscards................................................. 6 837
Records..................................................... 622 631
Other collectibles.......................................... -- 290
---- ------
762 3,309
Less inventory reserve...................................... -- (161)
---- ------
$762 $3,148
==== ======
|
Inventory reserve represents valuation allowance on certain rare coins and records.
COLLECTORS UNIVERSE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
5. PROPERTY AND EQUIPMENT
Property and equipment consists of the following at June 30:
1998 1999
------- -------
Coin and sportscard grading reference sets, fair value of
$108 and $19 at June 30, 1998 and 1999, respectively...... $ 199 $ 40
Computer hardware and equipment............................. 518 1,114
Computer software........................................... 184 298
Equipment................................................... 561 790
Furniture and office equipment.............................. 434 615
Leasehold improvements...................................... 14 106
------- -------
1,910 2,963
Less accumulated depreciation and amortization.............. (1,518) (1,762)
------- -------
Property and equipment, net................................. $ 392 $ 1,201
======= =======
|
6. ACCRUED LIABILITIES
Accrued liabilities consist of the following at June 30:
1998 1999
---- ----
Warranty reserve............................................ $175 $232
Professional fees........................................... -- 313
Other....................................................... 108 311
---- ----
$283 $856
==== ====
|
COLLECTORS UNIVERSE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
7. INCOME TAXES
The provision (benefit) for income taxes consists of the following for the years ended June 30:
1997 1998 1999
---- ---- -----
Current:
Federal................................................. $-- $-- $ 179
State................................................... 36 13 59
--- --- -----
36 13 238
--- --- -----
Deferred:
Federal................................................. -- -- (463)
State................................................... -- -- (123)
-----
-- -- (586)
--- --- -----
Total income tax provision (benefit)...................... $36 $13 $(348)
=== === =====
|
The reconciliation of income tax provision (benefit) computed at federal statutory rates to income tax provision (benefit) for the years ended June 30, is as follows:
1997 1998 1999
----- ----- -----
Tax at federal statutory rates.............................. $ 184 $ 301 $ 13
State income taxes, net..................................... 36 13 (42)
Recording of deferred income tax assets in connection with
the conversion to a C corporation......................... -- -- (122)
S corporation net income not subject to federal tax......... (184) (301) (271)
Goodwill.................................................... 42
Other, net.................................................. 32
----- ----- -----
$ 36 $ 13 $(348)
===== ===== =====
|
COLLECTORS UNIVERSE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Deferred income taxes reflect the net tax effect of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of our deferred taxes as of June 30, 1999 are as follows:
CURRENT LONG-TERM TOTAL
------- --------- -----
Deferred tax assets:
Supplier compensation costs...................... $ -- $256 $256
Reserves......................................... 188 -- 188
Property and equipment........................... -- 84 84
Other............................................ 94 19 113
---- ---- ----
Total deferred tax assets..................... 282 359 641
Deferred tax liabilities:
State taxes...................................... (43) -- (43)
Other............................................ -- (12) (12)
---- ---- ----
Total deferred tax liabilities................ (43) (12) (55)
---- ---- ----
Net deferred tax asset............................. $239 $347 $586
==== ==== ====
|
Prior to February 5, 1999, we elected to be treated as an S corporation under the Internal Revenue Code and California Revenue and Taxation Code. Accordingly, the provision for income taxes for the years ended June 30, 1997 and 1998 is computed by applying the California franchise tax rate for S corporations of 1.5% to our pretax earnings. Effective February 5, 1999, we converted to a C corporation and became a taxable entity subject to regular federal and state income taxes on an ongoing basis. As a result, we recorded $122 of net deferred income tax assets on February 5, 1999 through a benefit recorded in the accompanying consolidated statements of income.
8. EMPLOYEE BENEFIT PLAN
We established an employee benefit plan, effective July 1992, that features a 401(k) salary reduction provision covering all employees who meet eligibility requirements. Eligible employees may elect to defer up to 15% of compensation or the statutorily prescribed annual limit. Collectors Universe, at its discretion, may make contributions to the plan. To date, we have not made contributions to the plan and administrative costs have been nominal.
9. STOCKHOLDERS' EQUITY
On February 5, 1999, the Predecessor's stockholders exchanged 75 shares of Predecessor's common stock for 17,311 shares of Collectors Universe's common stock. All shares and per share amounts included in the accompanying financial statements and footnotes have been restated to reflect the exchange ratio of 229.629-for-one. In addition, we also issued 1,689 shares of common stock in connection with certain business acquisitions (Note 3).
COLLECTORS UNIVERSE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
In March 1999, we sold 1,282 shares of common stock in a private placement at a price of $5.00 per share. Net proceeds from the private placement amounted to approximately $6,391 after deducting offering expenses of approximately $18. Net proceeds from the private placement offering were used to pay indebtedness of $2,000 relating to business acquisitions (Note 3), to fund the distribution of previously taxed income to Predecessor stockholders in the amount of $2,200, and to provide working capital for general corporate purposes.
CONSULTING AGREEMENT
In July 1997, we granted options to an individual to purchase 532 shares of our common stock at an exercise price of $0.33 per share as consideration for a five-year consulting agreement commencing on July 1, 1997. The options vest 20% per year commencing December 31, 1997 through December 31, 2001 and are exercisable on or before December 31, 2005. No amount was allocated to the value of the options, as the amount was insignificant.
WARRANT AGREEMENT
In May 1999, we granted a warrant to purchase 50 shares of our common stock at an exercise price of $5.00 per share in connection with an exclusive license agreement. No amount was allocated to the value of the warrant, as the amount was insignificant.
SUPPLIER COMPENSATION COST
During the fourth quarter ended June 30, 1999, we entered into agreements with collectible experts to provide content for our websites and to supply a specified amount of collectible merchandise over a multi-year period. The agreements provide for the aggregate award of 622 stock options at an exercise price of $5.00 per share. The agreements provide for immediate vesting and are exercisable over the terms of the agreements. We have determined that the measurement date for the recognition of the fair value of these restricted stock awards is at the time of agreement execution. The fair value of the restricted stock awards was based on a third party valuation using the Black-Scholes option pricing model and the following assumptions:
Stock fair value per share.................................. $4.75 Exercise price.............................................. 5.00 Term........................................................ 5 years Volatility.................................................. -- Risk-free interest rate..................................... 5.5% |
As Collectors Universe is not a public company and its stock does not have a trading history, a 0% volatility factor was used as permitted under SFAS No. 123.
During the year ended June 30, 1999, we recognized $585 of expense based upon the fair value of the stock options granted and such amount is included in supplier compensation costs in the accompanying statements of income.
COLLECTORS UNIVERSE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
10. STOCK OPTION PLANS
In January 1999, we adopted the PCGS 1999 Stock Incentive Plan (the PCGS Plan). The PCGS Plan covers an aggregate of 1,751 shares of our common stock. In February 1999 we adopted the 1999 Stock Incentive Plan (the 1999 Plan), which provides for grants of incentive stock options, nonstatutory stock options, and restricted stock grants to directors, officers, employees and consultants of Collectors Universe who provide valuable services to Collectors Universe, entitling them to purchase up to 1,499 shares of our common stock. Each of these Plans provide that the option price per share may not be less than 100% of the fair market value of a share of common stock on the grant date as determined by the Board of Directors for incentive stock options and 85% of fair market value for nonstatutory stock options. For incentive stock options, the exercise price may not be less than 110% of the fair market value of a share of common stock on the grant date for any individual possessing 10% or more of the voting power of all classes of stock of Collectors Universe. The timing of exercise for individual option grants is at the discretion of the Board of Directors, and the options expire no later than ten years after the grant date (five years in the case of incentive stock options granted to individuals possessing 10% or more of the voting power of all classes of stock of Collectors Universe). In the event of a change in control of Collectors Universe, an option or award under these Plans will become fully exercisable if the option or award is not assumed by the surviving corporation or the surviving corporation does not substitute comparable awards for the awards granted under these Plans.
The following is a summary of stock option activity for fiscal 1999 under the PCGS Plan and the 1999 Plan:
WEIGHTED
AVERAGE
NUMBER OF EXERCISE PRICE
SHARES PRICE PER SHARE PER SHARE
--------- --------------- --------------
Options outstanding at June 30, 1998......... --
Granted...................................... 2,106 $2.11 -- $5.23 $3.53
Cancelled.................................... -- --
Exercised.................................... -- -- --
----- ------------- -----
Options outstanding at June 30, 1999......... 2,106 $2.11 -- $5.23 $3.53
===== ============= =====
|
The following table summarizes information about stock options outstanding at June 30, 1999:
OPTIONS OUTSTANDING
WEIGHTED AVERAGE OPTIONS EXERCISABLE
--------------------------------------------- -----------------------------
NUMBER OF REMAINING WEIGHTED NUMBER OF WEIGHTED
RANGE OF SHARES CONTRACTUAL AVERAGE SHARES AVERAGE
EXERCISE PRICE OUTSTANDING LIFE (YEARS) EXERCISE PRICE EXERCISABLE EXERCISE PRICE
-------------- ----------- ------------ -------------- ----------- --------------
$2.11 -- $2.61 1,105 9.5 $2.18 950 $2.11
$5.00 -- $5.23 1,001 9.7 $5.03 119 $5.00
|
COLLECTORS UNIVERSE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
At June 30, 1999, there were 1,069 shares exercisable at option prices ranging from $2.11 to $5.00 The weighted average remaining contractual life of outstanding stock options was 9.6 years at June 30, 1999. In addition, 270 shares will become 100% vested upon the consummation of an initial public offering.
SFAS No. 123 encourages but does not require companies to record compensation cost for employee stock option grants. As permitted by SFAS No. 123, we have chosen to account for employee option grants using APB Opinion No. 25 and apply the disclosure-only provisions of SFAS No. 123. Accordingly, no compensation expense has been recognized for employee stock option grants; as such grants have been made at fair market value. Had compensation expense for the employee stock option grants been determined using the provisions of SFAS No. 123, our net income for the year ended June 30, 1999 would have been reduced to the amounts indicated below:
Net income:
As reported............................................... $ 387
Pro forma................................................. $ 31
Basic and diluted net income (loss) per share:
As reported............................................... $0.02
=====
Pro forma................................................. $ --
=====
|
Because options vest over several years and additional option grants are expected, the above pro forma effects of applying SFAS No. 123 are not likely to be representative of the effects of reporting net income (loss) for future periods.
For purposes of estimating compensation cost of our option grants in accordance with SFAS No. 123, the fair value of each option grant is estimated on the date of grant using the Black-Scholes option-pricing model, with the following weighted average assumptions used for grants during the year ended June 30, 1999:
Average dividend yield...................................... 0% Expected life in years...................................... 5 Risk free interest rate..................................... 5.5% Expected volatility......................................... 0% |
11. RELATED-PARTY TRANSACTIONS
During the ordinary course of business, we provided grading services to certain entities that are owned, controlled or affiliated with our stockholders. Grading revenues received from these related entities amounted to $98, $153 and $216 during the years ended June 30, 1997, 1998 and 1999, respectively. In addition, we purchased inventories from and sold inventories to certain of these related entities. Purchases of inventories from these related entities amounted to $120, $220 and $537 during the years ended June 30, 1997, 1998 and 1999, respectively. Sales of inventories to these
COLLECTORS UNIVERSE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
related entities amounted to $16, $46 and $0 during the years ended June 30, 1997, 1998 and 1999, respectively.
J.D.R.C., Inc., an entity owned by one of our stockholders, provides research-consulting services to us related to our coin grading and authentication services. Amounts paid to J.D.R.C., Inc. related to these consulting services were $295, $173 and $152 during the years ended June 30, 1997, 1998 and 1999, respectively.
At June 30, 1997, we had an unsecured note receivable from an employee of $134 for amounts advanced to the employee. During the year ended June 30, 1998, such note was written-off as uncollectible.
During the year ended June 30, 1997, we accepted common stock valued at $93 from a stockholder as payment of a stockholder advance of $93.
At June 30, 1998, we had an unsecured note receivable from D.H.R.C.C., an entity owned by one of our stockholders, in the amount of $101. Such note bore interest at 9% per annum and was paid in full during the year ended June 30, 1999.
In October 1998, we loaned $180 to an officer of Collectors Universe. The loan bears interest at 9% per annum and is collateralized by 101 shares of our common stock. The officer's employment agreement provides for annual principal forgiveness of $30 on each anniversary date of the loan, provided the officer is then currently employed by us. Unpaid principal and interest is due and payable on September 23, 2001. Unpaid principal and interest at June 30, 1999 was $178 and is included in notes receivable from related parties in the accompanying consolidated balance sheets. In addition, during 1999, we paid the officer $100 for relocation expenses which is included in general and administrative expenses in the accompanying consolidated statements of income.
12. COMMITMENTS AND CONTINGENCIES
LEASES
Collectors Universe leases its facilities and certain equipment under operating leases which expire at various dates through 2004. We received sublease rental income of $60 under terms of a month-to-month lease from related parties for the years ended June 30, 1997 and 1998. We recorded rental expense of $289, $329 and $578, net of sublease rental income, for the years ended June 30, 1997, 1998 and 1999 respectively. The following are the minimum lease obligations under these leases at June 30, 1999:
2000........................................................ $358
2001........................................................ 170
2002........................................................ 123
2003........................................................ 80
2004........................................................ 53
----
$784
====
|
COLLECTORS UNIVERSE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Subsequent to June 30, 1999, we entered into an eight year operating lease for a facility that will consolidate all California based operations. Occupancy is anticipated to be April 2000. Minimum lease obligations, assuming an April 2000 occupancy, are: $907, $930, $953, $972, $1,001 and $3,149 for fiscal years 2001, 2002, 2003, 2004, 2005 and thereafter, respectively. Total minimum lease payments under this new lease are $7,912.
ROYALTY AGREEMENT
On March 31, 1999, we entered into an exclusive royalty agreement with a third party for rights within the collectibles industry to certain patented synthetic DNA technology. Terms of the agreement provide for royalties on each use of the technology and minimum royalties if certain annual usage volumes are not achieved. Minimum royalty obligations under this agreement are: $125, $158, $209, $258, $308 and $292 for fiscal years 2001, 2002, 2003, 2004, 2005 and thereafter, respectively.
EMPLOYMENT AGREEMENT
The Company has entered into employment agreements with certain executive officers and other key employees. The employment agreements provide for minimum salary levels, incentive compensation and severance benefits, among other items.
13. SEGMENT, GEOGRAPHIC AND MAJOR CUSTOMER INFORMATION
We operate principally in two service segments: the authentication and grading of collectibles and auctions of collectibles. We allocate a substantial portion of operating expenses to each service segment based upon head count. We do not allocate specific assets to these serviced segments.
YEAR ENDED JUNE 30, 1999
------------------------------------
GRADING AND
AUCTION AUTHENTICATION TOTAL
------- -------------- -------
Net revenues from external customers................... $ 4,878 $17,685 $22,563
Operating income (loss)................................ $(3,579) $ 4,766 $ 1,187
Unallocated operating expenses......................... (1,150)
-------
Operating income, consolidated......................... $ 37
=======
Goodwill amortization.................................. $ 163 $ 163
|
YEAR ENDED JUNE 30, 1998
------------------------------------
GRADING AND
AUCTION AUTHENTICATION TOTAL
------- -------------- -------
Net revenues from external customers................... $ 1,390 $ 9,599 $10,989
Operating income (loss)................................ $ (404) $ 2,524 $ 2,120
Unallocated operating expenses......................... (1,214)
-------
Operating income, consolidated......................... $ 906
=======
Goodwill amortization.................................. $ 20 $ 13 $ 33
|
COLLECTORS UNIVERSE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
YEAR ENDED JUNE 30, 1997
------------------------------------
GRADING AND
AUCTION AUTHENTICATION TOTAL
------- -------------- -------
Net revenues from external customers................... $ 766 $ 8,627 $ 9,393
Operating income (loss)................................ $ (34) $ 733 $ 699
Unallocated operating expenses......................... (185)
-------
Operating income, consolidated......................... $ 514
=======
Goodwill amortization.................................. $ 20 $ 13 $ 33
|
All of our sales and identifiable assets are located in the United States. No individual customer accounted for 10% or more of revenue for the year ended June 30, 1997, 1998 and 1999.
14. SUBSEQUENT EVENTS
On September 1, 1999 the Board of Directors of Collectors Universe approved the filing of a registration statement on Form S-1 with the Securities and Exchange Commission to effect an initial public offering of its common stock (the Offering).
On September 1, 1999, the Board of Directors of Collectors Universe adopted the Employee Stock Purchase Plan (the Stock Purchase Plan), which will become effective upon completion of the Offering. A total of 200 shares of the common stock of Collectors Universe has been reserved for issuance under the Stock Purchase Plan.
On September 1, 1999, the Board of Directors of Collectors Universe approved an increase in the number of shares available for grant under the 1999 Plan by 220, thereby increasing the total amount of shares available under the 1999 Plan to 1,749.
INDEPENDENT AUDITORS' REPORT
To the Shareholder of
Lyn F. Knight Rare Coins, Inc.:
We have audited the accompanying statements of income and (deficiency) equity and of cash flows of the auction business of Lyn F. Knight Rare Coins, Inc. (the Business) for the years ended December 31, 1998 and 1997. These financial statements are the responsibility of the Business' management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the statements of income and (deficiency) equity and of cash flows are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the statements of income and (deficiency) equity and of cash flows. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the statements of income and (deficiency) equity, and of cash flows. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all material respects, the results of operations and of cash flows of the auction business of Lyn F. Knight Rare Coins, Inc. for the years ended December 31, 1998 and 1997, in conformity with generally accepted accounting principles.
As described in Note 1, the Business was part of Lyn F. Knight Rare Coins, Inc. and not a separate legal entity. The financial statements of the Business have been prepared from the applicable records of Lyn F. Knight Rare Coins, Inc., and may not necessarily be indicative of the conditions that would have existed or the results of operations if the Business had operated as an unaffiliated entity. Portions of certain expenses represent allocations made from Lyn F. Knight Rare Coins, Inc. expense items applicable to the Business as a whole.
Deloitte & Touche LLP
Costa Mesa, California
June 4, 1999
THE AUCTION BUSINESS OF LYN F. KNIGHT RARE COINS, INC.
STATEMENTS OF INCOME AND (DEFICIENCY) EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
1998 1997
----------- ---------
REVENUES:
Buyer premiums.............................................. $ 914,331 $ 399,219
Auction commissions......................................... 159,785 364,203
----------- ---------
Total revenues......................................... 1,074,116 763,422
COST OF REVENUES............................................ 157,948 103,307
----------- ---------
GROSS PROFIT................................................ 916,168 660,115
OPERATING EXPENSES.......................................... 194,572 223,484
----------- ---------
NET INCOME.................................................. 721,596 436,631
EQUITY, beginning of year................................... 55,141 852
NET CHANGE IN EQUITY ARISING FROM CASH ADVANCES FROM AND
DISTRIBUTIONS TO LYN F. KNIGHT RARE COINS, INC............ (1,733,077) (382,342)
----------- ---------
(DEFICIENCY) EQUITY, end of year............................ $ (956,340) $ 55,141
=========== =========
|
See accompanying notes to financial statements.
THE AUCTION BUSINESS OF LYN F. KNIGHT RARE COINS, INC.
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
1998 1997
----------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income.................................................. $ 721,596 $ 436,631
Adjustments to reconcile net income to net cash provided by
operating activities:
Changes in operating assets and liabilities:
Increase in accounts receivable........................ (4,396,446) (67,439)
Increase (decrease) in accounts payable and accrued
expenses.............................................. 9,661 (10,432)
Increase in due to consignors.......................... 5,398,266 23,582
----------- ---------
Net cash provided by operating activities......... 1,733,077 382,342
CASH FLOWS FROM FINANCING ACTIVITIES:
Advances to corporate division............................ (1,733,077) (382,342)
----------- ---------
NET INCREASE IN CASH AND CASH EQUIVALENTS...................
CASH AND CASH EQUIVALENTS, beginning of year................
----------- ---------
CASH AND CASH EQUIVALENTS, end of year...................... $ -- $ --
=========== =========
|
See accompanying notes to financial statements.
THE AUCTION BUSINESS OF LYN F. KNIGHT RARE COINS, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
1. NATURE OF BUSINESS
The accompanying financial statements represent the revenues, expenses, and cash flows of the auction business of Lyn F. Knight Rare Coins, Inc. (the Business). Lyn F. Knight Rare Coins, Inc. is primarily engaged in the business of marketing and selling rare currencies at coin shows and auctions conducted by the Business. The Business serves as host to four rare coin and note auctions each year.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation -- The accompanying financial statements include the revenues, expenses, and cash flows that are directly related to the Business as conducted by Lyn F. Knight Rare Coins, Inc. Portions of certain expenses represent allocations made from Lyn F. Knight Rare Coins, Inc. expense items applicable to the Business as a whole. These allocations were based on a variety of factors which management believes provide a reasonable basis for the accompanying financial statements and include the following:
- Cash balances are not recorded as part of these financial statements as it was not the practice of Lyn F. Knight Rare Coins, Inc. to maintain separate cash balances for each of its businesses.
- The net change in equity arising from cash advances and distributions to Lyn F. Knight Rare Coins, Inc., as reflected in the statements of income and division (deficiency) equity, includes amounts advanced by the Business to Lyn F. Knight Rare Coins, Inc. and its other businesses.
- The historical financial statements include certain administrative costs allocated to the Business from Lyn F. Knight Rare Coins, Inc. Such costs were based on the percentage of auction business revenues to total revenues of Lyn F. Knight Rare Coins, Inc. Management believes that such methodology results in a reasonable allocation of expenses to the Business.
The accompanying financial statements have been prepared from records maintained by Lyn F. Knight Rare Coins, Inc., and may not necessarily be indicative of the conditions that would have existed if the Business had operated as an unaffiliated entity.
Revenue Recognition -- Revenue is recognized upon the sale of rare currencies consigned to the Business and is represented by an auction commission received from the consignor and a premium paid by the buyer. Auction commissions represent a percentage of the hammer price at auction sales as paid by the buyer and generally range up to 15%. Buyer premiums represent 10% of the hammer price at auction sales.
Use of Estimates -- The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the accompanying financial statements. Actual results could differ from those estimates.
Income Taxes -- Lyn F. Knight Rare Coins, Inc. has elected to be taxed as an S corporation under sections of the federal and state of Kansas income tax laws, whereby income and expense items are included in the personal tax returns of the members of Lyn F. Knight Coins, Inc. Accordingly, no
THE AUCTION BUSINESS OF LYN F. KNIGHT RARE COINS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
provision for federal and state income taxes has been included in the accompanying financial statements for the years ended December 31, 1998 and 1997.
Comprehensive Income -- In June 1997, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) No. 130, Reporting Comprehensive Income. SFAS No. 130 established standards for reporting and display of comprehensive income and its components in a full set of general-purpose financial statements. The Business does not have any items of other comprehensive income requiring separate disclosure.
3. SUBSEQUENT EVENT
On February 5, 1999, Collectors Universe, Inc. (Collectors) acquired Lyn F. Knight Rare Coins, Inc.'s auction business for $100,000 in cash, a promissory note of $1,000,000 and 760,000 shares of Collectors' common stock.
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
Kingswood Coin Auctions, LLC
Santa Ana, California
We have audited the accompanying statements of income and retained earnings and of cash flows of Kingswood Coin Auctions, LLC (the Company) for the year ended December 31, 1998. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the statements of income and retained earnings and of cash flows are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the statements of income and retained earnings and of cash flows. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the statements of income and retained earnings and of cash flows. We believe that our audit provides a reasonable basis for our opinion.
In our opinion, such financial statements referred to above present fairly, in all material respects, the results of operations and cash flows of Kingswood Coin Auctions, LLC for the year ended December 31, 1998, in conformity with generally accepted accounting principles.
Deloitte & Touche LLP
Costa Mesa, California
May 26, 1999
KINGSWOOD COIN AUCTIONS, LLC
STATEMENT OF INCOME AND RETAINED EARNINGS
FOR THE YEAR ENDED DECEMBER 31, 1998
NET REVENUE................................................. $374,789
COST OF REVENUE............................................. 207,122
--------
GROSS INCOME................................................ 167,667
OPERATING EXPENSES.......................................... 86,276
--------
INCOME FROM OPERATIONS...................................... 81,391
OTHER INCOME................................................ 2,105
--------
NET INCOME.................................................. 83,496
RETAINED EARNINGS, beginning of year........................ 40,079
DISTRIBUTIONS TO MEMBERS.................................... (55,000)
--------
RETAINED EARNINGS, end of year.............................. $ 68,575
========
|
See accompanying notes to financial statements.
KINGSWOOD COIN AUCTIONS, LLC
STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1998
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income.................................................. $ 83,496
Adjustments to reconcile net income to net cash used in
operating activities:
Changes in operating assets and liabilities:
Accounts receivable.................................... 108,007
Prepaid expenses....................................... (3,770)
Other assets........................................... 1,494
Accounts payable and accrued expenses.................. (360,241)
---------
Net cash used in operating activities................ (171,014)
CASH FLOWS FROM FINANCING ACTIVITIES --
Distributions to members.................................. (55,000)
---------
NET DECREASE IN CASH AND CASH EQUIVALENTS................... (226,014)
CASH AND CASH EQUIVALENTS, beginning of year................ 298,950
---------
CASH AND CASH EQUIVALENTS, end of year...................... $ 72,936
=========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION --
Cash paid during the year for income taxes................ $ 800
=========
|
See accompanying notes to financial statements.
KINGSWOOD COIN AUCTIONS, LLC
NOTES TO FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 1998
1. NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Business -- Kingswood Coin Auctions, LLC (the Company) was formed on November 8, 1996, for the purpose of producing, promoting and conducting elite live and telephonic rare coin auctions.
Pursuant to the operating agreement, the profits and losses of the Company are allocated to the members in accordance with each member's percentage ownership interest. Distributions of available cash are made to the members in accordance with each member's respective percentage ownership interest. During the year ended December 31, 1998, the Company distributed $55,000 to its members.
Revenue Recognition -- Revenue is recognized upon the sale of the coins consigned to the Company. Such revenue represents approximately 10% of the bid price charged to the buyer, and approximately 4% of such price charged to the consignor.
Income Taxes -- The Company is taxed as a limited liability company under the provisions of the federal and state tax codes. Under federal laws, taxes based on income of the limited liability company are payable by the members individually. A provision for California franchise tax of $800 has been provided in the accompanying financial statements at statutory rates based on gross receipts (revenues) under California laws.
Use of Estimates -- The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Comprehensive Income -- In June 1997, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) No. 130, Reporting Comprehensive Income. SFAS No. 130 establishes standards for reporting and display of comprehensive income and its components in a full set of general-purpose financial statements. The Company does not have any items of other comprehensive income requiring separate disclosure.
2. RELATED-PARTY TRANSACTIONS
During the ordinary course of business, the Company conducts transactions with certain companies owned and controlled by its members and other related entities as described below. The Company reimburses David Hall North American Trading (DHNAT) for certain general and administrative expenses incurred on behalf of the Company. Such reimbursements amounted to $91,141 for the year ended December 31, 1998.
The Company has entered into an Auction Services Agreement (the Services Agreement) with Professional Coin Grading Service, Inc. (PCGS), whereby PCGS provides the facilities, equipment, personnel, and services necessary for the Company to conduct its auctions. In consideration for the use of its facilities and equipment and the services provided pursuant to the Services Agreement, the Company pays PCGS a service fee in an amount equal to a percentage of the total actual sales price,
KINGSWOOD COIN AUCTIONS, LLC
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED DECEMBER 31, 1998
less all returns, of all rare coins sold by the Company at its auctions, as defined in the Services Agreement. During the year ended December 31, 1998, the Company paid a service fee of $119,821 to PCGS. Such fee is included in cost of revenues in the accompanying statement of income and retained earnings.
DHNAT and PCGS consign coins to the Company for sale in the Company's auctions. Commission revenues received from DHNAT and PCGS during the year ended December 31, 1998, amounted to $19,582 and $12,330, respectively, and are included in net revenue in the accompanying statement of income.
3. SUBSEQUENT EVENT
On February 5, 1999, Collectors Universe, Inc. (Collectors) acquired the Company's auction business for $1,000,000 in cash and 190,000 shares of Collectors' common stock.
Inside Back Cover
Includes a banner that states, "More Cool Stuff," and pictures of collectibles with the captions indicated below:
Collectible Caption
----------- -------
Coin 1907 Extremely High Relief Saint Gaudens $20 Gold. Graded by
Collectors Universe; estimated value $1,000,000.
Record Album "Love In Vain" by Robert Johnson. Sold by Collectors Universe
for $9,900.
Baseball Card 1952 Topps Mickey Mantle. Sold by Collectors Universe for
$121,000.
Baseball Babe Ruth Autographed Ball. Authenticated by Collectors
Universe.
Coin 1865 $20 Liberty. Sold by Collectors Universe for $166,100.
Coin 1913 Liberty Head Nickel. Graded by Collectors Universe.
Estimated Value; $3,000,000
Record album
and cover Red vinyl Elvis Christmas Album. Sold by Collectors Universe
for $15,620.
Baseball card T-206 Honus Wagner. First card graded by Collectors Universe.
Later sold for $640,500.
|
-------------------------------------------------------------------------------- -------------------------------------------------------------------------------- |
[LOGO]
COLLECTORS UNIVERSE, INC.
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth all costs and expenses, other than underwriting discounts and commissions, payable by Collectors Universe in connection with the sale of the common stock being registered. All of the amounts shown are estimates except for the SEC registration fee and the NASD filing fee.
TO BE PAID BY
COLLECTORS UNIVERSE
-------------------
SEC registration fee........................................ $12,788
NASD filing fee............................................. 5,100
Nasdaq National Market application fee......................
Printing expenses........................................... *
Legal fees and expenses..................................... *
Accounting fees and expenses................................ *
Blue sky fees and expenses.................................. *
Transfer agent and registrar fees........................... *
Miscellaneous............................................... *
-------
Total.................................................. $
=======
|
* To be filed by amendment
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
(a) As permitted by the Delaware General Corporation Law, the Amended and Restated Certificate of Incorporation of Collectors Universe (Exhibit 3.1 hereto) eliminates the liability of directors to Collectors Universe or its stockholders for monetary damages for breach of fiduciary duty as a directors, except to the extent otherwise required by the Delaware General Corporation Law.
(b) The Amended and Restated Certificate of Incorporation provides that Collectors Universe will indemnify each person who was or is made a party to any proceeding by reason of the fact that such person is or was a director or officer of Collectors Universe against all expense, liability and loss reasonably incurred or suffered by such person in connection therewith to the fullest extent authorized by the Delaware General Corporation Law. The Amended and Restated Bylaws of Collectors Universe (Exhibit 3.2 hereto) provide for a similar indemnity to directors and officers of Collectors Universe to the fullest extent authorized by the Delaware General Corporation Law.
(c) The Amended and Restated Certificate of Incorporation also gives
Collectors Universe the ability to enter into indemnification agreements with
each of its directors and officers. Collectors Universe has entered into
indemnification agreements with certain of its directors and officers (Exhibit
10. hereto), which provide for the indemnification of such persons
against any an all expenses, judgments, fines, penalties and amounts paid in
settlement, to the fullest extent permitted by law.
II-1
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
The following is a summary of transactions by Collectors Universe during the last three years preceding the date hereof involving sales of securities of Collectors Universe that were not registered under the Securities Act:
(1) In January 1999, we purchased 40% of the membership interest of Internet Universe, LLC, a California limited liability company. The purchase was executed through the issuance of 3,750 shares of Professional Coin Grading Service, Inc. (our predecessor company) to Brent Gutekunst, which shares were later exchanged for 861,120 shares of common stock of Collectors Universe in February 1999. The issuance was exempt from registration under the Securities Act of 1933, as amended (the "Securities Act") pursuant to Section 4(2) on the basis that the transaction did not involve a public offering.
(2) In February 1999, we incorporated in Delaware and acquired PCGS, Lyn F. Knight Rare Coins, Inc., Kingswood Auctions, LLC, and minority interests in two majority owned subsidiaries of PCGS. Pursuant to this reorganization, we issued 19,000,276 shares of our common stock to the owners of the acquired companies. The issuance was exempt from registration under the Securities Act pursuant to Section 4(2) on the basis that the transaction did not involve a public offering.
(3) In March 1999, we issued 1,281,800 shares of our common stock at $5.00 per share to accredited investors only, pursuant to Section 4(2) of the Securities Act on the basis that the transactions did not involve a public offering.
(4) As of August 31, 1999, options to purchase 2,687,565 shares of common stock have been granted in reliance upon the exemptions provided in Rule 701 of the Securities Act on the basis that these options were offered and sold either pursuant to a written compensatory benefit plan or pursuant to written contracts relating to consideration, as provided by Rule 701, or pursuant to Section 4(2) thereof on the basis that the transactions did not involve a public offering.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits
EXHIBIT
NO. DESCRIPTION
------- -----------
1.1 -- Form of Underwriting Agreement.*
3.1 -- Amended and Restated Certificate of Incorporation of
Collectors Universe, as in effect.
3.2 -- Form of Amended and Restated Certificate of Incorporation of
Collectors Universe, to be filed prior to the closing of the
offering made under this Registration Statement.
3.3 -- Bylaws of Collectors Universe, as in effect.
3.4 -- Form of Amended and Restated Bylaws of Collectors Universe,
to be adopted prior to the closing of the offering made
under this Registration Statement.*
4.1 -- Registration Rights Agreement.*
4.2 -- Shareholder Agreement.*
5.1 -- Opinion of Stradling Yocca Carlson & Rauth, a Professional
Corporation.*
10.1 -- 1999 Stock Incentive Plan (the "1999 Plan").
10.2 -- Form of Stock Option Agreement for the 1999 Plan.
|
II-2
EXHIBIT
NO. DESCRIPTION
------- -----------
10.4 -- PCGS Stock Incentive Plan (the "PCGS Plan").
10.5 -- Form of Stock Option Agreement for the PCGS Plan.
10.6 -- Employee Stock Purchase Plan.
10.7 -- Form of Indemnification Agreement.*
10.8 -- Asset Acquisition Agreement dated January 25, 1999 by and
among Professional Coin Grading Service, Inc., Info
Exchange, Inc. and Brent Gutekunst.
10.9 -- Collectors Universe/eBay Mutual Services Term Sheet dated
February 10, 1999 by and between Collectors Universe and
eBay, Inc.
10.10 -- Net Lease between Orix Searls Sann Ana Venture and
Collectors Universe, dated June, 1999.
10.11 -- Agreement for the Sale of Goods and Services dated March 31,
1999 by and between Collectors Universe and DNA
Technologies, Inc.
10.12 -- Contribution and Acquisition Agreement dated February 3,
1999 by and between Collectors Universe, Inc. and Hugh
Sconyers.
10.13 -- Contribution and Acquisition Agreement dated February 3,
1999 by and between Collectors Universe and BJ Searls.
10.14 -- Contribution and Acquisition Agreement dated February 3,
1999 by and between Collectors Universe and Greg Bussineau.
10.15 -- Contribution and Acquisition Agreement dated February 3,
1999 by and between Collectors Universe and Lyn F. Knight
Rare Coins, Inc.
10.16 -- Contribution and Acquisition Agreement dated February 3,
1999 by and between Collectors Universe, Kingswood Coin
Auction, LLC and the Members of Kingswood.
10.17 -- Contribution and Acquisition Agreement dated February 3,
1999 by and between Collectors Universe and Professional
Coin Grading Service, Inc.
10.18 -- Employment Agreement dated March 1999, by and between
Superior Sportcard Auctions, LLC and Greg Bussineau.
10.19 -- Employment Agreement dated March 5, 1999, by and between Lyn
F. Knight, Lyn Knight Currency Auctions, Inc. and Collectors
Universe.
10.20 -- Employment Agreement dated January 25, 1999 by and between
Internet Universe, LLC and Brent Gutekunst.
10.21 -- Employment Agreement dated , 1999 by and
between Collectors Universe, Inc. and Louis M. Crain.*
10.22 -- Employment Agreement dated by and between Gary
N. Patten and Collectors Universe, Inc.*
11.1 -- Statement regarding computation of pro forma net income per
share.
21.1 -- Subsidiaries.
23.1 -- Consent of Stradling Yocca Carlson & Rauth, a Professional
Corporation (see Exhibit 5.1).*
23.2 -- Consent of Deloitte & Touche LLP.
23.3 -- Consent of Deloitte & Touche LLP.
23.4 -- Consent of Deloitte & Touche LLP.
|
II-3
EXHIBIT NO. DESCRIPTION ------- ----------- 24.1 -- Power of Attorney (see page II-5). 27.1 -- Financial Data Schedule. |
* To be filed by amendment.
(b) Financial Statement Schedules
All schedules not listed above are omitted because they are not required under the related instructions, are inapplicable, or the information is included in the financial statements or the notes thereto.
ITEM 17. UNDERTAKINGS
The undersigned registrant hereby undertakes to provide to the underwriters at the closing specified in the Underwriting Agreement certificates in such denominations and registered in such names as required by the underwriters to permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers and controlling persons of the registrant pursuant to the foregoing provisions or otherwise, the registrant has been advised that in the opinion of the SEC such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question of whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue.
The registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part
of this registration statement in reliance upon Rule 430A and contained in
a form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities Act of 1933, each post-effective amendment that contains a form of prospectus shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.
II-4
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the registrant has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Newport Beach, State of California, on the 2nd day of September 1999.
COLLECTORS UNIVERSE, INC.
By: /s/ LOUIS M. CRAIN
------------------------------------
Louis M. Crain
Chief Executive Officer
|
POWER OF ATTORNEY
We, the undersigned directors and officers of Collectors Universe, Inc., do hereby constitute and appoint Louis M. Crain and Gary N. Patten or either of them, our true and lawful attorneys and agents, to do any and all acts and things in our name and behalf in our capacities as directors and officers and to execute any and all instruments for us and in our names in the capacities indicated below, which said attorneys and agents, or either of them, may deem necessary or advisable to enable said corporation to comply with the Securities Act of 1933, as amended, and any rules, regulations, and requirements of the Securities and Exchange Commission, in connection with this registration statement, including specifically, but without limitation, power and authority to sign for us or any of us in our names and in the capacities indicated below, any and all amendments (including post-effective amendments) to this registration statement, or any related registration statement that is to be effective upon filing pursuant to Rule 462(b) under the Securities Act of 1933, as amended; and we do hereby ratify and confirm all that the said attorneys and agents, or either of them, shall do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, as amended, this registration statement has been signed below by the following persons in the capacities and on the dates indicated.
SIGNATURE TITLE DATE
--------- ----- ----
/s/ LOUIS M. CRAIN President, Chief Executive Officer and September 2, 1999
-------------------------------- Director (Principal Executive Officer)
Louis M. Crain
/s/ GARY N. PATTEN Chief Financial Officer (Principal September 2, 1999
-------------------------------- Financial and Principal Accounting
Gary N. Patten Officer)
/s/ DAVID G. HALL Chairman of the Board and Director September 2, 1999
--------------------------------
David G. Hall
/s/ STEPHEN H. MAYER Senior Vice President and Director September 2, 1999
--------------------------------
Stephen H. Mayer
/s/ VAN D. SIMMONS Director September 2, 1999
--------------------------------
Van D. Simmons
/s/ ARMEN VARTIAN Director September 2, 1999
--------------------------------
Armen Vartian
|
II-5
COLLECTORS UNIVERSE, INC.
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED JUNE 30, 1997, 1998 AND 1999
BALANCE AT CHARGED CHARGED BALANCE AT
BEGINNING TO OPERATING TO COST OF END
DESCRIPTION OF PERIOD EXPENSES REVENUES DEDUCTIONS OF PERIOD
----------- ---------- ------------ ---------- ---------- ----------
Allowance for doubtful accounts..... $ 6,500 $28,996 $ -- $ (6,500) $ 28,996
Inventory reserve................... 12,682 -- 1,580 -- 14,262
Warranty reserve.................... 212,656 -- 185,941 (211,654) 186,943
-------- ------- -------- --------- --------
Total at June 30, 1997......... $231,838 $28,996 $187,521 $(218,154) $230,201
======== ======= ======== ========= ========
Allowance for doubtful accounts..... $ 28,996 $ -- $ -- $ (28,996) $ --
Inventory reserve................... 14,262 -- -- (14,262) --
Warranty reserve.................... 186,943 -- 282,086 (294,029) 175,000
-------- ------- -------- --------- --------
Total at June 30, 1998......... $230,201 $ -- $282,086 $(337,287) $175,000
======== ======= ======== ========= ========
Allowance for doubtful accounts..... $ -- $50,783 $ -- $ (13,283) $ 37,500
Inventory reserve................... -- -- 160,500 -- 160,500
Warranty reserve.................... 175,000 -- 412,273 (355,674) 231,599
-------- ------- -------- --------- --------
Total at June 30, 1999......... $175,000 $50,783 $572,773 $(368,957) $429,599
======== ======= ======== ========= ========
|
EXHIBIT INDEX
EXHIBIT
NO. DESCRIPTION
------- -----------
1.1 -- Form of Underwriting Agreement.*
3.1 -- Amended and Restated Certificate of Incorporation of
Collectors Universe, as in effect.
3.2 -- Form of Amended and Restated Certificate of Incorporation of
Collectors Universe, to be filed prior to the closing of the
offering made under this Registration Statement.
3.3 -- Bylaws of Collectors Universe, as in effect.
3.4 -- Form of Amended and Restated Bylaws of Collectors Universe,
to be adopted prior to the closing of the offering made
under this Registration Statement.*
4.1 -- Registration Rights Agreement.*
4.2 -- Shareholder Agreement.*
5.1 -- Opinion of Stradling Yocca Carlson & Rauth, a Professional
Corporation.*
10.1 -- 1999 Stock Incentive Plan (the "1999 Plan").
10.2 -- Form of Stock Option Agreement for the 1999 Plan.
10.4 -- PCGS Stock Incentive Plan (the "PCGS Plan").
10.5 -- Form of Stock Option Agreement for the PCGS Plan.
10.6 -- Employee Stock Purchase Plan.
10.7 -- Form of Indemnification Agreement.*
10.8 -- Asset Acquisition Agreement dated January 25, 1999 by and
among Professional Coin Grading Service, Inc., Info
Exchange, Inc. and Brent Gutekunst.
10.9 -- Collectors Universe/eBay Mutual Services Term Sheet dated
February 10, 1999 by and between Collectors Universe and
eBay, Inc.
10.10 -- Net Lease between Orix Searls Sann Ana Venture and
Collectors Universe, dated June, 1999.
10.11 -- Agreement for the Sale of Goods and Services dated March 31,
1999 by and between Collectors Universe and DNA
Technologies, Inc.
10.12 -- Contribution and Acquisition Agreement dated February 3,
1999 by and between Collectors Universe, Inc. and Hugh
Sconyers.
10.13 -- Contribution and Acquisition Agreement dated February 3,
1999 by and between Collectors Universe and BJ Searls.
10.14 -- Contribution and Acquisition Agreement dated February 3,
1999 by and between Collectors Universe and Greg Bussineau.
10.15 -- Contribution and Acquisition Agreement dated February 3,
1999 by and between Collectors Universe and Lyn F. Knight
Rare Coins, Inc.
10.16 -- Contribution and Acquisition Agreement dated February 3,
1999 by and between Collectors Universe, Kingswood Coin
Auction, LLC and the Members of Kingswood.
10.17 -- Contribution and Acquisition Agreement dated February 3,
1999 by and between Collectors Universe and Professional
Coin Grading Service, Inc.
10.18 -- Employment Agreement dated March 1999, by and between
Superior Sportcard Auctions, LLC and Greg Bussineau.
|
EXHIBIT
NO. DESCRIPTION
------- -----------
10.19 -- Employment Agreement dated March 5, 1999, by and between Lyn
F. Knight, Lyn Knight Currency Auctions, Inc. and Collectors
Universe.
10.20 -- Employment Agreement dated January 25, 1999 by and between
Internet Universe, LLC and Brent Gutekunst.
10.21 -- Employment Agreement dated , 1999 by and
between Collectors Universe, Inc. and Louis M. Crain.*
10.22 -- Employment Agreement dated by and between Gary
N. Patten and Collectors Universe, Inc.*
11.1 -- Statement regarding computation of pro forma net income per
share.
21.1 -- Subsidiaries.
23.1 -- Consent of Stradling Yocca Carlson & Rauth, a Professional
Corporation (see Exhibit 5.1).*
23.2 -- Consent of Deloitte & Touche LLP.
23.3 -- Consent of Deloitte & Touche LLP.
23.4 -- Consent of Deloitte & Touche LLP.
24.1 -- Power of Attorney (see page II-5).
27.1 -- Financial Data Schedule.
|
* To be filed by amendment.
EXHIBIT 3.1
AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
OF
COLLECTORS UNIVERSE, INC.,
A DELAWARE CORPORATION
The undersigned, Louis M. Crain and Ben A. Frydman, hereby certify that:
1. They are the Chief Executive Officer and Assistant Secretary, respectively, of Collectors Universe, Inc., a Delaware corporation (the "Corporation").
2. The Corporation's original Certificate of Incorporation was originally filed with the Secretary of State of Delaware on February 3, 1999.
3. The Certificate of Incorporation of the Corporation, as amended and restated herein, at the effective time of filing of this Restated Certificate of Incorporation with the Delaware Secretary of State, shall read in full as follows:
ARTICLE 1
The name of this Corporation is Collectors Universe, Inc.
ARTICLE 2
The address of the registered office of the Corporation in the State of Delaware is 1013 Centre Road, Wilmington, Delaware 19805, County of New Castle. The name of the Corporation's registered agent at that address is Corporation Service Company.
ARTICLE 3
The purpose of the Corporation is to engage in any lawful act or activity for which corporations may be organized under the General Corporation Law of the State of Delaware, as amended from time to time.
ARTICLE 4
The total number of shares of all classes of stock which the Corporation shall have authority to issue is 33,000,000, of which (i) 30,000,000 shares shall be designated "Common Stock" and shall have a par value of $0.001 per share; and (ii) 3,000,000 shares shall be designated "Preferred Stock" and shall have a par value of $0.001 per share. The Board of Directors is authorized, subject to limitations prescribed by law, to provide for the issuance of the shares of Preferred Stock in one or more series, and by filing a certificate pursuant to the applicable law of the State of Delaware, to establish from time to time the number of shares to be included in each such series, and to fix the designation, powers, preferences and rights of the shares of each such series and the qualifications, limitations or restrictions thereof. The
authority of the Board with respect to each series shall include, but not be limited to, determination of the following:
(a) The number of shares constituting that series and the distinctive designation of that series;
(b) The dividend rate on the shares of that series, whether dividends shall be cumulative and, if so, from which date or dates, and the relative rights of priority, if any, of payment of dividends on shares of that series;
(c) Whether that series shall have voting rights, in addition to the voting rights provided by law and, if so, the terms of such voting rights;
(d) Whether that series shall have conversion privileges and, if so, the terms and conditions of such conversion, including provision for adjustment of the conversion rate in such events as the Board of Directors shall determine;
(e) Whether or not the shares of that series shall be redeemable and, if so, the terms and conditions of such redemption, including the date or dates upon or after which they shall be redeemable and the amount per share payable in case of redemption, which amount may vary under different conditions and at different redemption dates;
(f) Whether that series shall have a sinking fund for the redemption or purchase of shares of that series and, if so, the terms and amount of such sinking fund; and
(g) The rights of the shares of that series in the event of voluntary or involuntary liquidation, dissolution or winding up of the Corporation, and the relative rights of priority, if any, of payment of shares of that series.
ARTICLE 5
The business and affairs of the Corporation shall be managed by or under the direction of the Board of Directors and elections of directors need not be by written ballot unless otherwise provided in the Bylaws. The number of directors of the Corporation shall be fixed from time to time by the Board of Directors either by a resolution or Bylaw adopted by the affirmative vote of a majority of the entire Board of Directors.
Meetings of the stockholders may be held within or without the State of Delaware, as the Bylaws may provide. The books of the Corporation may be kept (subject to any provision contained in the Delaware Statutes) outside the State of Delaware at such place or places as may be designated from time to time by the Board of Directors or by the Bylaws of the Corporation.
ARTICLE 6
A director of this Corporation shall not be personally liable to the Corporation or its stockholders for monetary damages for breach of fiduciary duty as a director, provided that this provision shall not
eliminate or limit the liability of a director (i) for any breach of his duty of loyalty to the Corporation or its stockholders, (ii) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of the law, (iii) under Section 174 of the General Corporation Law of the State of Delaware, or (iv) for any transaction from which the director derives an improper personal benefit. If the General Corporation Law of the State of Delaware is hereafter amended to authorize corporate action further limiting or eliminating the personal liability of directors, then the liability of the directors of the Corporation shall be limited or eliminated to the fullest extent permitted by the General Corporation Law of the State of Delaware, as so amended from time to time. Any repeal or modification of this Article 6 by the stockholders of the Corporation shall be prospective only, and shall not adversely affect any limitation on the personal liability of a director of the Corporation existing at the time of such repeal or modification.
ARTICLE 7
This Corporation shall, to the maximum extent permitted from time to time under the law of the State of Delaware, indemnify and upon request shall advance expenses to any person who is or was a party or is threatened to be made a party to any threatened, pending or completed action, suit, proceeding or claim, whether civil, criminal, administrative or investigative, by reason of the fact that such person is or was or has agreed to be a director or officer of this Corporation or while a director or officer is or was serving at the request of this Corporation as a director, officer, partner, trustee, employee or agent of any corporation, partnership, joint venture, trust or other enterprise, including service with respect to employee benefit plans, against expenses (including attorney's fees and expenses), judgments, fines, penalties and amounts paid in settlement incurred in connection with the investigation, preparation to defend or defense of such action, suit, proceeding or claim; provided; however, that the foregoing shall not require this Corporation to indemnify or advance expenses to any person in connection with any action, suit, proceeding, claim or counterclaim initiated by or on behalf of such person. Such indemnification shall not be exclusive of other indemnification rights arising under any by-law, agreement, vote of directors or stockholders or otherwise and shall inure to the benefit of the heirs and legal representatives of such person. Any person seeking indemnification under this Article 7 shall be deemed to have met the standard of conduct required for such indemnification unless the contrary shall be established. Any repeal or modification of the foregoing provisions of this Article 7 shall not adversely affect any right or protection of a director or officer of this corporation with respect to any acts or omissions of such director or officer occurring prior to such repeal or modification.
ARTICLE 8
In furtherance and not in limitation of the power conferred on the Corporation's Board of Directors by law, the Board of Directors shall have the power to make, alter, amend, change, add to or repeal the Bylaws of the Corporation.
ARTICLE 9
Stockholders of the Corporation may not take action by written consent in lieu of a meeting. Any action contemplated by the stockholders must be taken at a duly called annual or special meeting.
4. The foregoing Amended and Restated Certificate of Incorporation has
been approved by the Board of Directors by written consent in accordance with
Section 141(f) of the General Corporation Law of the State of Delaware.
5. The foregoing Amended and Restated Certificate of Incorporation has been approved by the stockholders of the Corporation by written consent in accordance with Section 228 of the General Corporation Law of the State of Delaware.
6. The foregoing Amended and Restated Certificate of Incorporation has been duly adopted in accordance with the applicable provisions of Sections 242 and 245 of the General Corporation Law of the State of Delaware.
IN WITNESS WHEREOF, the Corporation has caused this certificate to be signed by Louis M. Crain, its President, and attested by Ben A. Frydman, its Assistant Secretary, as of February 5, 1999.
Collectors Universe, Inc.
By: /s/ Louis M. Crain
---------------------------------------
Louis M. Crain, Chief Executive Officer
ATTEST:
By: /s/ Ben A. Frydman
---------------------------------------
Ben A. Frydman, Assistant Secretary
|
EXHIBIT 3.2
AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
OF COLLECTORS UNIVERSE, INC.,
A DELAWARE CORPORATION
(Pursuant to Section 242 and 245)
The undersigned, Louis M. Crain and Ben A. Frydman, hereby certify that:
ONE: They are the Chief Executive Officer and Assistant Secretary, respectively, of Collectors Universe, Inc., a Delaware corporation (the "Corporation").
TWO: The Corporation's original Certificate of Incorporation was originally filed with the Secretary of State of Delaware on February 3, 1999.
THREE: The Amended and Restated Certificate of Incorporation was filed with the Secretary of State of Delaware on March 5, 1999.
FOUR: The Certificate of Incorporation of said corporation, as heretofore amended and restated, shall be further amended and restated to read in full as follows:
ARTICLE 1
The name of this corporation is COLLECTORS UNIVERSE, Inc. (the "Corporation").
ARTICLE 2
The address of the registered office of the Corporation in the State of Delaware is 1013 Centre Road, Wilmington, Delaware 19805, County of New Castle. The name of the Corporation's registered agent at that address is Corporation Service Company.
ARTICLE 3
The purpose of the Corporation is to engage in any lawful act or activity for which corporations may be organized under the General Corporation Law of the State of Delaware, as amended from time to time.
ARTICLE 4
The Corporation is authorized to issue two classes of shares to be designated, respectively, "Common Stock" and "Preferred Stock." The total number of shares which the Corporation shall have authority to issue is 50,000,000 shares. The total number of shares of Common Stock which the Corporation shall have authority to issue is 45,000,000 shares, $0.001 par value per share. The total number of shares of Preferred Stock which the Corporation shall have authority to issue is 5,000,000 shares, $0.001 par value per share. The Board of Directors is authorized, subject to limitations prescribed by law, to provide for the issuance of the shares of Preferred Stock in one or more series, and by filing a certificate pursuant to the applicable law of the State of Delaware, to establish from time to time the number of shares to be included in each such series, and to fix the designation, powers, preferences and rights of the shares of each such series and the qualifications, limitations or restrictions
thereof. The authority of the Board with respect to each series shall include, but not be limited to, determination of the following:
(a) The number of shares constituting that series and the distinctive designation of that series;
(b) The dividend rate on the shares of that series, whether dividends shall be cumulative and, if so, from which date or dates, and the relative rights of priority, if any, of payment of dividends on shares of that series;
(c) Whether that series shall have voting rights, in addition to the voting rights provided by law and, if so, the terms of such voting rights;
(d) Whether that series shall have conversion privileges and, if so, the terms and conditions of such conversion, including provision for adjustment of the conversion rate in such events as the Board of Directors shall determine;
(e) Whether or not the shares of that series shall be redeemable and, if so, the terms and conditions of such redemption, including the date or dates upon or after which they shall be redeemable and the amount per share payable in case of redemption, which amount may vary under different conditions and at different redemption dates;
(f) Whether that series shall have a sinking fund for the redemption or purchase of shares of that series and, if so, the terms and amount of such sinking fund; and
(g) The rights of the shares of that series in the event of voluntary or involuntary liquidation, dissolution or winding up of the Corporation, and the relative rights of priority, if any, of payment of shares of that series.
ARTICLE 5
The business and affairs of the Corporation shall be managed by or under the direction of the Board of Directors and elections of directors need not be by written ballot unless otherwise provided in the Bylaws. The number of directors of the Corporation shall be fixed from time to time by the Board of Directors either by a resolution or Bylaw adopted by the affirmative vote of a majority of the entire Board of Directors.
Meetings of the stockholders may be held within or without the State of Delaware, as the Bylaws may provide. The books of the Corporation may be kept (subject to any provision contained in the Delaware Statutes) outside the State of Delaware at such place or places as may be designated from time to time by the Board of Directors or by the Bylaws of the Corporation.
ARTICLE 6
A director of this Corporation shall not be personally liable to the Corporation or its stockholders for monetary damages for breach of fiduciary duty as a director, provided that this provision shall not eliminate or limit the liability of a director (i) for any breach of his duty of loyalty to the Corporation or its stockholders, (ii) for acts or omissions not in good faith or which involve intentional misconduct or a
knowing violation of the law, (iii) under Section 174 of the General Corporation Law of the State of Delaware, or (iv) for any transaction from which the director derives an improper personal benefit.
This Corporation shall, to the maximum extent permitted from time to time under the law of the State of Delaware, indemnify and upon request shall advance expenses to any person who is or was a party or is threatened to be made a party to any threatened, pending or completed action, suit, proceeding or claim, whether civil, criminal, administrative or investigative, by reason of the fact that such person is or was or has agreed to be a director or officer of this Corporation or while a director or officer is or was serving at the request of this Corporation as a director, officer, partner, trustee, employee or agent of any corporation, partnership, joint venture, trust or other enterprise, including service with respect to employee benefit plans, against expenses (including attorney's fees and expenses), judgments, fines, penalties and amounts paid in settlement incurred in connection with the investigation, preparation to defend or defense of such action, suit, proceeding or claim; provided; however, that the foregoing shall not require this Corporation to indemnify or advance expenses to any person in connection with any action, suit, proceeding, claim or counterclaim initiated by or on behalf of such person. Such indemnification shall not be exclusive of other indemnification rights arising under any bylaw, agreement, vote of directors or stockholders or otherwise and shall inure to the benefit of the heirs and legal representatives of such person. Any person seeking indemnification under this Article 6 shall be deemed to have met the standard of conduct required for such indemnification unless the contrary shall be established.
If the General Corporation Law of the State of Delaware is hereafter amended to authorize corporate action further limiting or eliminating the personal liability of directors, then the liability of the directors of the Corporation shall be limited or eliminated to the fullest extent permitted by the General Corporation Law of the State of Delaware, as so amended from time to time. Any repeal or modification of this Article 6 by the stockholders of the Corporation shall be prospective only, and shall not adversely affect any limitation on the personal liability of a director of the Corporation existing at the time of such repeal or modification.
ARTICLE 7
The Board of Directors shall have the power to make, alter, amend, change, add to or repeal the Bylaws of the Corporation.
Notwithstanding the foregoing provision of this Article 7, the Bylaws may be rescinded, altered, amended or repealed in any respect by the affirmative vote of the holders of at least 66 2/3% of the outstanding voting stock of the Corporation, voting together as a single class.
ARTICLE 8
In furtherance and not in limitation of the power conferred on the Corporation's Board of Directors by law, the Board of Directors shall have the power to make, alter, amend, change, add to or repeal the Bylaws of the Corporation.
ARTICLE 9
No action shall be taken by the stockholders except at an annual or special meeting of stockholders. The stockholders may not take action by written consent.
ARTICLE 10
Special meetings of the stockholders of the Corporation for any purpose or purposes may be called at any time by the Chairman of the Board, the Chief Executive Officer, or by a majority of the Board of Directors, or by a committee of the Board of Directors which has been duly designated by the Board of Directors and whose powers and authority, as provided in a resolution of the Board of Directors or in the Bylaws of the Corporation, include the power to call such meetings, but such special meetings may not be called by any other person or persons. The stockholders may not call a special meeting.
ARTICLE 11
The Corporation reserves the right to amend, alter, change or repeal any provision contained in this Amended and Restated Certificate of Incorporation, in the manner now or hereafter prescribed by statute, and all rights conferred on stockholders herein are granted subject to this reservation; provided, however, that no amendment, alteration, change or repeal may be made to Article 5, 8, 9, 10 or 11 without the affirmative vote of the holders of at least 66 2/3% of the outstanding voting stock of the Corporation, voting together as a single class.
SEVEN: The foregoing Amended and Restated Certificate of Incorporation has been approved by the Board of Directors in accordance with Section 141(i) of the General Corporation Law of the State of Delaware.
EIGHT: The foregoing Amended and Restated Certificate of Incorporation has been approved by the stockholders of the Corporation by written consent in accordance with Section 228 of the General Corporation Law of the State of Delaware.
NINE: The foregoing Amended and Restated Certificate of Incorporation has been duly adopted in accordance with the applicable provisions of Section 242 and 245 of the General Corporation Law of the State of Delaware.
IN WITNESS WHEREOF, COLLECTORS UNIVERSE, INC. has caused this certificate to be signed by the undersigned, and the undersigned has executed this certificate and affirms the foregoing as true and under penalty of perjury this ___ day of ___________ 1999.
COLLECTORS UNIVERSE, INC.
ATTEST:
EXHIBIT 3.3
BYLAWS
OF
COLLECTORS UNIVERSE, INC.,
A DELAWARE CORPORATION
TABLE OF CONTENTS
Page
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ARTICLE I ........................................................................3
SECTION 1. REGISTERED OFFICE............................................3
SECTION 2. OTHER OFFICES................................................3
SECTION 3. BOOKS........................................................3
ARTICLE II .....................................................................3
SECTION 1. PLACE OF MEETINGS............................................3
SECTION 2. ANNUAL MEETINGS..............................................3
SECTION 3. SPECIAL MEETINGS.............................................3
SECTION 4. NOTIFICATION OF BUSINESS TO BE TRANSACTED AT MEETING.........4
SECTION 5. NOTICE; WAIVER OF NOTICE.....................................4
SECTION 6. QUORUM; ADJOURNMENT..........................................4
SECTION 7. VOTING.......................................................4
SECTION 8. STOCKHOLDER ACTION BY WRITTEN CONSENT WITHOUT A MEETING......5
SECTION 9. LIST OF STOCKHOLDERS ENTITLED TO VOTE........................5
SECTION 10. STOCK LEDGER.................................................5
SECTION 11. INSPECTORS OF ELECTION.......................................5
SECTION 12. ORGANIZATION.................................................6
SECTION 13. ORDER OF BUSINESS............................................6
ARTICLE III ....................................................................7
SECTION 1. POWERS.......................................................7
SECTION 2. NUMBER AND ELECTION OF DIRECTORS.............................7
SECTION 3. VACANCIES....................................................7
SECTION 4. TIME AND PLACE OF MEETINGS...................................7
SECTION 5. ANNUAL MEETING...............................................7
SECTION 6. REGULAR MEETINGS.............................................7
SECTION 7. SPECIAL MEETINGS.............................................8
SECTION 8. QUORUM; VOTE REQUIRED FOR ACTION; ADJOURNMENT................8
SECTION 9. ACTION BY WRITTEN CONSENT....................................8
SECTION 10. TELEPHONE MEETINGS...........................................8
SECTION 11. COMMITTEES...................................................9
SECTION 12. COMPENSATION.................................................9
SECTION 13. INTERESTED DIRECTORS.........................................9
ARTICLE IV .....................................................................10
SECTION 1. OFFICERS....................................................10
SECTION 2. APPOINTMENT OF OFFICERS.....................................10
SECTION 3. SUBORDINATE OFFICERS........................................10
SECTION 4. REMOVAL AND RESIGNATION OF OFFICERS.........................10
SECTION 5. VACANCIES IN OFFICES........................................10
SECTION 6. CHAIRMAN OF THE BOARD.......................................10
SECTION 7. VICE CHAIRMAN OF THE BOARD..................................10
SECTION 8. CHIEF EXECUTIVE OFFICER.....................................11
SECTION 9. PRESIDENT...................................................11
SECTION 10. VICE PRESIDENT..............................................11
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Page
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SECTION 11. SECRETARY...................................................11
SECTION 12. CHIEF FINANCIAL OFFICER.....................................12
ARTICLE V ......................................................................12
SECTION 1. FORM OF CERTIFICATES........................................12
SECTION 2. SIGNATURES..................................................12
SECTION 3. LOST CERTIFICATES...........................................12
SECTION 4. TRANSFERS...................................................12
SECTION 5. RECORD HOLDERS..............................................13
ARTICLE VI .....................................................................13
SECTION 1. RIGHT TO INDEMNIFICATION....................................13
SECTION 2. RIGHT OF INDEMNITEE TO BRING SUIT...........................14
SECTION 3. NON-EXCLUSIVITY OF RIGHTS...................................14
SECTION 4. INSURANCE...................................................14
SECTION 5. INDEMNIFICATION OF EMPLOYEES OR AGENTS OF THE CORPORATION...14
SECTION 6. INDEMNIFICATION CONTRACTS...................................14
SECTION 7. EFFECT OF AMENDMENT.........................................15
ARTICLE VII ....................................................................15
SECTION 1. DIVIDENDS...................................................15
SECTION 2. DISBURSEMENTS...............................................15
SECTION 3. FISCAL YEAR.................................................15
SECTION 4. CORPORATE SEAL..............................................15
SECTION 5. RECORD DATE.................................................15
SECTION 6. VOTING OF STOCK OWNED BY THE CORPORATION....................15
SECTION 7. CONSTRUCTION AND DEFINITIONS................................16
SECTION 8. AMENDMENTS..................................................16
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BYLAWS
OF
COLLECTORS UNIVERSE, INC.,
a Delaware corporation
ARTICLE I
OFFICES
SECTION 1. REGISTERED OFFICE. The registered office of the Corporation in the State of Delaware shall be in the City of Wilmington, County of Newcastle.
SECTION 2. OTHER OFFICES. The Corporation may also have offices at such other places both within and without the State of Delaware as the Board of Directors may from time to time determine or the business of the Corporation may require.
SECTION 3. BOOKS. The books of the Corporation may be kept within or without the State of Delaware as the Board of Directors may from time to time determine or the business of the Corporation may require.
ARTICLE II
MEETINGS OF STOCKHOLDERS
SECTION 1. PLACE OF MEETINGS. All meetings of stockholders for the election of directors shall be held at such place either within or without the State of Delaware as may be fixed from time to time by the Board of Directors, or at such other place either within or without the State of Delaware as shall be designated from time to time by the Board of Directors and stated in the notice of the meeting. Meetings of stockholders for any other purpose may be held at such time and place, within or without the State of Delaware, as shall be stated in the notice of the meeting or in a duly executed waiver of notice thereof.
SECTION 2. ANNUAL MEETINGS. Annual meetings of stockholders shall be held at a time and date designated by the Board of Directors for the purpose of electing directors and transacting such other business as may properly be brought before the meeting.
SECTION 3. SPECIAL MEETINGS. Special meetings of stockholders, for any purpose or purposes, unless otherwise prescribed by statute or by the Certificate of Incorporation, may be called by the President and shall be called by the President or Secretary at the request in writing of a majority of the Board of Directors, or at the request in writing of a stockholder or stockholders owning stock of the Corporation possessing ten percent (10%) of the voting power possessed by all of the then outstanding capital stock of any class of the Corporation entitled to vote. Such request shall state the purpose or purposes of the proposed meeting.
SECTION 4. NOTIFICATION OF BUSINESS TO BE TRANSACTED AT MEETING. To be properly brought before a meeting, business must be (a) specified in the notice of meeting (or any supplement thereto) given by or at the direction of the Board of Directors, (b) otherwise properly
brought before the meeting by or at the direction of the Board of Directors, or
(c) otherwise properly brought before the meeting by a stockholder entitled to
vote at the meeting.
SECTION 5. NOTICE; WAIVER OF NOTICE. Whenever stockholders are required or permitted to take any action at a meeting, a written notice of the meeting shall be given which shall state the place, date and hour of the meeting, and, in the case of a special meeting, the purpose or purposes for which the meeting is called. Unless otherwise required by law, such notice shall be given not less than ten (10) nor more than sixty (60) days before the date of the meeting to each stockholder of record entitled to vote at such meeting. If mailed, such notice shall be deemed to be given when deposited in the mail, postage prepaid, directed to the stockholder at his address as it appears on the records of the Corporation. A written waiver of any such notice signed by the person entitled thereto, whether before or after the time stated therein, shall be deemed equivalent to notice. Attendance of a person at a meeting shall constitute a waiver of notice of such meeting, except when the person attends the meeting for the express purpose of objecting, at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened.
SECTION 6. QUORUM; ADJOURNMENT. Except as otherwise required by law, or provided by the Certificate of Incorporation or these Bylaws, the holders of a majority of the capital stock issued and outstanding and entitled to vote thereat, present in person or represented by proxy, shall constitute a quorum for the transaction of business at all meetings of the stockholders. A meeting at which a quorum is initially present may continue to transact business, notwithstanding the withdrawal of enough votes to leave less than a quorum, if any action taken is approved by at least a majority of the required quorum to conduct that meeting. If, however, such quorum shall not be present or represented at any meeting of the stockholders, the stockholders entitled to vote thereat, present in person or represented by proxy, shall have power to adjourn the meeting from time to time, without notice other than announcement at the meeting of the time and place of the adjourned meeting, until a quorum shall be present or represented. At such adjourned meeting at which a quorum shall be present or represented, any business may be transacted which might have been transacted at the meeting as originally noticed. If the adjournment is for more than thirty (30) days, or if after the adjournment a new record date is fixed for the adjourned meeting, a notice of the adjourned meeting shall be given to each stockholder entitled to vote at the meeting.
SECTION 7. VOTING. Except as otherwise required by law, or provided by the Certificate of Incorporation or these Bylaws, any question brought before any meeting of stockholders at which a quorum is present shall be decided by the vote of the holders of a majority of the stock represented and entitled to vote thereat. Unless otherwise provided in the Certificate of Incorporation, each stockholder represented at a meeting of stockholders shall be entitled to cast one vote for each share of the capital stock entitled to vote thereat held by such stockholder. Such votes may be cast in person or by proxy, but no proxy shall be voted on or after three (3) years from its date, unless such proxy provides for a longer period. Elections of directors need not be by ballot unless the Chairman of the meeting so directs or unless a stockholder demands election by ballot at the meeting and before the voting begins.
SECTION 8. STOCKHOLDER ACTION BY WRITTEN CONSENT WITHOUT A MEETING. Except as otherwise provided in the Certificate of Incorporation, any action which may be taken at any annual or special meeting of stockholders, may be taken without a meeting and without prior notice, if a consent in writing, setting forth the action so taken, is signed by the holders of outstanding shares
having not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting at which all shares entitled to vote thereon were present and voted. All such consents shall be filed with the Secretary of the Corporation and shall be maintained in the corporate records. Prompt notice of the taking of corporate action without a meeting by less than unanimous written consent shall be given to those stockholders who have not consented in writing.
SECTION 9. LIST OF STOCKHOLDERS ENTITLED TO VOTE. The officer who has charge of the stock ledger of the Corporation shall prepare and make, at least ten (10) days before every meeting of stockholders, a complete list of the stockholders entitled to vote at the meeting, arranged in alphabetical order, and showing the address of each stockholder 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 of the Corporation who is present.
SECTION 10. STOCK LEDGER. The stock ledger of the Corporation shall be the only evidence as to who are the stockholders entitled to examine the stock ledger, the list required by Section 9 of this Article II or the books of the Corporation, or to vote in person or by proxy at any meeting of stockholders.
SECTION 11. INSPECTORS OF ELECTION. In advance of any meeting of
stockholders, the Board of Directors may appoint one or more persons (who shall
not be candidates for office) as inspectors of election to act at the meeting or
any adjournment thereof. If an inspector or inspectors are not so appointed, or
if an appointed inspector fails to appear or fails or refuses to act at a
meeting, the Chairman of any meeting of stockholders may, and on the request of
any stockholder or his proxy shall, appoint an inspector or inspectors of
election at the meeting. The duties of such inspector(s) shall include:
determining the number of shares outstanding and the voting power of each; the
shares represented at the meeting; the existence of a quorum; the authenticity,
validity and effect of proxies; receiving votes, ballots or consents; hearing
and determining all challenges and questions in any way arising in connection
with the right to vote; counting and tabulating all votes or consents;
determining the result; and such acts as may be proper to conduct the election
or vote with fairness to all stockholders. In the event of any dispute between
or among the inspectors, the determination of the majority of the inspectors
shall be binding.
SECTION 12. ORGANIZATION. At each meeting of stockholders the Chairman of the Board of Directors, if one shall have been elected, (or in his absence or if one shall not have been elected, the President) shall act as Chairman of the meeting. The Secretary (or in his absence or inability to act, the person whom the Chairman of the meeting shall appoint secretary of the meeting) shall act as secretary of the meeting and keep the minutes thereof.
SECTION 13. ORDER OF BUSINESS. The order and manner of transacting business at all meetings of stockholders shall be determined by the Chairman of the meeting.
ARTICLE III
DIRECTORS
SECTION 1. POWERS. Except as otherwise required by law or provided by the Certificate of Incorporation, the business and affairs of the Corporation shall be managed by or under the direction of the Board of Directors.
SECTION 2. NUMBER AND ELECTION OF DIRECTORS. Subject to any limitations in the Certificate of Incorporation, the authorized number of directors of the Corporation shall be _______________ until changed by an amendment to this Bylaw adopted by the affirmative vote of a majority of the entire Board of Directors. Directors shall be elected at each annual meeting of stockholders to replace directors whose terms then expire, and each director elected shall hold office until his successor is duly elected and qualified, or until his earlier death, resignation or removal. Any director may resign at any time effective upon giving written notice to the Board of Directors, unless the notice specifies a later time for such resignation to become effective. Unless otherwise specified therein, the acceptance of such resignation shall not be necessary to make it effective. If the resignation of a director is effective at a future time, the Board of Directors may elect a successor prior to such effective time to take office when such resignation becomes effective. Directors need not be stockholders.
SECTION 3. VACANCIES. Subject to the limitations in the Certificate of Incorporation, vacancies in the Board of Directors resulting from death, resignation, removal or otherwise and newly created directorships resulting from any increase in the authorized number of directors may be filled by a majority of the directors then in office, although less than a quorum, or by a sole remaining director. Each director so selected shall hold office for the remainder of the full term of office of the former director which such director replaces and until his successor is duly elected and qualified, or until his earlier death, resignation or removal. No decrease in the authorized number of directors constituting the Board of Directors shall shorten the term of any incumbent directors.
SECTION 4. TIME AND PLACE OF MEETINGS. The Board of Director shall hold its meetings at such place, either within or without the State of Delaware, and at such time as may be determined from time to time by the Board of Directors.
SECTION 5. ANNUAL MEETING. The Board of Directors shall meet for the
purpose of organization, the election of officers and the transaction of other
business, as soon as practicable after each annual meeting of stockholders, on
the same day and at the same place where such annual meeting shall be held.
Notice of such meeting need not be given. In the event such annual meeting is
not so held, the annual meeting of the Board of Directors may be held at such
place, either within or without the State of Delaware, on such date and at such
time as shall be specified in a notice thereof given as hereinafter provided in
Section 7 of this Article III or in a waiver of notice thereof.
SECTION 6. REGULAR MEETINGS. Regular meetings of the Board of Directors may be held at such places within or without the State of Delaware at such date and time as the Board of Directors may from time to time determine and, if so determined by the Board of Directors, notices thereof need not be given.
SECTION 7. SPECIAL MEETINGS. Special meetings of the Board of Directors may be called by the Chairman of the Board, the President, the Secretary or by any director. Notice of the date, time and place of special meetings shall be delivered personally or by telephone to each director or sent by first-class mail or telegram, charges prepaid, addressed to each director at the director's address as it is shown on the records of the Corporation. In case the notice is mailed, it shall be deposited in the United States mail at least four (4) days before the time of the holding of the meeting. In case the notice is delivered personally or by telephone or telegram, it shall be delivered personally or by telephone or to the telegraph company at least forty-eight (48) hours before the time of the holding of the meeting. The notice need not specify the purpose of the meeting. A written waiver of any such notice signed by the person entitled thereto, whether before or after the time stated therein, shall be deemed equivalent to notice. Attendance of a person at a meeting shall constitute a waiver of notice of such meeting, except when the person attends the meeting for the express purpose of objecting, at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened.
SECTION 8. QUORUM; VOTE REQUIRED FOR ACTION; ADJOURNMENT. Except as otherwise required by law, or provided in the Certificate of Incorporation or these Bylaws, a majority of the directors shall constitute a quorum for the transaction of business at all meetings of the Board of Directors and the affirmative vote of not less than a majority of the directors present at any meeting at which there is a quorum shall be the act of the Board of Directors. If a quorum shall not be present at any meeting of the Board of Directors, the directors present thereat may adjourn the meeting, from time to time, without notice other than announcement at the meeting, until a quorum shall be present. A meeting at which a quorum is initially present may continue to transact business, notwithstanding the withdrawal of directors, if any action taken is approved by at least a majority of the required quorum to conduct that meeting. When a meeting is adjourned to another time or place (whether or not a quorum is present), notice need not be given of the adjourned meeting if the time and place thereof are announced at the meeting at which the adjournment is taken. At the adjourned meeting, the Board of Directors may transact any business which might have been transacted at the original meeting.
SECTION 9. ACTION BY WRITTEN CONSENT. Unless otherwise restricted by the Certificate of Incorporation, any action required or permitted to be taken at any meeting of the Board of Directors or of any committee thereof may be taken without a meeting if all the members of the Board of Directors or committee, as the case may be, consent thereto in writing, and the writing or writings are filed with the minutes of proceedings of the Board of Directors or committee.
SECTION 10. TELEPHONE MEETINGS. Unless otherwise restricted by the Certificate of Incorporation, members of the Board of Directors of the Corporation, or any committee designated by the Board of Directors, may participate in a meeting of the Board of Directors or such committee, as the case may be, by conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other. Participation in a meeting pursuant to this Section 10 shall constitute presence in person at such meeting.
SECTION 11. COMMITTEES. The Board of Directors may, by resolution passed unanimously by the entire Board, designate one or more committees, each committee to consist of one or more of the directors of the Corporation. The Board of Directors may designate one or more directors as alternate members of any such committee, who may replace any absent or disqualified member at
any meeting of the committee. In the event of absence or disqualification of a member of a committee, and in the absence of a designation by the Board of Directors of an alternate member to replace the absent or disqualified member, the committee member or members present at any meeting and not disqualified from voting, whether or not he or they constitute a quorum, may unanimously appoint another member of the Board of Directors to act at the meeting in the place of the absent or disqualified member. Any committee, to the extent allowed by law and as provided in the resolution establishing such committee, shall have and may exercise all the power and authority of the Board of Directors in the management of the business and affairs of the Corporation, but no such committee shall have the power or authority in reference to amending the Certificate of Incorporation, adopting an agreement of merger or consolidation, recommending to the stockholders the sale, lease or exchange of all or substantially all of the Corporation's property and assets, recommending to the stockholders a dissolution of the Corporation or a revocation of a dissolution, or amending the Bylaws of the Corporation; and, unless the resolution or the Certificate of Incorporation expressly so provides, no such committee shall have the power or authority to declare a dividend or to authorize the issuance of stock. Each committee shall keep regular minutes of its meetings and report to the Board of Directors when required.
SECTION 12. COMPENSATION. The directors may be paid such compensation for their services as the Board of Directors shall from time to time determine.
SECTION 13. INTERESTED DIRECTORS. No contract or transaction between the Corporation and one or more of its directors or officers, or between the Corporation and any other corporation, partnership, association, or other organization in which one or more of its directors or officers are directors or officers, or have a financial interest, shall be void or voidable solely for this reason, or solely because the director or officer is present at or participates in the meeting of the Board of Directors or the committee thereof which authorizes the contract or transaction, or solely because his of their votes are counted for such purpose if: (i) the material facts as to his or their relationship or interest and as to the contract or transaction are disclosed or are known to the Board of Directors or the committee, and the Board of Directors or committee in good faith authorizes the contract or transaction by the affirmative votes of a majority of the disinterested directors, even though the disinterested directors be less than a quorum; or (ii) the material facts as to his or their relationship or interest and as to the contract or transaction are disclosed or are known to the stockholders entitled to vote thereon, and the contract or transaction is specifically approved in good faith by vote of the stockholders; or (iii) the contract or transaction is fair as to the Corporation as of the time it is authorized, approved or ratified, by the Board of Directors, a committee thereof, or the stockholders. Common or interested directors may be counted in determining the presence of a quorum at a meeting of the Board of Directors or of a committee which authorizes the contract or transaction.
ARTICLE IV
OFFICERS
SECTION 1. OFFICERS. The officers of the Corporation shall be a President, a Secretary and a Chief Financial Officer. The Corporation may also have, at the discretion of the Board of Directors, a Chairman of the Board, a Vice Chairman of the Board, a Chief Executive Officer, one or more Vice Presidents, one or more Assistant Financial Officers and Treasurers, one or more
Assistant Secretaries and such other officers as may be appointed in accordance with the provisions of Section 3 of this Article IV.
SECTION 2. APPOINTMENT OF OFFICERS. The officers of the Corporation,
except such officers as may be appointed in accordance with the provisions of
Section 3 or Section 5 of this Article IV, shall be appointed by the Board of
Directors, and each shall serve at the pleasure of the Board, subject to the
rights, if any, of an officer under any contract of employment.
SECTION 3. SUBORDINATE OFFICERS. The Board of Directors may appoint, and may empower the Chief Executive Officer or President to appoint, such other officers as the business of the Corporation may require, each of whom shall hold office for such period, have such authority and perform such duties as are provided in the Bylaws or as the Board of Directors may from time to time determine.
SECTION 4. REMOVAL AND RESIGNATION OF OFFICERS. Subject to the rights of an officer under any contract, any officer may be removed at any time, with or without cause, by the Board of Directors or, except in case of an officer chosen by the Board of Directors, by any officer upon whom such power of removal may be conferred by the Board of Directors.
Any officer may resign at any time by giving written notice to the Corporation. Any resignation shall take effect at the date of the receipt of that notice or at any later time specified in that notice; and, unless otherwise specified in that notice, the acceptance of the resignation shall not be necessary to make it effective. Any resignation shall be without prejudice to the rights of the Corporation under any contract to which the officer is a party.
SECTION 5. VACANCIES IN OFFICES. A vacancy in any office because of death, resignation, removal, disqualification or any other cause shall be filled in the manner prescribed in these Bylaws for regular appointments to that office.
SECTION 6. CHAIRMAN OF THE BOARD. The Chairman of the Board, if such an officer is elected, shall, if present, preside at meetings of the stockholders and of the Board of Directors. He shall, in addition, perform such other functions (if any) as may be prescribed by the Bylaws or the Board of Directors.
SECTION 7. VICE CHAIRMAN OF THE BOARD. The Vice Chairman of the Board, if such an officer is elected, shall, in the absence or disability of the Chairman of the Board, perform all duties of the Chairman of the Board and when so acting shall have all the powers of and be subject to all of the restrictions upon the Chairman of the Board. The Vice Chairman of the Board shall have such other powers and duties as may be prescribed by the Board of Directors or the Bylaws.
SECTION 8. CHIEF EXECUTIVE OFFICER. The Chief Executive Officer of the Corporation shall, subject to the control of the Board of Directors, have general supervision, direction and control of the business and the officers of the Corporation. He shall exercise the duties usually vested in the chief executive officer of a corporation and perform such other powers and duties as may be assigned to him from time to time by the Board of Directors or prescribed by the Bylaws. In the absence of the Chairman of the Board and any Vice Chairman of the Board, the Chief Executive Officer shall preside at all meetings of the stockholders and of the Board of Directors.
SECTION 9. PRESIDENT. The President of the Corporation shall, subject to the control of the Board of Directors and the Chief Executive Officer of the Corporation, if there be such an officer, have general powers and duties of management usually vested in the office of president of a corporation and shall have such other powers and duties as may be prescribed by the Board of Directors or the Bylaws or the Chief Executive Officer of the Corporation. In the absence of the Chairman of the Board, Vice Chairman of the Board and Chief Executive Officer, the President shall preside at all meetings of the Board of Directors and stockholders.
SECTION 10. VICE PRESIDENT. In the absence or disability of the President, the Vice Presidents, if any, in order of their rank as fixed by the Board of Directors or, if not ranked, a Vice President designated by the Board of Directors, shall perform all the duties of the President, and when so acting shall have all the powers of, and subject to all the restrictions upon, the President. The Vice Presidents shall have such other powers and perform such other duties as from time to time may be prescribed for them respectively by the Board of Directors or the Bylaws, and the President, or the Chairman of the Board.
SECTION 11. SECRETARY. The Secretary shall keep or cause to be kept, at the principal executive office or such other place as the Board of Directors may direct, a book of minutes of all meetings and actions of Directors, committees of Directors, and stockholders, with the time and place of holding, whether regular or special, and, if special, how authorized, the notice given, the names of those present at Directors' meetings or committee meetings, the number of shares present or represented at stockholders' meetings, and a summary of the proceedings.
The Secretary shall keep, or cause to be kept, at the principal executive office or at the office of the Corporation's transfer agent or registrar, as determined by resolution of the Board of Directors, a share register, or a duplicate share register, showing the names of all stockholders and their addresses, the number and classes of shares held by each, the number and date of certificates issued for the same, and the number and date of cancellation of every certificate surrendered for cancellation.
The Secretary shall give, or cause to be given, notice of all meetings of the stockholders and of the Board of Directors required by the Bylaws or by law to be given, and he shall keep or cause to be kept the seal of the Corporation if one be adopted, in safe custody, and shall have such powers and perform such other duties as may be prescribed by the Board of Directors or by the Bylaws.
SECTION 12. CHIEF FINANCIAL OFFICER. The Chief Financial Officer shall keep and maintain, or cause to be kept and maintained, adequate and correct books and records of accounts of the properties and business transactions of the Corporation. The Chief Financial Officer shall deposit all moneys and other valuables in the name and to the credit of the Corporation with such depositories as may be designated by the Board of Directors. He shall make such disbursements of the funds of the Corporation as are authorized and shall render from time to time an account of all of his transactions as Chief Financial Officer and of the financial condition of the Corporation. The Chief Financial Officer shall also have such other powers and perform such other duties as may be prescribed by the Board of Directors or the Bylaws.
ARTICLE V
STOCK
SECTION 1. FORM OF CERTIFICATES. Every holder of stock in the Corporation shall be entitled to have a certificate signed by, or in the name of the Corporation (i) by the Chairman or Vice Chairman of the Board of Directors, or the President or a Vice President and (ii) by the Chief Financial Officer or the Treasurer or an Assistant Treasurer, or the Secretary or an Assistant Secretary of the Corporation, certifying the number of shares owned by such stockholder in the Corporation.
SECTION 2. SIGNATURES. Any or all of the signatures on the certificate may be a facsimile. In case any officer, transfer agent or registrar who has signed or whose facsimile signature has been placed upon a certificate shall have ceased to be such officer, transfer agent or registrar before such certificate is issued, it may be issued by the Corporation with the same effect as if he were such officer, transfer agent or registrar at the date of issue.
SECTION 3. LOST CERTIFICATES. The Corporation may issue a new certificate to be issued in place of any certificate theretofore issued by the Corporation, alleged to have been lost, stolen or destroyed, upon the making of an affidavit of that fact by the person claiming the certificate to be lost, stolen or destroyed. The Corporation may, in the discretion of the Board of Directors and as a condition precedent to the issuance of such new certificate, require the owner of such lost, stolen, or destroyed certificate, or his legal representative, to give the Corporation a bond (or other security) sufficient to indemnify it against any claim that may be made against the Corporation (including any expense or liability) on account of the alleged loss, theft or destruction of any such certificate or the issuance of such new certificate.
SECTION 4. TRANSFERS. Stock of the Corporation shall be transferable in the manner prescribed by law and in these Bylaws or in any agreement with the stockholder making the transfer. Transfers of stock shall be made on the books of the Corporation only by the person named in the certificate or by his attorney lawfully constituted in writing and upon the surrender of the certificate therefor, which shall be canceled before a new certificate shall be issued.
SECTION 5. RECORD HOLDERS. The Corporation shall be entitled to recognize the exclusive right of a person registered on its books as the record holder of shares to receive dividends, and to vote as such record holder, and to hold liable for calls and assessments a person registered on its books as the record holder of shares, and shall not be bound to recognize any equitable or other claim to or interest in such share or shares on the part of any other person, whether or not it shall have express or other notice thereof, except as otherwise required by law.
ARTICLE VI
INDEMNIFICATION
SECTION 1. RIGHT TO INDEMNIFICATION. Each person who was or is made a party or is threatened to be made a party to or is otherwise involved in any action, suit or proceeding, whether civil, criminal, administrative or investigative (hereinafter a "proceeding"), by reason of the fact that he or she is or was a director or officer of the Corporation or is or was serving at the request of the Corporation as a director or officer of another corporation or of a partnership, joint venture,
trust or other enterprise, including service with respect to employee benefit plans (hereinafter an "indemnitee"), whether the basis of such proceeding is alleged action in an official capacity as a director or officer or in any other capacity while serving as a director or officer, shall be indemnified and held harmless by the Corporation to the fullest extent authorized by the Delaware General Corporation Law, as the same exists or may hereafter be amended (but, in the case of any such amendment, only to the extent that such amendment permits the Corporation to provide broader indemnification rights than such law permitted the Corporation to provide prior to such amendment), against all expense, liability and loss (including attorneys' fees, judgments, fines, ERISA excise taxes or penalties and amounts paid in settlement) reasonably incurred or suffered by such indemnitee in connection therewith and such indemnification shall continue as to an indemnitee who has ceased to be a director or officer and shall inure to the benefit of the indemnitee's heirs, executors and administrators; provided, however, that, except as provided in Section 2 of this Article VI with respect to proceedings to enforce rights to indemnification, the Corporation shall indemnify any such indemnitee in connection with a proceeding (or part thereof) initiated by such indemnitee only if such proceeding (or part thereof) was authorized by the Board of Directors of the Corporation. The right to indemnification conferred in this Section shall be a contract right and shall include the right to be paid by the Corporation the expenses incurred in defending any such proceeding in advance of its final disposition (hereinafter an "advancement of expenses"); provided, however, that, if the Delaware General Corporation Law requires, an advancement of expenses incurred by an indemnitee in his or her capacity as a director or officer (and not in any other capacity in which service was or is rendered by such indemnitee, including without limitation, service to an employee benefit plan) shall be made only upon delivery to the Corporation of an undertaking, by or on behalf of such indemnitee, to repay all amounts so advanced if it shall ultimately be determined by final judicial decision from which there is no further right to appeal that such indemnitee is not entitled to be indemnified for such expenses under this Article VI or otherwise (hereinafter an "undertaking").
SECTION 2. RIGHT OF INDEMNITEE TO BRING SUIT. If a claim under Section
1 of this Article VI is not paid in full by the Corporation within forty-five
(45) days after a written claim has been received by the Corporation, the
indemnitee may at any time thereafter bring suit against the Corporation to
recover the unpaid amount of the claim. If successful in whole or part in any
such suit or in a suit brought by the Corporation to recover an advancement of
expenses pursuant to the terms of an undertaking, the indemnitee shall be
entitled to be paid also the expense of prosecuting or defending such suit. In
(i) any suit brought by the indemnitee to enforce a right to indemnification
hereunder (but not in a suit brought by the indemnitee to enforce a right to an
advancement of expenses) it shall be a defense that, and (ii) any suit by the
Corporation to recover an advancement of expenses pursuant to the terms of an
undertaking the Corporation shall be entitled to recover such expenses upon a
final adjudication that, the indemnitee has not met the applicable standard of
conduct set forth in the Delaware General Corporation Law. Neither the failure
of the Corporation (including its Board of Directors, independent legal counsel,
or its stockholders) to have made a determination prior to the commencement of
such suit that indemnification of the indemnitee is proper in the circumstances
because the indemnitee has met the applicable standard of conduct set forth in
the Delaware General Corporation Law, nor an actual determination by the
Corporation (including its Board of Directors, independent legal counsel, or its
stockholders) that the indemnitee has not met such applicable standard of
conduct, shall create a presumption that the indemnitee has not met the
applicable standard of conduct or, in the case of such a suit brought by
indemnitee, be a defense to such suit. In any suit brought by the indemnitee
to enforce a right hereunder, or by the Corporation to recover an advancement of expenses pursuant to the terms of an undertaking, the burden of proving that the indemnitee is not entitled to be indemnified or to such advancement of expenses under this Article VI or otherwise shall be on the Corporation.
SECTION 3. NON-EXCLUSIVITY OF RIGHTS. The rights of indemnification and to the advancement of expenses conferred in this Article VI shall not be exclusive of any other right which any person may have or hereafter acquire under any statute, provision of the Certificate of Incorporation, bylaw, agreement, vote of stockholders or disinterested directors or otherwise.
SECTION 4. INSURANCE. The Corporation may maintain insurance, at its expense, to protect itself and any director, officer, employee or agent of the Corporation or another corporation, partnership, joint venture, trust or other enterprise against any expense, liability or loss, whether or not the Corporation would have the power to indemnify such person against such expense, liability or loss under the Delaware General Corporation Law.
SECTION 5. INDEMNIFICATION OF EMPLOYEES OR AGENTS OF THE CORPORATION. The Corporation may, to the extent authorized from time to time by the Board of Directors, grant rights to indemnification and to the advancement of expenses, to any employee or agent of the Corporation to the fullest extent of the provisions of this Article VI with respect to the indemnification and advancement of expenses of directors or officers of the Corporation.
SECTION 6. INDEMNIFICATION CONTRACTS. The Board of Directors is authorized to enter into a contract with any director, officer, employee or agent of the Corporation, or any person serving at the request of the Corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, including employee benefit plans, providing for indemnification rights equivalent to or, if the Board of Directors so determines, greater than, those provided for in this Article VI.
SECTION 7. EFFECT OF AMENDMENT. Any amendment, repeal or modification of any provision of this Article VI by the stockholders or the directors of the Corporation shall not adversely affect any right or protection of a director or officer of the Corporation existing at the time of such amendment, repeal or modification.
ARTICLE VII
GENERAL PROVISIONS
SECTION 1. DIVIDENDS. Subject to limitations contained in the General Corporation Law of the State of Delaware and the Certificate of Incorporation, the Board of Directors may declare and pay dividends upon the shares of capital stock of the Corporation, which dividends may be paid either in cash, securities of the Corporation or other property.
SECTION 2. DISBURSEMENTS. All checks or demands for money and notes of the Corporation shall be signed by such officer or officers or such other person or persons as the Board of Directors may from time to time designate.
SECTION 3. FISCAL YEAR. The fiscal year of the Corporation shall be fixed by resolution of the Board of Directors.
SECTION 4. CORPORATE SEAL. The Corporation shall have a corporate seal in such form as shall be prescribed by the Board of Directors.
SECTION 5. RECORD DATE. In order that the Corporation may determine the stockholders entitled to notice of or to vote at any meeting of stockholders or any adjournment thereof, or entitled to receive payment of any dividend or other distribution or allotment of any rights, or entitled to exercise any rights in respect of any change, conversion or exchange of stock, or for the purpose of any other lawful action, the Board of Directors may fix, in advance, a record date, which shall not be more than sixty (60) days nor less than ten (10) days before the date of such meeting, nor more than sixty (60) days prior to any other action. A determination of stockholders of record entitled to notice of or to vote at a meeting of stockholders shall apply to any adjournment of the meeting; provided, however, that the Board of Directors may fix a new record date for the adjourned meeting. Stockholders on the record date are entitled to notice and to vote or to receive the dividend, distribution or allotment of rights or to exercise the rights, as the case may be, notwithstanding any transfer of any shares on the books of the Corporation after the record date, except as otherwise provided by agreement or by applicable law.
SECTION 6. VOTING OF STOCK OWNED BY THE CORPORATION. The Chairman of the Board, the Chief Executive Officer, the President and any other officer of the Corporation authorized by the Board of Directors shall have power, on behalf of the Corporation, to attend, vote and grant proxies to be used at any meeting of stockholders of any corporation (except this Corporation) in which the Corporation may hold stock.
SECTION 7. CONSTRUCTION AND DEFINITIONS. Unless the context requires otherwise, the general provisions, rules of construction and definitions in the General Corporation Law of the State of Delaware shall govern the construction of these Bylaws.
SECTION 8. AMENDMENTS. Subject to the General Corporation Law of the State of Delaware, the Certificate of Incorporation and these Bylaws, the Board of Directors may by the affirmative vote of a majority of the entire Board of Directors amend or repeal these Bylaws, or adopt other Bylaws as in their judgment may be advisable for the regulation of the conduct of the affairs of the Corporation. Unless otherwise restricted by the Certificate of Incorporation, these Bylaws may be altered, amended or repealed, and new Bylaws may be adopted, at any annual meeting of the stockholders (or at any special meeting thereof duly called for that purpose) by a majority of the combined voting power of the then outstanding shares of capital stock of all classes and series of the Corporation entitled to vote generally in the election of directors, voting as a single class, provided that, in the notice of any such special meeting, notice of such purpose shall be given.
Exhibit 10.1
COLLECTORS UNIVERSE, INC.
1999 STOCK INCENTIVE PLAN
This 1999 STOCK INCENTIVE PLAN (the "Plan") is hereby established by COLLECTORS UNIVERSE, INC., a Delaware corporation (the "Company" or "CUI"), and adopted by its Board of Directors as of the 3rd day of February, 1999 (the "Effective Date").
ARTICLE 1
PURPOSES OF THE PLAN
1.1 PURPOSES. The purposes of the Plan are (a) to enhance the Company's ability to attract and retain the services of qualified employees, officers, employee and non-employee directors and Service Providers, upon whose judgment, initiative and efforts the successful conduct and development of the Company's business largely depends, and (b) to provide additional incentives to such Persons to devote their utmost effort and skill to the advancement and betterment of the Company, by providing them an opportunity to participate in the success and increased value of the Company through ownership of shares of stock in the Company.
ARTICLE 2
DEFINITIONS
For purposes of this Plan, the following terms shall have the meanings indicated:
2.1 ACQUIRING PERSON. "Acquiring Person" means the Person that acquires direct or indirect ownership of a majority or all of the outstanding shares of voting stock of the Company or of any other corporation in which the Company may be merged, in a Change of Control transaction effectuated by means of a merger of the Company with and into another corporation, a reverse or forward triangular merger or an exchange of shares of the Company's Common Stock for shares of stock, cash or other property of the Acquiring Person and any Person that acquires ownership of all or substantially all of the assets of the Company in a single or series of related transactions.
2.2 ADMINISTRATOR. "Administrator" means the Board or, if the Board delegates any of its administrative responsibilities under the Plan to the Committee, the term Administrator as to such delegated responsibilities shall mean the Committee.
2.3 AFFILIATED COMPANY. "Affiliated Company" means any "parent corporation" or "subsidiary corporation" of the Company, whether now existing or hereafter created or acquired, as those terms are defined in Sections 424(e) and 424(f) of the Code, respectively.
2.4 BOARD. "Board" means the Board of Directors of the Company.
2.5 CHANGE IN CONTROL. "Change in Control" shall mean (i) the acquisition, directly or indirectly, by any Person or group (within the meaning of Section 13(d)(3) of the Securities Exchange Act of 1934, as amended) of the beneficial ownership of securities of the Company possessing more than fifty percent (50%) of the total combined voting power of all outstanding securities of the Company, unless the Person or group of Persons acquiring such beneficial ownership owned more than 25% of the outstanding common stock of the Company on the date of adoption of this Plan, (ii) a merger or consolidation in which the Company is not the surviving entity, except for a transaction in which holders
of outstanding voting securities of the Company immediately prior to such merger or consolidation hold, in the aggregate, securities possessing more than fifty percent (50%) of the total combined voting power of all outstanding voting securities of the surviving entity immediately after such merger or consolidation; (iii) a reverse merger in which the Company is the surviving entity but in which securities possessing more than fifty percent (50%) of the total combined voting power of all outstanding voting securities of the Company are transferred to or acquired by a Person or Persons different from the persons holding those securities immediately prior to such merger; (iv) the sale, transfer or other disposition (in one transaction or a series of related transactions) of all or substantially all of the assets of the Company; or (v) the approval by the shareholders of a plan or proposal for the liquidation or dissolution of the Company.
2.6 CODE. "Code" means the Internal Revenue Code of 1986, as amended from time to time.
2.7 COMMITTEE. "Committee" means a committee of two or more members of the Board appointed to administer the Plan, as set forth in Section 7.1 hereof.
2.8 COMMON STOCK. "Common Stock" means the Common Stock, $.01 par value of the Company, subject to adjustment pursuant to Section 4.2 hereof.
2.9 DISABILITY. "Disability" means permanent and total disability as defined in Section 22(e)(3) of the Code. The Administrator's determination of a Disability or the absence thereof shall be conclusive and binding on all interested parties.
2.10 EFFECTIVE DATE. "Effective Date" means the date on which the Plan is adopted by the Board, as set forth on the first page hereof.
2.11 EXERCISE PRICE. "Exercise Price" means the purchase price per share of Common Stock payable upon exercise of an Option.
2.12 FAIR MARKET VALUE. "Fair Market Value" on any given date means the value of one share of Common Stock, determined as follows:
(a) If the Common Stock is then listed or admitted to trading on a NASDAQ market system or a stock exchange which reports closing sale prices, the Fair Market Value shall be the closing sale price on the date of valuation on such NASDAQ market system or principal stock exchange on which the Common Stock is then listed or admitted to trading, or, if no closing sale price is quoted on such day, then the Fair Market Value shall be the closing sale price of the Common Stock on such NASDAQ market system or such exchange on the next preceding day for which a closing sale price is reported.
(b) If the Common Stock is not then listed or admitted to trading on a NASDAQ market system or a stock exchange which reports closing sale prices, the Fair Market Value shall be the average of the closing bid and asked prices of the Common Stock in the over-the-counter market on the date of valuation.
(c) If neither (a) nor (b) is applicable as of the date of valuation, then the Fair Market Value shall be determined by the Administrator in good faith using any reasonable method of evaluation, which determination shall be conclusive and binding on all interested parties.
2.13 INCENTIVE OPTION. "Incentive Option" means any Option designated and qualified as an "incentive stock option" as defined in Section 422 of the Code.
2.14 INCENTIVE OPTION AGREEMENT. "Incentive Option Agreement" means an Option Agreement with respect to an Incentive Option.
2.15 NASD DEALER. "NASD Dealer" means a broker-dealer that is a member of the National Association of Securities Dealers, Inc.
2.16 NONQUALIFIED OPTION. "Nonqualified Option" means any Option that is not an Incentive Option. To the extent that any Option designated as an Incentive Option fails in whole or in part to qualify as an Incentive Option, including, without limitation, for failure to meet the limitations applicable to a 10% Shareholder or because it exceeds the annual limit provided for in Section 5.6 below, it shall to that extent constitute a Nonqualified Option.
2.17 NONQUALIFIED OPTION AGREEMENT. "Nonqualified Option Agreement" means an Option Agreement with respect to a Nonqualified Option.
2.18 OFFEREE. "Offeree" means a Participant to whom a Right to Purchase has been offered or who has acquired Restricted Stock under the Plan.
2.19 OPTION. "Option" means any option to purchase Common Stock granted pursuant to the Plan.
2.20 OPTION AGREEMENT. "Option Agreement" means the written agreement entered into between the Company and the Optionee with respect to an Option granted under the Plan.
2.21 OPTIONEE. "Optionee" means a Participant who holds an Option.
2.22 PARTICIPANT. "Participant" means a Person who holds an Option, a Right to Purchase or Restricted Stock under the Plan.
2.23 PERSON. "Person" means any natural person and any corporation, limited liability company, partnership, trust, association or other entity.
2.24 PURCHASE PRICE. "Purchase Price" means the purchase price per share of Restricted Stock payable upon acceptance of a Right to Purchase.
2.25 RESTRICTED STOCK. "Restricted Stock" means shares of Common Stock issued pursuant to Article 6 hereof, subject to any restrictions and conditions as are established pursuant to such Article 6.
2.26 RIGHT TO PURCHASE. "Right to Purchase" means a right to purchase Restricted Stock granted to an Offeree pursuant to Article 6 hereof.
2.27 SERVICE PROVIDER. "Service Provider" means a consultant or other Person who provides services to the Company or an Affiliated Company and who the Administrator authorizes to become a Participant in the Plan.
2.28 STOCK PURCHASE AGREEMENT. "Stock Purchase Agreement" means a written agreement entered into by the Company with the Offeree with respect to a Right to Purchase offered under the Plan.
2.29 10% SHAREHOLDER. "10% Shareholder" means a Person who, as of a relevant date, owns or is deemed to own (by reason of the attribution rules applicable under Section 424(d) of the Code) stock possessing more than 10% of the total combined voting power of all classes of stock of the Company or of an Affiliated Company.
ARTICLE 3
ELIGIBILITY
3.1 INCENTIVE OPTIONS. Officers and other key employees of the Company or of an Affiliated Company (including members of the Board if they are employees of the Company or of an Affiliated Company) are eligible to receive Incentive Options under the Plan.
3.2 NONQUALIFIED OPTIONS AND RIGHTS TO PURCHASE. Officers and other key employees of the Company or of an Affiliated Company, members of the Board (whether or not employed by the Company or an Affiliated Company), and Service Providers are eligible to receive Nonqualified Options or Rights to Purchase under the Plan.
3.3 LIMITATION ON SHARES. In no event shall any Participant be granted Options or Rights to Purchase in any one calendar year pursuant to which the aggregate number of shares of Common Stock that may be acquired thereunder exceeds five hundred thousand shares (500,000) shares (which number shall be subject to adjustment as provided in Section 4.2 hereof).
ARTICLE 4
PLAN SHARES
4.1 SHARES SUBJECT TO THE PLAN. A total of one million seven hundred forty-eight thousand five hundred eighty-five (1,748,585) shares of Common Stock may be issued under the Plan, subject to adjustment as to the number and kind of shares pursuant to Section 4.2 hereof. For purposes of this limitation, in the event that (a) all or any portion of any Option or Right to Purchase granted or offered under the Plan can no longer under any circumstances be exercised, or (b) any shares of Common Stock are reacquired by the Company pursuant to an Incentive Option Agreement, Nonqualified Option Agreement or Stock Purchase Agreement, the shares of Common Stock allocable to the unexercised portion of such Option or such Right to Purchase, or the shares so reacquired, shall again be available for grant or issuance under the Plan.
4.2 CHANGES IN CAPITAL STRUCTURE. In the event that the outstanding shares of Common Stock are hereafter increased or decreased or changed into or exchanged for a different number or kind of shares or other securities of the Company by reason of a recapitalization, stock split, combination of shares, reclassification, stock dividend, or other change in the capital structure of the Company, then appropriate adjustments shall be made by the Administrator to the aggregate number and kind of shares subject to this Plan, and the number and kind of shares and the price per share subject to outstanding Option Agreements, Rights to Purchase and Stock Purchase Agreements in order to preserve, as nearly as practical, but not to increase, the benefits to Participants.
ARTICLE 5
OPTIONS
5.1 OPTION AGREEMENT. Each Option granted pursuant to this Plan shall be evidenced by an Option Agreement which shall specify the number of shares subject thereto, the Exercise Price per share,
and whether the Option is an Incentive Option or Nonqualified Option. As soon as is practical following the grant of an Option, an Option Agreement shall be duly executed and delivered by or on behalf of the Company to the Optionee to whom such Option was granted. Each Option Agreement shall be in such form and contain such additional terms and conditions, not inconsistent with the provisions of this Plan, as the Administrator shall, from time to time, deem desirable, including, without limitation, the imposition of any rights of first refusal and resale obligations upon any shares of Common Stock acquired pursuant to an Option Agreement. Each Option Agreement may be different from each other Option Agreement.
5.2 EXERCISE PRICE. The Exercise Price per share of Common Stock covered by each Option shall be determined by the Administrator, subject to the following: (a) the Exercise Price of an Incentive Option shall not be less than 100% of Fair Market Value on the date the Incentive Option is granted, (b) the Exercise Price of a Nonqualified Option shall not be less than 85% of Fair Market Value on the date the Nonqualified Option is granted, and (c) if the Person to whom an Option is granted is a 10% Shareholder on the date of grant, the Exercise Price shall not be less than 110% of Fair Market Value on the date the Option is granted.
5.3 PAYMENT OF EXERCISE PRICE. Payment of the Exercise Price shall be made upon exercise of an Option and may be made in any of the following ways:
(a) By cash or check; or,
(b) If approved by the Administrator, then, subject to any legal restrictions, by (i) the surrender of shares of Common Stock owned by the Optionee that have been held by the Optionee for at least six (6) months, which surrendered shares shall be valued at Fair Market Value as of the date of such exercise; (ii) the delivery to the Company of Optionee's promissory note in a form and on terms acceptable to the Administrator; (iii) the cancellation of indebtedness of the Company to the Optionee; (iv) the waiver of compensation due or accrued to the Optionee for services rendered; or (v) any combination of the foregoing; or
(c) If a public market for the Common Stock exists, by (i) a "same day sale" commitment from the Optionee and an NASD Dealer whereby the Optionee irrevocably elects to exercise the Option and to sell a portion of the shares so purchased to pay for the Exercise Price and whereby the NASD Dealer irrevocably commits upon receipt of such shares to forward the Exercise Price directly to the Company; or (ii) a "margin" commitment from the Optionee and an NASD Dealer whereby the Optionee irrevocably elects to exercise the Option and to pledge the shares so purchased to the NASD Dealer in a margin account as security for a loan from the NASD Dealer in the amount of the Exercise Price, and whereby the NASD Dealer irrevocably commits upon receipt of such shares to forward the Exercise Price directly to the Company; or
(d) Any combination of the foregoing methods of payment or any other consideration or method of payment that has been approved by the Administrator and is permitted by applicable corporate law.
5.4 TERM AND TERMINATION OF OPTIONS. The term and provisions for termination of each Option shall be as fixed by the Administrator, but no Option may be exercisable more than ten (10) years after the date it is granted. An Option granted to a Person who is a 10% Shareholder on the date of grant shall not be exercisable more than five (5) years after the date it is granted.
5.5 VESTING AND EXERCISE OF OPTIONS. Each Option shall vest and become exercisable in one or more installments at such time or times and subject to such conditions, including without
limitation the achievement of specified performance goals or objectives, as shall be determined by the Administrator.
5.6 ANNUAL LIMIT ON INCENTIVE OPTIONS. To the extent required for "incentive stock option" treatment under Section 422 of the Code, the aggregate Fair Market Value (determined as of the time of grant) of the Common Stock shall not, with respect to which Incentive Options granted under this Plan and any other plan of the Company or any Affiliated Company become exercisable for the first time by an Optionee during any calendar year, exceed $100,000. The excess, if any of the Fair Market Value of any incentive stock option that becomes vested in any calendar year over this $100,000 limitation shall be treated, for federal income tax purposes as a Nonqualified Option.
5.7 NONTRANSFERABILITY OF OPTIONS. No Option shall be assignable or transferable except by will or the laws of descent and distribution, and during the life of the Optionee shall be exercisable only by such Optionee; provided, however, that, in the discretion of the Administrator, any Option may be assigned or transferred in any manner which an "incentive stock option" is permitted to be assigned or transferred under the Code.
5.8 RIGHTS AS SHAREHOLDER. An Optionee or permitted transferee of an Option shall have no rights or privileges as a shareholder with respect to any shares covered by an Option until such Option has been duly exercised and certificates representing shares purchased upon such exercise have been issued to such Person.
ARTICLE 6
RIGHTS TO PURCHASE
6.1 NATURE OF RIGHT TO PURCHASE. A Right to Purchase granted to an Offeree entitles the Offeree to purchase, for a Purchase Price determined by the Administrator, shares of Common Stock subject to such terms, restrictions and conditions as the Administrator may determine at the time of grant ("Restricted Stock"). Such conditions may include, but are not limited to, continued employment or the achievement of specified performance goals or objectives.
6.2 ACCEPTANCE OF RIGHT TO PURCHASE. An Offeree shall have no rights with respect to the Restricted Stock subject to a Right to Purchase unless the Offeree shall have accepted the Right to Purchase within ten (10) days (or such longer or shorter period as the Administrator may specify) following the grant of the Right to Purchase by making payment of the full Purchase Price to the Company in the manner set forth in Section 6.3 hereof and by executing and delivering to the Company a Stock Purchase Agreement. Each Stock Purchase Agreement shall be in such form, and shall set forth the Purchase Price and such other terms, conditions and restrictions of the Restricted Stock, not inconsistent with the provisions of this Plan, as the Administrator shall, from time to time, deem desirable. Each Stock Purchase Agreement may be different from each other Stock Purchase Agreement.
6.3 PAYMENT OF PURCHASE PRICE. Subject to any legal restrictions, payment of the Purchase Price upon acceptance of a Right to Purchase Restricted Stock may be made, by:
(a) Cash or check; or
(b) If approved by the Administrator, (i) the surrender of shares of Common Stock owned by the Offeree that have been held by the Offeree for at least six (6) months, which surrendered shares shall be valued at Fair Market Value as of the date of such exercise; (ii) delivery of the Offeree's promissory note in a form and on terms acceptable to the Administrator; (iii) the cancellation of
indebtedness of the Company to the Offeree; (iv) the waiver of compensation due or accrued to the Offeree for services rendered; or
(c) any combination of the foregoing methods of payment or any other consideration or method of payment as shall be approved by the Administrator.
6.4 RIGHTS AS A SHAREHOLDER. Upon complying with the provisions of
Section 6.2 hereof, an Offeree shall have the rights of a shareholder with
respect to the Restricted Stock purchased pursuant to the Right to Purchase,
including voting and dividend rights, subject to the terms, restrictions and
conditions as are set forth in the Stock Purchase Agreement. Unless the
Administrator shall determine otherwise, certificates evidencing shares of
Restricted Stock shall remain in the possession of the Company until such shares
have vested in accordance with the terms of the Stock Purchase Agreement.
6.5 RESTRICTIONS. Shares of Restricted Stock may not be sold, assigned, transferred, pledged or otherwise encumbered or disposed of except as specifically provided in the Stock Purchase Agreement. In the event of termination of a Participant's employment, service as a director of the Company or Service Provider status for any reason whatsoever (including death or disability), the Stock Purchase Agreement may provide, in the discretion of the Administrator, that the Company shall have the right, exercisable at the discretion of the Administrator, to repurchase (i) at the original Purchase Price, any shares of Restricted Stock which have not vested as of the date of termination, and (ii) at Fair Market Value, any shares of Restricted Stock which have vested as of such date, on such terms as may be provided in the Stock Purchase Agreement.
6.6 VESTING OF RESTRICTED STOCK. The Stock Purchase Agreement shall specify the date or dates, the performance goals or other objectives which must be achieved, and any other conditions on which the Restricted Stock may vest.
6.7 DIVIDENDS. If payment for shares of Restricted Stock is made by promissory note, any cash dividends or other distributions of cash paid with respect to the Restricted Stock may be applied, in the discretion of the Administrator, to repayment of such note.
6.8 NONASSIGNABILITY OF RIGHTS. No Right to Purchase shall be assignable or transferable except by will or the laws of descent and distribution or as otherwise provided by the Administrator.
ARTICLE 7
ADMINISTRATION OF THE PLAN
7.1 ADMINISTRATOR. Authority to control and manage the operation and administration of the Plan shall be vested in the Board, which may delegate such responsibilities in whole or in part to a committee consisting of two (2) or more members of the Board (the "Committee"). Members of the Committee may be appointed from time to time by, and shall serve at the pleasure of, the Board. As used herein, the term "Administrator" means the Board or, with respect to any matter as to which responsibility has been delegated to the Committee, the term Administrator shall mean the Committee.
7.2 POWERS OF THE ADMINISTRATOR. In addition to any other powers or authority conferred upon the Administrator elsewhere in the Plan or by law, the Administrator shall have full power and authority to interpret the Plan, to create, amend or rescind and to interpret rules and regulations relating to the Plan and, without limiting the generality of the foregoing, to:
(a) determine the Persons to whom, and the time or times at which, Incentive Options or Nonqualified Options shall be granted and Rights to Purchase shall be offered, the number of shares to be represented by each Option and Right to Purchase and the consideration to be received by the Company upon the exercise thereof;
(b) determine the terms, conditions and restrictions contained in, and the form of, Option Agreements and Stock Purchase Agreements;
(c) determine the identity or capacity of any Persons who may be entitled to exercise a Participant's rights under any Option or Right to Purchase under the Plan;
(d) correct any defect or supply any omission or reconcile any inconsistency in the Plan or in any Option Agreement or Stock Purchase Agreement;
(e) accelerate the vesting of any Option or release or waive any repurchase rights of the Company with respect to Restricted Stock;
(f) extend the exercise date of any Option or acceptance date of any Right to Purchase;
(g) provide for rights of first refusal and/or repurchase rights;
(h) amend outstanding Option Agreements and Stock Purchase Agreements to provide for, among other things, any change or modification which the Administrator could have provided for upon the grant of an Option or Right to Purchase or in furtherance of the powers provided for herein; and
(i) make all other determinations necessary or advisable for the administration of the Plan, but only to the extent not contrary to the express provisions of the Plan.
Any action, decision, interpretation or determination made in good faith by the Administrator in the exercise of its authority conferred upon it under the Plan shall be final and binding on the Company and all Participants.
7.3 LIMITATION ON LIABILITY. No employee of the Company or member of the Board or Committee shall be subject to any liability with respect to duties under the Plan unless the Person acts fraudulently or in bad faith. To the extent permitted by law, the Company shall indemnify each member of the Board or Committee, and any employee of the Company with duties under the Plan, who was or is a party, or is threatened to be made a party, to any threatened, pending or completed proceeding, whether civil, criminal, administrative or investigative, by reason of such Person's conduct in the performance of duties under the Plan.
ARTICLE 8
CHANGE IN CONTROL
8.1 CHANGE IN CONTROL. In order to preserve a Participant's rights in the event of a Change in Control of the Company, the Administrator shall take one or more of the following actions with respect to outstanding Options ("Existing Options"), Rights to Purchase ("Existing Purchase Rights") and with respect to Restricted Stock obtained under this Plan:
(a) Obtain from the Acquiring Person in the Change of Control transaction an agreement which requires it, concurrently with the consummation of the Change of Control Transaction, to purchase or exchange each of the Existing Options and each of the Existing Purchase Rights for cash,
stock or other property that is being paid or issued to Company's stockholders in the Change of Control Transaction in an amount equal to the difference, or spread, between (i) the value of the cash, stock or other property that the Optionee or holder of such Existing Purchase Right would have received pursuant to such Change in Control transaction in exchange for all of the shares that would be issuable upon exercise of such Existing Options or Purchase Rights, assuming that the Existing Options and such Existing Purchase Rights had become fully exercisable and had been exercised immediately prior to the consummation of such Change in Control transaction, and (ii) the Exercise Price of such Existing Options or Purchase Price of such Existing Purchase Rights (as the case may be);
(b) Obtain from the Acquiring Person in the Change of Control transaction an agreement that obligates the Acquiring Person to assume the Existing Options or to grant, in substitution for the Existing Options, new options entitling each Optionee to purchase a number of shares of voting stock of the Acquiring Person having a Fair Market Value that is equal to the then Fair Market Value of the shares of Common Stock of the Company that are subject to the Existing Options, with appropriate adjustments as to the number and kind of shares and Exercise Prices, in which event the Plan and the assumed Options, or the new options substituted therefor (the "Substituted Options"), shall continue in the manner and under the terms so provided; or
(c) Provide for the purchase or exchange of each Option or Right to Purchase for an amount of cash or other property having a value equal to the difference, or spread, between (i) the value of the cash or other property that the Participant would have received pursuant to such Change in Control transaction in exchange for the shares issuable upon exercise of the Option or Right to Purchase had the Option or Right to Purchase been exercised immediately prior to such Change in Control transaction and (ii) the Exercise Price of such Option or the Purchase Price under such Right to Purchase;
(d) adjust the terms of the Options and Rights to Purchase in a manner determined by the Administrator to reflect the Change in Control;
(e) cause the Options and Rights to Purchase to be assumed, or new rights substituted therefor, by another Person, through the continuance of the Plan and the assumption of outstanding Options and Rights to Purchase, or the substitution for such Options and Rights to Purchase of new options and new rights to purchase of comparable value covering shares of a successor corporation, with appropriate adjustments as to the number and kind of shares and Exercise Prices, in which event the Plan and such Options and Rights to Purchase, or the new options and rights to purchase substituted therefor, shall continue in the manner and under the terms so provided; or
(f) make such other provision as the Administrator may consider equitable.
In order to preserve a Participant's rights in the event of a Change in Control of the Company, the Administrator shall take one or more of the following actions with respect to Options that are outstanding as of the consummation date of any Change of Control transaction to which the Company is a party (the "Existing Options"):
(g) Adjust the terms of the Options in a manner determined by the Administrator to reflect the Change in Control or make such other provision as the Administrator may consider equitable, if the stockholders of the Company immediately prior to the consummation of the Change of Control transaction will continue to own their Company shares, and this Plan will continue in effect as a Company Plan, following the consummation of the Change of Control transaction or if the Change of Control involves a liquidation and dissolution of the Company.
The Administrator shall cause written notice of any proposed Change of Control transaction to be given to all Optionees not less than fifteen (15) days prior to the anticipated effective date of the proposed Change of Control transaction; provided, however, that any delay beyond such time period in the giving of, or the failure to give, such notice shall not entitle any Person, including any Optionee, to obtain a delay in the effective date or to invalidate or adversely affect the validity of any such Change in Control transaction.
8.2 EFFECT OF CHANGE OF CONTROL TRANSACTION.
(a) If an agreement is obtained from the Acquiring Person which provides either for (i) the payment or exchange of cash, stock or other consideration equal to the Fair Market Value of the shares (whether or not vested) that are subject to the Existing Options, as contemplated by Paragraph 7.1(a) above, or (ii) the issuance of Substituted Options by the Acquiring Person, then, the Existing Options shall terminate retroactive to the effective date of the consummation of the Change of Control transaction. If, instead, an agreement is obtained from the Acquiring Person which provides for the assumption of the Existing Options and the continuance of this Plan by the Acquiring Person, the Existing Options shall continue in full force and effect, subject to equitable adjustments provided for in that agreement.
(b) If the agreement contemplated by Paragraph 7.1(b) is obtained, or any of the actions contemplated by Paragraph 7.1(c) is taken and, as a result, the Optionees holding Existing Options immediately prior to the consummation of such Change in Control either will continue to hold their Existing Options (as adjusted in the manner set forth in Paragraph 7.1(b) or 7.1(c) above) or will receive Substituted Options pursuant to Paragraph 7.1(b), but an Optionee's Continuous Service (as defined in the Optionee's Option Agreement) is terminated by the Company or the Acquiring Person for any reason during the first eighteen (18) months following such Change in Control, then, notwithstanding any provisions to the contrary contained in the Plan or any Plan adopted in substitution of this Plan, all of the shares of stock then subject or covered by such Existing Options or Substitute Options, to the extent they are not already exercisable, shall become vested and fully exercisable by the holder of such Existing Option or Substitute Option, as the case may be, effective retroactively to the business day immediately preceding the date of such termination of his or her Continuous Service.
(c) If, on the other hand, the Administrator is unable to
obtain either of the agreements contemplated by Paragraph 7.1(a) and Paragraph
7(b), and the Change of Control transaction is nevertheless consummated, then,
(i) all Options that have not theretofore become fully vested and fully
exercisable shall become fully vested and exercisable, effective as of the
business day immediately preceding the date of consummation of the Change of
Control transaction; (ii) each holder of an Existing Option shall be entitled to
exercise such Option in whole or in part on or prior to the date on which the
Change of Control transaction is consummated, (iii) in the event of any such
exercise by an Optionee (which shall be deemed to have occurred immediately
prior to the consummation of the Change of Control transaction), the Optionee
shall, on such consummation, become entitled to receive the consideration such
Optionee would have received in such transaction had he owned the shares
acquired on such exercise immediately prior to such consummation, and (iv) any
Existing Option not exercised in full on or before the effective date of the
consummation of the Change of Control transaction shall terminate as to the
unexercised portion of such Option as of such effective date. In addition, if an
agreement is obtained as contemplated by Paragraph 7.1(a) or Paragraph 7.1(b)
above in connection with any Change of Control transaction, then, on
consummation of the Change of Control transaction each Existing Option shall be
converted into the right to receive the consideration stated in such agreement
and the right to exercise any Existing Options to acquire shares of Common Stock
of the Company shall terminate.
If any of the actions set forth in Paragraphs 8.1(c), (d) or (e) is taken by the Administrator and, as a result, the Participants holding such Options, Rights to Purchase or Restricted Stock immediately prior to the consummation of such Change in Control will hold Options, Rights to Purchase or Restricted Stock, or options, rights to purchase or restricted stock issued in substitution therefor, as contemplated in Paragraph 8.1(d) above, (collectively "Substituted Rights"), and the Continuous Service of the holder of any such Options, Rights to Purchase or Restricted Stock, or such Substituted Rights, as the case may be, is terminated for any reason during the first eighteen (18) months following such Change in Control; then, notwithstanding any provisions to the contrary contained in the Plan, the time period relating to the exercise or realization of such holder's outstanding Options, Rights to Purchase or Restricted Stock, or such Substituted Rights, as the case may be, shall automatically accelerate on such termination of his or her Continuous Service. If, on the other hand, the Administrator takes the action set forth in Paragraph 8.1(a) above, all Options and Rights to Purchase shall terminate upon the consummation of the Change in Control. The Administrator shall cause written notice of the proposed transaction to be given to all Participants not less than fifteen (15) days prior to the anticipated effective date of the proposed transaction; provided, however, that any delay beyond such time period in the giving of, or the failure to give, such notice shall not entitle any Person, including any Optionee or Participant, to obtain a delay in the effective date or to invalidate or adversely affect the validity of any such Change in Control.
ARTICLE 9
AMENDMENT AND TERMINATION OF THE PLAN
9.1 AMENDMENTS. The Board may from time to time alter, amend, suspend or terminate the Plan in such respects as the Board may deem advisable. No such alteration, amendment, suspension or termination shall be made which shall substantially affect or impair the rights of any Participant under an outstanding Option Agreement or Stock Purchase Agreement without such Participant's consent. The Board may alter or amend the Plan to comply with requirements under the Code relating to Incentive Options or other types of options which give Optionees more favorable tax treatment than that applicable to Options granted under this Plan as of the date of its adoption. Upon any such alteration or amendment, any outstanding Option granted hereunder may, if the Administrator so determines and if permitted by applicable law, be subject to the more favorable tax treatment afforded to an Optionee pursuant to such terms and conditions.
9.2 PLAN TERMINATION. Unless the Plan shall theretofore have been terminated, the Plan shall terminate on the tenth (10th) anniversary of the Effective Date and no Options or Rights to Purchase may be granted under the Plan thereafter, but Option Agreements, Stock Purchase Agreements and Rights to Purchase then outstanding shall continue in effect in accordance with their respective terms.
ARTICLE 10
TAX WITHHOLDING
10.1 WITHHOLDING. The Company shall have the power to withhold, or require a Participant to remit to the Company, an amount sufficient to satisfy any applicable Federal, state, and local tax withholding requirements with respect to any Options exercised or Restricted Stock issued under the Plan. To the extent permissible under applicable tax, securities and other laws, the Administrator may, in its sole discretion and upon such terms and conditions as it may deem appropriate, permit a Participant to satisfy his or her obligation to pay any such tax, in whole or in part, up to an amount determined on the basis of the highest marginal tax rate applicable to such Participant, by (a) directing the Company to apply shares of Common Stock to which the Participant is entitled as a result of the exercise of an Option or as a result of the purchase of or lapse of restrictions on Restricted Stock or (b) delivering to the Company shares of Common Stock owned by the Participant. The shares of Common Stock so applied or delivered in satisfaction of the Participant's tax withholding obligation shall be valued at their Fair Market Value as of the date of measurement of the amount of income subject to withholding.
ARTICLE 11
MISCELLANEOUS
11.1 BENEFITS NOT ALIENABLE. Other than as provided above, benefits under the Plan may not be assigned or alienated, whether voluntarily or involuntarily. Any unauthorized attempt at assignment, transfer, pledge or other disposition shall be without effect.
11.2 NO ENLARGEMENT OF EMPLOYEE RIGHTS. This Plan is strictly a voluntary undertaking on the part of the Company and shall not be deemed to constitute a contract between the Company and any Participant to be consideration for, or an inducement to, or a condition of, the employment of any Participant. Nothing contained in the Plan shall be deemed to give the right to any Participant to be retained as an employee of the Company or any Affiliated Company or to limit the right of the Company or any Affiliated Company to discharge any Participant at any time.
11.3 APPLICATION OF FUNDS. The proceeds received by the Company from the sale of Common Stock pursuant to Option Agreements and Stock Purchase Agreements, except as otherwise provided herein, will be used for general corporate purposes.
EXHIBIT 10.2
COLLECTORS UNIVERSE, INC.
FORM OF STOCK OPTION AGREEMENT
Type of Option (check one): [ ] Incentive [ ] Nonqualified
This STOCK OPTION AGREEMENT (the "Agreement") is entered into as of _________ __, ____, by and between COLLECTORS UNIVERSE, INC., a Delaware corporation (the "Company"), and _______________________ (the "Optionee") pursuant to the Company's 1999 Stock Incentive Plan (the "Plan").
1. Grant of Option. The Company hereby grants to Optionee an option
(the "Option") which shall entitle Optionee to purchase all or any portion of a
total of _________________ (____) shares (the "Shares") of the Common Stock, par
value $.01 per share, of the Company at a purchase price of
_______________________ Dollars ($_______) per share (the "Exercise Price") and
on the terms and subject to the conditions that are set forth in this Agreement
and in the Plan. If the box marked "Incentive" above is checked, then, this
Option is intended to qualify as an "incentive stock option" as defined in
Section 422 of the Internal Revenue Code of l986, as amended (the "Code"). If
this Option fails in whole or in part to qualify as an incentive stock option,
or if the box marked "Nonqualified" is checked, then this Option shall, to that
extent, constitute a nonqualified stock option.
2. Vesting of Option. The right to exercise this Option shall vest in installments, and this Option shall be exercisable from time to time in whole or in part as to any vested installment, as follows:
This Option shall
On or After: be Exercisable as to:
------------ ---------------------
(i) _____________, 19___: ___________ shares
(ii) _____________, 19___: an additional ___________ shares
(iii) _____________, 19___: an additional ___________ shares
(iv) _____________, 19___: an additional ___________ shares
|
[Optional Provision: Notwithstanding the foregoing, if the Company achieves the goals set forth on Exhibit A hereto, the right to exercise this Option accelerate in accordance with the vesting schedule set forth in that Exhibit, which by this reference is incorporated herein and made an integral part of this Agreement.]
No additional shares shall vest after the date of termination of Optionee's "Continuous Service" (as defined in Section 3 below), but this Option shall continue to be exercisable in accordance with Section 3 hereof with respect to that number of shares that have vested as of the date of termination of Optionee's Continuous Service, unless such termination of Optionee's Continuous Service is due to the Optionee's "Misconduct" as such term is defined below.
3. Term of Option. Optionee's right to exercise this Option shall terminate upon the first to occur of the following:
(a) the expiration of ___ (___) years from the date of this Agreement;
(b) the expiration of three (3) months from the date of termination of Optionee's Continuous Service if such termination occurs for any reason other than permanent disability, death, voluntary resignation or a termination by the Company for Misconduct (as hereinafter defined); provided,
however, that, if Optionee dies during such three-month period, then, the provisions of Section 3(e) below shall apply;
(c) the date of termination of Optionee's Continuous Service if such termination occurs due to voluntary resignation or is due to Optionee's Misconduct;
(d) the expiration of one (1) year from the date of termination of Optionee's Continuous Service if such termination is due to permanent disability of the Optionee (as defined in Section 22(e)(3) of the Code);
(e) the expiration of one (1) year from the date of termination of Optionee's Continuous Service if such termination is due to Optionee's death or if death occurs during either the three-month or one-month period following termination of Optionee's Continuous Service pursuant to Section 3(b) or 3(c) above, as the case may be; or
(f) upon the consummation of a "Change in Control" (as defined in
Section 2.4 of the Plan), unless otherwise provided pursuant to Section 9 below.
As used herein, the term "Continuous Service" means (i) employment by either the Company or any parent or subsidiary corporation of the Company, or by a corporation or a parent or subsidiary of a corporation issuing or assuming a stock option in a transaction to which Section 424(a) of the Code applies, which is uninterrupted except for vacations, illness (except for permanent disability, as defined in Section 22(e)(3) of the Code), or leaves of absence which are approved in writing by the Company or any of such other employer corporations, if applicable, (ii) service as a member of the Board of Directors of the Company until Optionee resigns, is removed from office, or Optionee's term of office expires and he or she is not reelected, or (iii) so long as Optionee is engaged as a consultant or service provider to the Company or other corporation referred to in clause (i) above. Notwithstanding the foregoing if Optionee ceases to serve the Company in one capacity, such as an employee, but within fifteen (15) days thereafter becomes or is an employee or director of the Company or any parent or subsidiary corporation of the Company, or by a corporation or a parent or subsidiary of a corporation issuing or assuming a stock option in a transaction to which Section 424(a) of the Code applies, then, the Optionee's Continuous Service shall not be deemed to have ceased for purposes of this Agreement.
As used herein, the term "Misconduct" means any of the following: (i) the failure of the Optionee to perform, in all material respects, the duties assigned to him or her by such Optionee's immediate supervisor or the Chairman or Board of Directors of the Company, which continues unremedied for a period of 15 days following the receipt by Optionee of a notice of such failure; (ii) the commission by the Optionee of a felony, or of a misdemeanor involving moral turpitude; (iii) the breach of any duties of Optionee under any non-competition, confidentiality or trade secret or invention transfer or similar agreement entered into by the Optionee with the Company or by the Company with any of its clients or contained in any employment agreement between the Company and Optionee; (iv) the commission of an action or an omission to act on the part of the Optionee which subjects the Company to civil or criminal liability, and (v) any violation of any conflict of interest policy established by the Company that is not remedied within a period of 15 days following the receipt by Optionee of a notice of such violation.
4. Exercise of Option. On or after the vesting of any portion of this
Option in accordance with Sections 2 or 9 hereof, and until termination of the
right to exercise this Option in accordance with Section 3 above, the portion of
this Option which has vested prior to such termination and which, pursuant to
Section 3 survives such termination, may be exercised in whole or in part by the
Optionee (or, after his or her death, by the person designated in Section 5
below) upon delivery of the following to the Company at its principal executive
offices:
(a) a written notice of exercise which identifies this Agreement and states the number of Shares then being purchased (but no fractional Shares may be purchased);
(b) a check or cash in the amount of the Exercise Price (or payment of the Exercise Price in such other form of lawful consideration as the Administrator may approve from time to time under the provisions of Section 5.3 of the Plan);
(c) a check or cash in the amount reasonably requested by the Company to satisfy the Company's withholding obligations under federal, state or other applicable tax laws with respect to the taxable income, if any, recognized by the Optionee in connection with the exercise of this Option (unless the Company and Optionee shall have made other arrangements for deductions or withholding from Optionee's wages, bonus or other compensation payable to Optionee, or by the withholding of Shares issuable upon exercise of this Option or the delivery of Shares owned by the Optionee in accordance with Section 10.1 of the Plan, provided such arrangements satisfy the requirements of applicable tax laws); and
(d) a letter, if requested by the Company, in such form and substance as the Company may require, setting forth the investment intent of the Optionee, or person designated in Section 5 below, as the case may be and, if the Common Stock of the Company is registered under Section 12(b) or 12(g) under the Securities Act of 1934, as amended, at the time the Option is exercised, an agreement which obligates the Optionee to enter into a market stand-off agreement of the type set forth in Section 6 of the form of Stockholders' Agreement attached hereto as Exhibit B.
(e) a Stockholders' Agreement in substantially the form of Exhibit B hereto unless, at the time of such exercise, the Common Stock of the Company is registered under Section 12(b) or 12(g) under the Securities Act of 1934, as amended.
5. Death of Optionee; No Assignment. The rights of the Optionee under this Agreement may not be assigned or transferred except by will or by the laws of descent and distribution, and may be exercised during the lifetime of the Optionee only by such Optionee. Any attempt to sell, pledge, assign, hypothecate, transfer or dispose of this Option in contravention of this Agreement or the Plan shall be void and shall have no effect. If the Optionee's Continuous Service terminates as a result of his or her death, and provided Optionee's rights hereunder shall have vested pursuant to Section 2 hereof, Optionee's legal representative, his or her legatee, or the person who acquired the right to exercise this Option by reason of the death of the Optionee (individually, a "Successor") shall succeed to the Optionee's rights and obligations under this Agreement. After the death of the Optionee, only a Successor may exercise this Option.
6. Representations and Warranties of Optionee.
(a) Optionee represents and warrants that this Option is being acquired by Optionee for Optionee's personal account, for investment purposes only, and not with a view to the distribution, resale or other disposition thereof.
(b) Optionee acknowledges that the Company may issue Shares upon the exercise of the Option without registering such Shares under the Securities Act of l933, as amended (the "Securities Act"), on the basis of certain exemptions from such registration requirement. Accordingly, Optionee agrees that his or her exercise of the Option may be expressly conditioned upon his or her delivery to the Company of an investment certificate including such representations and undertakings as the Company may reasonably require in order to assure the availability of such exemptions, including a representation that Optionee is acquiring the Shares for investment and not with a present intention of selling or otherwise disposing thereof and an agreement by Optionee that the certificates evidencing the Shares may bear a legend indicating such non-registration under the Securities Act and the resulting restrictions on transfer.
Optionee acknowledges that, because Shares received upon exercise of an Option may be unregistered, Optionee may be required to hold the Shares indefinitely unless they are subsequently registered for resale under the Securities Act or an exemption from such registration is available.
(c) Optionee acknowledges receipt of a copy of the Plan and understands that all rights and obligations connected with this Option are set forth in this Agreement and in the Plan.
7. Restrictive Legends.
(a) Optionee hereby acknowledges that federal securities laws and the securities laws of the state in which he or she resides may require the placement of certain restrictive legends upon the Shares issued upon exercise of this Option, and Optionee hereby consents to the placing of any such legends upon certificates evidencing the Shares as the Company, or its counsel, may deem necessary or advisable.
(b) In addition, all stock certificates evidencing the Shares shall be imprinted with a legend substantially as follows:
"THE SHARES OF STOCK REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO CERTAIN RESTRICTIONS ON TRANSFER, REPURCHASE RIGHTS AND A RIGHT OF FIRST REFUSAL IN FAVOR OF THE CORPORATION AND/OR ITS NOMINEE(S), AS SET FORTH IN A STOCKHOLDERS AGREEMENT DATED AS OF FEBRUARY 5,1999. TRANSFER OF THESE SHARES MAY BE MADE ONLY IN COMPLIANCE WITH THE PROVISIONS OF THAT STOCKHOLDERS AGREEMENT, A COPY OF WHICH IS ON FILE AT THE PRINCIPAL OFFICE OF THE CORPORATION. SUCH TRANSFER RESTRICTIONS, REPURCHASE RIGHTS AND RIGHT OF FIRST REFUSAL ARE BINDING ON ANY PERMITTED TRANSFEREES OF THESE SHARES." IN ADDITION, ANY TRANSFER OR PURPORTED TRANSFER OF SHARES REPRESENTED BY THIS CERTIFICATE, IN VIOLATION OF THE STOCKHOLDERS AGREEMENT, SHALL BE NULL AND VOID AND INEFFECTIVE TO TRANSFER OR CONVEY ANY RIGHT, TITLE OR INTEREST IN OR TO THE SHARES.
8. Adjustments Upon Changes in Capital Structure. In the event that the outstanding shares of Common Stock of the Company are hereafter increased or decreased or changed into or exchanged for a different number or kind of shares or other securities of the Company by reason of a recapitalization, stock split, combination of shares, reclassification, stock dividend or other change in the capital structure of the Company, then appropriate adjustment shall be made by the Administrator to the number of Shares subject to the unexercised portion of this Option and to the Exercise Price per share, in order to preserve, as nearly as practical, but not to increase, the benefits of the Optionee under this Option, in accordance with the provisions of Section 4.2 of the Plan.
9. Change in Control. In the event of a Change in Control (as defined in Section 2.4 of the Plan) of the Company, (i) the vesting of this Option pursuant to Section 2 above shall automatically accelerate immediately prior to the consummation of such Change in Control, and (ii) the Administrator in its discretion may take one or more of the actions described in Paragraphs 8.1(a) to 8.1(d), inclusive, of the Plan. If the Administrator does not take any of those actions, this Option shall terminate upon the consummation of the Change in Control. The Administrator shall cause written notice of the proposed transaction to be given to the Optionee not less than fifteen (15) days prior to the anticipated effective date of the proposed transaction, provided, however, that any delay beyond such time period in the giving of, or the failure to give, such notice shall not entitle any person or entity, including any Optionee or Participant,
to obtain a delay in the effective date or to invalidate or adversely affect the validity of any such Change in Control.
10. No Employment Contract Created. Neither the granting of this Option nor the exercise hereof shall be construed as granting to the Optionee any right with respect to continuance of employment by the Company or any of its subsidiaries. The right of the Company or any of its subsidiaries to terminate at will the Optionee's employment at any time (whether by dismissal, discharge or otherwise), with or without cause, is specifically reserved, except as and to the extent otherwise provided in any employment agreement that may exist between the Company or any of its subsidiaries, on the one hand, and the Optionee, on the other hand.
11. Rights as Shareholder. The Optionee (or transferee of this option by will or by the laws of descent and distribution) shall have no rights as a shareholder with respect to any Shares covered by this Option until the date of the issuance of a stock certificate or certificates to him or her for such Shares, notwithstanding the exercise of this Option.
12. Interpretation and Entire Agreement.
(a) This Option is granted pursuant to the terms of the Plan, and shall in all respects be interpreted in accordance therewith. The Administrator shall interpret and construe this Option and the Plan, and any action, decision, interpretation or determination made in good faith by the Administrator shall be final and binding on the Company and the Optionee. As used in this Agreement, the term "Administrator" shall refer to the committee of the Board of Directors of the Company appointed to administer the Plan, and if no such committee has been appointed, the term Administrator shall mean the Board of Directors.
(b) This Agreement, together with the Plan, constitutes the entire agreement between the parties with respect to the subject-matter of this Agreement and supersedes any other prior or contemporaneous agreements (either written or oral) between the parties relating to the grant of the Option contemplated by this Agreement.
13. Notices. Any notice, demand or request required or permitted to be given under this Agreement shall be in writing and shall be deemed given when delivered personally or three (3) days after being deposited in the United States mail, as certified or registered mail, with postage prepaid, and addressed, if to the Company, at its principal place of business, Attn: the Chief Financial Officer, and if to the Optionee, at his or her most recent address as shown in the Company's employment or stock records.
14. Annual and Other Periodic Reports. During the term of this Agreement, the Company will furnish to the Optionee copies of all annual and other periodic financial and informational reports that the Company distributes generally to its shareholders; provided, however, that nothing herein shall require the Company to furnish copies of any reports to the Optionee that it does not furnished generally to its shareholders.
15. Governing Law. The validity, construction, interpretation, and effect of this Option shall be governed by and determined in accordance with the laws of the State of Delaware.
16. Severability. Should any provision or portion of this Agreement be held to be unenforceable or invalid for any reason, the remaining provisions and portions of this Agreement shall be unaffected by such holding.
17. Counterparts. This Agreement may be executed in two or more counterparts, each of which shall be deemed an original and all of which together shall be deemed one instrument.
18. California Corporate Securities Law. The sale of the shares that are the subject of this Agreement has not been qualified with the Commissioner of Corporations of the State of California and the issuance of such shares or the payment or receipt of any part of the consideration therefor prior to such qualification is unlawful, unless the sale of such shares is exempt from such qualification by Section 25100, 25102 or 25105 of the California Corporate Securities Law of l968, as amended. The rights of all parties to this Agreement are expressly conditioned upon such qualification being obtained, unless the sale is so exempt.
19. Entire Agreement. This Agreement, the Exhibits attached hereto and the Plan, contain all of the agreements of the parties with respect to the subject matter of this Agreement and supersede all agreements and understandings (whether written or oral) between the parties relating to the subject matter of this Agreement.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first above written.
COLLECTORS UNIVERSE, INC. "OPTIONEE"
By:
------------------------------- -----------------------------------
(Signature)
|
Exhibit 10.4
COLLECTORS UNIVERSE, INC.
PCGS 1999 STOCK OPTION PLAN
(ADOPTED AS OF FEBRUARY 3, 1999)
WHEREAS, Collectors Universe, Inc., a Delaware corporation (the "Company") is acquiring on this date all of the outstanding shares of capital stock of Professional Coin Grading Service, Inc., a Delaware corporation ("PCGS"), pursuant to a Contribution and Acquisition Agreement dated as of February 3, 1999 (the "Contribution Agreement"), by and among the Company and PCGS and its stockholders; and
WHEREAS, the Contribution Agreement provides for (i) all of PCGS' outstanding shares to be contributed to the Company in exchange for shares of Company Common Stock the number of which shall be determined by multiplying each outstanding PCGS share by 229.632 (the "Exchange Ratio"); (ii) the Company to assume the PCGS 1999 Stock Incentive Plan (the "PCGS Plan") and to amend that Plan to make it a plan providing for the grant of options to purchase shares of Common Stock of Collectors Universe (the "CUI Plan"), and (iii) to exchange, for each outstanding option to purchase PCGS shares, whether outstanding under the PCGS Plan or granted outside of that Plan ("PCGS Options"), an option under the CUI Plan (a "CUI Option") entitling the holder thereof to purchase shares of Company Common Stock, the number of which shall be determined by multiplying the number of shares subject to such PCGS Option by the Exchange Ratio and the exercise price of which shall be proportionately adjusted downward so that the aggregate exercise price of each CUI Option shall be equal to the aggregate exercise of each PCGS Option exchanged for such CUI Option;
NOW, THEREFORE, this Plan supersedes the PCGS Plan, and restates that Plan, in its entirety as a Company Plan that incorporates amendments to the PCGS Plan required to effectuate and evidence the assumption of the PCGS Plan by the Company.
This 1999 STOCK OPTION PLAN (the "Plan") is hereby established by COLLECTORS UNIVERSE, INC., a Delaware corporation (the "Company"), and adopted by its Board of Directors as of the 3rd day of February, 1999 (the "Effective Date"), pursuant to the terms of the Contribution Agreement and actions of the Board of Directors and majority shareholders of the Company approving this Plan.
ARTICLE 1
PURPOSES OF THE PLAN
1.1 PURPOSES. The purposes of the Plan are (a) to enhance the Company's ability to attract and retain the services of qualified employees, officers, employee and non-employee directors and Service Providers, upon whose judgment, initiative and efforts the successful conduct and development of the Company's business largely depends, and (b) to provide additional incentives to such Persons to devote their utmost effort and skill to the advancement and betterment of the Company, by providing them an opportunity to participate in the success and increased value of the Company through ownership of shares of Common Stock in the Company.
ARTICLE 2
DEFINITIONS
For purposes of this Plan, the following terms shall have the meanings indicated:
2.1 ACQUIRING PERSON. "Acquiring Person" means the Person that acquires direct or indirect ownership of a majority or all of the outstanding shares of voting stock of the Company or of any other corporation in which the Company may be merged, in a Change of Control transaction effectuated by means of a merger of the Company with and into another corporation, a reverse or forward triangular merger or an exchange of shares of the Company's Common Stock for shares of stock, cash or other property of the Acquiring Person and any Person that acquires ownership of all or substantially all of the assets of the Company in a single or series of related transactions.
2.2 ADMINISTRATOR. "Administrator" means the Board or, if the Board delegates any of its administrative responsibilities under the Plan to the Committee, the term Administrator as to such delegated responsibilities shall mean the Committee.
2.3 AFFILIATED COMPANY. "Affiliated Company" means any "parent corporation" or "subsidiary corporation" of the Company, whether now existing or hereafter created or acquired, as those terms are defined in Sections 424(e) and 424(f) of the Code, respectively.
2.4 BOARD. "Board" means the Board of Directors of the Company.
2.5 CHANGE IN CONTROL. "Change in Control" shall mean (i) the acquisition, directly or indirectly, by any Person or group (within the meaning of Section 13(d)(3) of the Securities Exchange Act of 1934, as amended) of the beneficial ownership of securities of the Company possessing more than fifty percent (50%) of the total combined voting power of all outstanding securities of the Company, unless the Person or group of Persons acquiring such beneficial ownership owned more than 25% of the outstanding Common Stock of the Company on the date of adoption of this Plan, (ii) a merger or consolidation in which the Company is not the surviving entity, except for a transaction in which holders of outstanding voting securities of the Company immediately prior to such merger or consolidation hold, in the aggregate, securities possessing more than fifty percent (50%) of the total combined voting power of all outstanding voting securities of the surviving entity immediately after such merger or consolidation; (iii) a reverse merger in which the Company is the surviving entity but in which securities possessing more than fifty percent (50%) of the total combined voting power of all outstanding voting securities of the Company are transferred to or acquired by a Person or Persons different from the persons holding those securities immediately prior to such merger; (iv) the sale, transfer or other disposition (in one transaction or a series of related transactions) of all or substantially all of the assets of the Company; or (v) the approval by the shareholders of a plan or proposal for the liquidation or dissolution of the Company.
2.6 CODE. "Code" means the Internal Revenue Code of 1986, as amended from time to time.
2.7 COMMITTEE. "Committee" means a committee of two or more members of the Board appointed to administer the Plan, as set forth in Section 7.1 hereof.
2.8 COMMON STOCK. "Common Stock" means the Common Stock, $.001 par value of the Company, subject to adjustment pursuant to Section 4.2 hereof.
2.9 DISABILITY. "Disability" means permanent and total disability as defined in Section 22(e)(3) of the Code. The Administrator's determination of a Disability or the absence thereof shall be conclusive and binding on all interested parties.
2.10 EFFECTIVE DATE. "Effective Date" means the date on which the Plan is adopted by the Board, as set forth on the first page hereof.
2.11 EXERCISE PRICE. "Exercise Price" means the purchase price per share of Common Stock payable upon exercise of an Option.
2.12 FAIR MARKET VALUE. "Fair Market Value" on any given date means the value of one share of Common Stock, determined as follows:
(a) If the Common Stock is then listed or admitted to trading on a NASDAQ market system or a stock exchange which reports closing sale prices, the Fair Market Value shall be the closing sale price on the date of valuation on such NASDAQ market system or principal stock exchange on which the Common Stock is then listed or admitted to trading, or, if no closing sale price is quoted on such day, then the Fair Market Value shall be the closing sale price of the Common Stock on such NASDAQ market system or such exchange on the next preceding day for which a closing sale price is reported.
(b) If the Common Stock is not then listed or admitted to trading on a NASDAQ market system or a stock exchange which reports closing sale prices, the Fair Market Value shall be the average of the closing bid and asked prices of the Common Stock in the over-the-counter market on the date of valuation.
(c) If neither (a) nor (b) is applicable as of the date of valuation, then the Fair Market Value shall be determined by the Administrator in good faith using any reasonable method of evaluation, which determination shall be conclusive and binding on all interested parties.
2.13 INCENTIVE OPTION. "Incentive Option" means any Option designated and qualified as an "incentive stock option" as defined in Section 422 of the Code.
2.14 INCENTIVE OPTION AGREEMENT. "Incentive Option Agreement" means an Option Agreement with respect to an Incentive Option.
2.15 NASD DEALER. "NASD Dealer" means a broker-dealer that is a member of the National Association of Securities Dealers, Inc.
2.16 NONQUALIFIED OPTION. "Nonqualified Option" means any Option that is not an Incentive Option. To the extent that any Option designated as an Incentive Option fails in whole or in part to qualify as an Incentive Option, including, without limitation, for failure to meet the limitations applicable to a 10% Shareholder or because it exceeds the annual limit provided for in Section 5.6 below, it shall to that extent constitute a Nonqualified Option.
2.17 NONQUALIFIED OPTION AGREEMENT. "Nonqualified Option Agreement" means an Option Agreement with respect to a Nonqualified Option.
2.18 OPTION. "Option" means any option to purchase Common Stock granted pursuant to the Plan.
2.19 OPTION AGREEMENT. "Option Agreement" means the written agreement entered into between the Company and the Optionee with respect to an Option granted under the Plan.
2.20 OPTIONEE. "Optionee" means a Person that is eligible to be granted and has been granted and holds Options under this Plan.
2.21 PERSON. "Person" means any natural person and any corporation, limited liability company, partnership, trust, association or other entity.
2.22 SERVICE PROVIDER. "Service Provider" means a consultant or other Person who provides services to the Company or an Affiliated Company and who the Administrator authorizes to become an Optionee under the Plan.
2.23 10% SHAREHOLDER. "10% Shareholder" means a Person who, as of a relevant date, owns or is deemed to own (by reason of the attribution rules applicable under Section 424(d) of the Code) stock possessing more than 10% of the total combined voting power of all classes of stock of the Company or of an Affiliated Company.
ARTICLE 3
ELIGIBILITY
3.1 INCENTIVE OPTIONS. Officers and other key employees of the Company or of an Affiliated Company (including members of the Board if they are employees of the Company or of an Affiliated Company) are eligible to receive Incentive Options under the Plan.
3.2 NONQUALIFIED OPTIONS AND RIGHTS TO PURCHASE. Officers and other key employees of the Company or of an Affiliated Company, members of the Board (whether or not employed by the Company or an Affiliated Company), and Service Providers are eligible to receive Nonqualified Options or Rights to Purchase under the Plan.
3.3 LIMITATION ON SHARES. In no event shall any Optionee be granted Options under this Plan in any one calendar year pursuant to which the aggregate number of shares of Common Stock that may be acquired thereunder exceeds one million shares (1,000,000) shares (which number shall be subject to adjustment as provided in Section 4.2 hereof).
ARTICLE 4
PLAN SHARES
4.1 SHARES SUBJECT TO THE PLAN. A total of one million seven hundred fifty thousand one thousand four hundred fifteen (1,751,415) shares of Common Stock may be issued under this Plan, subject to adjustment as to the number and kind of shares pursuant to Section 4.2 hereof. For purposes of this limitation, in the event that (a) all or any portion of any Option granted under the Plan can no longer under any circumstances be exercised, or (b) any shares of Common Stock are reacquired by the Company pursuant to an Incentive Option Agreement or a Nonqualified Option Agreement, the shares of Common Stock allocable to the unexercised portion of such Option, or the shares so reacquired, shall again be available for grant or issuance under the Plan.
4.2 CHANGES IN CAPITAL STRUCTURE. In the event that the outstanding shares of Common Stock are hereafter increased or decreased or changed into or exchanged for a different number or kind of shares or other securities of the Company by reason of a recapitalization, stock split, combination of shares, reclassification, stock dividend, or other change in the capital structure of the Company, then appropriate adjustments shall be made by the Administrator to the aggregate number and kind of shares subject to this Plan, and the number and kind of shares and the price per share subject to outstanding Option Agreements in order to preserve, as nearly as practical, but not to increase, the benefits to Optionees.
ARTICLE 5
OPTIONS
5.1 OPTION AGREEMENT. Each Option granted pursuant to this Plan shall be evidenced by an Option Agreement which shall specify the number of shares subject thereto, the Exercise Price per share, and whether the Option is an Incentive Option or Nonqualified Option. As soon as is practical following the grant of an Option, an Option Agreement shall be duly executed and delivered by or on behalf of the Company to the Optionee to whom such Option was granted. Each Option Agreement shall be in such form and contain such additional terms and conditions, not inconsistent with the provisions of this Plan, as the Administrator shall, from time to time, deem desirable, including, without limitation, the imposition of any rights of first refusal and resale obligations upon any shares of Common Stock acquired pursuant to an Option Agreement. Each Option Agreement may be different from each other Option Agreement.
5.2 EXERCISE PRICE. The Exercise Price per share of Common Stock covered by each Option shall be determined by the Administrator, subject to the following: (a) the Exercise Price of an Incentive Option shall not be less than 100% of Fair Market Value on the date the Incentive Option is granted, (b) the Exercise Price of a Nonqualified Option shall not be less than 85% of Fair Market Value on the date the Nonqualified Option is granted, and (c) if the Person to whom an Option is granted is a 10% Shareholder on the date of grant, the Exercise Price shall not be less than 110% of Fair Market Value on the date the Option is granted.
5.3 PAYMENT OF EXERCISE PRICE. Payment of the Exercise Price shall be made upon exercise of an Option and may be made in any of the following ways:
(a) By cash or check; or,
(b) If approved by the Administrator, then, subject to any legal restrictions, by (i) the surrender of shares of Common Stock owned by the Optionee that have been held by the Optionee for at least six (6) months, which surrendered shares shall be valued at Fair Market Value as of the date of such exercise; (ii) the delivery to the Company of Optionee's promissory note in a form and on terms acceptable to the Administrator; (iii) the cancellation of indebtedness of the Company to the Optionee; (iv) the waiver of compensation due or accrued to the Optionee for services rendered; or (v) any combination of the foregoing; or
(c) If a public market for the Common Stock exists, by (i) a "same day sale" commitment from the Optionee and an NASD Dealer whereby the Optionee irrevocably elects to exercise the Option and to sell a portion of the shares so purchased to pay for the Exercise Price and whereby the NASD Dealer irrevocably commits upon receipt of such shares to forward the Exercise Price directly to the Company; or (ii) a "margin" commitment from the Optionee and an NASD Dealer whereby the Optionee irrevocably elects to exercise the Option and to pledge the shares so purchased to the NASD Dealer in a margin account as security for a loan from the NASD Dealer in the amount of the Exercise Price, and whereby the NASD Dealer irrevocably commits upon receipt of such shares to forward the Exercise Price directly to the Company; or
(d) Any combination of the foregoing methods of payment or any other consideration or method of payment that has been approved by the Administrator and is permitted by applicable corporate law.
5.4 TERM AND TERMINATION OF OPTIONS. The term and provisions for termination of each Option shall be as fixed by the Administrator, but no Option may be exercisable more than ten (10) years after the date it is granted. An Option granted to a Person who is a 10% Shareholder on the date of grant shall not be exercisable more than five (5) years after the date it is granted.
5.5 VESTING AND EXERCISE OF OPTIONS. Each Option shall vest and become exercisable in one or more installments at such time or times and subject to such conditions, including without limitation the achievement of specified performance goals or objectives, as shall be determined by the Administrator.
5.6 ANNUAL LIMIT ON INCENTIVE OPTIONS. To the extent required for "incentive stock option" treatment under Section 422 of the Code, the aggregate Fair Market Value (determined as of the time of grant) of the Common Stock shall not, with respect to which Incentive Options, granted under this Plan or under and any other plan of the Company or any Affiliated Company, become exercisable for the first time by an Optionee during any calendar year, exceed $100,000. The excess, if any of the Fair Market Value of any incentive stock option that becomes vested in any calendar year over this $100,000 limitation shall be treated, for federal income tax purposes as a Nonqualified Option.
5.7 NONTRANSFERABILITY OF OPTIONS. No Option shall be assignable or transferable except by will or the laws of descent and distribution, and during the life of the Optionee shall be exercisable only by such Optionee; provided, however, that, in the discretion of the Administrator, any Option may be assigned or transferred in any manner which an "incentive stock option" is permitted to be assigned or transferred under the Code.
5.8 RIGHTS AS SHAREHOLDER. An Optionee or permitted transferee of an Option shall have no rights or privileges as a shareholder with respect to any shares covered by an Option until such Option has been duly exercised and certificates representing shares purchased upon such exercise have been issued to such Person.
ARTICLE 6
ADMINISTRATION OF THE PLAN
6.1 ADMINISTRATOR. Authority to control and manage the operation and administration of the Plan shall be vested in the Board, which may delegate such responsibilities in whole or in part to a committee consisting of two (2) or more members of the Board (the "Committee"). Members of the Committee may be appointed from time to time by, and shall serve at the pleasure of, the Board. As used herein, the term "Administrator" means the Board or, with respect to any matter as to which responsibility has been delegated to the Committee, the term Administrator shall mean the Committee.
6.2 POWERS OF THE ADMINISTRATOR. In addition to any other powers or authority conferred upon the Administrator elsewhere in the Plan or by law, the Administrator shall have full power and authority to interpret the Plan, to create, amend or rescind and to interpret rules and regulations relating to the Plan and, without limiting the generality of the foregoing, to:
(a) determine the Persons to whom, and the time or times at which, Incentive Options or Nonqualified Options shall be granted and the number of shares to be represented by each Option and the consideration to be received by the Company upon the exercise thereof;
(b) determine the terms, conditions and restrictions contained in, and the form of, Option Agreements;
(c) determine the identity or capacity of any Persons who may be entitled to exercise an Optionee's rights under any Option granted under the Plan;
(d) correct any defect or supply any omission or reconcile any inconsistency in the Plan or in any Option Agreement;
(e) accelerate the vesting of any Option;
(f) extend the exercise date of any Option;
(g) provide for rights of first refusal and/or repurchase rights;
(h) amend outstanding Option Agreements to provide for, among other things, any change or modification which the Administrator could have provided for upon the grant of an Option or in furtherance of the powers provided for herein; and
(i) make all other determinations necessary or advisable for the administration of the Plan, but only to the extent not contrary to the express provisions of the Plan.
Any action, decision, interpretation or determination made in good faith by the Administrator in the exercise of its authority conferred upon it under the Plan shall be final and binding on the Company and all Optionees.
6.3 LIMITATION ON LIABILITY. No employee of the Company or member of the Board or Committee shall be subject to any liability with respect to duties under the Plan unless the Person acts fraudulently or in bad faith. To the extent permitted by law, the Company shall indemnify each member of the Board or Committee, and any employee of the Company with duties under the Plan, who was or is a party, or is threatened to be made a party, to any threatened, pending or completed proceeding, whether civil, criminal, administrative or investigative, by reason of such Person's conduct in the performance of duties under the Plan.
ARTICLE 7
CHANGE IN CONTROL
7.1 CHANGE IN CONTROL. In order to preserve an Optionee's rights in the event of a Change in Control of the Company, the Administrator shall take one or more of the following actions with respect to Options that are outstanding as of the consummation date of any Change of Control transaction to which the Company is a party (the "Existing Options"):
(a) Obtain from the Acquiring Person in the Change of Control transaction an agreement which requires it, concurrently with the consummation of the Change of Control Transaction, to purchase or exchange each of the Existing Options for cash, stock or other property that is being paid or issued to Company's stockholders in the Change of Control Transaction in an amount equal to the difference, or spread, between (i) the value of the cash, stock or other property that the Optionee would have received pursuant to such Change in Control transaction in exchange for all of the shares that would be issuable upon exercise of the Option, assuming that the Option had become fully exercisable and had been exercised immediately prior to the consummation of such Change in Control transaction, and (ii) the Exercise Price of such Option;
(b) Obtain from the Acquiring Person in the Change of Control transaction an agreement that obligates the Acquiring Person to assume the Existing Options or to grant, in substitution for the Existing Options, new options entitling each Optionee to purchase a number of shares of voting
stock of the Acquiring Person having a Fair Market Value that is equal to the then Fair Market Value of the shares of Common Stock of the Company that are subject to the Existing Options, with appropriate adjustments as to the number and kind of shares and Exercise Prices, in which event the Plan and the assumed Options, or the new options substituted therefor (the "Substituted Options"), shall continue in the manner and under the terms so provided; or
(c) Adjust the terms of the Options in a manner determined by the Administrator to reflect the Change in Control or make such other provision as the Administrator may consider equitable, if the stockholders of the Company immediately prior to the consummation of the Change of Control transaction will continue to own their Company shares, and this Plan will continue in effect as a Company Plan, following the consummation of the Change of Control transaction or if the Change of Control involves a liquidation and dissolution of the Company.
The Administrator shall cause written notice of any proposed Change of Control transaction to be given to all Optionees not less than fifteen (15) days prior to the anticipated effective date of the proposed Change of Control transaction; provided, however, that any delay beyond such time period in the giving of, or the failure to give, such notice shall not entitle any Person, including any Optionee, to obtain a delay in the effective date or to invalidate or adversely affect the validity of any such Change in Control transaction.
7.2 EFFECT OF CHANGE OF CONTROL TRANSACTION.
(a) If an agreement is obtained from the Acquiring Person which provides either for (i) the payment or exchange of cash, stock or other consideration equal to the Fair Market Value of the shares (whether or not vested) that are subject to the Existing Options, as contemplated by Paragraph 7.1(a) above, or (ii) the issuance of Substituted Options by the Acquiring Person, then, the Existing Options shall terminate retroactive to the effective date of the consummation of the Change of Control transaction. If, instead, an agreement is obtained from the Acquiring Person which provides for the assumption of the Existing Options and the continuance of this Plan by the Acquiring Person, the Existing Options shall continue in full force and effect, subject to equitable adjustments provided for in that agreement.
(b) If the agreement contemplated by Paragraph 7.1(b) is obtained, or any of the actions contemplated by Paragraph 7.1(c) is taken and, as a result, the Optionees holding Existing Options immediately prior to the consummation of such Change in Control either will continue to hold their Existing Options (as adjusted in the manner set forth in Paragraph 7.1(b) or 7.1(c) above) or will receive Substituted Options pursuant to Paragraph 7.1(b), but an Optionee's Continuous Service (as defined in the Optionee's Option Agreement) is terminated by the Company or the Acquiring Person for any reason during the first eighteen (18) months following such Change in Control, then, notwithstanding any provisions to the contrary contained in the Plan or any Plan adopted in substitution of this Plan, all of the shares of stock then subject or covered by such Existing Options or Substitute Options, to the extent they are not already exercisable, shall become vested and fully exercisable by the holder of such Existing Option or Substitute Option, as the case may be, effective retroactively to the business day immediately preceding the date of such termination of his or her Continuous Service.
(c) If, on the other hand, the Administrator is unable to
obtain either of the agreements contemplated by Paragraph 7.1(a) and Paragraph
7(b), and the Change of Control transaction is nevertheless consummated, then,
(i) all Options that have not theretofore become fully vested and fully
exercisable shall become fully vested and exercisable, effective as of the
business day immediately preceding the date of consummation of the Change of
Control transaction; (ii) each holder of an Existing Option shall be entitled to
exercise such Option in whole or in part on or prior to the date on which the
Change of Control transaction is consummated, (iii) in the event of any such
exercise by an Optionee (which shall be deemed to have occurred immediately
prior to the consummation of the Change of
Control transaction), the Optionee shall, on such consummation, become entitled to receive the consideration such Optionee would have received in such transaction had he owned the shares acquired on such exercise immediately prior to such consummation, and (iv) any Existing Option not exercised in full on or before the effective date of the consummation of the Change of Control transaction shall terminate as to the unexercised portion of such Option as of such effective date. In addition, if an agreement is obtained as contemplated by Paragraph 7.1(a) or Paragraph 7.1(b) above in connection with any Change of Control transaction, then, on consummation of the Change of Control transaction each Existing Option shall be converted into the right to receive the consideration stated in such agreement and the right to exercise any Existing Options to acquire shares of Common Stock of the Company shall terminate.
ARTICLE 8
AMENDMENT AND TERMINATION OF THE PLAN
8.1 AMENDMENTS. The Board may from time to time alter, amend, suspend or terminate the Plan in such respects as the Board may deem advisable. No such alteration, amendment, suspension or termination shall be made which shall substantially affect or impair the rights of any Optionee under an outstanding Option Agreement without such Optionee's consent. The Board may alter or amend the Plan to comply with requirements under the Code relating to Incentive Options or other types of options which give Optionees more favorable tax treatment than that applicable to Options granted under this Plan as of the date of its adoption. Upon any such alteration or amendment, any outstanding Option granted hereunder may, if the Administrator so determines and if permitted by applicable law, be subject to the more favorable tax treatment afforded to an Optionee pursuant to such terms and conditions.
8.2 PLAN TERMINATION. Unless the Plan shall theretofore have been terminated, the Plan shall terminate on the tenth (10th) anniversary of the Effective Date and no Options may be granted under the Plan thereafter, but Option Agreements then outstanding shall continue in effect in accordance with their respective terms.
ARTICLE 9
TAX WITHHOLDING
9.1 WITHHOLDING. The Company shall have the power to withhold, or require an Optionee to remit to the Company, an amount sufficient to satisfy any applicable Federal, state, and local tax withholding requirements with respect to any Options exercised under the Plan. To the extent permissible under applicable tax, securities and other laws, the Administrator may, in its sole discretion and upon such terms and conditions as it may deem appropriate, permit an Optionee to satisfy his or her obligation to pay any such tax, in whole or in part, up to an amount determined on the basis of the highest marginal tax rate applicable to such Optionee, by (a) directing the Company to apply shares of Common Stock to which the Optionee is entitled as a result of the exercise of an Option, or (b) delivering to the Company shares of Common Stock owned by the Optionee. The shares of Common Stock so applied or delivered in satisfaction of the Optionee's tax withholding obligation shall be valued at their Fair Market Value as of the date of measurement of the amount of income subject to withholding.
ARTICLE 10
MISCELLANEOUS
10.1 BENEFITS NOT ALIENABLE. Other than as provided above, benefits under the Plan may not be assigned or alienated, whether voluntarily or involuntarily. Any unauthorized attempt at assignment, transfer, pledge or other disposition shall be without effect.
10.2 NO ENLARGEMENT OF EMPLOYEE RIGHTS. This Plan is strictly a voluntary undertaking on the part of the Company and shall not be deemed to constitute a contract between the Company and any Optionee to be consideration for, or an inducement to, or a condition of, the employment of any Optionee. Nothing contained in the Plan shall be deemed to give the right to any Optionee to be retained as an employee of the Company or any Affiliated Company or to limit the right of the Company or any Affiliated Company to discharge any Optionee at any time.
10.3 APPLICATION OF FUNDS. The proceeds received by the Company from the sale of Common Stock pursuant to Option Agreements, except as otherwise provided herein, will be used for general corporate purposes.
EXHIBIT 10.5
PROFESSIONAL COIN GRADING SERVICE, INC.
STOCK OPTION AGREEMENT
TYPE OF OPTION (CHECK ONE): [ ] INCENTIVE [ ] NONQUALIFIED
This STOCK OPTION AGREEMENT (the "Agreement") is entered into as of _____________, 1999, by and between PROFESSIONAL COIN GRADING SERVICE, INC., a Delaware corporation (the "Company"), and _____________________ (the "Optionee") pursuant to the Company's 1999 Stock Incentive Plan (the "Plan").
1. GRANT OF OPTION. The Company hereby grants to Optionee an option
(the "Option") which shall entitle Optionee to purchase all or any portion of a
total of ________________ (____) shares (the "Shares") of the Common Stock, par
value $.01 per share, of the Company at a purchase price of
___________________________ Dollars ($________) per share (the "Exercise Price")
and on the terms and subject to the conditions that are set forth in this
Agreement and in the Plan. If the box marked "Incentive" above is checked, then,
this Option is intended to qualify as an "incentive stock option" as defined in
Section 422 of the Internal Revenue Code of l986, as amended (the "Code"). If
this Option fails in whole or in part to qualify as an incentive stock option,
or if the box marked "Nonqualified" is checked, then this Option shall, to that
extent, constitute a nonqualified stock option.
2. Vesting of Option.
(a) Subject to Paragraph 2(b) below, the right to exercise this Option shall vest as to all of the Option Shares, and this Option shall be exercisable from time to time in whole or in part after the second (2nd) anniversary of the date of this Agreement.
(b) Notwithstanding Paragraph 2(a) above, if either of the
transactions set forth on Exhibit A hereto is consummated during Optionee's
"Continuous Service" (as defined in Section 3 below) and prior to the second
(2nd) anniversary of the date hereof, the vesting or right to exercise this
Option shall accelerate to the date of such consummation and this Option shall
become exercisable on and after such date, in whole or in part as the Optionee
may elect, on the terms and conditions set forth in this Agreement and the Plan.
Notwithstanding anything to the contrary that may be contained in this
Agreement, no shares of Common Stock subject to this Option that have not vested
prior to the date of termination of Optionee's Continuous Service shall become
vested, but this Option shall continue to be exercisable in accordance with
Section 3 hereof with respect to that number of shares that have vested prior to
the date of termination of Optionee's Continuous Service, unless such
termination of Optionee's Continuous Service is due to the Optionee's voluntary
resignation or "Misconduct" (as such term is defined below).
3. TERM OF OPTION. Optionee's right to exercise this Option shall terminate upon the first to occur of the following:
(a) the expiration of ___________ (___) years from the date of this Agreement;
(b) the expiration of three (3) months from the date of termination of Optionee's Continuous Service if such termination occurs for any reason other than permanent disability, death, voluntary resignation or a termination by the Company for Misconduct (as hereinafter defined); provided, however, that, if Optionee dies during such three-month period, then, the provisions of Section 3(e) below shall apply;
(c) the date of termination of Optionee's Continuous Service if such termination occurs due to voluntary resignation or is due to Optionee's Misconduct;
(d) the expiration of one (1) year from the date of termination of Optionee's Continuous Service if such termination is due to permanent disability of the Optionee (as defined in Section 22(e)(3) of the Code);
(e) the expiration of one (1) year from the date of
termination of Optionee's Continuous Service if such termination is due to
Optionee's death or if death occurs during either the three-month or one-month
period following termination of Optionee's Continuous Service pursuant to
Section 3(b) or 3(c) above, as the case may be; or
(f) upon the consummation of a "Change in Control" (as defined in Section 2.4 of the Plan), unless otherwise provided pursuant to Section 9 below.
As used herein, the term "Continuous Service" means (i) employment by either the Company or any parent or subsidiary corporation of the Company, or by a corporation or a parent or subsidiary of a corporation issuing or assuming a stock option in a transaction to which Section 424(a) of the Code applies, which is uninterrupted except for vacations, illness (except for permanent disability, as defined in Section 22(e)(3) of the Code), or leaves of absence which are approved in writing by the Company or any of such other employer corporations, if applicable, (ii) service as a member of the Board of Directors of the Company until Optionee resigns, is removed from office, or Optionee's term of office expires and he or she is not reelected, or (iii) so long as Optionee is engaged as a consultant or service provider to the Company or other corporation referred to in clause (i) above. Notwithstanding the foregoing if Optionee ceases to serve the Company in one capacity, such as an employee, but within fifteen (15) days thereafter becomes or is an employee or director of the Company or any parent or subsidiary corporation of the Company, or by a corporation or a parent or subsidiary of a corporation issuing or assuming a stock option in a transaction to which Section 424(a) of the Code applies, then, the Optionee's Continuous Service shall not be deemed to have ceased for purposes of this Agreement.
As used herein, the term "Misconduct" means any of the following: (i) the failure of the Optionee to perform, in all material respects, the duties assigned to him or her by such Optionee's immediate supervisor or the Chairman or Board of Directors of the Company, which continues unremedied for a period of 15 days following the receipt by Optionee of a notice of such failure; (ii) the commission by the Optionee of a felony, or of a misdemeanor involving moral turpitude; (iii) the breach of any duties of Optionee under any non-competition, confidentiality or trade secret or invention transfer or similar agreement entered into by the Optionee with the Company or by the Company with any of its clients or contained in any employment agreement between the Company and Optionee; (iv) the commission of an action or an omission to act on the part of the Optionee which subjects the Company to civil or criminal liability, and (v) any violation of any conflict of interest policy established by the Company that is not remedied within a period of 15 days following the receipt by Optionee of a notice of such violation.
4. EXERCISE OF OPTION. On or after the vesting of any portion of this
Option in accordance with Sections 2 or 9 hereof, and until termination of the
right to exercise this Option in accordance with Section 3 above, the portion of
this Option which has vested prior to such termination and which, pursuant to
Section 3 survives such termination, may be exercised in whole or in part by the
Optionee (or, after his or
her death, by the person designated in Section 5 below) upon delivery of the following to the Company at its principal executive offices:
(a) a written notice of exercise which identifies this Agreement and states the number of Shares then being purchased (but no fractional Shares may be purchased);
(b) a check or cash in the amount of the Exercise Price (or payment of the Exercise Price in such other form of lawful consideration as the Administrator may approve from time to time under the provisions of Section 5.3 of the Plan);
(c) a check or cash in the amount reasonably requested by the Company to satisfy the Company's withholding obligations under federal, state or other applicable tax laws with respect to the taxable income, if any, recognized by the Optionee in connection with the exercise of this Option (unless the Company and Optionee shall have made other arrangements for deductions or withholding from Optionee's wages, bonus or other compensation payable to Optionee, or by the withholding of Shares issuable upon exercise of this Option or the delivery of Shares owned by the Optionee in accordance with Section 10.1 of the Plan, provided such arrangements satisfy the requirements of applicable tax laws); and
(d) a letter, if requested by the Company, in such form and substance as the Company may require, setting forth the investment intent of the Optionee, or person designated in Section 5 below, as the case may be and, if the Common Stock of the Company is registered under Section 12(b) or 12(g) under the Securities Act of 1934, as amended, at the time the Option is exercised, an agreement which obligates the Optionee to enter into a market stand-off agreement of the type set forth in Section 6 of the form of Stockholders' Agreement attached hereto as Exhibit B.
(e) a Stockholders' Agreement in substantially the form of Exhibit B hereto unless, at the time of such exercise, the Common Stock of the Company is registered under Section 12(b) or 12(g) under the Securities Act of 1934, as amended.
5. DEATH OF OPTIONEE; NO ASSIGNMENT. The rights of the Optionee under this Agreement may not be assigned or transferred except by will or by the laws of descent and distribution, and may be exercised during the lifetime of the Optionee only by such Optionee. Any attempt to sell, pledge, assign, hypothecate, transfer or dispose of this Option in contravention of this Agreement or the Plan shall be void and shall have no effect. If the Optionee's Continuous Service terminates as a result of his or her death, and provided Optionee's rights hereunder shall have vested pursuant to Section 2 hereof, Optionee's legal representative, his or her legatee, or the person who acquired the right to exercise this Option by reason of the death of the Optionee (individually, a "Successor") shall succeed to the Optionee's rights and obligations under this Agreement. After the death of the Optionee, only a Successor may exercise this Option.
6. REPRESENTATIONS AND WARRANTIES OF OPTIONEE.
(a) Optionee represents and warrants that this Option is being acquired by Optionee for Optionee's personal account, for investment purposes only, and not with a view to the distribution, resale or other disposition thereof.
(b) Optionee acknowledges that the Company may issue Shares upon the exercise of the Option without registering such Shares under the Securities Act of l933, as amended (the "Securities Act"), on the basis of certain exemptions from such registration requirement. Accordingly, Optionee agrees that his or her exercise of the Option may be expressly conditioned upon his or her delivery to the Company of an investment certificate including such representations and undertakings as the Company may
reasonably require in order to assure the availability of such exemptions, including a representation that Optionee is acquiring the Shares for investment and not with a present intention of selling or otherwise disposing thereof and an agreement by Optionee that the certificates evidencing the Shares may bear a legend indicating such non-registration under the Securities Act and the resulting restrictions on transfer. Optionee acknowledges that, because Shares received upon exercise of an Option may be unregistered, Optionee may be required to hold the Shares indefinitely unless they are subsequently registered for resale under the Securities Act or an exemption from such registration is available.
(c) Optionee acknowledges receipt of a copy of the Plan and understands that all rights and obligations connected with this Option are set forth in this Agreement and in the Plan.
7. RESTRICTIVE LEGENDS.
(a) Optionee hereby acknowledges that federal securities laws and the securities laws of the state in which he or she resides may require the placement of certain restrictive legends upon the Shares issued upon exercise of this Option, and Optionee hereby consents to the placing of any such legends upon certificates evidencing the Shares as the Company, or its counsel, may deem necessary or advisable.
(b) In addition, all stock certificates evidencing the Shares shall be imprinted with a legend substantially as follows:
"THE SHARES OF STOCK REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO CERTAIN RESTRICTIONS ON TRANSFER, REPURCHASE RIGHTS AND A RIGHT OF FIRST REFUSAL IN FAVOR OF THE CORPORATION AND/OR ITS NOMINEE(S), AS SET FORTH IN A STOCKHOLDERS AGREEMENT DATED _____________, ______. TRANSFER OF THESE SHARES MAY BE MADE ONLY IN COMPLIANCE WITH THE PROVISIONS OF SAID AGREEMENT, A COPY OF WHICH IS ON FILE AT THE PRINCIPAL OFFICE OF SAID CORPORATION. SUCH TRANSFER RESTRICTIONS, REPURCHASE RIGHTS AND RIGHT OF FIRST REFUSAL ARE BINDING ON ANY PERMITTED TRANSFEREES OF THESE SHARES." IN ADDITION, ANY TRANSFER OR PURPORTED TRANSFER OF SHARES REPRESENTED BY THIS CERTIFICATE, IN VIOLATION OF THE STOCKHOLDERS AGREEMENT, SHALL BE NULL AND VOID AND INEFFECTIVE TO TRANSFER OR CONVEY ANY RIGHT, TITLE OR INTEREST IN OR TO THE SHARES.
8. ADJUSTMENTS UPON CHANGES IN CAPITAL STRUCTURE. In the event that the outstanding shares of Common Stock of the Company are hereafter increased or decreased or changed into or exchanged for a different number or kind of shares or other securities of the Company by reason of a recapitalization, stock split, combination of shares, reclassification, stock dividend or other change in the capital structure of the Company, then appropriate adjustment shall be made by the Administrator to the number of Shares subject to the unexercised portion of this Option and to the Exercise Price per share, in order to preserve, as nearly as practical, but not to increase, the benefits of the Optionee under this Option, in accordance with the provisions of Section 4.2 of the Plan.
9. CHANGE IN CONTROL. In the event of a Change in Control (as defined in Section 2.4 of the Plan) of the Company, (i) the vesting of this Option pursuant to Section 2 above shall automatically accelerate immediately prior to the consummation of such Change in Control, and (ii) the Administrator in its discretion may take one or more of the actions described in Paragraphs 8.1(a) to 8.1(d), inclusive, of the Plan. If the Administrator does not take any of those actions, this Option shall terminate upon the
consummation of the Change in Control. The Administrator shall cause written notice of the proposed transaction to be given to the Optionee not less than fifteen (15) days prior to the anticipated effective date of the proposed transaction, provided, however, that any delay beyond such time period in the giving of, or the failure to give, such notice shall not entitle any person or entity, including any Optionee or Participant, to obtain a delay in the effective date or to invalidate or adversely affect the validity of any such Change in Control.
10. NO EMPLOYMENT CONTRACT CREATED. Neither the granting of this Option nor the exercise hereof shall be construed as granting to the Optionee any right with respect to continuance of employment by the Company or any of its subsidiaries. The right of the Company or any of its subsidiaries to terminate at will the Optionee's employment at any time (whether by dismissal, discharge or otherwise), with or without cause, is specifically reserved, except as and to the extent otherwise provided in any employment agreement that may exist between the Company or any of its subsidiaries, on the one hand, and the Optionee, on the other hand.
11. RIGHTS AS SHAREHOLDER. The Optionee (or transferee of this option by will or by the laws of descent and distribution) shall have no rights as a shareholder with respect to any Shares covered by this Option until the date of the issuance of a stock certificate or certificates to him or her for such Shares, notwithstanding the exercise of this Option.
12. INTERPRETATION AND ENTIRE AGREEMENT.
(a) This Option is granted pursuant to the terms of the Plan, and shall in all respects be interpreted in accordance therewith. The Administrator shall interpret and construe this Option and the Plan, and any action, decision, interpretation or determination made in good faith by the Administrator shall be final and binding on the Company and the Optionee. As used in this Agreement, the term "Administrator" shall refer to the committee of the Board of Directors of the Company appointed to administer the Plan, and if no such committee has been appointed, the term Administrator shall mean the Board of Directors.
(b) This Agreement, together with the Plan, constitutes the entire agreement between the parties with respect to the subject-matter of this Agreement and supersedes any other prior or contemporaneous agreements (either written or oral) between the parties relating to the grant of the Option contemplated by this Agreement.
13. NOTICES. Any notice, demand or request required or permitted to be given under this Agreement shall be in writing and shall be deemed given when delivered personally or three (3) days after being deposited in the United States mail, as certified or registered mail, with postage prepaid, and addressed, if to the Company, at its principal place of business, Attn: the Chief Financial Officer, and if to the Optionee, at his or her most recent address as shown in the Company's employment or stock records.
14. ANNUAL AND OTHER PERIODIC REPORTS. During the term of this Agreement, the Company will furnish to the Optionee copies of all annual and other periodic financial and informational reports that the Company distributes generally to its shareholders; provided, however, that nothing herein shall require the Company to furnish copies of any reports to the Optionee that it does not furnished generally to its shareholders.
15. GOVERNING LAW. The validity, construction, interpretation, and effect of this Option shall be governed by and determined in accordance with the laws of the State of Delaware.
16. SEVERABILITY. Should any provision or portion of this Agreement be held to be unenforceable or invalid for any reason, the remaining provisions and portions of this Agreement shall be unaffected by such holding.
17. COUNTERPARTS. This Agreement may be executed in two or more counterparts, each of which shall be deemed an original and all of which together shall be deemed one instrument.
18. CALIFORNIA CORPORATE SECURITIES LAW. The sale of the shares that are the subject of this Agreement has not been qualified with the Commissioner of Corporations of the State of California and the issuance of such shares or the payment or receipt of any part of the consideration therefor prior to such qualification is unlawful, unless the sale of such shares is exempt from such qualification by Section 25100, 25102 or 25105 of the California Corporate Securities Law of l968, as amended. The rights of all parties to this Agreement are expressly conditioned upon such qualification being obtained, unless the sale is so exempt.
19. ENTIRE AGREEMENT. This Agreement, the Exhibits attached hereto and the Plan, contain all of the agreements of the parties with respect to the subject matter of this Agreement and supersede all agreements and understandings (whether written or oral) between the parties relating to the subject matter of this Agreement.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first above written.
PROFESSIONAL COIN GRADING SERVICE, INC. "OPTIONEE"
By:
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(Signature)
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(Type or print name)
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EXHIBIT 10.6
COLLECTORS UNIVERSE, INC.
EMPLOYEE STOCK PURCHASE PLAN
This EMPLOYEE STOCK PURCHASE PLAN (the "Plan") is hereby established by Collectors Universe, Inc., a Delaware corporation (the "Company"), effective September 2, 1999.
ARTICLE I
PURPOSE OF THE PLAN
1.1 PURPOSE. The Company has determined that it is in its the best interest to provide incentives to attract and retain employees and to increase employee morale by providing a program through which employees of the Company, and of such of the Company's subsidiaries as the Company's Board of Directors (the "Board") may from time to time designate (each a "Designated Subsidiary", and collectively, "Designated Subsidiaries"), may acquire an equity interest in the Company through the purchase of shares of the common stock of the Company ("Company Stock"). The Plan is hereby established by the Company to permit employees to subscribe for and purchase directly from the Company shares of the Company Stock at a discount from the market price, and to pay the purchase price in installments by payroll deductions. The Plan is intended to qualify as an "employee stock purchase plan" under Section 423 of the Internal Revenue Code of 1986, as amended from time to time (the "Code"). The provisions of the Plan are to be construed in a matter consistent with the requirements of Section 423 of the Code. The Plan is not intended to be an employee benefit plan under the Employee Retirement Income Security Act of 1974, and therefore is not required to comply with that Act.
ARTICLE II
DEFINITIONS
2.1 COMPENSATION. "Compensation" means the amount indicated on the Form W-2, including any elective deferrals with respect to a plan of the Company qualified under either Section 125 or Section 401(a) of the Code, issued to an employee by the Company.
2.2 EMPLOYEE. "Employee" means each person currently employed by the Company or any of its Designated Subsidiaries, any portion of whose income is subject to withholding of income tax or for whom Social Security retirement contributions are made by the Company or any Designated Subsidiary.
2.3 EFFECTIVE DATE. "Effective Date" means the effective date of the Company's Registration Statement on Form S-1 filed with the Securities and Exchange Commission (the "SEC") in connection with the Company's initial public offering.
2.4 5% OWNER. "5% Owner" means an Employee who, immediately after the grant of any rights under the Plan, would own Company Stock or hold outstanding options to purchase Company Stock possessing 5% or more of the total combined voting power of all classes of stock of the Company. For purposes of this Section, the ownership attribution rules of Section 424(d) of the Code shall apply and stock which the Employee may purchase under outstanding options shall be treated as stock owned by the Employee.
2.5 GRANT DATE. "Grant Date" means the first day of each Offering Period (January 1 and July 1) under the Plan. In the first Plan Year only, the initial Grant Date shall be the Effective Date.
2.6 PARTICIPANT. "Participant" means an Employee who has satisfied the eligibility requirements of Section 3.1 and has become a participant in the Plan in accordance with Section 3.2.
2.7 PLAN YEAR. "Plan Year" means the twelve consecutive month period ending on December 31.
2.8 OFFERING PERIOD. "Offering Period" means the six-month periods from January 1 through June 30 and July 1 through December 31 of each Plan Year. However, the first Offering Period shall commence on the Effective Date and shall end on December 31, 1999.
2.9 PURCHASE DATE. "Purchase Date" means the last day of each Offering Period (June 30 or December 31).
ARTICLE III
ELIGIBILITY AND PARTICIPATION
3.1 ELIGIBILITY. Each Employee of the Company, or any Designated Subsidiary, who, on the Grant Date, is customarily engaged on a regularly-scheduled basis of more than 20 hours per week for more than five months per calendar year and who has been employed for at least 90 days (or, for the initial Offering Period only, such Employees who are employed on the Effective Date) in the rendition of personal services to the Company, or any Designated Subsidiary, may become a Participant in the Plan on the Grant Date coincident with or next following his satisfaction of such requirements of employment with the Company or any Designated Subsidiary.
3.2 PARTICIPATION. An Employee who has satisfied the eligibility requirements of Section 3.1 may become a Participant in the Plan upon his completion and delivery to the Secretary of the Company of a Subscription Agreement provided by the Company (the "Subscription Agreement") authorizing payroll deductions. Payroll deductions for a Participant shall commence on the Grant Date coincident with or next following the filing of the Participant's Subscription Agreement and shall remain in effect until revoked by the Participant by the filing of a notice of withdrawal from the Plan under Article VIII or by the filing of a new Subscription Agreement providing for a change in the Participant's payroll deduction rate under Section 5.2.
3.3 SPECIAL RULES. Under no circumstances shall:
(a) A 5% Owner be granted a right to purchase Company Stock under the Plan;
(b) A Participant be entitled to purchase Company Stock under the Plan which, when aggregated with all other employee stock purchase plans of the Company, exceed an amount equal to the Aggregate Maximum. "Aggregate Maximum" means an amount equal to $25,000 worth of Company Stock (determined using the fair market value of such Company Stock at each applicable Grant Date) during each Plan Year; or
(c) The number of shares of Company Stock purchasable by a Participant on any Purchase Date exceed 5,000 shares, subject to periodic adjustments under Section 10.4.
ARTICLE IV
OFFERING PERIODS
4.1 OFFERING PERIODS. The initial grant of the right to purchase Company Stock under the Plan shall occur on the Effective Date. Thereafter, the Plan shall provide for Offering Periods commencing on each Grant Date and terminating on the next following Purchase Date. The Board shall have the power to change the Offering Periods without stockholder approval.
ARTICLE V
PAYROLL DEDUCTIONS
5.1 PARTICIPANT ELECTION. Upon completion of the Subscription Agreement, each Participant shall designate the amount of payroll deductions to be made from his paycheck to purchase Company Stock under the Plan. The amount of payroll deductions shall be designated in whole percentages of Compensation, not to exceed 15%. The amount so designated upon the Subscription Agreement shall be effective as of the next Grant Date and shall continue until terminated or altered in accordance with Section 5.2 below.
5.2 CHANGES IN ELECTION. A Participant may terminate participation in the Plan at any time prior to the close of an Offering Period and withdrawal the amounts held in his Account as provided in Article 8. A Participant may also terminate payroll deductions and have accumulated deductions for the Offering Period applied to the purchase of Company Stock as of the next Purchase Date by completing and delivering to the Secretary a new Subscription Agreement setting forth the desired change. A Participant may decrease or increase the rate of payroll deductions one time during any Offering Period by completing and delivering to the Secretary of the Company a new Subscription Agreement setting forth the desired change at least 15 days prior to the end of the Offering Period. Any change under this Section shall become effective on the next payroll period (to the extent practical under the Company's payroll practices) following the delivery of the new Subscription Agreement.
5.3 PARTICIPANT ACCOUNTS. The Company shall establish and maintain a separate account ("Account") for each Participant. The amount of each Participant's payroll deductions shall be credited to his Account. Other than through payroll deductions, an Employee may not make any other payments into his Account. No interest will be paid or allowed on amounts credited to a Participant's Account. All payroll deductions received by the Company under the Plan are general corporate assets of the Company and may be used by the Company for any corporate purpose. The Company is not obligated to segregate such payroll deductions.
ARTICLE VI
GRANT OF PURCHASE RIGHTS
6.1 RIGHT TO PURCHASE SHARES. On each Grant Date, each Participant shall be granted a right to purchase at the price determined under Section 6.2 that number of shares, rounded down to the nearest whole, of Company Stock that can be purchased with the amounts held in his Account, subject to the limits set forth in Section 3.3. If there are amounts held in a Participant's Account that are not used to purchase Company Stock, such amounts shall remain
in the Participant's Account and shall be eligible to purchase Company Stock in any subsequent Offering Period, unless otherwise withdrawn pursuant to Section 8.1.
6.2 PURCHASE PRICE. The purchase price for any Offering Period shall be the lesser of:
(a) 85% of the Fair Market Value of Company Stock on the Grant Date; or
(b) 85% of the Fair Market Value of Company Stock on the Purchase Date.
6.3 FAIR MARKET VALUE. "Fair Market Value" for the initial Grant Date (which is the Effective Date) shall be the initial price to the public as set forth in the final prospectus included within the registration statement on Form S-1 filed with the SEC for the initial public offering of the Company's common stock. For any subsequent date thereafter, "Fair Market Value" shall mean the value of one share of Company Stock, determined as follows:
(a) If the Company Stock is then listed or admitted to trading on the Nasdaq National Market System or a stock exchange which reports closing sale prices, the Fair Market Value shall be the closing sale price on the date of valuation on the Nasdaq National Market System or principal stock exchange on which the Company Stock is then listed or admitted to trading, or, if no closing sale price is quoted or no sale takes place on such day, then the Fair Market Value shall be the closing sale price of the Company Stock on the Nasdaq National Market System or such exchange on the next preceding day on which a sale occurred.
(b) If the Company Stock is not then listed or admitted to trading on the Nasdaq National Market System or a stock exchange which reports closing sale prices, the Fair Market Value shall be the average of the closing bid and asked prices of the Company Stock in the over-the-counter market on the date of valuation. If no sales take place on such day, then the fair market value shall be the average of the closing bid and asked prices on the next preceding day on which sales occurred.
(c) If neither (a) nor (b) is applicable as of the date of valuation, then the Fair Market Value shall be determined by the Board or any committee appointed by the Board in good faith using any reasonable method of valuation, which determination shall be conclusive and binding on all interested parties.
ARTICLE VII
PURCHASE OF STOCK
7.1 PURCHASE OF COMPANY STOCK. Absent an election by the Participant to terminate and have his Account returned, on each Purchase Date, the Plan shall purchase on behalf of each Participant the maximum number of whole shares of Company Stock at the purchase price determined under Section 6.2 above as can be purchased with the amounts held in each Participant's Account. In the event that there are amounts held in a Participant's Account that are not used to purchase Company Stock, all such amounts shall be held in the Participant's Account and carried forward to the next Offering Period, unless otherwise withdrawn pursuant to Section 8.1.
7.2 DELIVERY OF COMPANY STOCK.
(a) Company Stock acquired under the Plan may either be issued
directly to Participants or may be issued to a contract administrator
("Administrator") engaged by the Company to administer the Plan under Article
IX. If the Company Stock is issued in the name of the Administrator, all Company
Stock so issued ("Plan Held Stock") shall be held in the name of the
Administrator for the benefit of the Plan. The Administrator shall maintain
accounts for the benefit of the Participants which shall reflect each
Participant's interest in the Plan Held Stock. Such accounts shall reflect the
number of shares of Company Stock that are being held by the Administrator for
the benefit of each Participant.
(b) Any Participant may elect to have the Company Stock purchased under the Plan from his Account be issued directly to the Participant. Any election under this paragraph shall be on the forms provided by the Company and shall be issued in accordance with paragraph (c) below.
(c) In the event that Company Stock under the Plan is issued directly to a Participant, the Company will deliver to each Participant a stock certificate or certificates issued in his name for the number of shares of Company Stock purchased as soon as practicable after the Purchase Date. The time of issuance and delivery of shares may be postponed for such period as may be necessary to comply with the registration requirements under the Securities Act of 1933, as amended, the listing requirements of any securities exchange on which the Company Stock may then be listed, or the requirements under other laws or regulations applicable to the issuance or sale of such shares.
ARTICLE VIII
WITHDRAWAL
8.1 IN SERVICE WITHDRAWALS. At any time prior to the Purchase Date of an Offering Period, any Participant may withdraw the amounts held in his Account by executing and delivering to the Secretary for the Company written notice of withdrawal on the form provided by the Company. In such a case, the entire balance of the Participant's Account shall be paid to the Participant, without interest, as soon as is practicable. Upon such notification, the Participant shall cease to participate in the Plan for the remainder of the Offering Period, and for the immediately following Offering Period in which the notice is given. Any Employee who has withdrawn under this Section shall be excluded from participation in the Plan for the remainder of the Offering Period and for the immediately following Offering Period, but may then be reinstated as a Participant for a subsequent Offering Period by executing and delivering a new Subscription Agreement to the Secretary of the Company.
8.2 TERMINATION OF EMPLOYMENT.
(a) In the event that a Participant's employment with the Company terminates for any reason, the Participant shall cease to participate in the Plan on the date of termination. As soon as is practical following the date of termination, the entire balance of the Participant's Account shall be paid to the Participant or his beneficiary, without interest.
(b) A Participant may file a written designation of a beneficiary who is to receive any shares of Company Stock purchased under the Plan or any cash from the
Participant's Account in the event of his death subsequent to a Purchase Date, but prior to delivery of such shares and cash. In addition, a Participant may file a written designation of a beneficiary who is to receive any cash from the Participant's Account under the Plan in the event of his death prior to a Purchase Date under paragraph (a) above.
(c) Any beneficiary designation under paragraph (b) above may be changed by the Participant at any time by written notice. In the event of the death of a Participant, the Committee may rely upon the most recent beneficiary designation it has on file as being the appropriate beneficiary. In the event of the death of a Participant where no valid beneficiary designation exists or the beneficiary has predeceased the Participant, the Committee shall deliver any cash or shares of Company Stock to the executor or administrator of the estate of the Participant, or if no such executor or administrator has been appointed to the knowledge of the Committee, the Committee, in its sole discretion, may deliver such shares of Company Stock or cash to the spouse or any one or more dependents or relatives of the Participant, or if no spouse, dependent or relative is known to the Committee, then to such other person as the Committee may designate.
ARTICLE IX
PLAN ADMINISTRATION
9.1 PLAN ADMINISTRATION.
(a) Authority to control and manage the operation and administration of the Plan shall be vested in the Board or a committee ("Committee") thereof. As used herein, the term "Administrator" means the Board or, with respect to any matter as to which responsibility has been delegated to the Committee, the term Administrator shall mean the Committee. The Administrator shall have all powers necessary to supervise the administration of the Plan and control its operations.
(b) In addition to any powers and authority conferred upon the Administrator elsewhere in the Plan or by law, the Administrator shall have the following powers and authority:
(i) To designate agents to carry out responsibilities relating to the Plan;
(ii) To administer, interpret, construe and apply this Plan and to answer all questions which may arise or which may be raised under this Plan by a Participant, his beneficiary or any other person whatsoever;
(iii) To establish rules and procedures from time to time for the conduct of its business and for the administration and effectuation of its responsibilities under the Plan; and
(iv) To perform or cause to be performed such further acts as it may deem to be necessary, appropriate, or convenient for the operation of the Plan.
(c) Any action taken in good faith by the Board or Committee in the exercise of authority conferred upon it by this Plan shall be conclusive and binding upon a Participant
and his beneficiaries. All discretionary powers conferred upon the Board or Committee shall be absolute.
9.2 LIMITATION ON LIABILITY. No Employee of the Company nor member of the Board or Committee shall be subject to any liability with respect to his duties under the Plan unless the person acts fraudulently or in bad faith. To the extent permitted by law, the Company shall indemnify each member of the Board or Committee, and any other Employee of the Company with duties under the Plan who was or is a party, or is threatened to be made a party, to any threatened, pending or completed proceeding, whether civil, criminal, administrative, or investigative, by reason of the person's conduct in the performance of his duties under the Plan.
ARTICLE X
COMPANY STOCK
10.1 LIMITATIONS ON PURCHASE OF SHARES. The maximum number of shares of Company Stock that shall be made available for sale under the Plan shall be 200,000 shares, subject to adjustment under Section 10.4 below. The shares of Company Stock to be sold to Participants under the Plan will be issued by the Company. If the total number of shares of Company Stock that would otherwise be issuable pursuant to rights granted pursuant to Section 6.1 of the Plan at the Purchase Date exceeds the number of shares then available under the Plan, the Company shall make a pro rata allocation of the shares remaining available in as uniform and equitable manner as is practicable. In such event, the Company shall give written notice of such reduction of the number of shares to each Participant affected thereby and any unused payroll deductions shall be returned to such Participant if necessary.
10.2 VOTING COMPANY STOCK. The Participant will have no interest or voting right in shares to be purchased under Section 6.1 of the Plan until such shares have been purchased.
10.3 REGISTRATION OF COMPANY STOCK. Shares to be delivered to a Participant under the Plan will be registered in the name of the Participant unless designated otherwise by the Participant.
10.4 CHANGES IN CAPITALIZATION OF THE COMPANY. Subject to any required action by the stockholders of the Company, the number of shares of Company Stock covered by each right under the Plan which has not yet been exercised and the number of shares of Company Stock which have been authorized for issuance under the Plan but have not yet been placed under rights or which have been returned to the Plan upon the cancellation of a right, as well as the purchase price per share of Company Stock covered by each right under the Plan which has not yet been exercised, shall be proportionately adjusted for any increase or decrease in the number of issued shares of Company Stock resulting from a stock split, stock dividend, spin-off, reorganization, recapitalization, merger, consolidation, exchange of shares or the like. Such adjustment shall be made by the Board of Directors for the Company, whose determination in that respect shall be final, binding and conclusive. Except as expressly provided herein, no issue by the Company of shares of stock of any class, or securities convertible into shares of stock of any class, shall affect, and no adjustment by reason thereof shall be made with respect to, the number or price of shares of Company Stock subject to any right granted hereunder.
10.5 MERGER OF COMPANY. In the event that the Company at any time merges into, consolidates with or enters into any other reorganization pursuant to which the Company is not the surviving entity (sells substantially all of its assets, enters into a transaction in which securities of the Company possessing at least 50% of the total combined voting power of all outstanding securities of the Company are transferred in one transaction or a series of related transactions or engages in a "reverse" merger in which the Company is the surviving entity and in which securities possessing more than 50% of the total combined voting power of all outstanding voting securities of the Company are transferred to persons different from the persons holding those securities immediately prior to the merger), the Plan shall terminate, unless provision is made in writing in connection with such transaction for the continuance of the Plan and for the assumption of rights theretofore granted, or the substitution for such rights of new rights covering the shares of a successor corporation, with appropriate adjustments as to number and kind of shares and prices, in which event the Plan and the rights theretofore granted or the new rights substituted therefor, shall continue in the manner and under the terms so provided. If such provision is not made in such transaction for the continuance of the Plan and the assumption of rights theretofore granted or the substitution for such rights of new rights covering the shares of a successor corporation, then the Board of Directors or its committee shall cause written notice of the proposed transaction to be given to the persons holding rights not less than 10 days prior to the anticipated effective date of the proposed transaction, and, concurrent with the effective date of the proposed transaction, such rights shall be exercised automatically in accordance with Section 7.1 as if such effective date were a Purchase Date of the applicable Offering Period unless a Participant withdraws from the Plan as provided in Section 8.1.
ARTICLE XI
MISCELLANEOUS MATTERS
11.1 AMENDMENT AND TERMINATION. The Plan shall terminate on the ten year anniversary of the Effective Date. Since future conditions affecting the Company cannot be anticipated or foreseen, the Company reserves the right to amend, modify, or terminate the Plan at any time. Upon termination of the Plan, all benefits shall become payable immediately. Notwithstanding the foregoing, no such amendment or termination shall affect rights previously granted, nor may an amendment make any change in any right previously granted which adversely affects the rights of any Participant. In addition, no amendment may be made without prior approval of the stockholders of the Company if such amendment would:
(a) Increase the number of shares of Company Stock that may be issued under the Plan;
(b) Materially modify the requirements as to eligibility for participation in the Plan; or
(c) Materially increase the benefits which accrue to Participants under the Plan.
11.2 STOCKHOLDER APPROVAL. Continuance of the Plan and the effectiveness of any right granted hereunder shall be subject to approval by the stockholders of the Company, within twelve months before or after the date the Plan is adopted by the Board.
11.3 BENEFITS NOT ALIENABLE. Benefits under the Plan may not be assigned or alienated, whether voluntarily or involuntarily. Any attempt at assignment, transfer, pledge or other disposition shall be without effect, except that the Company may treat such act as an election to withdraw funds in accordance with Article VIII.
11.4 TRANSFERABILITY. Neither payroll deductions credited to a Participant's Account, nor any rights with regard to the exercise of an option or to receive shares under the Plan may be assigned, transferred, pledged or otherwise disposed of in any way (other than by will, the laws of descent and distribution, or as provided in Section 8.2 hereof) by the Participant. Any such attempt at assignment, transfer, pledge or other disposition shall be without effect, except that the Company may treat such act as an election to withdraw funds from the Offering Period in accordance with Article VIII hereof.
11.5 NO ENLARGEMENT OF EMPLOYEE RIGHTS. This Plan is strictly a voluntary undertaking on the part of the Company and shall not be deemed to constitute a contract between the Company and any Employee or to be consideration for, or an inducement to, or a condition of, the employment of any Employee. Nothing contained in the Plan shall be deemed to give the right to any Employee to be retained in the employ of the Company or to interfere with the right of the Company to discharge any Employee at any time.
11.6 GOVERNING LAW. To the extent not preempted by Federal law, all legal questions pertaining to the Plan shall be determined in accordance with the laws of the State of Delaware.
11.7 NON-BUSINESS DAYS. When any act under the Plan is required to be performed on a day that falls on a Saturday, Sunday or legal holiday, that act shall be performed on the next succeeding day which is not a Saturday, Sunday or legal holiday. Notwithstanding the above, Fair Market Value shall be determined in accordance with Section 6.3.
11.8 COMPLIANCE WITH SECURITIES LAWS. Notwithstanding any provision of the Plan, the Committee shall administer the Plan in such a way to ensure that the Plan at all times complies with any requirements of Federal Securities Laws. For example, affiliates may be required to make irrevocable elections in accordance with the rules set forth under Section 16b-3 of the Securities Exchange Act of 1934.
EXHIBIT 10.8
ASSET ACQUISITION AGREEMENT
This ASSET ACQUISITION AGREEMENT (the "Agreement") is made as of this 25th day of January 1999 by and between PROFESSIONAL COIN GRADING SERVICE, INC., a Delaware corporation ("PCGS") and INFO EXCHANGE, INC., a Kansas corporation ("Info Exchange"), and BRENT GUTEKUNST, the sole shareholder of Info Exchange (the "Shareholder").
R E C I T A L S
A. Info Exchange is the record and beneficial owner of 40% of the outstanding membership interests of Collectors Universe, LLC, a California limited liability company ("CU"). That 40% membership interest in CU (the "CU Membership Interest") and the Proprietary Assets (as hereinafter defined) are the principal assets of Info Exchange. Info Exchange's business (the "Info Exchange Business") consists of owning the CU Membership Interest, designing and maintaining websites and the software and other data needed for and used in the operation of internet auctions conducted by CU and others and providing various management and support services to CU pursuant to a Service Agreement dated as of August 2, 1998 between Info Exchange and CU (the "CU Service Agreement").
B. In connection with the conduct of the Info Exchange Business, Info Exchange has developed and owns software, databases, processes, know-how, trade secrets, designs, documentation, copyrights and trade names and trademarks and other intellectual property used in the development of internet and maintenance of websites and the conduct of auctions over the internet, a true and complete list of which, prepared by Info Exchange and Shareholder, is attached hereto as Exhibit A (collectively, the "Proprietary Assets"). Info Exchange also owns certain other assets used to provide services to CU under the CU Service Agreement, a list of which is also included on Exhibit A (the "Service Agreement Assets").
C. PCGS, which owns 55% of the membership interests in CU, desires to acquire the CU Membership Interest, the Proprietary Assets, including the CU Name and CU Mark, and the Service Agreement Assets from Info Exchange in exchange solely for shares of common stock of PCGS, and Info Exchange desires to sell the CU Membership Interest, the Proprietary Assets and Service Agreement Assets, in their entirety, to PCGS for such common stock of PCGS, on and subject to the terms and conditions hereinafter set forth in this Agreement.
D. The parties intend the sale and transfer of the CU Membership Interest, the Proprietary Assets and the Service Agreement Assets to PCGS in exchange for shares of PCGS common stock, under this Agreement, to constitute a tax-free reorganization under Section 368(a)(1)(C) of the Internal Revenue Code and in connection therewith Info Exchange is adopting and will be implementing a plan of liquidation as provided in Section 4 of this Agreement.
NOW, THEREFORE, in consideration of the foregoing and the respective covenants and promises of PCGS and Info Exchange and Shareholder hereinafter set forth, the parties hereto agree as follows:
1. PURCHASE AND SALE OF INFO EXCHANGE ASSETS.
1.1 SALE AND TRANSFER OF INFO EXCHANGE ASSETS. On the terms and subject to the conditions contained in this Agreement, concurrently herewith Info Exchange shall sell, assign, transfer, covey and deliver the CU Membership Interest, the Proprietary Assets (including the Marks and the Software, as defined in Exhibit A hereto, and all goodwill associated with the Proprietary Assets) and the Service Agreement Assets, in their entirety (collectively, the "Info Exchange Assets"), to PCGS, free and
clear of any and all liens, claims, encumbrances, pledges, security interests, options, rights of first refusal, community property interests, restrictions and any other adverse interests of any kind or nature whatsoever, and PCGS shall acquire and accept the CU Membership Interest, the Proprietary Assets and the Service Agreement Assets from Info Exchange.
1.2 CONSIDERATION TO INFO EXCHANGE. As the consideration for the sale and transfer to PCGS of the Info Exchange Assets, and for the execution and delivery of the Non-Competition Agreements by Info Exchange and the Shareholder as contemplated by Section 1.3 hereof, and at the instruction of Info Exchange, concurrently herewith PCGS shall issue a total of Three Thousand Seven Hundred Fifty (3,750) fully paid and nonassessable shares of common stock of PCGS (the "PCGS Shares") to and in the name of Shareholder.
1.3 ADDITIONAL AGREEMENTS. Concurrently with the execution of this Agreement, PCGS and Info Exchange or Shareholder shall enter into the following additional agreements (the "Additional Agreements"), the execution and delivery of which by such parties shall be a condition precedent to the consummation of the purchase and sale of the Info Exchange Assets as contemplated in this Agreement:
(a) A non-competition agreement to be executed and delivered by Shareholder in the form of Exhibit B hereto (the "Shareholder Non-Competition Agreement");
(b) An employment agreement substantially in the form of Exhibit C hereto (the "Employment Agreement");
(c) A stockholders agreement substantially in the form of Exhibit D hereto to (the "Stockholders Agreement").
1.4 CLOSING. Consummation of the sale and transfer of the CU Membership Interest, the Proprietary Assets and the Service Agreement Assets by Info Exchange to PCGS and the issuance, in exchange therefor, of the PCGS Shares to Shareholder in accordance with the written instruction of Info Exchange (the "Closing"), shall take place at the principal offices of PCGS on this date (the "Closing Date") concurrently with the execution and delivery of this Agreement by the parties. At the Closing Info Exchange shall deliver to PCGS such documents or instruments of assignment and transfer as PCGS or its counsel may reasonably request to evidence the sale and transfer of the CU Membership Interest, the Proprietary Assets and the Service Agreement Assets by Info Exchange to PCGS, against delivery by PCGS to Shareholder of a PCGS stock certificate evidencing his ownership of the 3,750 PCGS Shares. In addition, at the Closing, Info Exchange and/or Shareholder and PCGS shall execute and deliver the respective Additional Agreements and the other documents and instruments that are required to be delivered by each of them as set forth in Exhibit E hereto (the "Other Closing Documents").
2. REPRESENTATIONS AND WARRANTIES OF INFO EXCHANGE AND SHAREHOLDER. Info Exchange and Shareholder jointly and severally represent and warrant to PCGS as follows:
2.1 AUTHORITY AND CAPACITY.
(a) Shareholder (i) has the full legal right and capacity to execute and deliver, and to perform his obligations under, this Agreement and each of the Additional Agreements to which he is or will be a party and (ii) has duly executed and delivered this Agreement and each of such Additional Agreements on the date hereof with the intent to be legally bound hereby and thereby and to perform his obligations hereunder and thereunder. This Agreement and each of the Additional
Agreements to which Shareholder is a party constitutes a valid and legally binding obligation of Shareholder that is enforceable against him in accordance with its respective terms, except as such enforceability may be limited by bankruptcy, insolvency, moratorium or other similar laws affecting creditors' rights and by general principles of equity relating to the availability of equitable remedies (regardless of whether any such agreements are sought to be enforced in a proceeding at law or in equity).
(b) Info Exchange has (i) the corporate power and authority to execute and deliver, and to perform its obligations under, this Agreement, (ii) taken all corporate action and obtained all corporate and shareholder other consents required under its charter documents or applicable law required to authorize the execution and delivery and the performance by Info Exchange of this Agreement and (iii) duly executed and delivered this Agreement with the intent to be legally bound hereby and thereby and to perform its obligations hereunder. This Agreement constitutes a valid and legally binding obligation of Info Exchange that is enforceable against it in accordance with its respective terms, except as such enforceability may be limited by bankruptcy, insolvency, moratorium or other similar laws affecting creditors' rights and by general principles of equity relating to the availability of equitable remedies (regardless of whether such Agreement is sought to be enforced in a proceeding at law or in equity).
2.2 NO CONFLICTS. The execution and delivery and the performance by Info Exchange of this Agreement and the execution and delivery of this Agreement and the Additional Agreements by Shareholder, do not require any consent or approval of any third party (governmental or other) that has not been obtained and will not result in a default or breach, or an event that, with notice or lapse of time, or both, would be a default or breach, of the Articles of Incorporation or Bylaws of Info Exchange, or, to the best knowledge of Shareholder, any of the following: (i) a default or breach, or an event that, with notice or lapse of time, or both, would be a default or breach, of any contract, lease, license, franchise, promissory note, conditional sales contract, commitment, indenture, mortgage, deed of trust, security or pledge agreement, or other agreement, instrument or arrangement to which Info Exchange or Shareholder is a party or is subject (collectively, the "Info Exchange or Shareholder Contracts"); (ii) the termination of any Info Exchange or Shareholder Contract or the acceleration of the maturity of any indebtedness of Info Exchange or Shareholder; (iii) the creation or imposition of any liens, charges or encumbrances on any of the assets of Shareholder, or on the CU Membership Interest or any of the other Info Exchange Assets; or (iv) a violation or breach of any writ, injunction or decree of any court or governmental instrumentality to which Info Exchange or the Shareholder is a party or is subject or to which the CU Membership Interest or any of the other Info Exchange Assets or any of the assets of Shareholder is subject. For purposes of this Agreement the terms "Shareholder's best knowledge" and "best knowledge of Shareholder, shall mean the knowledge of the Shareholder after due inquiry by him of the subject matter of the representations or warranties in this Agreement that he is making to his best knowledge.
2.3 ORGANIZATION AND STANDING; OWNERSHIP OF SHARES.
(a) To Shareholder's best knowledge, Info Exchange is a corporation duly organized, validly existing and in good standing under the laws of the State of Kansas.
(b) Shareholder is the sole record and beneficial owner of all of the shares of capital stock of Info Exchange and no other person or entity has any rights, in the capacity of a record or beneficial owner of any shares of capital stock or other securities of Info Exchange, to vote on
approval of the execution and delivery of this Agreement by Info Exchange or its consummation of the transactions contemplated hereby. No other person or entity is the owner or holder of any options or other rights to acquire any shares of capital stock or other securities of Info Exchange.
2.4 THE INFO EXCHANGE ASSETS AND PROPRIETARY ASSETS.
(a) Info Exchange has good and marketable title to the CU Membership Interest, the Proprietary Assets (including the CU Name and CU Mark) and the Service Agreement Assets, free and clear of any and all liens, claims, encumbrances, pledges, security interests, options, rights of first refusal, community property interests, restrictions and any other adverse interests of any kind or nature whatsoever, other than restrictions on the transferability and rights of first refusal that are imposed on the CU Membership Interest by CU's Operating Agreement dated as of August 2, 1996 by and among CU and its Members (the "CU Operating Agreement"), which restrictions and rights of first refusal do not, however, constitute an impediment to the sale and transfer of the CU Membership Interest to PCGS pursuant to this Agreement. Info Exchange has not sold, transferred, conveyed, assigned, hypothecated, or granted any security interest in or pledged, or granted any option or right entitling anyone to acquire, the CU Membership Interest, any of the Proprietary Assets or any of the Service Agreement Assets and has not entered into nor is it bound by any agreement, commitment, understanding (written or oral) to do any of the foregoing. None of the CU Membership Interest, the Proprietary Assets nor the Service Agreement Assets is subject to any liabilities, other than those expressly provided for in the CU Operating Agreement, and no liabilities will arise as a result of or in connection with the consummation of the sale and transfer of the Info Exchange Assets by Info Exchange to PCGS hereunder.
(b) No person, including the Shareholder, Info Exchange's past or present employees, officers, directors, agents or independent contractors, has any rights to or interests in any of the Info Exchange Assets, including any of the Proprietary Assets. In conjunction with the Info Exchange Business, neither Info Exchange nor Shareholder has used any proprietary knowledge or any other technology of any third party that Info Exchange did not have authority to use in the development of the Proprietary Assets. Info Exchange has the exclusive right to bring actions for the infringement of the Proprietary Assets and has full and effective right to use, execute, reproduce, display, perform, modify enhance, distribute and prepare derivative works of any third party software included in the Proprietary Assets and does not and has no obligation to pay royalties with respect to any of the Proprietary Assets or the use thereof. Schedule 2.4 sets forth the name of each employee, agent, independent contractor and developer who participated in the development of the Proprietary Assets (the "Developers"). All the Developers and all employee leasing firms which provided the services of any Developer have irrevocably assigned their right, title and interest, if any, in the Proprietary Assets to Info Exchange. To the best of Info Exchange's knowledge, there are no facts or claims which may prohibit, impair or impede the use of the Proprietary Assets or the filing and subsequent approval of applications for copyrights, patents, or trademarks as regards the Proprietary Assets.
(c) None of the Proprietary Assets infringes or conflicts, and the use of the Proprietary Assets by PCGS or CU in the manner in which Info Exchange has used the Proprietary Assets in its Business prior to the Closing will not infringe, any patent, copyright, or other proprietary rights of any third party, nor constitute a misappropriation of the trade secrets of any third party and no product made or sold or service provided by Info Exchange violates any license granted to Info Exchange.
(d) Info Exchange has taken measures it and the Shareholder deem reasonable to maintain the confidentiality of the Proprietary Assets and neither of them has granted any
license or option or entered into any agreement of any kind with respect to the use of the Proprietary Assets nor violated any patents, trade secrets or other proprietary or intellectual property rights of any other person or entity. Each employee and independent contractor of Info Exchange has executed an agreement with Info Exchange regarding confidentiality and proprietary information. Info Exchange, after reasonable investigation, is not aware that any of its employees or independent contractors are in violation thereof, and Info Exchange and Shareholder will use their best efforts to prevent any such violation.
(e) With respect to the Software, (i) the specification attached hereto as Schedule 2.4-E (the "Specifications") are a complete and accurate description of the capabilities and limitations of the Software, (ii) Info Exchange maintains documentation setting forth in reasonable detail all of the functions of the software, and (iii) Info Exchange maintains suitable technical and user documentation and adequate comments within its source code to allow the Software to be maintained and modified without undue burden by reasonably competent programmers or engineers skilled in the art who have access to such documentation and source code.
(f) The list of the Proprietary Assets and the Service Agreement Assets contained in Exhibit A and the Software Specifications in Schedule 2.4-E are accurate and complete.
2.5 ADEQUACY OF ASSETS; NO RETAINED COPIES. The Info Exchange Assets, and particularly the Proprietary Assets, are all of the Assets needed to operate the Info Exchange Business as currently conducted. Effective as of the Closing, physical possession of all copies of the Software, including, the Object Code, the Source code and the Documentation (each as defined on Exhibit A, shall have been delivered to PCGS.
2.6 CONTRACTS. Except for the CU Operating Agreement and the CU Service Agreement, neither Info Exchange nor the Shareholder is a party to any contract or other agreement or understanding, whether written or oral, including any sales agreement, option agreement, security agreement or pledge agreement, that relates or affects in any way or to any extent, the CU Membership Interest, any of the Proprietary Assets or the Service Agreement Assets. Neither Info Exchange nor Shareholder is in breach or default of the CU Operating Agreement or the CU Service Agreement and no event has occurred that, with the passage of time or the giving of notice, or both, would constitute a breach or default under any such Agreements by either Info Exchange or the Shareholder. The Services Agreement between Info Exchange and the Hartford Courant Company, dated as of October 1997 (est) has expired and neither Info Exchange nor the Shareholder has any remaining obligations or rights thereunder.
2.7 LITIGATION AND PROCEEDINGS. There are no claims, actions, causes of action, suits, proceedings or investigations pending or, to the knowledge of Info Exchange or Shareholder, threatened, against Info Exchange or the Shareholder, before any court, arbitrator or administrative, governmental or regulatory authority or body, domestic or foreign, which could adversely affect the CU Membership Interest, the Proprietary Assets or the Service Agreement Assets or the rights or title thereto being acquired by PCGS pursuant hereto, including, but not limited to any pending claim or litigation, or to Shareholder's knowledge any threatened claim or litigation, against Info Exchange or Shareholder contesting the right of Info Exchange to use or dispose of any of the Proprietary Assets or the validity of any of the Proprietary Assets or asserting the misuse thereof.
2.8 DISCLOSURE. None of the representations or warranties of Info Exchange or Shareholder contained in this Section 2 or in the Info Exchange Disclosure Schedules contains any
statement of a material fact that is untrue or omits any material fact necessary to make the statements contained herein, in light of the circumstances under which such statements were made, not misleading.
2.9 SECURITIES LAW COMPLIANCE. Info Exchange and Shareholder jointly and severally represent and warrant that:
(a) They have been advised and understand and agree that the PCGS Shares will not be registered under the Securities Act of 1933, as amended (the "1933 Act"), nor qualified under any state securities laws, on the ground (among others) that no distribution or public offering of the PCGS Shares is to be effected in connection with the transactions contemplated herein or by Info Exchange or Shareholder and in issuing the PCGS Shares to Shareholder, PCGS is relying on the accuracy and completeness of the representations and warranties of Info Exchange and Shareholder in this Section 2.9.
(b) Info Exchange and Shareholder are acquiring the PCGS Shares for their own account, and not as an nominee or agent for any other persons or entities, and for investment and not with a view to distribution or resale thereof.
(c) Info Exchange and Shareholder acknowledge that they have been informed and understand that no public market for the PCGS Shares exists and that there can be no assurance that any such market may develop or exist in the future and, even if a public market does develop, that the PCGS Shares may not be sold or transferred except in compliance with the 1933 Act or any exemption thereunder and there is no assurance that any exemption from registration, including Rule 144, under the 1933 Act will become available to permit resales of the PCGS Shares.
(d) Info Exchange and Shareholder have been furnished with such information regarding PCGS and the PCGS Shares as they or either of them has requested of PCGS and has had an opportunity to ask questions of the officers of PCGS regarding, and to become informed about, PCGS and its business and its consolidated financial condition and results of operations.
(e) Each of Info Exchange and Shareholder is an "Accredited Investor" as such term is defined in Regulation D under the 1933 Act.
(f) Info Exchange and Shareholder acknowledge and agree that (i) until the PCGS Shares become eligible for resale under Rule 144(k) under the 1933 Act, any proposed sale or other transfer or disposition of any of the PCGS Shares, other than pursuant to an effective registration statement under the 1933 Act, may not be made unless and until Info Exchange or Shareholder has furnished to PCGS an opinion of counsel, reasonably acceptable to PCGS and its counsel, to the effect that the proposed sale or other transfer or disposition is exempt from registration under the 1933 Act, and (ii) the PCGS Shares will be subject to the Stockholders Agreement referred to in Section 1.3 hereof and, until the Stockholders Agreement has been terminated (A) no sale or other disposition of the PCGS Shares may be made except in compliance therewith and (B) the PCGS Shares may be required to be sold in one or more transactions involving sales of shares of PCGS initiated by certain other of the PCGS Stockholders, all as more fully provided in the Stockholders Agreement. The Shareholder has read and understands the Stockholders Agreement.
(g) Info Exchange and Shareholder acknowledge and agree that the certificate representing the PCGS Shares shall contain restrictive legends in the forms set forth in the form of Stockholders Agreement attached hereto as Exhibit D or restrictive legends that are substantially similar thereto.
2.10 ACKNOWLEDGEMENTS AND AGREEMENTS REGARDING PCGS REPRESENTATIONS. Info Exchange and Shareholder acknowledge and agree as follows:
(a) PCGS has not made, and is not making, any representations or warranties to Info Exchange or to the Shareholder with respect to (i) the federal, state or local income or other tax consequences to Info Exchange or Shareholder of their consummation of the transactions contemplated hereby, or (ii) the future performance of PCGS; and
(b) In entering into this Agreement and the Additional Agreements to which they are parties, neither Info Exchange nor Shareholder is relying on any statements or representations or warranties of PCGS, or any representations or warranties made or purported to have been made by any officer, director, stockholder, employee or agent of PCGS, other than the express representations and warranties of PCGS hereinafter contained in this Agreement.
(c) Shareholder has been furnished with true and correct copies of and has read the Certificate of Incorporation and Bylaws, both as currently in effect, of PCGS.
3. REPRESENTATIONS AND WARRANTIES OF PCGS. PCGS makes the following representations and warranties to the Selling Parties as of the date of this Agreement:
3.1 ORGANIZATION. PCGS is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware.
3.2 CORPORATE POWER. PCGS possesses the requisite corporate power and authority to enter into and perform its obligations under this Agreement and the Additional Agreements being executed and delivered by it concurrently herewith.
3.3 NECESSARY ACTIONS; BINDING EFFECT. PCGS has taken all corporate action and obtained all consents necessary to authorize its execution and delivery of, and its performance of this Agreement and each of the Additional Agreements being executed by it concurrently herewith. This Agreement constitutes, and upon their execution and delivery by PCGS each of the Additional Agreements will constitute, valid obligations of PCGS that are legally binding on and enforceable against PCGS in accordance with their respective terms, except (in each case) as such enforceability may be limited by bankruptcy, insolvency, moratorium or other similar laws affecting creditors' rights, and by general principles of equity relating to the availability of equitable remedies (regardless of whether such agreements are sought to be enforced in a proceeding at law or in equity).
3.4 NO CONFLICTS. The execution and delivery and the performance by PCGS of this Agreement and each of the Additional Agreements to which PCGS is a party will not result in a default or an event that, with notice or lapse of time, or both, would constitute a default, breach or violation of the Certificate of Incorporation or Bylaws of PCGS or, to the best knowledge of PCGS, any of the following: (i) a default or an event that, with notice or lapse of time, or both, would constitute a default, breach or violation of any contract, lease, license, franchise, promissory note, conditional sales contract, commitment, indenture, mortgage, deed of trust, security or pledge agreement, or other agreement, instrument or arrangement to which PCGS is a party or is subject and which is material to PCGS and its subsidiaries considered as a whole (a "Material PCGS Contract"); (ii) the termination of any Material PCGS Contract or the acceleration of the maturity of any indebtedness or other monetary obligation of PCGS that is material in amount when considered in relation to PCGS and its subsidiaries taken as a whole; or (iii) a violation or breach of any writ, injunction or decree of any court or governmental instrumentality to which PCGS is a party or by which any of its properties is bound or any laws or
regulations applicable to PCGS, where the violation would have a material adverse effect on PCGS considered, together with all of its subsidiaries, as a whole. The terms "PCGS' best knowledge" and "best knowledge of PCGS" shall mean the knowledge of the executive officers of PCGS named on Schedule 3.4 hereto after due inquiry by them of the subject matter of the representations or warranties that are being made in this Agreement by PCGS to its best knowledge.
3.5 FINANCIAL STATEMENTS AND OTHER INFORMATION. PCGS has furnished to Info Exchange unaudited consolidated financial statements of PCGS, comprised of a consolidated balance sheet of PCGS as of June 30,1998 and a related consolidated statement of income for the year then ended, and an unaudited consolidated balance sheet as of, and related unaudited consolidated statement of income of PCGS for the three months ended, September 30, 1998, all of which have been prepared by PCGS (collectively, the "PCGS Financial Statements"). Except as otherwise set forth in Schedule 3.5 of the PCGS Disclosure Schedules or in the footnotes contained in the PCGS Financial Statements, to the best knowledge of PCGS such Financial Statements fairly present, in all material respects, the consolidated financial position of PCGS as at June 30, 1998 and September 30, 1998, respectively, and the respective consolidated results of operations of PCGS for the year and three months ended on June 30, 1998 and September 30, 1998, respectively.
3.6 ABSENCE OF MATERIAL ADVERSE CHANGES. Except as set forth in Schedule 3.6 hereto, since September 30, 1998, to the best knowledge of PCGS there has not been a material adverse change in the consolidated financial condition or consolidated results of operations of PCGS.
3.7 THE PCGS SHARES. The PCGS Shares to be issued by PCGS to Shareholder pursuant to Section 1.2 of this Agreement shall be, at the time of such issuance, duly authorized, validly issued, fully paid and non-assessable and free of preemptive rights under the charter documents or other agreements of PCGS to which the shares of capital stock of PCGS are subject, except for any preemptive rights and rights of first refusal under the Stockholders Agreement.
3.8 INVESTMENT INTENT. PCGS is acquiring the CU Membership Interest for investment and not with a view or intent to resell or distribute that Interest.
3.9 REPRESENTATIONS AND WARRANTIES. The representations and warranties of PCGS, as modified by the disclosures contained in the PCGS Disclosure Schedules attached hereto, do not contain any statement of a material fact that was untrue when made or omits any information necessary to make any statement of material fact contained therein, in light of the circumstances under which such statement was made, not misleading.
4. CERTAIN COVENANTS OF INFO EXCHANGE AND SHAREHOLDER
4.1 LIQUIDATION OF INFO EXCHANGE. Info Exchange and Shareholder covenant and agree that, (i) concurrently with the Closing, Info Exchange and Shareholder shall adopt the resolutions and take the actions contained in Exhibit F hereto that provide for the dissolution and complete liquidation of Info Exchange within ten (10) business days of the Closing hereunder and (ii) they shall take such actions to effectuate such dissolution and liquidation, in accordance with the corporate laws applicable to it, within such 10-business day period.
4.2 ASSUMED LIABILITIES AND RETAINED LIABILITIES.
(a) PCGS shall assume each of the liabilities of Info Exchange described on Schedule 4.2 hereto as to which there is no default or breach by Info Exchange in an amount not to exceed $150,000 in the aggregate (the "Assumed Liabilities").
(b) Except for and to the extent of the Assumed Liabilities expressly identified on Schedule 4.2, Info Exchange and Shareholder covenant and agree that PCGS is not assuming and PCGS shall not be obligated to assume or perform, or otherwise discharge, any liabilities or obligations of Info Exchange or Shareholder, whether known or unknown, fixed or contingent, matured or unmatured, certain or uncertain, and whether such liabilities or obligations have arisen prior to, or may arise on or after, the date hereof (collectively, the "Retained Liabilities"). Info Exchange and Shareholder further covenant and agree that all of the Retained Liabilities shall remain the obligations and liabilities of Info Exchange or the Shareholder (as the case may be). The Retained Liabilities shall include, but shall not be limited to, any and all liabilities for Taxes (as hereinabove defined) and any and all liabilities arising from the dissolution and liquidation of Info Exchange. Info Exchange and Shareholder shall jointly and severally indemnify, hold harmless and defend PCGS, and its shareholders, directors, officers, employees and agents from and against any and all of the Retained Liabilities and all demands, actions, suits or other proceedings and all damages, losses, costs and expenses arising therefrom, including, but not limited to attorneys fees and costs. The obligations of Info Exchange and Shareholder under this Paragraph 4.2(b) shall survive the Closing of the transactions contemplated hereby for a period ending seven (7) years from the date hereof.
4.3 TERMINATION OF CU SERVICE AGREEMENT. Concurrently with the consummation of the transactions contemplated by this Agreement, the CU Service Agreement shall terminate and be of no further force or effect.
4.4 WAIVER OF RIGHT OF PURCHASE OPTION. The parties hereto agree to take such action as may be required to cause CU to waive its right of first refusal and purchase option with respect to Info Exchange's CU Membership Interest under Section 8 of the Operating Agreement of CU (the "CU Operating Agreement").
5. NATURE AND SURVIVAL OF REPRESENTATIONS AND WARRANTIES. Regardless of any investigation, verification or approval by any party hereto or by anyone on behalf of any party hereto with respect to the subject matter of any of the representations or warranties of the other party contained in this Agreement, the respective representations and warranties of each party hereto that are contained in this Agreement or in any of their respective Disclosure Schedules or in any of their respective Closing Certificates delivered pursuant hereto shall survive the Closing for the statutory limitations period under California law that is applicable to written contracts, except that the representations and warranties of Info Exchange and Shareholder contained in Sections 2.1, 2.4 and 2.5 shall survive the Closing for a period of seven (7) years from the date hereof.
6. NOTICES. All notices, requests, demands or other communications hereunder shall be in writing and shall be deemed to have been duly given, (i) on the date of delivery if delivered in person; (ii) on the second business day after being sent by fax, provided that the successful transmission of the fax has been confirmed through a confirmation function sheet provided by the fax machine used for such transmission and a true and correct copy thereof is sent by first class mail to the party to which the fax was sent within one (1) business day thereafter; or (iii) on the third business day following the deposit thereof in the United States Mails, provided it is mailed by certified mail, return-receipt requested and postage prepaid and properly addressed, as set forth on Exhibit G hereto. Any party hereto may from time to time, by written notice to the other parties, designate a different address, which shall be substituted for the one specified in Exhibit G hereto.
7. MISCELLANEOUS.
7.1 ASSIGNMENT. No party may assign this Agreement, or assign its rights or delegate its duties hereunder, without the prior written consent of the other party; provided, however, that PCGS may assign its rights hereunder to any wholly-owned subsidiary, but no such assignment by PCGS shall relieve it of its obligations hereunder to Info Exchange. Subject to the foregoing restrictions, this Agreement shall inure to the benefit of and shall be binding on each of the parties hereto and their respective successors, heirs, administrators and assigns.
7.2 SEVERABILITY. Any provision of this Agreement which is illegal, invalid or unenforceable shall be ineffective to the extent of such illegality, invalidity or unenforceability, without affecting in any way the remaining provisions hereof.
7.3 GOVERNING LAW. This Agreement is deemed to have been made in the State of California, and its interpretation, its construction and the remedies for its enforcement or breach are to be applied pursuant to, and in accordance with, the laws of the State of California for contracts made and to be performed in that state. In the event any party hereto is required to initiate any legal action or proceeding to enforce its rights hereunder, such action or proceeding shall be brought and maintained exclusively in the Superior Court for the County of Orange, in California and each party agrees to accept, and not to challenge, the jurisdiction of such court over the parties and the subject matter of such action or proceeding or the convenience of the forum and to accept and not to challenge the adequacy of service by certified or registered mail. The prevailing party in any such action or proceeding shall be entitled to recover its reasonable attorneys fees and disbursements, expert witness fees and disbursements and other costs of suit from the non-prevailing party. TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, EACH PARTY HEREBY EXPRESSLY WAIVES ITS RIGHT TO A JURY TRIAL IN ANY SUCH ACTION OR PROCEEDING, IRRESPECTIVE OF WHICHEVER PARTY MAY BRING ANY SUCH ACTION OR PROCEEDING.
7.4 ENTIRE AGREEMENT; AMENDMENT. This Agreement, and the Exhibits and Schedules hereto, and each additional agreement and document to be executed and delivered pursuant hereto, constitute all of the agreements of the parties with respect to, and supersede all prior agreements and understandings relating to the subject matter of, this Agreement or the transactions contemplated by this Agreement, including but not limited to a letter agreement dated as of December 4, 1998 relating to the subject matter hereof. This Agreement may not be modified or amended except by a written instrument specifically referring to this Agreement signed by the parties hereto.
7.5 WAIVER. No waiver by one party of the other party's obligations, or of any breach or default hereunder by any other party, shall be valid or effective, unless such waiver is set forth in writing and is signed by the party giving such waiver; and no such waiver shall be deemed a waiver of
any subsequent breach or default of the same or similar nature or any breach or default by such other party of any of the other provisions of this Agreement.
7.6 INTERPRETATION; HEADINGS. This Agreement is the result of arms'-length negotiations between the parties hereto and no provision hereof, because of any ambiguity found to be contained therein or otherwise, shall be construed against a party by reason of the fact that such party or its legal counsel was the draftsman of that provision. Unless otherwise indicated elsewhere in this Agreement, (a) the term "or" shall not be exclusive, (b) the term "including" shall mean "including, but not limited to," and (c) the terms "herein," "hereof," "hereto," "hereunder" and other terms similar to such terms shall refer to this Agreement as a whole and not merely to the specific section, subsection, paragraph or clause where such terms may appear. The section, subsection and any paragraph headings contained herein are for the purpose of convenience only and are not intended to define, limit or affect, and shall not be considered in connection with, the interpretation of any of the terms or provisions of this Agreement.
7.7 COUNTERPARTS. This Agreement may be executed in separate counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument.
7.8 FURTHER ASSURANCES. Each party hereto shall execute and deliver, both before and after the Closing, such instruments and take such other actions as the other party or parties, as the case may be, may reasonably request in order to carry out the intent of this Agreement or to better evidence or effectuate the transactions contemplated herein.
IN WITNESS WHEREOF, the undersigned have executed this Agreement on the date first above stated.
INFO EXCHANGE INC. PROFESSIONAL COIN GRADING SERVICE, INC.
By: /s/ BRENT GUTEKUNST By: /s/ DAVID HALL
---------------------------------- -----------------------------------
Brent Gutekunst, President David Hall, Chairman
/s/ Brent Gutekunst
--------------------------------------
Brent Gutekunst
|
eBay Inc., a Delaware corporation, with offices located at 2005 Hamilton Avenue, Suite 350, San Jose, CA 95125 ("eBay") and Collectors Universe, located at P.O. Box 9458 Newport Beach, CA 92658 ("Provider") hereby enter into the following agreement as set forth in this Term Sheet dated February 10, 1999, and in eBay's Mutual Services Agreement, which is made a part hereof.
1. Provider's Responsibilities. Provider agrees to provide the following:
A. Premium grading and authentication services directly to eBay users in the areas of coins via Professional Coin Grading Service ("PCGS"), and trading cards via Professional Sports Authenticators ("PSA") or other services as available and mutually agreed upon, as per Provider's current services and policies.
B. Design a page that describes the services that will be provided to eBay users, by the Provider (herein, "Services Page") hosted on Provider's web site for eBay's users to access for grading and authentication services by PCGS or PSA, or other services as available and mutually agreed upon. This page will include the following elements:
a) The customer support and guarantee of Provider on all services.
b) The pricing structure for all services available to eBay users from Provider.
c) Information about the eBay Collector's Club (as defined below).
d) The eBay logo in the upper left hand corner of the page and the Provider's logo in the upper right-hand corner of the page.
e) A text link at the bottom of the page saying the services are provided by Provider, and not by eBay.
f) There will not be links to other areas of the Provider's site other than the pages designated for eBay users as specified above.
g) eBay may at its sole discretion add or remove information contained within this page by providing notice to Provider and a reasonable time to implement such changes as necessary.
C. In compliance with eBay's branding and trademark policies, eBay Marks will be included on all web pages and communications related to the provision of grading or authentication services to eBay users. In all cases, Provider shall clearly indicate to eBay users that such services are provided by Provider, and not eBay. Such communications will include:
a) eBay/PSA area on Provider's web site to host content and services for eBay users ("Collector's Club") related to com and/or sports collecting categories, or other categories to be mutually agreed upon.
b) PCGS/PSA verification pages, and verification pages of other services provided by Provider on the provider's site. These verification pages will include the following elements:
(a) A digital photo of the item for which the service was performed (if photos are available by Provider).
(b) A description of the grade or authenticity of the item for which the service was performed.
(c) The guarantee available on the item for which the service was performed.
(d) A link back to the eBay item auction page.
(e) The certification number of the item for which service was performed.
(f) The eBay logo in the upper left corner of the page and the Provider's logo in the upper right corner of the page.
c) Customer support web page on Provider's web site for eBay users.
d) When Provider mails eBay users the materials, such as graded or authenticated documents, such mailings will include eBay Marks.
(g) Within the mailings as specified above, Provider will create instructional document to teach eBay sellers how to include Provider's logo and link to the verification page on Provider's web site within the seller's auction listing on eBay.
[*] Confidential portions omitted and filed separately with the Securities and Exchange Commission
D. Guaranteed customer service and support metrics for eBay users, equal to or better than existing support service to Provider's other customers.
E. The Provider will offer a 10% discount to eBay users at the time of sale for all grading and authentication services. This discount will be provided for a period of 30 days from the first date these services are made available from the eBay web site. Following the 30 day period, Provider will offer eBay users a 10% rebate on all grading and authentication services. This rebate will be remitted to eBay along with the eBay user name so that eBay can credit the eBay user's eBay account.
F. Provider will pay eBay [*].
G. Provider will make payments to eBay after Provider receives payment from eBay users on services rendered by Provider. Payments to eBay by Provider will be on the 30th of each month after the execution date.
H. Provider will design an eBay Collector's Club web page with content to be mutually agreed upon by all parties, in writing.
I. Grading or authentication services are not contingent on membership in the Collector's Club.
J. Two original articles: 1 for coins, 1 for trading cards, to educate eBay users about grading, authentication and its benefits. These articles will be found on the coins and trading cards category home pages or other category home pages as services become available, and in the starter guides on the category home pages as referenced above. These articles will link to the grading services page on eBay.
K. Provider agrees to provide eBay monthly reporting of the following items: [*]
(h) Other data may be reported as mutually agreed upon.
2. eBay Responsibilities. eBay agrees to promote the availability of grading and authentication services in the following ways:
A. Internal house banners to be rotated within the eBay web site. These banners will include untargeted run of site advertising as well as more targeted advertising in categories for which grading and authentication services are offered, in eBay's sole discretion.
B. eBay will include the articles submitted by Provider into the category starter guides on the eBay web site.
C. eBay will include a link to the articles as referenced above on seller
services page at: http://pages.ebay.com/aw/seller-services.html, and
the buyer services page at:
http://pages.ebay.com/aw/ps.html on eBay.
D. eBay will include information about the services provided by Provider in targeted emails to eBay buyers and sellers.
E. eBay will mention Provider on selected eBay web pages and communications related to grading or authentication services to eBay customers in the coins or trading cards categories, and work with Provider to create instructional page on how to include Provider's logo and link to the verification page on Provider's site.
F. Design a page to route eBay users to a web page designated by Provider, describing the grading and authentication services supplied by the Provider to eBay customers.
G. eBay agrees not to promote the 10% discount period on the services offered by Provider to eBay users in either Coin World or Sports Collectors Digest.
3. Term. The Term of this Agreement shall be for eighteen (18) months beginning on the Execution date (defined below).
Provider's authentication, grading, and other web pages designed for eBay shall not link to Provider's auction listings or to web sites published or produced by any eBay competitor. Collectors Universe will not specifically focus or target those customers who have utilized the eBay/PCGS and eBay/PSA grading and authentication service offerings, or other such services as may be mutually agreed, with marketing programs, such as direct e-mails or other direct mail campaigns, regarding other auction services.
The parties below have read and understand the terms and conditions set forth in this Agreement and by signing agree to be bound by these terms and conditions. The date of execution shall be the later of the two signatures below (the "Execution Date").
eBay, Inc. Louis Crain
2005 Hamilton Avenue Suite 350 Collectors Universe
San Jose, CA 95125 P.O. Box 9458
Newport Beach, CA 92658
/s/ Steve Westley /s/ Louis Crain
-------------------------------- ------------------------------
Signature Signature
Vice President Marketing & BD CEO
-------------------------------- ------------------------------
Title Title
2/24/99 2/24/99
-------------------------------- ------------------------------
Date Date
|
These standard terms and conditions (the "Agreement") shall govern the placement of advertising, revenue sharing, and other related services as set forth in the attached deal term sheet (the "Term Sheet"). The Term Sheet shall set forth the specific authentication/grading services to be provided to eBay customers, and placement and run for advertising, articles, revenue sharing and other deliverables to be granted to eBay Inc. ("eBay") from the specified authentication/web site service ("Provider"), in exchange for an equal value of advertising and onsite promotion to be provided by eBay. All Term Sheets must be accepted in writing by eBay in order to be effective.
1) Terms of Payment. The Provider will pay eBay on a monthly basis following thirty days after the first day this Agreement and applicable Term Sheets are effective. Payments shall be made to eBay within thirty (30) days from the date due. All payments shall be accompanied by reasonable documentation available to Provider at such time setting forth the number of eBay customers that used the Provider's online authentication service (the "Service") for the relevant billing month, as well as information supporting the calculation of monies payable. Provider shall be responsible for the payment of all taxes and duties assessed in connection with payments made hereunder.
2) Mutual License to Use Materials. Both parties hereby grant to the other a limited, non-exclusive, non-transferable license to use the articles, advertising materials, and content (collectively "Materials") stipulated in each Term Sheet, and the related trademarks, servicemarks and logos set forth in the Term Sheet, or as otherwise specified in writing by the applicable parties (collectively "Marks"), solely to display articles, advertisements, and links to such party's web site in accordance with this Agreement. Each party hereby admits and recognizes the other's exclusive ownership of the other's Marks and the renown of such Marks worldwide. Each party agrees not to take any action inconsistent with the other's ownership of the other's Marks and agrees that any benefits accruing from use of such Marks shall automatically vest in the other party. No party shall form any combination marks with the other's Marks. No party may modify for public display any Materials or Marks provided to the other except upon receiving the other's prior written approval.
3) License to Use Articles. Provider hereby grants to eBay a non-exclusive, worldwide, perpetual, irrevocable, royalty-free right to use, reproduce, publicly display and digitally perform the feature articles described in the Term Sheet in accordance with the Agreement.
4) Positioning and Display Criteria. Each party shall position all advertising on the other's site, and shall establish a link to the other's site, as designated in the Term Sheet or such other URL as may be specified by the other party from time to time. Each party shall use its best efforts to maintain its sites and to meet all display and usage requirements and levels of impressions, as set forth in a Term Sheet.
a) Format of Materials. Each party will provide all Materials in a format and a transmission method reasonably agreed upon by the parties and identified in the Term Sheet.
b) Right to Reject Advertisement. Each Party has the right to reject any of the other's Materials, and to cancel any of the other's advertisements, if that party has good cause to
believe that the other party's Materials may: infringe the rights of a third party; or subject either party to indemnify the other, as provided in Section 8 herein. However, that party must first provide the other party with written notice of such rejection and/or cancellation, together with the specific reason for such rejection and/or cancellation, and any materials supporting such reason.
5) Limitation of Liability. WITH THE EXCEPTION OF A BREACH OF THE
CONFIDENTIALITY PROVISIONS OF SECTION 10, IN NO EVENT SHALL EBAY OR ITS
SUPPLIERS BE RESPONSIBLE FOR ANY INCIDENTAL, CONSEQUENTIAL, OR SPECIAL
DAMAGES OF ANY KIND, INCLUDING WITHOUT LIMITATION, LOST PROFITS OR LOST
OPPORTUNITIES, EVEN IF ADVISED OF THE POSSIBILITY OF SUCH DAMAGES IN
ADVANCE AND REGARDLESS OF THE CAUSE OF ACTION UPON WHICH ANY SUCH CLAIM IS
BASED. IN NO EVENT SHALL EBAY'S LIABILITY UNDER ANY TERM SHEET EXCEED
$10,000.
6) Indemnification.
a) eBay Indemnification. eBay agrees to indemnify the Provider against any
and all amounts finally awarded against Provider (including reasonable
attorneys' fees and costs) in connection with any third-party claim
that eBay's Materials or Marks (in unmodified form with no additional
material added) infringe any U.S. trademark, copyright, or trade
secret, or libel, defame, or invade the rights of publicity or privacy
of any third party. The foregoing indemnity is subject to the Provider:
(i) providing eBay with prompt written notice upon becoming aware of
any such claim; (ii) reasonably co-operating with eBay in the defense
of such claim; and (iii) providing eBay with the sole and exclusive
control of the defense and settlement of any such claim. The foregoing
indemnity shall not apply to claims arising from actions where the
Provider has: (i) modified the eBay Materials; (ii) added to the eBay
Materials; or (iii) used thc eBay Materials in a manner not expressly
authorized in this Agreement. THE FOREGOING CONSTITUTES THE SOLE AND
EXCLUSIVE REMEDY OF THE PROVIDER IN THE EVENT OF ANY THIRD PARTY CLAIM
RELATED TO THE EBAY MATERIALS OR MARKS.
b) Provider Indemnification. Provider agrees to indemnify eBay against any
and all amounts finally awarded against eBay (including reasonable
attorneys' fees and costs) in connection with any third-party claim
arising from Provider's Service or web site. The foregoing indemnity is
subject to eBay: (i) providing the Provider with prompt written notice
upon becoming aware of any such claim; and (ii) reasonably co-operating
with the Provider in the defense of such claim. eBay shall have the
right to participate in any action at its own expense. Provider may not
compromise or settle any claim which could give rise to any liability
for eBay without eBay's prior written consent, such consent to be
eBay's sole and exclusive discretion. The foregoing indemnity shall not
apply to the extent the liability arises from a claim where eBay has:
(i) modified the Provider's Materials; (ii) added to the Provider's
Materials; or (iii) used the Provider's Materials in a manner not
expressly authorized in this Agreement.
7) Warranties and Representations. Each party agrees that: (i) all advertisements and links shall be displayed in accordance with this Agreement and in a professional and tasteful manner and shall not be used to endorse, or imply the endorsement of the other party's or any third party's products or services; (ii) each party shall endeavor to operate its site and service in a professional manner; and (iii) each party shall at all times comply with all laws and regulations applicable to its site and its performance under the Agreement; provided, however, that this representation does not apply to content placed on either party's web site by third parties. In the event of either party's breach of any warranty or representation set forth in this Section 7, the other party may terminate this contract, without liability of any kind, upon providing the party in breach with five (5) days written notice and opportunity to cure.
8) Cancellation and Termination. eBay may cancel this Agreement and/or any
Term Sheet or portion thereof, upon providing thirty (30) days written
notice. Upon any termination or expiration of this Agreement, or any Term
Sheet, all licenses granted to the other party hereunder shall immediately
terminate, and the other party shall cease using and promptly return and
purge its files of all the other party's Materials and confidential
information. All payments for work completed shall be made within thirty
(30) days from the termination of this Agreement, or any Term Sheet.
Neither party shall have any liability from termination in compliance with
this section. The terms and conditions of Sections 6, 7, 8, 9, 10, and 11
shall survive any expiration or termination of this Agreement.
9) Construction. No terms and/or conditions other than those set forth in a Term Sheet or this Agreement shall be binding on eBay unless expressly agreed to in writing by eBay. In the event of any inconsistency between a Term Sheet and this Agreement, this Agreement shall control.
10) Confidentiality.
a) The parties shall use their reasonable efforts to keep confidential the terms and conditions of the Agreement and of any Term Sheet, and all information regarding the specific viewing of each party's advertisements, the click-through rates of such advertisements, the demographics of viewers who click-through to such web site, the information of such users who click through from eBay to such web site, and such other information as is identified and treated as confidential by the party seeking to have the information treated confidentially and is not (and does not become through no fault of the other party) publicly known or available. Each party may not disclose the other party's confidential information and may not use such information except as required to perform under this contract and agrees to take the same care to preserve the confidentiality of such information as it uses with respect to preserving the confidentiality of its own confidential information.
b) Both parties shall use their reasonable efforts to follow the eBay Privacy Policy with respect to information that is protected under such Policy. Such information that is confidential information under that Policy is treated as confidential information under this Agreement.
c) The breach of this confidentiality provision by either party would cause the other party irreparable harm and the harmed party shall be entitled to appropriate injunctive relief in the event of such breach. However, both parties may use aggregate demographic information once stripped of any personal identifiable information. The confidentiality restrictions on
information contained within each Term Sheet shall expire three years after the termination of this Agreement and/or any applicable Term Sheet.
11) Miscellaneous. This Agreement, together with any applicable Term Sheet (collectively the "Relationship"), (a) shall be governed by and construed in accordance with, the laws of the State of California, without giving effect to principles of conflicts of law; (b) may be amended only by a written agreement executed by an authorized representative of each party; and (c) constitute the complete and entire expression of the agreement between the parties with respect to the subject matter hereof, and shall supersede any and all other agreements, whether written or oral, between the parties. All waivers hereunder must be expressly made in writing. The parties shall be deemed to have the status of independent contractors, and nothing in this Relationship shall be deemed to place the parties in the relationship of employer-employee, principal-agent, partners or joint venturers. Should any provision of this Relationship be held to be void, invalid, or inoperative, such provision shall be modified to reflect the fullest enforceable intent of the parties, or if such modification is not possible, severed, and the remaining provisions of this contract shall not be affected and shall continue in full force and effect. Venue for all disputes arising out of or related to the Relationship shall be the state and federal courts located in Santa Clara County, California.
Collectors Universe
/s/ Louis M. Crain -------------------------- Louis M. Crain, CEO 2/24/99 |
Exhibit 10.10
NET LEASE
BETWEEN
ORIX SEARLES SANTA ANA VENTURE,
LANDLORD
AND
COLLECTORS UNIVERSE INC.
TENANT
DATED: JUNE, 1999
TABLE OF CONTENTS
PAGE
----
ARTICLE I PREMISES............................................................................................ 1
Section 1.1 Demise......................................................................................... 1
Section 1.2 Definitions.................................................................................... 1
Section 1.3 Determination of Premises Area................................................................. 1
ARTICLE II TERM................................................................................................. 1
Section 2.1 Term of Lease.................................................................................. 1
Section 2.2 Commencement Date.............................................................................. 2
Section 2.3 Early Access................................................................................... 2
ARTICLE III CONSTRUCTION OF IMPROVEMENTS........................................................................ 2
Section 3.1 Construction of Improvements................................................................... 2
Section 3.2 Construction Schedule.......................................................................... 2
Section 3.3 Substitution of Materials...................................................................... 3
Section 3.4 Completion Date................................................................................ 3
Section 3.5 Punch List..................................................................................... 3
Section 3.6 Tenant Improvements............................................................................ 3
Section 3.7 Contractors' Warranty.......................................................................... 3
Section 3.8 Permitted Delay................................................................................ 3
Section 3.9 Tenant Delay................................................................................... 4
Section 3.10 Design of Lobby................................................................................ 4
Section 3.11 Authorized Representatives..................................................................... 4
ARTICLE IV RENT.................................................................................................. 4
Section 4.1 Base Rent...................................................................................... 4
Section 4.2 Rental Commencement............................................................................ 4
Section 4.3 Additional Rent................................................................................ 5
Section 4.4 Delinquent Payments............................................................................ 5
ARTICLE V USE OF PREMISES....................................................................................... 5
Section 5.1 Permitted Use.................................................................................. 5
Section 5.2 Acceptance of Premises......................................................................... 5
ARTICLE VI RENT ADJUSTMENTS...................................................................................... 6
Section 6.1 Obligation to Pay Rent Adjustments............................................................. 6
Section 6.2 Definitions.................................................................................... 6
Section 6.3 Computation of Rent Adjustments................................................................ 8
Section 6.4 Payments of Rent Adjustments; Projections...................................................... 8
Section 6.5 Readjustments.................................................................................. 9
Section 6.6 Books and Records............................................................................. 10
Section 6.7 Audit Procedures.............................................................................. 10
Section 6.8 Proration and Survival........................................................................ 10
Section 6.9 No Decrease in Base Rent...................................................................... 11
Section 6.10 Additional Rent............................................................................... 11
Section 6.11 Contest of Taxes.............................................................................. 11
ARTICLE VII INSURANCE........................................................................................... 11
Section 7.1 Landlord's Insurance Obligation............................................................... 11
Section 7.2 Tenant's Insurance Obligation................................................................. 11
Section 7.3 Waiver of Subrogation......................................................................... 12
Section 7.4 Copies of Policies............................................................................ 12
ARTICLE VIII UTILITIES.......................................................................................... 12
Section 8.1 Payment of Utilities.......................................................................... 12
ARTICLE IX MAINTENANCE AND OPERATION........................................................................... 12
Section 9.1 Tenant's Maintenance.......................................................................... 12
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Section 9.2 Prohibition Against Waste..................................................................... 12 Section 9.3 Landlord's Maintenance and Operation.......................................................... 12 Section 9.4 24 Hour Operation............................................................................. 13 Section 9.5 Rules and Regulations......................................................................... 13 Section 9.6 Rights Reserved to Landlord................................................................... 13 ARTICLE X COMPLIANCE WITH LAWS AND ORDINANCES.................................................................. 14 Section 10.1 Compliance with Laws and Ordinances........................................................... 14 Section 10.2 Compliance with Permitted Encumbrances........................................................ 14 Section 10.3 Compliance with Hazardous Materials Laws...................................................... 14 Section 10.4 Hazardous Materials, Representation, Warranty and Covenant by Landlord........................ 15 Section 10.5 Cost of Compliance with Hazardous Materials Laws.............................................. 15 Section 10.6 Indemnification............................................................................... 15 Section 10.7 Survival...................................................................................... 15 ARTICLE XI MECHANIC'S LIEN AND OTHER LIENS..................................................................... 16 Section 11.1 Freedom from Liens............................................................................ 16 Section 11.2 Landlord's Indemnification.................................................................... 16 Section 11.3 Removal of Liens.............................................................................. 17 ARTICLE XII NET LEASE.......................................................................................... 17 Section 12.1 Lease......................................................................................... 17 Section 12.2 Landlord's Right to Cure...................................................................... 17 ARTICLE XIII DEFAULT........................................................................................... 17 Section 13.1 Events of Default............................................................................. 17 Section 13.2 Rights and Remedies of Landlord............................................................... 18 Section 13.3 Right to Re-Enter............................................................................. 18 Section 13.4 Current Damages............................................................................... 19 Section 13.5 Final Damages................................................................................. 19 Section 13.6 Removal of Personal Property.................................................................. 20 Section 13.7 Assumption or Rejection in Bankruptcy......................................................... 20 Section 13.8 No Waiver..................................................................................... 20 ARTICLE XIV CASUALTY AND RESTORATION........................................................................... 20 Section 14.1 Damage or Destruction by Casualty............................................................. 20 Section 14.2 Abatement of Rent............................................................................. 21 ARTICLE XV CONDEMNATION........................................................................................ 21 Section 15.1 Condemnation of Entire Premises............................................................... 21 Section 15.2 Partial Condemnation/Termination of Lease..................................................... 21 Section 15.3 Partial Condemnation/Continuation of Lease.................................................... 22 Section 15.4 Continuance of Obligations.................................................................... 22 ARTICLE XVI ASSIGNMENT, SUBLETTING, ETC........................................................................ 22 Section 16.1 Tenant's Rights............................................................................... 22 ARTICLE XVII SUBORDINATION, NONDISTURBANCE, NOTICE TO MORTGAGEE AND ATTORNMENT.................................. 23 Section 17.1 Subordination by Tenant....................................................................... 23 Section 17.2 Landlord's Default............................................................................ 23 Section 17.3 Attornment.................................................................................... 23 ARTICLE XVIII BUILDING IDENTIFICATION AND SIGNAGE.............................................................. 24 Section 18.1 Building Identification and Signage........................................................... 24 ARTICLE XIX REPORTS BY TENANT.................................................................................. 24 Section 19.1 Annual Statements............................................................................. 24 |
ARTICLE XX CHANGES AND ALTERATIONS............................................................................ 24 Section 20.1 Tenant's Changes and Alterations.............................................................. 24 ARTICLE XXI EXTENSION OPTIONS.................................................................................. 25 Section 21.1 Option to Extend.............................................................................. 25 ARTICLE XXII PARKING........................................................................................... 26 ARTICLE XXIII FIRST OPPORTUNITY TO LEASE........................................................................ 26 ARTICLE XXIV MOVING ALLOWANCE................................................................................... 27 ARTICLE XXV RIGHT OF FIRST REFUSAL TO PURCHASE................................................................. 27 Section 25.1 Right of First Refusal........................................................................ 27 Section 25.2 Process....................................................................................... 27 Section 25.3 Sale Process.................................................................................. 27 Section 25.4 Transfer to Affiliates........................................................................ 27 ARTICLE XXVI SECURITY DEPOSIT.................................................................................. 28 Section 26.1 Definitions................................................................................... 28 Section 26.2 Security Deposit.............................................................................. 28 Section 26.3 Return of Security Deposit.................................................................... 28 Section 26.4 Forfeiture of Security Deposit................................................................ 28 Section 26.5 Transfer of Security Deposit to Transferees and Mortgagees.................................... 29 ARTICLE XXVII COMMUNICATION EQUIPMENT........................................................................... 29 ARTICLE XXVIII SECURED AREA..................................................................................... 29 Section 28.1 Secured Area.................................................................................. 29 Section 28.2 Tenant Notice................................................................................. 30 ARTICLE XXIX MISCELLANEOUS...................................................................................... 30 Section 29.1 Entry by Landlord............................................................................. 30 Section 29.2 Exhibition of Premises........................................................................ 30 Section 29.3 Indemnification............................................................................... 30 Section 29.4 Notices....................................................................................... 31 Section 29.5 Quiet Enjoyment............................................................................... 32 Section 29.6 Landlord's Continuing Obligations............................................................. 32 Section 29.7 Estoppel...................................................................................... 32 Section 29.8 Severability.................................................................................. 33 Section 29.9 Successors and Assigns........................................................................ 33 Section 29.10 Captions...................................................................................... 33 Section 29.11 Relationship of Parties....................................................................... 33 Section 29.12 Entire Agreement.............................................................................. 33 Section 29.13 No Merger..................................................................................... 33 Section 29.14 Surrender of Premises......................................................................... 33 Section 29.15 Holding Over.................................................................................. 34 Section 29.16 Landlord Approvals............................................................................ 34 Section 29.17 Survival...................................................................................... 34 Section 29.18 Attorneys' Fees............................................................................... 34 Section 29.19 Landlord's Limited Liability.................................................................. 34 Section 29.20 Broker........................................................................................ 34 Section 29.21 Governing Law................................................................................. 35 Section 29.22 Time is of the Essence........................................................................ 35 Section 29.23 Authority..................................................................................... 35 |
SCHEDULE OF EXHIBITS
Exhibit A Legal Description Exhibit B Schedule of Plans and Specifications Exhibit C Construction Schedule Exhibit D Workletter Exhibit E Base Rent Exhibit F Hazardous Materials Report |
LEASE
THIS LEASE (this "Lease"), is made this ___ day of July, 1999 by and between ORIX Searles Santa Ana Venture, an Illinois general partnership ("Landlord"), and Collectors Universe Inc. _________, a Delaware corporation ("Tenant"), together known for purposes of this Lease as the "parties."
ARTICLE I
PREMISES
DEMISE. Landlord, for and in consideration of the rents, covenants and agreements hereinafter reserved, mentioned and contained on the part of Tenant, its successors and assigns, to be paid, kept, observed and performed, has leased, rented, let and demised, and by these presents does lease, rent, let and demise unto Tenant, and Tenant does hereby accept and take upon and subject to the conditions and limitations hereinafter expressed, between 54,000 and 64,600 square feet of rentable area (the "Premises"), the exact area to be determined in accordance with 0 below, in the building to be constructed on that certain parcel of land (the "Land") described on Exhibit A attached hereto situated in Santa Ana, California. Landlord has the right to purchase the Land pursuant to a Purchase and Sale Agreement (the "Land Purchase Agreement") with Alton-Deere Partnership II, the current owner of the Land. This Lease is conditioned on Landlord acquiring the Land no later than September 1, 1999.
DEFINITIONS. Landlord's Improvements (as defined in 0), Tenant's Work (as defined in the Workletter attached hereto and also referred to herein as the "Tenant Improvements") and all other improvements, fixtures and other real property (except Tenant's trade fixtures and other personality) installed or located thereon, together with all additions, alterations and replacements thereof, are hereinafter referred to as the "Improvements." The building to be located upon the Land as reflected on the Site Plan is called the "Building." "Laws and Regulations" shall mean every applicable law, ordinance, regulation, order, rule, judgment, requirement, consent agreement or other declaration or measure of any governmental body affecting the Land, together with all covenants, conditions and restrictions of record affecting the Land as of the date hereof, as such covenants, conditions and restrictions may be amended in the future.
DETERMINATION OF PREMISES AREA. After the full execution of this Lease, Tenant will commence its space planning to allow Tenant to determine its precise requirements for space in the Building. Tenant shall have until October 1, 1999 in which to notify Landlord in writing of the precise number of rentable square feet Tenant will lease in the Building, which number shall be between 54,000 and 64,600; provided that if Tenant elects 61,000 or more then Tenant shall be required to lease the entire Building. If Tenant does not notify Landlord, then Tenant will be deemed to have elected 54,000 square feet. All space in the Building not leased by Tenant must be in one contiguous block of space with appropriate access to elevators and other services.
ARTICLE II
TERM
TERM OF LEASE. The initial term of this Lease shall commence on the Commencement Date (as hereafter defined) and unless earlier terminated or extended pursuant to the terms hereof, shall end on the last day of the calendar month during which the eighth (8th) anniversary of the Commencement Date occurs. The initial term of this Lease, as set forth above, is sometimes referred to as the "Initial Term." Any reference to the "Term" or to the "term of this Lease" or similar reference shall be a reference to the Initial Term together with any renewal terms (if any) of this Lease or any extensions to or modifications of the Initial Term.
COMMENCEMENT DATE. The "Commencement Date" shall be the later of (x) April 1, 2000, and (y) the date the Premises are Ready for Occupancy (as hereinafter defined). Notwithstanding the foregoing, if Tenant earlier occupies the Premises for its operations (i.e. not merely for move-in), the Commencement Date shall be deemed to have occurred as of the date of such occupancy.
EARLY ACCESS. Prior to the Commencement Date, Tenant shall have early access ("Early Access") to the Premises prior to the completion of the Tenant Improvements to install fixtures and furnishings, subject to scheduling with Landlord and the General Contractor and subject to the other terms and conditions of this Lease; provided that Landlord and Tenant shall cooperate with each other such that all work can be efficiently and timely completed. Tenant does hereby agree to assume all risk of loss or damage, to the extent not covered by insurance, to Tenant's machinery, furniture, equipment, fixtures, cables and wiring and to indemnify, defend and hold harmless Landlord from all liability, loss or damage arising from any injury to the property of Landlord, or its contractors, subcontractors or materialmen, and from any death or personal injury to any person or persons, to the extent such liability, loss or damage are proximately caused by the acts or omissions of Tenant, its agents, contractors or employees with respect to such installations.
ARTICLE III
CONSTRUCTION OF IMPROVEMENTS
CONSTRUCTION OF IMPROVEMENTS. Subject to the terms and conditions set forth in this Article, Landlord shall cause to be performed the work and to furnish all of the material, labor and equipment for the construction of the improvements (the "Landlord's Improvements") specified in the final plans and specifications (the "Final Plans") described on Exhibit B attached hereto (the "Project"). The Landlord's Improvements shall be constructed in a good and workmanlike manner. The Final Plans shall be (a) subject to the approval of any local governmental agencies having jurisdiction over the construction of the Improvements, and (b) revised, and the Improvements shall be modified, to incorporate any revisions thereto required by any governmental agency.
Landlord and Tenant acknowledge and agree that the Final Plans incorporate certain upgrades to the Building including HVAC units on the roof, and upgrades to the core restrooms and main lobby area. The cost to Landlord of such upgrades is approximately $8.00 per rentable square foot of the Building.
CONSTRUCTION SCHEDULE. Attached hereto as Exhibit C is the Construction Schedule for the Landlord's Improvements. The construction schedule as revised from time-to-time due to Changes (as hereafter defined) or to account for Permitted Delays (as hereafter defined) is referred to herein as the "Schedule."
SUBSTITUTION OF MATERIALS. Landlord, at its option, may substitute for items or materials provided for in the Final Plans, other items or materials of comparable kind and quality if, in Landlord's reasonable judgment, the use of the items or materials provided for in the Final Plans would cause material delay in the completion of construction; provided, however, that any such substitutions shall not materially and adversely affect Tenant's use and occupancy of the Premises for its intended purpose.
COMPLETION DATE. Construction of the Landlord's Improvements and the Tenant Improvements shall be pursued diligently by Landlord so that they will be Ready for Occupancy by the date shown therefore on the Schedule. "Ready for Occupancy" shall mean that the Landlord's Improvements and the Tenant Improvements are substantially complete, as certified by the Architect, subject to Punch List items.
In the event the Landlord's Improvements and the Tenant Improvements are not Ready for Occupancy by June 30, 2000, for any reason, other than Tenant Delay,
earthquake or casualty, then Tenant shall have the option to terminate this Lease by notice in writing to Landlord.
PUNCH LIST. Landlord and the Architect shall work together to develop a "Punch List" of items that are not completed as of the date the Premises are Ready for Occupancy to be completed. Landlord shall cause the Punch List items to be completed as soon as reasonably possible, and in connection therewith, Landlord may enter into the Premises to complete the same. Such entry by Landlord, its agents, employees, contractors or representatives for such purpose shall not, in and of itself, constitute an actual or constructive eviction, in whole or in part, or entitle Tenant to any abatement or diminution of Base Rent or Rent Adjustments, or relieve Tenant from any of its obligations hereunder, or impose any other liability on Landlord, its agents, employees, contractors or representatives.
TENANT IMPROVEMENTS. Simultaneously with the execution of this Lease, Landlord and Tenant have entered into a Workletter, a copy of which is attached hereto as Exhibit D, relating to the construction of tenant improvements in the Premises. Tenant is to receive a tenant improvement allowance in the amount shown in the Work Letter (the "T/I Allowance"), which will be funded as work progresses as provided in the Workletter.
CONTRACTORS' WARRANTY. In lieu of all other warranties and liability by reason of the construction of the Landlord's Improvements or otherwise, Landlord shall cause the general contractor for the Improvements (the "General Contractor") (a) to warrant the Building for a period of one (1) year (except as provided in (b) below) from the date that the Building is Ready for Occupancy, that the Building is free from all defects in materials or workmanship, including latent defects, and (b) to warrant equipment and mechanical elements for a period of one (1) year from the date they are placed into service.
PERMITTED DELAY. If Landlord fails to perform timely any of the terms, covenants, and conditions of this Lease on Landlord's part to be performed and such failure is due in whole or in part to any strike, labor trouble or lockout, civil disorder, inability to procure materials due to shortages, transportation difficulties or unusual and unforeseen lead times, governmental laws and regulations, riots, insurrections, war, fuel shortages, adverse weather conditions, accidents, casualties, acts of God, Tenant Delay or any other cause beyond the reasonable control of Landlord, then Landlord shall not be deemed in default under this Lease as a result of such failure and any time for performance by Landlord provided for herein shall be extended by the period of delay resulting from such cause (any such delay is referred to herein as "Permitted Delay").
TENANT DELAY. If, and to the extent that, Landlord is delayed in completing the Project or the Tenant Improvements as a result of any action or omission of Tenant, such delay shall constitute a "Tenant Delay" hereunder. Tenant Delays shall be:
(a) Tenant's failure to deliver or approve plans or other matters within the time periods specified herein or in the Schedule;
(b) Tenant's selection of so-called "long lead time items" whether as to materials, finishes or installations; and
(c) Any other delays proximately caused by Tenant or its contractors.
DESIGN OF LOBBY. Landlord shall allow Tenant to have input into the final design of the Building lobby, including all finishes and treatments, provided, however, that in no event shall Landlord be required to delay the Schedule or exceed its budget for the costs of designing and constructing the lobby area of the Building.
AUTHORIZED REPRESENTATIVES. For purposes of granting consents and approvals under this Article, the initial designated representative of Tenant shall be Gary Patten ("Tenant's Representative") and the initial designated representative of Landlord shall be Kurt Pairitz. Either Landlord or Tenant may change their designated representative by notice in writing to the other.
ARTICLE IV
RENT
BASE RENT. In consideration of the leasing of the Premises and the construction of the Improvements, Tenant covenants to pay Landlord, without previous demand therefor and without any right of setoff or deduction whatsoever at such place in the continental United States as Landlord may from time to time designate in writing, base rent for the Initial Term as provided in this Article and for applicable Extension Terms as provided in 0 ("Base Rent"). Base Rent shall be payable monthly in advance commencing on the Commencement Date, and continuing on the first day of each month thereafter for the succeeding months during the balance of the Initial Term in the amounts shown on Exhibit E attached hereto, and any Extension Terms. If the Commencement Date does not occur on the first day of a calendar month, the installment of Base Rent for the partial calendar month at the beginning of the Term shall be prorated on the basis of the number of days of the Term within such calendar month. In addition to the Security Deposit provided under 0, Tenant shall pay to Landlord the first month's Base Rent within thirty (30) days of the date hereof and shall pay to Landlord the last month's Base Rent within ninety (90) days of the date hereof.
RENTAL COMMENCEMENT. Tenant's obligation to pay Rent under this Lease shall commence on the Commencement Date; provided, however, if Landlord is delayed in making the Premises Ready for Occupancy as a proximate result of Tenant Delays, then Tenant shall commence the payment of Rent as of the date that the Commencement Date would have occurred but for such Tenant Delays.
ADDITIONAL RENT. Except as otherwise provided herein, the Base Rent shall be absolutely net to Landlord so that this Lease shall yield, net to Landlord, the Base Rent in each year of the Term and that except as otherwise provided herein, all expenses for which Tenant is responsible under the terms of this Agreement or by reason of events occurring during the Term shall be paid or discharged by Tenant. All Base Rent and Additional Rent are collectively referred to herein as "Rent."
DELINQUENT PAYMENTS. All regularly scheduled payments of Base Rent and Additional Rent shall be payable without previous demand therefor and, herein, without any right of setoff or deduction whatsoever, and in case of nonpayment of any item of Additional Rent by Tenant when the same is due, Landlord shall have, in addition to all its rights and remedies, all of the rights and remedies available to Landlord under the provisions of this Lease or by law in the case of nonpayment of Base Rent. The performance and observance by Tenant of all the terms, covenants, conditions and agreements to be performed or observed by Tenant hereunder shall be performed and observed by Tenant at Tenant's sole cost and expense. Any installment of Base Rent or Additional Rent or any other charges payable by Tenant under the provisions hereof which shall not be paid when due (without regard to whether notice of default has been sent to Tenant and without regard to whether an opportunity to cure has expired) shall bear interest at an annual rate equal to three percentage points per annum in excess of the published "prime rate" or "base rate" of interest charged by Bank of America (or similar institution if said Bank shall cease to exist or to publish such a prime rate) from the date when the same is due hereunder until the same shall be paid, but in no event in excess of the maximum lawful rate permitted to be charged by Landlord to Tenant. Said rate of interest is sometimes referred to herein as the "Maximum Rate of Interest." In addition, any installment of Base Rent or Additional Rent or any other charges payable by Tenant under the provisions hereof not paid when due (and after any required notice of default
has been sent to Tenant and any applicable grace period has expired) shall be subject to a late payment fee of three percent (3%) of the unpaid amount.
ARTICLE V
USE OF PREMISES
PERMITTED USE. The Premises may be used only for an office building and for any uses reasonably incidental to the same, including without limitation, the secure storage of coins and other valuable or collectible items ("Collectibles"), the grading and authentication of Collectibles. Tenant shall not use or occupy the same, or knowingly permit them to be used or occupied, contrary to any pertinent Laws and Regulations, or which would make void or voidable any insurance then in force with respect thereto or which would make it impossible to obtain fire or other insurance thereon required to be furnished hereunder by Tenant, or which would cause structural injury to the improvements or waste or would violate any Hazardous Materials Laws (as defined in 0). Tenant agrees that it will promptly, upon discovery of any such prohibited use, take all necessary steps to discontinue such use.
ACCEPTANCE OF PREMISES. Tenant acknowledges that, except as expressly set forth in this Lease, neither Landlord nor any agent of Landlord has made any representation or warranty with respect to the Premises or the Building or with respect to the suitability or fitness of either for the conduct of Tenant's business or for any other purpose. Tenant shall comply with any recorded covenants, conditions and restrictions affecting the Premises and the Building as of the commencement of the Lease or which are recorded during the Term.
ARTICLE II
RENT ADJUSTMENTS
OBLIGATION TO PAY RENT ADJUSTMENTS. In addition to paying Base Rent, Tenant shall also pay as Additional Rent the amounts determined in accordance with this Article ("Rent Adjustments"):
DEFINITIONS. As used in this Lease,
(a) "ADJUSTMENT DATE" shall mean the first day of the Term and each January 1 thereafter falling within the Term.
(b) "ADJUSTMENT YEAR" shall mean each calendar year during which an Adjustment Date falls.
(c) "EXPENSES" shall mean and include those costs and expenses paid or incurred by or on behalf of Landlord for owning, managing, operating, maintaining and repairing the Premises and any personal property used solely in conjunction therewith. Expenses shall not include the following:
(i) costs or other items included within the meaning of the term "Taxes" (as hereinafter defined);
(ii) costs of capital improvements to the Building (except as hereinafter provided);
(iii) depreciation charges;
(iv) interest and principal payments on mortgages;
(v) ground rental payments;
(vi) real estate brokerage and leasing commissions;
Notwithstanding anything contained in this clause (c) to the contrary:
(i) The cost of any capital improvements to the Building made after the Commencement Date of this Lease which are intended to reduce Expenses or which are required under any governmental laws, regulations, or ordinances which were not applicable to the Building at the time it was constructed, amortized over such reasonable period as Landlord shall determine, together with interest on the unamortized cost of any such improvement at the prevailing construction loan rate available to Landlord on the date the cost of such improvement was incurred shall be included in Expenses. Notwithstanding the foregoing, during any time that Tenant occupies at least 80% of the rentable area of the Building, Expenses shall not include the cost of capital improvements intended to reduce Expenses unless Tenant shall have first approved such Expenses.
(a) "TAXES" shall mean real estate taxes, general or special assessments, sewer rents, rates and charges, taxes based upon the receipt of rent, and any other federal, state or local governmental charge, whether general, special, ordinary or extraordinary (but not including income or franchise taxes or any other taxes imposed upon or measured by Landlord's income or profits, except as provided herein), which may now or hereafter be levied, assessed or imposed against the Premises. All references to Taxes "for" an Adjustment Year shall be deemed to refer to taxes levied, assessed or otherwise imposed for such Adjustment Year without regard to when such taxes are payable.
Notwithstanding anything contained in this clause (d) to the contrary:
(vii) If at any time the method of taxation then prevailing is altered so that any new or additional tax, assessment, levy, imposition or charge or any part thereof is imposed upon Landlord in place or partly in place of any such Taxes or contemplated increase therein, or in addition to Taxes, and is measured by or is based in whole or in part upon the Premises or the rents or other income therefrom, then all such new taxes, assessments, levies, impositions or charges or part thereof, to the extent that they are so measured or based, shall be included in Taxes levied, assessed or imposed against the Premises to the extent that such items would be payable if the Premises were the only property of Landlord subject thereto and the income received by Landlord from the Premises were the only income of Landlord.
(viii) Notwithstanding the year for which any special assessments are levied, in the case of special assessments which may be paid in installments, only the amount of the installment, plus any interest payable thereon, due and payable during an Adjustment Year shall be included in Taxes for that Adjustment Year.
(d) "RENT ADJUSTMENTS" shall mean all amounts payable to Landlord by Tenant pursuant to this Article.
(b) "RENTABLE AREA OF THE BUILDING" shall mean the sum of the areas on all floors of the building computed by measuring to the center line of the exterior glass and excluding only public stairs, and elevator shafts, ("vertical penetrations"). No deduction shall be made for columns or projections. The Rentable Area of the Building shall be determined by Landlord as soon as possible after the completion of construction of the Building.
(c) "RENTABLE AREA OF THE PREMISES" shall mean (i) if this Lease is for an entire floor, the area of the entire floor measured to the center line of the exterior glass, excluding vertical penetrations, plus a proportionate share of mechanical space and lobby and common service areas in the Building or (ii) if this Lease is for less than an entire floor, the area measured from the center line of the exterior glass to the center line of all demising partitions and to the outside face of corridor partitions plus (A) a proportionate share of public areas (including corridors, toilets, elevator lobby or lobbies, mechanical spaces and janitorial, electrical and telephone closets) on the floor on which the Premises
are located and (B) a proportionate share of mechanical space and lobby and common service areas in the Building. No deduction shall be made for columns or projections. The Rentable Area of the Premises shall be determined by Landlord as soon as possible after the completion of construction of the Building.
(d) "TENANT'S PROPORTIONATE SHARE" shall mean the percentage obtained by dividing the Rentable Area of the Premises by the Rentable Area of the Building.
(e) "CONTROLLABLE EXPENSES" shall mean all Expenses except the following: utilities, insurance premiums, capital improvements (to the extent allowable as Expenses hereunder), repairs to the Demised Premises and any other Expenses to the extent: (i) that a component of such Expenses are union labor wages, then to the extent of such component; (ii) such Expenses are incurred as a result of any requirement of Laws and Regulations; and/or (iii) such Expenses represent an increase at Tenant's request in the level or quality of services over the services rendered in the prior Adjustment Year.
COMPUTATION OF RENT ADJUSTMENTS. Tenant shall pay Rent Adjustments for each Adjustment Year determined as hereinafter set forth. Rent Adjustments payable by Tenant with respect to each Adjustment Year during which an Adjustment Date falls shall include the following amounts:
(a) the product of Tenant's Proportionate Share multiplied by the amount of Taxes for such Adjustment Year (the "Tax Adjustment"); plus
(b) the product of Tenant's Proportionate Share multiplied by the amount of Expenses for such Adjustment Year (the "Expense Adjustment").
PAYMENTS OF RENT ADJUSTMENTS; PROJECTIONS. Tenant shall pay Rent
Adjustments to Landlord in the manner hereinafter provided.
(c) TAX ADJUSTMENT AND EXPENSE ADJUSTMENT. Tenant shall make payments on account of Tax Adjustment and Expense Adjustment (the aggregate of such payments with respect to any Adjustment Year being hereinafter referred to as the "Rent Adjustment Deposit") as follows:
(i) Prior to each Adjustment Date and from time to time during the Adjustment Year in which such Adjustment Date falls, Landlord may deliver to Tenant a written notice or notices (each such notice being hereinafter referred to as a "Projection Notice") setting forth (A) Landlord's reasonable estimates, forecasts or projections (collectively, the "Projections") of either or both of Taxes and Expenses for such Adjustment Year, and (B) Tenant's Rent Adjustment Deposits with respect to the Tax Adjustment and Expense Adjustment components of Rent Adjustment for such Adjustment Year based upon the Projections.
(ii) Tenant shall commence payments of monthly installments of Rent Adjustment Deposits on the first day of the first calendar month during the Term following Landlord's delivery of the first Projection Notice hereunder. On such date, and on or before the first day of each calendar month thereafter of the Adjustment Year covered by such Projection Notice, Tenant shall pay to Landlord one-twelfth (1/12) of the Rent Adjustment Deposits shown in the Projection Notice. Within thirty (30) days following Landlord's delivery of a Projection Notice for an Adjustment Year in progress, Tenant shall also pay Landlord a lump sum equal to the Rent Adjustment Deposits shown in the Projection Notice less the sum of (A) any previous payments on account of Rent Adjustment Deposits made with respect to such Adjustment Year and (B) monthly installments on account of Rent Adjustment Deposits due for the remainder of the Adjustment Year. Until such time as Landlord furnishes a Projection Notice for an Adjustment Year, Tenant shall continue to pay monthly installments of Rent Adjustment Deposits in the amount shown by the most recent Projection Notice,
or, if the Tax and Expense Adjustment for the Adjustment Year covered by such Projection Notice has been determined and provided to Tenant by Landlord, one-twelfth (1/12) of such Tax and Expense Adjustment.
(a) LIMITATION OF INCREASES IN CONTROLLABLE EXPENSES. Notwithstanding anything to the contrary contained herein, Landlord and Tenant acknowledge and agree that beginning with the Adjustment Year of 2002, in the event that the aggregate of the components of Expenses which constitute Controllable Expenses is more than one hundred four percent (104%) of the aggregate of the components of Expenses which constitute Controllable Expenses for the immediately preceding Adjustment Year (as such Controllable Expenses for such immediately preceding Adjustment Year may have been deemed to be reduced pursuant to this Section) then for such current Adjustment Year, Expenses shall be calculated as if such Controllable Expenses had been one hundred four percent (104%) of the Controllable Expenses for the immediately preceding Adjustment Year (as such Controllable Expenses for such immediately preceding Adjustment Year may have been deemed to be reduced pursuant to this Section); it being the intent of the parties that beginning with the Adjustment Year of 2002, the Controllable Expenses to be charged to Tenant on a per rentable square foot basis in any calendar year shall never increase by more than four percent (4%) over the Controllable Expenses charged to Tenant for the preceding calendar year.
READJUSTMENTS. The following readjustments shall be made by Landlord and Tenant for Expense Adjustment and Tax Adjustment.
(a) Within 120 days following the end of each Adjustment Year and after Landlord has determined the amount of Expenses for such Adjustment Year, Landlord shall notify Tenant in writing ("Landlord's Expense Statement") of such Expenses and Tenant's Expense Adjustment for such Adjustment Year. If the Expense Adjustment owed for such Adjustment Year exceeds the Expense Adjustment component of the Rent Adjustment Deposit paid by Tenant during such Adjustment Year, then, within thirty (30) days after the date of Landlord's Expense Statement, Tenant shall pay to Landlord an amount equal to the excess of the Expense Adjustment over the Expense Adjustment component of the Rent Adjustment Deposit paid by Tenant during such Adjustment Year, such amount to be paid by Tenant without regard to whether Tenant disputes such amount under 0 hereof. If the Expense Adjustment component of the Rent Adjustment Deposit paid by Tenant during such Adjustment Year exceeds the Expense Adjustment owed for such Adjustment Year, then Landlord shall credit such excess to Rent payable hereunder until such excess has been exhausted or, at the option of Tenant, pay such amount to Tenant within thirty (30) days of the date of Landlord's Expense Statement. If this Lease expires or is terminated prior to full application of such excess, Landlord shall pay to Tenant the balance thereof not theretofore applied against Rent and not reasonably required for payment of Rent for the Adjustment Year in which this Lease expires, subject to Tenant's obligations under 0.
(d) After Landlord has determined the actual amount of Taxes to be used in calculating the Tax Adjustment for such Adjustment Year, Landlord shall notify Tenant in writing ("Landlord's Tax Statement") of such Taxes for such Adjustment Year. If the Tax Adjustment owed for such Adjustment Year exceeds the Tax Adjustment component of the Rent Adjustment Deposit paid by Tenant during such Adjustment Year, then, within thirty (30) days after the date of Landlord's Tax Statement, Tenant shall pay to Landlord an amount equal to the excess of the Tax Adjustment over the Tax Adjustment component of the Rent Adjustment Deposit paid by Tenant during such Adjustment Year, such amount to be paid by Tenant without regard to whether Tenant disputes such amount under 0 hereof. If the Tax Adjustment component of the Rent Adjustment Deposit paid by Tenant during such Adjustment Year exceeds the Tax Adjustment owed for such Adjustment Year, then Landlord shall credit such excess to Rent payable hereunder until such excess has been exhausted, or at the option of Tenant, pay such amount to Tenant within thirty (30) days of the date of Landlord's Expense Statement. If this Lease expires or is terminated prior to full application of such excess, Landlord shall
pay to Tenant the balance thereof not theretofore applied against Rent and not reasonably required for payment of Rent for the Adjustment Year in which this Lease expires, subject to Tenant's obligations under 0.
No interest or penalties shall accrue on any amounts which Landlord is obligated to credit or pay to Tenant by reason of this Section. The term "Landlord's Statement" as used herein shall refer to either a Landlord's Expense Statement or a Landlord's Tax Statement.
BOOKS AND RECORDS. Landlord shall maintain books and records showing Taxes and Expenses in accordance with generally accepted accounting and management practices. Tenant and its representatives shall have the right to examine Landlord's books and records showing Taxes and Expenses upon reasonable prior notice and during normal business hours at any time within sixty (60) days following the furnishing by Landlord to Tenant of Landlord's Statement provided for in 0. Unless Tenant takes written exception to any item within sixty (60) days after the furnishing of the Landlord's Statement containing such item, such Landlord's Statement shall be considered as final and accepted by Tenant.
AUDIT PROCEDURES. If Tenant notifies Landlord within such sixty (60) day period that Tenant disputes any specific item or items in any such Landlord's Statement and such dispute is not resolved between Landlord and Tenant within thirty (30) days after the date such notice is given by Tenant, either party, during the fifteen (15) day period next following the expiration of the thirty (30) day period commencing upon the date such notice is given, may refer such disputed item or items for determination to an independent certified public accountant selected by such party and approved by the other party, which approval shall not be unreasonably withheld, and the determination of such accountant shall be final, conclusive and binding upon Landlord and Tenant. Tenant agrees to pay all costs involved in such determination except in the case of Tax Adjustment and Expense Adjustment for any Adjustment Year where it is determined that Landlord has overcharged Tenant for Tax Adjustment and Expense Adjustment for such Adjustment Year by more than three (3%), in which case Landlord shall pay such costs provided that such costs are based on reasonable hourly rates and not on a contingency basis.
PRORATION AND SURVIVAL. With respect to any Adjustment Year which does not fall entirely within the Term, Tenant shall be obligated to pay as Rent Adjustments for such Adjustment Year only a pro rata share of Rent Adjustments as herein determined, based upon the number of days of the Term falling within the Adjustment Year. Following expiration or termination of this Lease, Tenant shall pay any Rent Adjustments due to Landlord within thirty (30) days after the date of each Landlord's Statement sent to Tenant. Without limitation of other obligations of Landlord or Tenant which shall survive the expiration of the Term, the obligation of Tenant to pay Rent Adjustments accruing during the Term and Landlord's obligation to refund any overpayments of Rent Adjustments shall survive the expiration or termination of this Lease.
NO DECREASE IN BASE RENT. In no event shall any Rent Adjustments result in a decrease of the Base Rent payable hereunder as set forth in 0.
ADDITIONAL RENT. All amounts payable by Tenant as or on account of Rent Adjustments shall be deemed to be Additional Rent becoming due under this Lease.
CONTEST OF TAXES. Landlord shall have the right, but not the obligation, to contest the amount or validity, in whole or in part, of any Taxes, by appropriate proceedings. All costs and expenses incurred by Landlord in connection with any contest of Taxes shall be an Expense hereunder. Any refund or reduction of Taxes whenever received during or after the Term as a result of any contest of Taxes shall be
treated as a reduction in Taxes for the Adjustment Year for which such Taxes are or were paid.
ARTICLE III
INSURANCE
LANDLORD'S INSURANCE OBLIGATION. Landlord shall obtain, and continuously maintain in full force and effect during the Term, policies of insurance covering the Landlord's Improvements constructed on the Premises against loss or damage by such risks of physical loss or damage as are covered under a Special Form causes of loss. At all times, such insurance coverage shall be in an amount equal to 100% of the full replacement cost of the Landlord's Improvements subject to a deductible reasonably determined by Landlord. In addition, Landlord shall obtain and continuously maintain in full force and effect during the Term, lost rents insurance in an amount equal to twelve (12) months Base Rent and Additional Rent. All insurance carried by Landlord under this Article or under Section 3.18, shall name Tenant as an additional insured.
TENANT'S INSURANCE OBLIGATION. Commencing with the date Tenant takes possession of all or any portion of the Premises and throughout the Term, Tenant, at its sole cost and expense, shall obtain and continuously maintain in full force and effect the following insurance coverage which shall be primary and non-contributory over any insurance available to Landlord:
(a) Comprehensive general liability insurance against any loss, liability or damage on, about or relating to the Premises, or any portion thereof, with limits of not less than Two Million Dollars ($2,000,000.00) primary coverage, combined single limits, per occurrence basis assigned solely to the Premises and aggregate coverage on an occurrence basis, together with umbrella coverage to a total of Five Million Dollars ($5,000,000.00). Any such insurance obtained and maintained by Tenant shall name Landlord and Landlord's directors, officers, agents and employees as an additional insured therein and shall be obtained and maintained from and with a reputable and financially sound insurance company authorized to issue such insurance in California. Such insurance shall specifically insure (by contractual liability endorsement) Tenant's obligations under 0 of this Lease. Tenant may maintain such policy with a deductible not to exceed $25,000.00.
(b) Insurance written on a special causes of loss form including sprinkler leakage coverage and vandalism for the full replacement cost of all additions, improvements and alterations to the Premise owned or made by Tenant, if any, and of all office furniture, trade fixtures, office equipment, merchandise and all other items of Tenant's property on the Premises, written on an agreed amount basis with no co-insurance with loss or damage payable to Landlord and Tenant as their interests may appear.
(b) Workers compensation and employers' liability insurance with limits as may be required from time to time by any employee benefit act or other applicable statute.
(c) The insurance set forth in this Section shall be maintained by Tenant at not less than the limits set forth herein until reasonably required to be changed from time to time by Landlord, in writing, whereupon Tenant covenants to obtain and maintain thereafter such protection in the amount or amounts so reasonably required by Landlord.
WAIVER OF SUBROGATION. Tenant and Landlord shall each cause to be inserted in the property policies of insurance required by this 0 a so-called "Waiver of Subrogation Clause" as to the other. In addition, Landlord and Tenant each hereby respectively waives, releases and discharges the other, its agents and employees from all claims whatsoever arising out of loss, claim, expense or damage to or destruction covered by property insurance notwithstanding that such loss, claim, expense or damage may have been caused by the other, its agents or employees, and Landlord and Tenant each
respectively hereby agrees to look only to the property insurance coverage in the event of such loss.
COPIES OF POLICIES. Landlord and Tenant shall each, upon the request of the other, supply certificates for, or copies of, as requested, all insurance policies carried pursuant to the terms of this Lease.
ARTICLE IV
UTILITIES
PAYMENT OF UTILITIES. During the Term, Tenant will pay, when due, all charges of every nature, kind or description for utilities services furnished directly to the Premises or chargeable against the Premises, whether furnished directly by a utility or furnished by Landlord and submetered to Tenant, including all charges for water, sewage, heat, gas, light, garbage, electricity, telephone, steam, power, or other public or private utility services.
ARTICLE VI
MAINTENANCE AND OPERATION
TENANT'S MAINTENANCE. Tenant shall, at its sole cost and expense occupy the Premises, and maintain Tenant's personal property within the Premises, in a manner which is clean, neat and safe and so that Tenant's occupancy complies with all Laws and Regulations.
PROHIBITION AGAINST WASTE. Tenant shall not do or suffer any waste or damage, disfigurement or injury to the Premises, or any improvements hereafter erected thereon, or to the fixtures or equipment therein.
LANDLORD'S MAINTENANCE AND OPERATION. Landlord, as an Expense, shall keep and maintain the Premises, and the Building and the other Improvements and the Land and the fixtures, appurtenances, systems and facilities serving the Premises, in good working order, condition and repair and shall make all repairs, structural and otherwise, interior and exterior, as and when needed in or about the Building and the Premises.
24 HOUR OPERATION. The Building shall be operated so as to allow Tenant access to the Building and the parking area 24 hours per day, seven days per week.
RULES AND REGULATIONS. Tenant agrees to observe and not to interfere with the rights reserved to Landlord in 0 and agrees, for itself, its employees, agents, contractors, invitees and licensees, to comply with the rules and regulations set forth in Exhibit F attached to this Lease and made a part hereof and such other rules and regulations as may be adopted by Landlord pursuant to 0(1) of this Lease. Nothing contained in this Lease shall be construed to impose upon Landlord any duty or obligation to enforce said rules and regulations or the terms, covenants and conditions of any other lease against any other tenant or any other persons, and Landlord and its beneficiaries shall not be liable to Tenant for violation of the same by any other tenant, its employees, agents or invitees, or by any other person.
RIGHTS RESERVED TO LANDLORD. Landlord reserves the following rights, exercisable without notice and without liability to Tenant for damage or injury to property, person or business and without effecting an eviction or disturbance of Tenant's use or possession or giving rise to any claim for setoff or abatement or Rent or affecting any of Tenant's obligations under this Lease:
(c) To change the name or street address of the Building;
(d) To install and maintain signs on the exterior and interior of the Building provided, however, that Landlord may not use Tenant's legal or trade name without Tenant's prior written consent;
(e) To prescribe the location and style of the identification sign or lettering for the Premises;
(f) Except as provided in 0, to retain at all times, and to use in appropriate instances, pass keys to the Premises;
(g) To exhibit the Premises at reasonable hours and to decorate, remodel, repair, alter or otherwise prepare the Premises for reoccupancy at any time after Tenant vacates or abandons the Premises;
(h) To enter the Premises at reasonable hours for reasonable purposes, including inspection and supplying janitorial service or other service to be provided to Tenant hereunder;
(i) To require all persons entering or leaving the Building during such hours as landlord may reasonably determine from time to time to identify themselves to security personnel by registration or otherwise in accordance with security controls. Landlord shall not be liable in damages for any error with respect to admission to or eviction or exclusion from the Building of any person. Tenant agrees to cooperate with any reasonable safety or security program developed by Landlord;
(j) To regulate access to telephone, electrical and other utility closets in the Building and to require use of designated contractors for any work involving access to the same;
(k) Provided that reasonable secure access to the Premises shall be maintained and the business of Tenant (including Tenant's need for appropriate security) shall not be interfered with unreasonably, to rearrange, relocate, enlarge, reduce or change corridors, exits, entrances in or to the Building and to decorate and, at its own expense, to make repairs, alterations, additions and improvements, structural or otherwise, in or to the Building or any part hereof, and any adjacent building, land, street or alley, including for the purpose of connection with or entrance into or use the Building in conjunction with any adjoining or adjacent building or buildings, now existing or hereafter constructed, and may for such purposes erect, scaffolding and other structures reasonably required by the character of the work to be preformed, and during such operations may enter upon the Premises and take into and upon or through any part of the Building, including the Premises, all materials that may be required to make such repairs, alterations, improvements or additions, and in that connection Landlord may temporarily close public entry ways, other public spaces, stairways or corridors and interrupt or temporarily suspend any services or facilities agreed to be furnished by Landlord, all without the same constituting an eviction of Tenant in whole or in part and without abatement of Rent by reason of loss or interruption of the business of Tenant or otherwise and without in any manner rendering Landlord liable for damages or relieving Tenant from performance of Tenant's obligations under this Lease. Landlord, at its option, may make any repairs, alterations, improvements and additions in and about the Building and the Premises during ordinary business hours and, if Tenant desires to have such work done at times other than business hours, Tenant shall pay all overtime and additional expenses resulting therefrom; and
(l) From time to time to make and to adopt such reasonable rules and regulations, for the protection and welfare of the Building and its tenants and occupants, as Landlord may determine, and Tenant agrees to abide by and comply with all such rules and regulations.
ARTICLE V
COMPLIANCE WITH LAWS AND ORDINANCES
COMPLIANCE WITH LAWS AND ORDINANCES. Tenant shall, throughout the Term, and at Tenant's sole cost and expense, promptly comply or cause compliance with, or remove or cure any violation of, any and all Laws and Regulations.
COMPLIANCE WITH PERMITTED ENCUMBRANCES. Tenant, at its sole cost and expense, shall comply with all agreements, contracts, easements, restrictions, reservations or covenants affecting the Land (the "Permitted Encumbrances"). Tenant shall also comply with, observe and perform all provisions and requirements of all policies of insurance at any time in force with respect to the Premises.
COMPLIANCE WITH HAZARDOUS MATERIALS LAWS. Tenant shall at all times and in all respects comply with all Laws and Regulations (the "Hazardous Materials Laws") in force during the Term relating to the following: the use, analysis, generation, manufacture, storage, presence, disposal or transportation of any oil, petroleum products, flammable explosives, asbestos, urea formaldehyde, polychlorinated biphenyls, radioactive materials or waste, or other hazardous, toxic, contaminated or polluting materials, substances or wastes, including, without limitation, any "hazardous substances," "hazardous wastes," "hazardous materials" or "toxic substances" as defined under the Hazardous Materials Laws (collectively, "Hazardous Materials").
Tenant shall in all respects handle, treat, deal with and manage any and all Hazardous Materials in, or under or about the Premises in complete conformity with all applicable Hazardous Materials Laws. Upon expiration or earlier termination of this Lease, Tenant shall cause all Hazardous Materials (to the extent such Hazardous Materials were generated, stored, released or disposed of during the Term by Tenant) to be removed from the Premises and transported for use, storage, disposal, treatment or recycling in accordance and in compliance with all applicable Hazardous Materials Laws. Tenant shall not take any remedial action in response to the presence of any Hazardous Materials in, on, or about the Premises or in any improvements situated on the Land, nor enter into any settlement agreement, consent decree or other compromise in respect to any claims relating to or in any way connected with the Premises or the Landlord's Improvements on the Land without first notifying Landlord of Tenant's intention to do so and affording Landlord reasonable opportunity to appear, intervene or otherwise appropriately assert and protect Landlord's interest with respect thereto.
Tenant shall notify Landlord in writing immediately upon Tenant's receipt of notice of any proceeding or action related to the Premises and instituted or threatened pursuant to any Hazardous Materials Laws. Tenant shall also provide to Landlord, as promptly as possible, and in any event within five business days after Tenant first receives or sends the same, with copies of all claims, reports, complaints, notices, warnings or asserted violations relating in any way to Hazardous Materials and the Premises or Tenant's use thereof.
HAZARDOUS MATERIALS, REPRESENTATION, WARRANTY AND COVENANT BY LANDLORD. Landlord represents and warrants to Tenant that, to Landlord's knowledge, no Hazardous Materials exist or are located on, in or under the Premises in violation of Hazardous Materials Laws, except as may be disclosed in those certain reports described on Exhibit F attached hereto (collectively, the "Report"), copies of which have been provided to Tenant. Landlord covenants that it will not, manufacture, generate, store, dispose of or release on, in, or under the Premises any Hazardous Materials, except in accordance with Hazardous Materials Laws.
COST OF COMPLIANCE WITH HAZARDOUS MATERIALS LAWS. Tenant shall be responsible for the cost of compliance with Hazardous Materials Laws which relates to a breach by Tenant of the covenants contained in this Lease to be kept and performed by Tenant.
INDEMNIFICATION. Tenant shall indemnify, defend (with counsel reasonably acceptable to Landlord), protect and hold Landlord and each of Landlord's officers, directors, partners, employees, agents, attorneys, successors and assigns free and harmless from and against any and all claims, liabilities, damages, costs, penalties, forfeitures, losses or expenses (including attorneys' fees) for death or injury to any person or damage to any property whatsoever (including water tables and atmosphere)
arising or resulting in whole or in part, directly or indirectly, from the presence or discharge of Hazardous Materials, in, on, under, upon or from the Premises or the improvements located thereon or from the transportation or disposal of Hazardous Materials to or from the Premises to the extent caused by Tenant whether knowingly or unknowingly. Tenant's obligations hereunder shall include, without limitation, and whether foreseeable or unforeseeable, all costs of any required or necessary repairs, clean-up or detoxification or decontamination of the Premises or the improvements, and the presence and implementation of any closure, remedial action or other required plans in connection therewith, and shall survive the expiration of or early termination of the Term. For purposes of the indemnity provided herein, any acts or omissions of Tenant, or its employees, agents, customers, subleasees, assignees, contractors or sub-contractors (whether or not they are negligent, intentional, willful or unlawful) shall be strictly attributable to Tenant.
SURVIVAL. The respective rights and obligations of Landlord and Tenant under this 0 shall survive for a period of two (2) years after the expiration or earlier termination of this Lease.
ARTICLE VII
MECHANIC'S LIEN AND OTHER LIENS
FREEDOM FROM LIENS. Tenant shall cause to be discharged of record within 30 days after the date of filing any lien filed against the Premises, or any portion thereof, by reason of work, labor, services, equipment or materials supplied or claimed to have been supplied to the Premises at the request of Tenant or anyone holding the Premises, or any portion thereof, by, through or under Tenant; provided, however, that Tenant shall have the right to contest the validity or amount of any such lien upon Tenant's posting with Landlord prior to such contest security adequate (in Landlord's reasonable judgement) to discharge any such lien in full, plus any applicable interest, penalties, and other reasonable losses, costs, or damages (including, without limitation, reasonable attorney's fees resulting from the assertion, filing, foreclosure or other legal proceedings with respect to any such lien). If Tenant shall fail to discharge such lien(s) within the specified 30-day period or to post with Landlord adequate security for Tenant's contest as to the same, then, in addition to any other right or remedy of Landlord, after five days prior written notice to Tenant, Landlord may, but shall not be obligated to, discharge the same by paying to the claimant the amount claimed to be due or by procuring the discharge of such lien as to the Premises in such manner as is now or may in the future be provided by present or future law for the discharge of such lien as a lien against the Premises. Any amount paid by Landlord, or the value of any deposit so made by Landlord, together with all costs, fees and expenses in connection therewith (including reasonable attorney's fees of Landlord), together with interest thereon at the Maximum Rate of Interest shall be repaid by Tenant to Landlord within 20 days after written demand therefor by Landlord and if unpaid may be treated as Additional Rent. Tenant shall indemnify and defend Landlord against and save Landlord and the Premises, and any portion thereof harmless from all losses, costs, damages, expenses, liabilities, suits, penalties, claims, demands and obligations, including, without limitation, reasonable attorney's fees resulting from the assertion, filing, foreclosure or other legal proceedings with respect to any mechanic's lien or other lien against the Premises asserted by, through or under Tenant.
All materialmen, contractors, artisans, mechanics, laborers and any other person now or hereafter purchasing any labor, services, materials, supplies or equipment for Tenant with respect to the Premises, or any portion thereof are hereby charged with notice that they must look exclusively to Tenant to obtain payment for the same. Notice is hereby given that Landlord shall not be liable for any labor, services, materials, supplies, machinery, fixtures or equipment furnished or to be furnished to Tenant upon credit, and that no mechanic's lien or other lien for any such labor, services, materials, supplies, machinery, fixtures or equipment shall attach to or affect the estate or interest of Landlord in and to the Premises, or any portion thereof.
LANDLORD'S INDEMNIFICATION. The provisions of 0 above shall not apply to any lien for labor, services, materials, supplies, machinery, fixtures or equipment furnished to the Premises in the performance of Landlord's obligations to construct the Landlord's Improvements and the Tenant's Improvements or any other work performed by Landlord, and Landlord does hereby agree to indemnify and defend Tenant against and save Tenant and the Premises, and any portion thereof, harmless from all losses, costs, damages, expenses, liabilities and obligations, including, without limitation, reasonable attorneys' fees resulting from the assertion, filing, foreclosure or other legal proceedings with respect to any such lien.
REMOVAL OF LIENS. Except as otherwise provided for in this Article, Tenant shall not create, permit or suffer, and shall, within 30 days after the date of filing of the same, discharge and satisfy of record, any other lien, encumbrance, charge, security interest, or other right or interest which shall by or through Tenant be or become a lien, encumbrance, charge or security interest upon the Premises, or any portion thereof, or the income of Landlord therefrom, or any portion thereof save and except for those liens, encumbrances, charges, security interests, or other rights or interests consented to in writing, by Landlord (which consent shall not be unreasonably withheld, conditioned, or delayed).
ARTICLE VIII
NET LEASE
LEASE. Landlord and Tenant intend that this Lease be interpreted and construed as an absolute net lease and all Rent shall be paid by Tenant to Landlord without abatement, deduction or setoff. Landlord and Tenant further intend that (a) the obligations of Landlord and Tenant hereunder shall be separate and independent covenants; (b) the Base Rent shall be absolutely net to Landlord so that this Lease, subject to the express provisions of this Lease, shall yield net to Landlord the Base Rent in each year during the Term; and (c) all taxes, insurance premiums, utility expense, repair and maintenance expense, and all other costs, and expenses of every kind relating to the Premises, or any portion thereof which may accrue during the Term, shall be, subject to the express provisions of this Lease, paid or discharged by Tenant as Additional Rent.
LANDLORD'S RIGHT TO CURE. If Tenant shall fail to perform any act required of it under this Lease, Landlord may perform the same, but shall not be required to do so, in such manner and to such extent as Landlord may deem necessary or desirable, and in exercising any such right to pay all costs and expenses, including reasonable attorneys' fees incurred in connection therewith, all sums so paid by Landlord in connection with the performance of any such act by Landlord, together with interest thereon at the Maximum Rate of Interest from the date of making such expenditure by Landlord, shall be deemed Additional Rent hereunder and, except as is otherwise expressly provided herein, shall be payable to Landlord within thirty (30) days after written demand therefor and, at the option of Landlord, may be added to any monthly payment next becoming due under this Lease, and Tenant covenants to pay any such sum or sums with interest as aforesaid, and Landlord shall have, in addition to any other right or remedy of Landlord, the same rights and remedies in the event of nonpayment thereof as in the case of default by Tenant in the payment of monthly Base Rent.
ARTICLE IX
DEFAULT
EVENTS OF DEFAULT. The occurrence of any one or more of the following events shall constitute an event of default ("Event of Default") by Tenant under this Lease:
(a) Failure by Tenant to pay any Base Rent or regularly scheduled payment of Rent Adjustment within five (5) business days after notice from Landlord of Tenant's failure to pay the same on the due date;
(b) Failure by Tenant to pay any other sums coming due hereunder within thirty (30) days after written notice from Landlord of Tenant's failure to pay on the due date;
(c) Failure by Tenant to cure immediately after receipt of notice from Landlord the failure by Tenant to carry insurance as required under this Lease;
(a) Failure by Tenant to commence to cure, immediately after notice from Landlord, and diligently to proceed to cure thereafter, any hazardous or dangerous condition which Tenant has created or allowed to exist in violation of Laws and Regulations or this Lease;
(d) Failure by Tenant to observe or to perform any other covenant, agreement, condition, representation or warranty, or other provision of this Lease, if such failure continues for thirty (30) days after written notice thereof from Landlord to Tenant;
(e) The levy upon, under writ of execution or the attachment by legal process of, the leasehold interest of Tenant, or the filing or creation of an involuntary lien with respect to such leasehold interest, which lien shall not be released or discharged within thirty (30) days from the date of such filing;
(f) Tenant becomes insolvent or bankrupt or admits in writing its inability to pay its debts generally as they mature, or makes a general assignment for the benefit of creditors, or applies for or consents to the appointment of a trustee or receiver for Tenant or for the major part of its property;
(g) A trustee or receiver is appointed for Tenant or for the major part of its property and is not discharged within sixty (60) days after such appointment;
(h) Any bankruptcy, reorganization, arrangement, insolvency or
liquidation proceedings, or other proceedings for relief under any bankruptcy
law, or similar law for the relief of debtors, are instituted (i) by Tenant, or
(ii) against Tenant and are allowed against it or are consented to by it or are
not dismissed within sixty (60) days after such institution.
RIGHTS AND REMEDIES OF LANDLORD. If an Event of Default occurs, Landlord shall have the rights and remedies hereinafter set forth, which shall be distinct, separate and cumulative and which shall not operate to exclude or deprive Landlord of any other right or remedy allowed it by applicable law:
(i) Landlord may terminate this Lease by giving to Tenant notice of Landlord's election to do so, in which event the Term shall end, and all right, title and interest of Tenant hereunder shall expire, on the date stated in such notice;
(a) Landlord may terminate the right of Tenant to possession of the Premises without terminating this Lease by giving notice to Tenant that Tenant's right of possession shall end on the date stated in such notice, whereupon the right of Tenant to possession of the Premises or any part thereof shall cease on the date stated in such notice; and
(j) Landlord may enforce the provisions of this Lease and may enforce and protect the rights of Landlord hereunder by a suit or suits in equity or at law for the specific performance of any covenant or agreement contained herein, or for the enforcement of any other appropriate legal or equitable remedy, including recovery of all moneys due or to become due from Tenant under any of the provisions of this Lease.
RIGHT TO RE-ENTER. If Landlord exercises either of the remedies provided for in 0(a) or (b), Tenant shall surrender possession and vacate the Premises and shall immediately deliver possession thereof to Landlord, and Landlord may re-enter and take
complete and peaceful possession of the Premises, full and complete license to do so being hereby granted to Landlord, and Landlord may remove all occupants and property therefrom, without being deemed guilty in any manner of trespass, eviction or forcible entry and detainer and without relinquishing Landlord's right to rent or any other right given to Landlord hereunder or by operation of law.
CURRENT DAMAGES. If Landlord terminates the right of Tenant to possession of the Premises without terminating this Lease, Landlord shall have the right to immediate recovery of all amounts then due hereunder. Such termination of possession shall not release Tenant, in whole or in part, from Tenant's obligation to pay the Rent hereunder for the full Term, and Landlord shall have the right, from time to time, to recover from Tenant, and Tenant shall remain liable for, all Base Rent, Additional Rent and any other sums accruing as they become due under this Lease during the period from the date of such notice of termination of possession to the stated end of the Term. In any such case, Landlord may relet the Premises or any part thereof for the account of Tenant for such rent, for such time (which may be for a term extending beyond the Term of this Lease) and upon such terms as Landlord shall determine and collect the rents from such reletting. Landlord shall not be required to accept any tenant offered by Tenant or to observe any instructions given by Tenant relative to such reletting. Also, in any such case, Landlord may make repairs, alterations and additions in or to the Premises and redecorate the same to the extent deemed by Landlord necessary or desirable, and Tenant shall pay upon demand the reasonable cost of all the foregoing together with Landlord's expenses of reletting. The rents from any such reletting shall be applied first to the payment of the expenses of reentry, redecoration, repair and alterations and the expenses of reletting and second to the payment of Rent herein provided to be paid by Tenant. Any excess or residue shall operate only as an offsetting credit against the amount of Rent due and owing as the same thereafter becomes due and payable hereunder, and the use of such offsetting credit to reduce the amount of Rent due Landlord, if any, shall not be deemed to give Tenant any right, title or interest in or to such excess or residue and any such excess or residue shall belong to Landlord solely, and in no event shall Tenant be entitled to a credit on its indebtedness to Landlord in excess of the aggregate sum, including Base Rent and Additional Rent, which would have been paid by Tenant for the period for which the credit to Tenant is being determined, had no Event of Default occurred. No such reentry or repossession, repairs, alterations and additions, or reletting shall be construed as an eviction or ouster of Tenant or as an election on Landlord's part to terminate this Lease, unless a written notice of such intention is given to Tenant, or shall operate to release Tenant in whole or in part from any of Tenant's obligations hereunder, and Landlord, at any time and from time to time, may sue and recover judgment for any deficiencies from time to time remaining after the application from time to time of the proceeds of any such reletting.
FINAL DAMAGES. If this Lease is terminated by Landlord as provided in
0(a), Landlord shall be entitled to recover from Tenant all Rent accrued and
unpaid for the period up to and including such termination date, as well as all
other additional sums payable by Tenant, or for which Tenant is liable or in
respect of which Tenant has agreed to indemnify Landlord under any of the
provisions of this Lease, which may be then owing and unpaid, and all costs and
expenses, including court costs and attorneys' fees incurred by Landlord in the
enforcement of its rights and remedies hereunder, and, in addition, Landlord
shall be entitled to recover as damages for loss of the bargain and not as a
penalty (a) the aggregate sum which at the time of such termination represents
the excess, if any, of the present value of the aggregate rents which would have
been payable after the termination date had this Lease not been terminated,
including, without limitation, Base Rent at the annual rate or respective annual
rates for the remainder of the Term and the amount projected by Landlord to
represent Additional Rent for the remainder of the Term over the then present
value of the then aggregate fair rental value of the Premises for the balance of
the Term, such present worth to be computed in each case on the basis of a six
percent (6%) per annum discount from the respective dates upon which such
rentals would have been payable hereunder had this Lease not been
terminated, and (c) any damages in addition thereto, including a reasonable attorney's fees and court costs, which Landlord has sustained as a result of the breach of any of the covenants of this Lease other than for the payment of Rent.
REMOVAL OF PERSONAL PROPERTY. All property of Tenant not removed from the Premises by Tenant at the end of the Term may be handled, removed or stored by Landlord at the cost and expense of Tenant, and Landlord in no event shall be responsible for the value, preservation or safekeeping thereof. Tenant shall pay Landlord for all expenses incurred by Landlord in such removal and storage charges for such property as long as the same is in Landlord's possession or under Landlord's control.
ASSUMPTION OR REJECTION IN BANKRUPTCY. If Tenant has filed a bankruptcy petition, or a trustee in bankruptcy is appointed for Tenant, Landlord and Tenant, to the extent permitted by law, agree to request that the trustee in bankruptcy determine within sixty (60) days thereafter whether to assume or to reject this Lease.
NO WAIVER. No failure by Landlord or by Tenant to insist upon the performance of any of the terms of this Lease or to exercise any right or remedy consequent upon a breach thereof, and no acceptance by Landlord of full or partial rent from Tenant or any third party during the continuance of any such breach, shall constitute a waiver of any such breach or of any of the terms of this Lease. No breach of the terms of this Lease to be kept, observed or performed by Landlord or by Tenant shall be waived, altered or modified except by a written instrument executed by Landlord and/or by Tenant, as the case may be. No waiver of any breach shall affect or alter this Lease, but each of the terms of this Lease shall continue in full force and effect with respect to any other then existing or subsequent breach of this Lease. No waiver of any default of Tenant herein shall be implied from any omission by Landlord to take any action on account of such default, if such default persists or is repeated and no express waiver shall affect any default other than the default specified in the express waiver and that only for the time and to the extent therein stated. One or more waivers by Landlord shall not be construed as a waiver of a subsequent breach of the same covenant, term or condition.
ARTICLE X
CASUALTY AND RESTORATION
DAMAGE OR DESTRUCTION BY CASUALTY. If the Premises are damaged by fire or other casualty and if such damage does not render all or a substantial portion of the Building untenantable for Tenant's purposes, then Landlord shall proceed to repair and restore the same with reasonable promptness, subject to reasonable delays for insurance adjustments and delays caused by matters beyond Landlord's reasonable control. If any such damage renders all or a substantial portion of the Building untenantable (a "Substantial Casualty"), Landlord, with reasonable promptness after the occurrence of such damage, shall estimate the length of time that will be required to substantially complete the repair and restoration of such damage and shall advise Tenant by notice of such estimate. If it is so estimated that the amount of time required to substantially complete such repair and restoration will exceed fourteen (14) months from the date such damage occurred, then either Landlord or Tenant shall have the right to terminate this Lease as of the date of such damage upon giving notice to the other Landlord at any time within thirty (30) days after Landlord gives Tenant the notice (the "Restoration Notice") containing said estimate. In the event of a Substantial Casualty, if i) Tenant has committed an uncured Event of Default; or ii) Tenant has filed a petition for relief under the Bankruptcy Code or an involuntary petition for relief has been filed against Tenant under the Bankruptcy Code, then Landlord shall have the right to terminate this Lease as of the date of such fire or other casualty at any time within thirty (30) days of the date of such fire or other casualty. Unless this Lease is terminated as provided in the preceding two sentences, Landlord shall proceed with reasonable promptness to repair and restore the Premises, subject to reasonable delays for insurance adjustments and delays caused by matters beyond Landlord's reasonable control, and also subject to zoning laws and
building codes then in effect. Landlord shall have no liability to Tenant. Notwithstanding anything to the contrary herein set forth, Landlord shall have no duty pursuant to this Section to repair or to restore any portion of the alterations, additions or improvements owned or made by Tenant in the Premises or to expend for any repair or restoration amounts in excess of insurance proceeds paid to Landlord and available for repair or restoration.
ABATEMENT OF RENT. In the event any such fire or casualty damage renders all or any portion of the Building untenantable and if this Lease is not terminated pursuant to this Article by reason of such damage, then Rent shall abate during the period beginning with the date of such damage and ending with the date Landlord tenders the Building, or portion thereof to Tenant as being ready for reoccupancy. Such abatement shall be in an amount bearing the same ratio to the total amount of Rent for such period as the portion of the Building not available for occupancy from time to time bears to the entire Building. In the event of termination of this Lease pursuant to this Article, Rent shall be apportioned on a per diem basis and shall be paid to the date of the fire or casualty.
ARTICLE XI
CONDEMNATION
CONDEMNATION OF ENTIRE PREMISES. If during the Term, the entire Premises or substantially all of the Premises shall be taken as the result of the exercise of the power of eminent domain (hereinafter referred to as the "Proceedings"), this Lease and all right, title and interest of Tenant hereunder shall cease and come to an end on the date of vesting of title pursuant to such Proceedings, and Landlord shall be entitled to and shall receive the total award made in such Proceedings, Tenant hereby assigning any interest in such award, damages, consequential damages and compensation to Landlord and Tenant hereby waiving any right Tenant has now or may have under present or future law to receive any separate award of damages for its interest in the Premises or any portion thereof or its interest in this Lease.
In any taking of the Premises, or any portion thereof, whether or not this Lease is terminated as in this Article provided, Tenant shall not be entitled to any portion of the award for the taking of the Premises or damages to the improvements or for the estate or interest of Tenant therein, all such award, damages, consequential damages and compensation being hereby assigned to Landlord and Tenant hereby waives any right it now has or may have under present or future laws to receive any separate award of damages for its interest in the Premises, or any portion thereof or its interest in this Lease, except that Tenant shall have, nevertheless, the limited right to prove in the Proceedings and to receive any award which may be made for damages to or condemnation of Tenant's trade fixtures and equipment and for relocation expenses accorded Tenant by any Laws and Regulations.
PARTIAL CONDEMNATION/TERMINATION OF LEASE. If, during the Term less than the entire Premises, but more than 25% of the floor area of the Building, or more than 25% of the parking spaces (and Landlord is unable or unwilling to replace such parking spaces), shall be taken in any such Proceedings, this Lease shall, upon vesting of title in the Proceedings, terminate as to the portion of the Premises so taken, and either Tenant or Landlord may, at its option, terminate this Lease as to the remainder of the Premises. Such termination as to the remainder of the Premises shall be effected by notice in writing given not more than 30 days after the date of vesting of title in such Proceedings and shall specify a date not more than 30 days after the giving of such notice as the date for such termination. Upon the date specified in such notice, the Term and all right, title and interest of Tenant hereunder shall cease and come to an end. If this Lease is terminated as in this Section provided Landlord shall be entitled to and shall receive the total award made in such Proceedings, Tenant hereby assigning any interest in such award, damages, consequential damages and compensation to Landlord, and Tenant hereby waiving any right Tenant has now or may have under present or future law to receive any separate award of damages for its interest under the Premises, or any portion
thereof or its interest in this Lease except as otherwise provided in this Article. In the event that Tenant elects not to terminate this Lease as to the remainder of the Premises, the rights and obligations of Landlord and Tenant shall be governed by the provisions of 0 hereof.
PARTIAL CONDEMNATION/CONTINUATION OF LEASE. In the event of any
condemnation other than a condemnation described in 0 or 0 above, this Lease
shall, upon vesting of title in the Proceedings, terminate as to the parts so
taken and Tenant shall have no claim or interest in the award, damages,
consequential damages and compensation, or any part thereof except as otherwise
provided in 0. Landlord shall be entitled to and shall receive the total award
made in such Proceedings. Tenant hereby assigns any interest in such award,
damages, consequential damages and compensation to Landlord, and Tenant hereby
waives any right Tenant has now or may have under present or future law to
receive any separate award of damages for its interest in the Premises, or any
portion thereof, or its interest in this Lease except as otherwise provided in
0. The net amount of the award (after deduction of all costs and expenses,
including attorneys' fees), shall be held by Landlord and used to restore
promptly that portion of the Improvements on the Premises not so taken to a
complete architectural and mechanical unit for the use and occupancy of Tenant
as in this Lease provided. Landlord agrees in connection with such restoration
work to apply so much of the net amount of any award (after deduction of all
costs and expenses, including attorneys' fees) that may be received by Landlord
in any such Proceedings for physical damage to the Improvements as a result of
such taking to the costs of such restoration work thereof.
CONTINUANCE OF OBLIGATIONS. In the event of any termination of this Lease or any part thereof, as a result of any such Proceedings, Tenant shall pay to Landlord all Base Rent and all Additional Rent and other charges payable hereunder with respect to that portion of the Premises so taken in such Proceedings with respect to which this Lease shall have terminated justly apportioned to the date of such termination. From and after the date of vesting of title in such Proceedings, Tenant shall continue to pay the Base Rent and Additional Rent and other charges payable hereunder, as in this Lease provided, to be paid by Tenant.
ARTICLE VI
ASSIGNMENT, SUBLETTING, ETC.
TENANT'S RIGHTS. Tenant shall not have the right to sublease or assign this Lease, or any interest therein to any sublessee or assignee, without the prior written consent of Landlord, such consent to be not unreasonably withheld. In the event of any sublease or assignment of this Lease, Tenant shall remain fully liable hereunder.
ARTICLE XII
SUBORDINATION, NONDISTURBANCE,
NOTICE TO MORTGAGEE AND ATTORNMENT
SUBORDINATION BY TENANT. This Lease and all rights of Tenant therein, and all interest or estate of Tenant in the Premises, or any portion thereof shall be subject and subordinate to the lien of any mortgage, deed of trust, security instrument or other document of like nature ("Mortgage") which at any time may be placed upon the Premises or any portion thereof by Landlord, and to any replacements, renewals, amendments, modifications, extensions or refinancings thereof and to each and every advance made under any Mortgage; provided, however, that as a condition to such subordination, the holder of such Mortgage shall agree that so long as Tenant is not in default (beyond any applicable notice, grace, and cure period) in the payment of Base Rent and Additional Rent and the performance and observance of all covenants, conditions, provisions, terms and agreements to be performed and observed by Tenant under this Lease, that such holder shall not disturb Tenant's right to quiet enjoyment under this Lease, nor the right of Tenant to continue to occupy the Premises, and all portions thereof and to conduct business thereon in accordance with the covenants,
conditions, provisions, terms and agreements of this Lease. Tenant agrees at any time hereafter, and from time to time within ten (10) days after Landlord's written request therefor, to execute and deliver to Landlord any instrument that may be reasonably required for the purpose of subjecting and subordinating this Lease to the lien of any such Mortgage.
LANDLORD'S DEFAULT. In the event of any act or omission of Landlord constituting a default by Landlord, Tenant shall not exercise any remedy until Tenant has given Landlord and the mortgagee, prior written notice of such act or omission and until a 30-day period of time to allow Landlord to remedy such act or omission shall have elapsed following the giving of such notice: provided that, if Landlord's act or omission hereunder cannot, with due diligence and in good faith, be remedied within such 30-day period, then Landlord shall be allowed such further period of time as may be reasonably necessary provided that it shall have promptly commenced remedying the same and continues such remedy with due diligence and in good faith. Nothing herein contained shall be construed or interpreted as requiring any mortgagee to remedy such act or omission in the event of a Landlord default under this Lease that is not remedied in accordance with the provisions of this Section.
ATTORNMENT. If any mortgagee shall succeed to the rights of Landlord under this Lease and to ownership of the Premises, whether through possession or foreclosure or the delivery of a deed to the Premises, then upon the written request of such mortgagee so succeeding to Landlord's rights hereunder, Tenant shall attorn to and recognize such mortgagee as Landlord under this Lease, and shall execute and deliver within ten (10) days after such mortgagee's written request therefor any instrument that such mortgagee may reasonably request to evidence such attornment (whether before or after making of the mortgage). In the event of any other transfer of Landlord's interest hereunder, upon the written request of the transferee and Landlord, Tenant shall attorn to and recognize such transferee as Tenant's landlord under this Lease and shall promptly execute and deliver within ten (10) days after such mortgagee's written request therefor any instrument that such transferee and Landlord may reasonably request to evidence such attornment.
ARTICLE XIII
BUILDING IDENTIFICATION AND SIGNAGE
BUILDING IDENTIFICATION AND SIGNAGE. The Building shall be called Alton Corporate Center, or such other name as Landlord shall select. As long as Tenant occupies 54,000 or more rentable square feet, Tenant, at Tenant's sole cost and expense may place a sign on the top of the Building in a location determined by Landlord identifying Collectors Universe Inc. as the occupant of the Premises; provided, however, that all such signage, if any, must be in compliance with all Laws and Regulations and with the Permitted Encumbrances, and at the end of the Term, all such signage must be removed by Tenant and any damage to the Building or the Land as a result of such removal must be restored.
ARTICLE VII
REPORTS BY TENANT
ANNUAL STATEMENTS. Upon request by Landlord at any time ninety (90) days after the end of the applicable fiscal year of Tenant, Tenant shall deliver to Landlord within fifteen (15) days after receipt of written request therefor a copy of its audited financial statement, including the certification of its auditor. During any period that Tenant is a publicly traded company, then Tenant will not have to supply financial statements to Landlord.
ARTICLE XIV
CHANGES AND ALTERATIONS
TENANT'S CHANGES AND ALTERATIONS. Tenant shall have the right to make changes and alterations to the Premises, which changes and alterations (other than changes or alterations of Tenant's movable trade fixtures and equipment) shall be made in all cases subject to the following conditions which Tenant covenants to observe and perform:
(a) PERMITS. No change or alteration shall be undertaken until Tenant shall have procured and paid for, so far as the same may be required from time to time, all municipal, state and federal permits and authorizations of the various governmental bodies and departments having jurisdiction thereof, and Landlord agrees to join in the application for such permits or authorizations whenever such action is necessary, all at Tenant's sole cost and expense.
(b) COMPLIANCE WITH PLANS AND SPECIFICATIONS. Before commencement of any change, alteration, restoration or improvement ("Work") involving in the aggregate an estimated cost of more than Ten Thousand and no/100 Dollars ($10,000.00) or which in Landlord's reasonable judgment would materially alter the mechanical, structural, or electrical systems of the Improvements, Tenant shall (i) furnish Landlord with detailed plans and specifications of the proposed change or alterations; (ii) obtain Landlord's prior written consent, which consent shall not be unreasonably withheld, conditioned or delayed (but such consent may be withheld if the change or alteration would, in the reasonable judgment of Landlord, impair the value or usefulness of the Land or Improvements, or any substantial part thereof to Landlord); (iii) obtain Landlord's prior written approval, which approval shall not be unreasonably withheld, of a licensed architect or licensed professional engineer selected and paid for by Tenant, who shall supervise any such work ("Alterations Architect or Engineer"); (iv) obtain Landlord's prior written approval, which approval shall not be unreasonably withheld, of detailed plans and specifications prepared and approved in writing by said Alterations Architect or Engineer, and of each amendment and change thereto: and (v) for Work expected to cost in excess of $10,000.00, furnish to Landlord security reasonably acceptable to Landlord that such Work will be completed, which security may include a letter of credit, certificate of deposit, a surety company performance bond issued by a surety company licensed to do business in the state in which the Premises are located or other security reasonably acceptable to Landlord in an amount equal to the estimated cost of such Work guaranteeing the completion thereof within a reasonable time thereafter (1) free and clear of all mechanic's liens or other liens, encumbrances, security interests and charged, and (2) in accordance with the plans and specifications approved by Landlord.
(c) COMPLIANCE WITH LAWS. All Work done in connection with any change or alteration permitted under this Article shall be done promptly and in a good and workmanlike manner and in compliance with all applicable Laws and Regulations. The cost of any such change or alteration shall be paid so that the Premises and all portions thereof shall at all times be free of liens for labor and materials supplied to the Premises, or any portion thereof. Tenant shall during the performance of the Work, obtain and maintain, at its sole cost and expense, or shall require its contractor(s) to obtain and maintain (at their respective sole cost and expense) workers' compensation insurance covering all persons employed in connection with the Work and with respect to which death or injury claims could be asserted against Landlord or Tenant or against the Premises or any interest therein, together with comprehensive general liability insurance for the mutual benefit of Landlord and Tenant with limits of not less than Two Million Dollars ($2,000.00000) in the event of injury to one person, Three Million Dollars ($3,000,00000) in respect to any one accident or occurrence, and One Million Dollars ($1,000,000.00) for property damage. All such insurance shall be in a company or companies authorized to do business in the state in which the Premises are located and reasonably satisfactory to Landlord.
(d) PROPERTY OF LANDLORD. All improvements and alterations (other than Tenant's trade fixtures and equipment and improvements, additions, or installations
identified by Landlord for removal pursuant to 0(e)) made or installed by Tenant shall immediately, upon completion or installation thereof become the property of Landlord without payment therefor by Landlord, and shall be surrendered to Landlord on the expiration or earlier termination of the Term.
(e) REMOVAL OF IMPROVEMENTS. At the time of granting approval for any changes or alterations, Landlord may require Tenant upon vacating to remove any improvements, additions or installations installed by Tenant in the Premises at Tenant's sole cost and expense, and repair and restore any damage caused by the installation and removal of such improvements, additions, or installations; provided, however, the only improvements, additions or installations which Tenant shall be required to remove shall be those specified by Landlord at the time Landlord granted its approval. All improvements, additions or installations installed by Tenant which did not require Landlord's prior approval shall be removed by Tenant as provided for in this Section, unless Tenant has obtained a written waiver of such condition from Landlord.
ARTICLE VIII
EXTENSION OPTIONS
OPTION TO EXTEND. Tenant shall have the right, to be exercised as hereinafter provided, to extend the Term for one periods of five (5) years (an "Extension Term") upon the following terms and conditions and subject to the following limitations:
(f) At the respective times hereinafter set forth for the exercise of the extension option, this Lease shall be in full force and effect and there shall be no then uncured Event of Default.
(g) Except as in this Lease otherwise specifically provided, each Extension Term shall be upon the same terms, covenants and conditions as contained in this Lease, except the annual Base Rent for each Extension Term shall be as provided in (d) below.
(h) Tenant shall exercise its right to extend the Term for each Extension Term by notifying Landlord, in writing, of its election to exercise the right to extend the Term at least twelve (12) months prior to the expiration of the Term.
(i) Base Rent payable during each Extension Term with respect to the Premises shall be equal to the Market Rental Rate for lease terms commencing on or about the date of commencement of the Extension Term, as determined by Landlord. As used herein "Market Rental Rate" shall mean the annual rate of rent then prevailing in the Santa Ana market for leases of improved space comparable to the Premises. In determining comparability, the following shall be considered: length of lease term, location of building, extent of tenant improvements, financial concessions then being given and any other relevant factors.
ARTICLE IX
PARKING
The Building shall be designed and constructed to have four parking spaces for every 1,000 rentable square feet. Landlord shall not impose any charge on Tenant or Tenant's employees, guests or invitees for the use of parking at the Building.
Landlord and Tenant shall work together to designate as reserved parking for Tenant one space for each 1,000 rentable square feet leased by Tenant in the Building, such parking spaces to be located in the areas most adjacent to the entrance of the Building. Landlord agrees that it will not grant to any other tenant rights to reserved parking in such area most adjacent to the Building in excess of one space per 1,000 rentable square feet leased by such other tenant(s).
ARTICLE X
FIRST OPPORTUNITY TO LEASE
During the Term, in the event that Landlord is about to enter into
negotiations to lease space in the Building to a third party, Landlord shall
notify Tenant in writing of such event and the date such space is available for
addition to the Premises ("Effective Date"). Tenant shall have and is hereby
granted the right to add such space to the Premises on the Effective Date on all
of the terms, covenants, and conditions of this Lease, except as provided in
Landlord's notice to the contrary, and except that Base Rent for such space
shall be at the rate specified by Landlord at the time it notifies Tenant of the
availability of such space. Tenant shall have seven (7) days from the date of
delivery of such notice to notify Landlord of Tenant's acceptance of such offer
to add all or such portion of such space to the Premises on the Effective Date.
In the event Tenant notifies Landlord that it declines to accept such offer
("Rejection Notice"), or does not so notify Landlord within seven (7) days of
its acceptance of such offer, Landlord may, for a period of two hundred seventy
(270) days following the date of receipt by Landlord of the Rejection Notice, or
if a Rejection Notice is not sent to Landlord, at the end of said seven (7) day
period, lease such portion of such space to any third party on terms and
conditions which may be different from but are substantially economically
equivalent to, those offered to Tenant, and if Landlord so leases such space
Tenant shall have no further right or interest in such space. In the event such
portion of such space is not leased within said two hundred seventy (270) day
period, or is about to be offered on terms and conditions which are not
substantially economically equivalent to those initially offered to Tenant,
Landlord again shall offer such portion of such space to Tenant as provided in
this Section and Tenant again shall have the right to add such portion of the
First Offer Space to the Premises as provided in this Section. In the event
Tenant accepts any such offer, Landlord and Tenant shall promptly enter into and
execute a lease amendment adding such space to the Premises on the terms and
conditions provided herein, which amendment shall be in form and substance
mutually and reasonably acceptable to Landlord and Tenant.
If on the date of exercise of Tenant's acceptance of Landlord's offer there shall be a material default by Tenant in the performance of any of the terms, covenants or conditions contained in the Lease which is not cured within any applicable cure period provided herein, Landlord shall have the option within 30 days, on written notice to Tenant, to declare Tenant's acceptance of such offer and the addition of such portion of such space to the Premises void and of no effect.
ARTICLE XI
MOVING ALLOWANCE
Landlord shall pay to Tenant an allowance (the "Moving Allowance") in the amount of seventy-five thousand dollars ($75,000.00) to reimburse to Tenant costs and expenses incurred by Tenant in connection with moving its business operations from their current location(s) to the Premises. The Moving Allowance shall be paid to Tenant by Landlord upon Tenant's occupancy of the Premises and the commencement of the payment of Base Rent by Tenant.
ARTICLE XII
RIGHT OF FIRST REFUSAL TO PURCHASE
RIGHT OF FIRST REFUSAL. Tenant shall have a one-time right of first refusal ("Refusal Right") to purchase the Land and Building on the terms and conditions contained in this Article. The Refusal Right shall be effective beginning with the date hereof and continuing throughout the Term (the "Refusal Period") until terminated as provided herein.
PROCESS. In the event Landlord desires to sell or market for sale the Land and Building during the Refusal Period, then prior to selling or marketing for sale, Landlord
shall send written notice to Tenant (a "Refusal Price Notice") stating the price (a "Refusal Price") at which Landlord would sell the Land and Building to Tenant. Within seven (7) days of Tenant's receipt of the Refusal Price Notice, Tenant shall notify Landlord in writing (a "Refusal Acceptance Notice" or a "Refusal Rejection Notice") whether it accepts or rejects the purchase of the Land and Building at the Refusal Price. During such seven (7) day period, Landlord will not enter into a binding agreement to sell the Land and Building to a third party purchaser. If Tenant rejects the purchase of the Land and Building at the Refusal Price, then Landlord shall be free to sell the Land and Building for a price equal to or greater than ninety-five percent (95%) of the last offered Refusal Price. During the Refusal Period, Landlord may not sell or agree to sell the Land and Building for less than ninety-five percent (95%) of the last offered Refusal Price under this Article without again offering the Land and Building to Tenant under this Article for such lower price. If Tenant rejects the purchase of the Land and Building, and Landlord then sells the Land and Building to a third party, Tenant shall have no further rights under this Article.
SALE PROCESS. If Tenant accepts the purchase of the Land and Building,
then Tenant with its notice of acceptance shall deliver to Landlord by certified
or cashier's check $500,000 in earnest money. The closing of the sale of the
Land and Building to Tenant (the "Refusal Closing") shall occur on a date
mutually acceptable to Landlord and Tenant, but in no event later than ninety
(90) days after the date of the Refusal Acceptance Notice.
TRANSFER TO AFFILIATES. Landlord shall at all times have the right to sell, convey or otherwise transfer the Land and Building to an affiliate of Landlord without Tenant having any right to purchase the Land and Building under the provisions of this Article. An "affiliate" of one entity shall mean any other entity controlling, controlled by or under common control with such entity.
ARTICLE XIII
SECURITY DEPOSIT
SECTION XIII.1 DEFINITIONS.
(a) "Security Deposit" shall mean cash, or at the option of Tenant, an irrevocable standby letter of credit issued in such form and by such bank or other institution as shall be acceptable to Landlord in Landlord's reasonable discretion, in the amount of six months Base Rent hereunder calculated at the rate of $1.40 per rental square foot per month. The Security Deposit shall be paid by Tenant to Landlord upon substantial completion of the core and shell of the Building, but in any event prior to the commencement of construction of tenant improvements.
(b) If, on the date that the Security Deposit would be otherwise due hereunder or thereafter, Tenant has achieved a tangible net worth of at least $9,000,000, then the Security Deposit shall not be deposited or shall be returned to Tenant. If, at any time thereafter, Tenant fails to maintain a tangible net worth of at least $9,000,000 then Tenant shall immediately deposit or redeposit the Security Deposit with Landlord.
SECURITY DEPOSIT. Tenant hereby agrees to deposit with Landlord the Security Deposit, as security for the prompt, full and faithful performance by Tenant of each and every provision of this Lease and of all obligations of Tenant hereunder.
RETURN OF SECURITY DEPOSIT. If Tenant shall fully and faithfully comply with all of the provisions of this Lease, the Security Deposit, or any balance thereof, shall be returned to Tenant without interest at the time provided herein. In the absence of evidence satisfactory to Landlord of any permitted assignment of the right to receive the Security Deposit, or of the remaining balance thereof, Landlord may return the same to the original Tenant, regardless of one or more assignments of Tenant's interest in this Lease or the Security Deposit. In such event, upon the return of the Security Deposit, or
the remaining balance thereof to the original Tenant, Landlord shall be completely relieved of liability under this Article XXVI or otherwise with respect to the Security Deposit.
FORFEITURE OF SECURITY DEPOSIT. If Tenant fails to perform any of its obligations hereunder, Landlord may use, apply or retain the whole or any part of the Security Deposit for the payment of (i) any Rent or other sums of money which Tenant may not have paid when due, (ii) any sum expended by Landlord on Tenant's behalf in accordance with the provisions of this Lease, and/or (iii) any sum which Landlord may expend or be required to expend by reason of Tenant's default, including, without limitation, any damage or deficiency in or from the reletting of the Premises. The use, application or retention of the Security Deposit, or any portion thereof, by Landlord shall not prevent Landlord from exercising any other right or remedy provided by this Lease or by law (it being intended that Landlord shall not first be required to proceed against the Security Deposit) and shall not operate as a limitation on any recovery to which Landlord may otherwise be entitled. If any portion of the Security Deposit is used, applied or retained by Landlord for the purposes set forth above, Tenant agrees, within ten (10) days after the written demand therefor is made by Landlord, to deposit cash or a replacement letter of credit with Landlord in an amount sufficient to restore the Security Deposit to its original amount.
TRANSFER OF SECURITY DEPOSIT TO TRANSFEREES AND MORTGAGEES. Tenant acknowledges that Landlord has the right to transfer or mortgage its interest in the Land and the Building and in this Lease and Tenant agrees that in the event of any such transfer or mortgage, Landlord shall have the right to transfer or assign the Security Deposit to the transferee or mortgagee. Upon such transfer or assignment, Landlord shall thereby be released by Tenant from all liability or obligation for the return of such Security Deposit and Tenant shall look solely to such transferee or assignee for the return of the Security Deposit.
ARTICLE XIV
COMMUNICATION EQUIPMENT
Tenant shall have the right at any time during the Term, at Tenant's expense, but without payment of Rent therefor to Landlord, to locate on the roof of the Building one or more telecommunication dishes. Tenant shall submit plans for such dish and the names of the contractors who will be installing such dish, all of which shall be subject to Landlord's reasonable approval. The dish shall be screened so as not to be visible from the ground in accordance with Landlord's reasonable requirements. Tenant shall pay all costs related to the installation, operation and maintenance of such dish, including without limitation, the cost of any structural modifications to the Building made by Landlord and necessary, in the opinion of Landlord's structural engineer, to accommodate the dish. Tenant shall maintain the dish and shall and hereby does indemnify and defend Landlord from and against all loss, cost, liability and expense arising out of or in connection with the installation, operation, maintenance or removal of any such dish. Tenant shall, at Landlord's option, remove the dish at the expiration of the Term. Tenant shall secure all zoning and regulatory approvals necessary for the dish, at its expense.
ARTICLE XV
SECURED AREA
SECURED AREA. Notwithstanding anything contained in this lease to the contrary, Tenant may, if Tenant complies with 0 below, provide its own locks to areas within the Premises (individually a "Secured Area" and collectively the "Secured Areas"). Tenant need not furnish Landlord with keys to the Secured Areas, but at the termination of the Term, Tenant shall surrender all such keys to Landlord. If Landlord reasonably determines that an emergency or other situation exists in the Building or the Premises, including without limitation, a fire, flood or earthquake, requiring Landlord to gain
access to a Secured Area, then Landlord may forcibly enter such Secured Area. In such event, Landlord shall have no liability whatsoever to Tenant to repair or reconstruct any entrance, corridor or other door or other portions of the Premises or the Secured Area damaged as a result of the forcible entry by Landlord. Notwithstanding the foregoing, Landlord shall make a reasonable effort to contact Tenant or its representative to secure access to such Secured Area prior to a forcible entry. Landlord shall have no obligation to provide janitorial, maintenance or any other services to any of the Secured Areas if Landlord must have access to the Secured Area to perform such service.
TENANT NOTICE. Tenant may designate an area of the Premises as a Secured Area by giving ten (10) days prior written notice to Landlord showing the Secured Area and the name of a representative of Tenant to be contacted and the manner of contact to avoid a forcible entry as described in Section 28.1 above. Tenant may revoke its designation of an area of the Premises as a Secured Area by giving ten (10) days prior written notice to Landlord and delivering to Landlord copies of the keys to the locks restricting access to such area.
ARTICLE XVI
MISCELLANEOUS
ENTRY BY LANDLORD. Tenant agrees to permit Landlord and authorized representatives of Landlord to enter upon the Premises upon prior notice to Tenant (except in case of emergency where no notice is required) at all reasonable times during ordinary business hours for the purpose of inspecting the Premises, making any necessary repairs, and performing such other tasks as may be Landlord's obligation under this Lease. Nothing herein contained shall imply any duty upon the part of Landlord to do any such work which, under any provision of this Lease, Tenant may be required to perform and the performance thereof by Landlord shall not constitute a waiver of Tenant's default in failing to perform the same. Landlord may, during the progress of any work, keep and store upon the Premises all necessary materials, tools and equipment, provided that Landlord in so keeping and storing shall use reasonable efforts not to interfere with Tenant's use of the Premises for any and all of the uses permitted hereunder. Landlord shall not be liable for inconvenience, annoyance, disturbance, loss of business or other damage to Tenant by reason of making repairs or the performance of any work in or about the Premises, or on account of bringing material, supplies and equipment into, upon or through the Premises during the course thereof and the obligations of Tenant under this Lease shall not be thereby affected in any manner whatsoever.
EXHIBITION OF PREMISES. Upon prior written notice delivered to Tenant at least 24 hours before such entry, Landlord is hereby given the right during normal business hours at any time during the Term to enter upon the Premises and to exhibit the same for the purpose of mortgaging or selling the same. During the final year of the Term, Landlord shall be entitled to display on the Premises, in such manner as to not unreasonably interfere with Tenant's business, signs indicating that the Premises are for rent or sale. Tenant agrees that such signs may remain unmolested upon the Premises and that Landlord may, subject to the prior written notice required hereunder, exhibit the Premises to prospective tenants during said period.
INDEMNIFICATION. To the fullest extent allowed by law and subject to the terms of this Lease, Tenant shall at all times indemnify, defend and hold Landlord and Landlord's shareholders, employees and managing agent harmless against and from any and all claims, costs, liabilities, actions and damages (including, without limitation, reasonable attorneys' fees and costs) by or on behalf of any person or persons, firm or firms, corporation or corporations, arising from the conduct or management, or from any work or things whatsoever done in or about the Premises, and will further indemnify, defend and hold Landlord harmless against and from any and all claims arising during the Term from any condition of the Premises, or arising from any breach or default on the part of Tenant in the performance of any covenant or agreement on the part of Tenant
to be performed, pursuant to the terms of this Lease, or arising from any
act or negligence of Tenant, its agents, servants, employees or licensees, or
arising from any accident, injury or damage whatsoever caused by any person,
firm or corporation occurring during the Term, in or about the Premises, and
from and against all costs, attorney's fees, expenses and liabilities incurred
in connection with any such claim or action or proceeding brought thereon; and
in case any action or proceeding be brought against Landlord by reason of any
such claim, Tenant, upon notice from Landlord, covenants to defend such action
or proceeding by counsel reasonably satisfactory to Landlord; provided, however,
that such indemnity, obligation to defend and hold harmless, and waiver shall
not extend to any claim, cost, liability, action, damage, or other instance of
any kind arising out of the negligent or intentionally wrongful act(s) or
omission(s) of Landlord (including its shareholders, employees, managing agent,
frequenters, licensees, and agents of every kind) or out of any breach by the
same of this Lease unless the same is covered by insurance maintained or
required to be maintained by Tenant hereunder. Tenant's obligations under this
Section shall be insured by contractual liability endorsement on Tenant's
policies of insurance required under the provisions of 0 hereof.
NOTICES. All notices, demands and requests which may be or are required to be given, demanded or requested by either party to the other shall be in writing. All notices, demands and requests shall be sent by United States registered or certified mail, postage prepaid or by an independent overnight courier service, addressed as follows:
To Landlord: ORIX Searles Santa Ana Venture
c/o ORIX Santa Ana, Inc.
c/o ORIX Real Estate Equities
100 North Riverside Plaza
Suite 1400
Chicago, Illinois 60606
Attn: James H. Purinton
With a copy to: Alton SA, L.L.C.
c/o Searles Devcorp
1936 East Deere Avenue
Suite 216
Santa Ana, California 92705
Attn: Robert J. Searles
With a copy to: Foley & Lardner
One IBM Plaza
330 North Wabash Street
Suite 3300
Chicago, Illinois 60611
Attn: Wesley N. Becker
To Tenant Collectors Universe
700 East Alton
Santa Ana, California 92705
Attn: Gary Patten
With a copy to: __________________________
__________________________
__________________________
__________________________
Attn: ___________________
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or to such other person or place as Landlord or Tenant, respectively, may from time to time designate by written notice to the other. Notices, demands and requests which shall be served upon Landlord by Tenant, or upon Tenant by Landlord, in the manner aforesaid, shall be deemed to be sufficiently served or given for all purposes hereunder at the time such notice, demand or request is received, if delivered by mail, or one (1) business day after delivery to an independent overnight courier service.
QUIET ENJOYMENT. Landlord covenants and agrees that, so long as no Event of Default shall have occurred and be continuing, Tenant shall lawfully and quietly hold, occupy and enjoy the Premises (subject to the provisions of this Lease) during the Term without hindrance or molestation by Landlord or by any person or persons claiming by, through or under Landlord.
LANDLORD'S CONTINUING OBLIGATIONS. The term "Landlord," as used in this Lease so far as covenants or obligations on the part of Landlord are concerned, shall be limited to mean and include only the owner or owners at the time in question of the fee of the Premises, and in the event of any transfer or transfers or conveyance, the then grantor shall be automatically freed and relieved from and after the date of such transfer or conveyance of all liability as respects the performance of any covenants or obligations. The covenants and obligations contained in this Lease on the part of Landlord contained in this Lease thereafter to be performed, provided that any funds in the hands of such landlord or the then grantor at the time of such transfer, in which Tenant has an interest, shall be turned over to the grantee, and any amount then due and payable to Tenant by Landlord or the then grantor under any provision of this Lease shall be paid to Tenant. The covenants and obligations contained in this Lease on the part of Landlord, subject to the aforesaid, shall be binding on Landlord's successors and assigns, during and in respect of their respective successive periods of ownership.
ESTOPPEL. Landlord and Tenant shall, each without charge at any time and from time to time, within fifteen (15) days after written request by the other party, certify (if such in fact be the case) by written instrument, duly executed, acknowledged and delivered to any mortgagee, assignee of a mortgagee, proposed mortgagee, or to any purchaser or proposed purchaser, or to any other person dealing with Landlord, Tenant or the Premises who may reasonably require such an instrument that this Lease is unmodified and in full force and effect (or, if there have been modifications, that the same is in full force and effect, as modified, and stating the modifications):
(j) the dates to which the Base Rent or Additional Rent have been paid in advance:
(k) whether or not there are then existing any breaches or defaults by such party or the other party known by such party under any of the covenants, conditions, provisions, terms or agreements of this Lease, and specifying such breach or default, if any, or any setoffs or defenses against the enforcement of any covenant, condition, provision, term or agreement of this Lease (or of any guaranties) upon the part of Landlord or Tenant (or any guarantor), as the case may be, to be performed or complied with (and, if so, specifying the same and the steps being taken to remedy the same); and
(l) such other statements or certificates as Landlord, Tenant or any mortgagee may reasonably request.
It is the intention of the parties hereto that any statement delivered pursuant to this Section may be relied upon by the person to whom such statement is addressed.
SEVERABILITY. If any covenant, condition, provision, term or agreement of this Lease shall, to any extent, be held invalid or unenforceable, the remaining covenants, conditions, provisions, terms and agreements of this Lease shall not be affected thereby, but each covenant, condition, provision, term or agreement of this Lease shall be valid and in force to the fullest extent permitted by law.
SUCCESSORS AND ASSIGNS. The covenants and agreements herein contained shall bind and inure to the benefit of Landlord, its successors and assigns, and Tenant and its permitted successors and assigns.
CAPTIONS. The caption of each Article and Section of this Lease is for convenience of reference only, and in no way defines, limits or describes the scope or intent of such Article or Section of this Lease.
RELATIONSHIP OF PARTIES. This Lease does not create the relationship of principal and agent, or of partnership or joint venture, between Landlord and Tenant.
ENTIRE AGREEMENT. All preliminary and contemporaneous negotiations are merged into and incorporated in this Lease. This Lease together with the Exhibits contains the entire agreement between the parties and shall not be modified or amended in any manner except by an instrument in writing executed by the parties hereto.
NO MERGER. There shall be no merger of this Lease or the leasehold estate created by this Lease with any other estate or interest in the Premises by reason of the fact that the same person, firm, corporation or other entity may acquire, hold or own directly or indirectly, (a) this Lease or the leasehold interest created by this Lease or any interest therein, and (b) any such other estate or interest in the Premises, or any portion thereof. No such merger shall occur unless and until all persons, firms, corporations or other entities having an interest (including a security interest) in (1) this Lease or the leasehold estate created thereby, and (2) any such other estate or interest in the Premises, or any portion thereof, shall join in a written instrument expressly effecting such merger and shall duly record the same.
SURRENDER OF PREMISES. At the expiration of the Term, Tenant shall surrender the Premises in the same condition as the same were in upon delivery of possession thereto at the Commencement Date, reasonable wear and tear, and damage by fire or other casualty, condemnation or alterations not to be restored by Tenant hereunder excepted, and shall surrender all keys to the Premises to Landlord at the place then fixed for the payment of Base Rent and shall inform Landlord of all combinations on locks, safes and vaults, if any. Tenant shall at such time remove all of its property therefrom and all alterations and improvements placed thereon by Tenant to the extent required to do so under the terms of this Lease. Tenant shall repair any damage to the Premises caused by such removal. All property that Tenant is required to but fails to remove may be removed and/or disposed of by Landlord and Tenant shall indemnify, defend and hold Landlord harmless against loss or liability resulting from the delay by Tenant in so surrendering the Premises, including, without limitation any claim made by any succeeding occupant founded on such delay. All other property not so removed shall become the exclusive property of Landlord. Tenant's obligation to observe or perform this covenant shall survive the expiration or other termination of this Lease.
HOLDING OVER. In the event Tenant remains in possession of the Premises after expiration of this Lease, and without the execution of a new lease, it shall be deemed to be occupying the Premises as a tenant from month to month, subject to all the provisions, conditions and obligations of this Lease insofar as the same can be applicable to a month-to-month tenancy, except that the Base Rent shall be escalated to 150% of the then current Base Rent for the Premises.
LANDLORD APPROVALS. Any approval by Landlord or Landlord's architects and/or engineers of any of Tenant's drawings, plans and specifications which are prepared in connection with any Work in the Premises shall not in any way be construed or operate to bind Landlord or to constitute a representation or warranty of Landlord as to the adequacy or sufficiency of such drawings, plans and specifications, or the improvements to which they relate, for any reason, purpose or condition, but such approval shall merely be the consent of Landlord, as may be required hereunder, in connection with
such Work relating to the Premises in accordance with such drawings, plans and specifications.
SURVIVAL. All obligations (together with interest or money obligations at the Maximum Rate of Interest) accruing prior to expiration of the Term shall survive the expiration or other termination of this Lease.
ATTORNEYS' FEES. In the event of any litigation or judicial action in connection with this Lease or the enforcement thereof, the prevailing party in any such litigation or judicial action shall be entitled to recover all costs and expenses of any such judicial action or litigation (including, but not limited to, reasonable attorneys' fees and expenses) from the other party.
LANDLORD'S LIMITED LIABILITY. Tenant agrees to look solely to Landlord's interest in the Premises for recovery of any judgment from Landlord, it being agreed that Landlord (and if Landlord is a partnership, its partners, whether general or limited, and if Landlord is a corporation, its directors, officers or shareholders) shall never be personally liable for any personal judgment or deficiency decree or judgment against it.
BROKER. Tenant and Landlord, respectively, represent that they have dealt directly with and only with Lee & Associates in connection with this Lease and that no other broker has negotiated or participated in negotiations of this Lease or is entitled to any commission in connection therewith. Tenant shall indemnify and hold Landlord harmless from and against any and all commissions, fees and expenses and all claims therefor by any other broker, salesman or other party claiming a commission, fee, or expense by reason of its efforts on behalf of the Tenant with respect to the Lease, and Landlord shall indemnify and hold Tenant harmless from and against any and all commissions, fees, and expenses and all claims therefor by any other broker, salesman or other party claiming a commission, fee, or expense by reason of its efforts on behalf of Landlord with respect to the Lease.
GOVERNING LAW. This Lease shall be governed by the laws of the State of California. All covenants, conditions and agreements of Tenant arising hereunder shall be performable in the county wherein the Premises are located. Any suit arising from or relating to this Lease shall be brought in the county wherein the Premises are located, and the parties hereto waive the right to be sued elsewhere.
TIME IS OF THE ESSENCE. Time is of the essence with respect to the performance of every provision of this Lease in which time of performance is a factor.
AUTHORITY. Landlord and Tenant each hereby represent and warrant to the other that those persons executing this Lease on its behalf are duly authorized to do so and that this Lease is binding upon them in accordance with its terms.
IN WITNESS WHEREOF, each of the parties hereto has caused this Lease to be duly executed as of the day and year first above written.
TENANT:
COLLECTORS UNIVERSE INC.
By: _________________________________
Its:_____________________________
LANDLORD:
ORIX SEARLES SANTA ANA VENTURE
BY: ORIX Santa Ana, Inc.,
an Illinois corporation
By: _________________________________
James H. Purinton
President and CEO
BY: Alton SA, L.L.C.,
a California corporation
By: _________________________________
Robert J. Searles
Its:_____________________________
EXHIBIT A
Legal Description
Parcel 4, of Parcel Map No. 87-320 in the City of Santa Ana, County of Orange, State of California as per map filed in Book 229, Pages 10 to 14 inclusive, of Parcel Maps, in the Office of the County Recorder of Said County.
The parties acknowledge that the above-described land may be divided into two or more parcels. In such event the new legal description for the parcel containing the Building shall be substituted for the above legal description.
EXHIBIT B
Exhibit A - page 1
Exhibit C
Schedule of Plans and Specifications
Exhibit B - page 1
EXHIBIT D
Construction Schedule
Exhibit C - page 1
EXHIBIT E
Workletter
This is the Work Letter referred to in the foregoing Lease (the "Lease") wherein Collectors Universe, Inc. ("Tenant") has agreed to lease certain space from ORIX Searles Santa Ana Venture ("Landlord"), at the building (the "Building") to be located in Santa Ana, California as more particularly described in the Lease. All capitalized terms used herein shall have the respective meanings assigned to them in the Lease or in this Work Letter.
Landlord and Tenant agree as follows:
I. Tenant Improvement Allowance. Landlord shall provide to Tenant a Tenant Improvement Allowance of $30.00 per rentable square foot of the Premises (the "Tenant Improvement Allowance") for the purpose of paying the costs of constructing and refurbishing the Premises per the construction drawings, plans and specifications (the "Plans") to be prepared by an architect selected by Tenant and approved by Landlord ("Tenant's Architect"). The buildout of the Premises in accordance with the Plans and the material, hardware and equipment to be incorporated into the Premises pursuant to the Plans, are herein collectively referred to as the "Work." The general contractor that constructs the core and shell of the Building (the "General Contractor") shall perform the Work.
II. Preparation of the Plans. Tenant will deliver to landlord by the date provided therefore in the Schedule a full and complete set of Plans prepared by Tenant's Architect. The Plans shall include all architectural, mechanical, plumbing and engineering drawings and other construction related plans necessary for the completion of the Work and for obtaining a building permit. The Plans shall outline in detail the scope and nature of the Work. Tenant shall pay all costs associated with preparation of the Plans and, upon taking occupancy of the Premises, Tenant may elect for Landlord to reimburse Tenant for the costs incurred in connection with the preparation of the Plans out of the Tenant Improvement Allowance. Upon completion of the Plans, Tenant shall submit the Plans to Landlord for Landlord's review. Landlord shall consent to the Work outlined in the Plans or deny such consent within ten (10) business day of Landlord's receipt of the Plans. If Landlord denies such consent, Landlord shall provide Tenant with a written statement outlining Landlord's reason for objecting to the Plans. Tenant shall then cause Tenant's Architect to revise the Plans and resubmit such Plans to Landlord within ten (10) business days of Tenant's receipt of Landlord's objections to the Plans, at which time Landlord will inform Tenant as to the number of days that Tenant's requested revisions to the Plans will delay the estimated time of completion of the Work. Landlord shall cooperate with Tenant regarding Tenant's revision of the Plans. Landlord shall deny or grant Landlord's consent to the revised Plans within ten (10) business days of receipt of the revised Plans. This process shall be repeated until such time as Landlord and Tenant reach agreement on the Plans. Without limitation, Landlord's denial of such consent shall be deemed reasonable if the Work outlined in the Plans: (i) violates any building code, law, permit, court order, rule, regulation, or other governmental requirement; (ii) includes Work which would increase the cost of, or make unavailable, any insurance policy applicable to the Building; (iii) would, in Landlord's reasonable judgment, decrease the value of the Premises; (iv) would unreasonably interfere with other tenants' use of the Buildings; or (v) would, in Landlord's reasonable judgment, reduce the marketability of the Premises. Upon Landlord's grant of such consent to the Work outlined in the Plans, Landlord shall promptly file the Plans with the appropriate governmental agencies. The cost of the Work, in addition to other costs otherwise included herein, shall include all fees paid to any governmental entity reviewing or filing the Plans, fees paid to any person performing expediting services or fees paid to any contractor or agent of Landlord for expenses incurred in submitting, explaining, reproducing, or otherwise in connection with the process of governmental review of the Plans.
III. Contracting for the Work. Following Landlord's consent to the Plans, Landlord shall solicit a bid for the Work from the General Contractor. Following receipt of a response to such solicitation, Landlord shall notify Tenant of: (a) the estimated cost of the Work (the "Cost Estimate"); and (b) the expected time of substantial completion (the "Estimated
Exhibit D - page 1
Completion Date"). Tenant shall then notify Landlord, within five (5) days and in writing, of Tenant's approval of the cost of the Work, and of the Estimated Completion Date. Concurrently with the delivery of such notice, Tenant shall deliver to Landlord an amount equal to the difference between the Tenant Improvement Allowance and the Cost Estimate (the "Overage Payment") which Overage Payment Landlord shall apply to the cost of the Work prior to Landlord applying the Tenant Improvement Allowance to the cost of the Work. Following receipt by Landlord of such notice of Tenant's approval, the Overage Payment and all necessary building permits and consents from the applicable governmental authorities, Landlord shall cause the General Contractor to commence the Work. If Tenant properly delivers notice that Tenant does not approve the cost of the Work or of the Estimated Completion Date, Landlord shall cause the General Contractor not to commence the Work and Tenant shall pay any additional costs of the Work which arise as the result of Landlord delaying the General Contractor from commencing the Work. The payment of Rent shall not abate or be affected or deferred on account of any delay in substantially completing the Work, to the extent that such delay results from:
(a) Tenant's failure to furnish the Plans in accordance with the Schedule and the requirements set forth in Section II;
(b) Tenant's failure to approve the cost of the Work or the Estimated Completion Date as specified in this Section III;
(c) Tenant's changes in the Plans or requests for Additional Work after Tenant's and Landlord's approval of the Plans (notwithstanding Landlord's approval of such changes);
(d) The performance of any work by Tenant or any person, firm or corporation employed by Tenant;
(e) Tenant's failure to deliver the Overage Payment; or
(f) Any default by Tenant or its agents in Tenant's performance of its obligations under this Agreement or the Lease;
IV. Additional Work. If Tenant wishes Landlord, prior to the Commencement Date, but subsequent to the date that the Plans are approved by Landlord and Tenant, to build out the Premises and incorporate material, hardware and equipment into the Premises in excess of the Work provided for in the Plans as finally approved by Landlord and Tenant (such excess buildout, materials, hardware and equipment items are herein referred to collectively as "Additional Work"), Tenant shall cause Tenant's Architect to amend the Plans, so as to provide the Additional Work, and submit such Plans to Landlord for Landlord's consent which consent shall not be unreasonably withheld. If Landlord consents to the Additional Work being incorporated into the Plans, Landlord shall obtain from the General Contractor an estimate of the cost of the Additional Work and a statement estimating in days any delay in the Estimated Completion Date that the Additional Work will cause. If Tenant desires Landlord to cause the General Contractor to perform the Additional Work, Tenant shall approve such estimated price and delay within five (5) business days after Landlord submits such estimated price and delay in the Estimated Completion Date to Tenant. Concurrently with providing such approval, Tenant shall increase the Overage Payment to the extent necessary to pay for the Additional Work. If Tenant fails to so deliver such approval or to increase the Overage Payment, Tenant shall be deemed to have abandoned its request for such Additional Work. Tenant acknowledges that the cost of the Additional Work shall be included in the cost of the Work.
V. Access by Tenant Prior to Completion of Work and Additional Work. Landlord will permit Tenant and Tenant's agents, suppliers, contractors and workmen to enter the Premises prior to the completion of all Work to be performed by Landlord and its contractors to enable Tenant to install furniture or do such other things as may be required by Tenant to make the Premises ready for Tenant's occupancy, provided that Tenant and its agents, contractors, workmen and suppliers and their activities in the Premises and Building will not unreasonably
Exhibit D - page 2
interfere with or delay the completion of the Work to be done by Landlord and will not interfere with other activities of Landlord or occupants of the Building. Prior to any such agents, suppliers, contractors or workmen entering the Premises, Tenant shall notify Landlord of the type of work to be performed, the scheduling of such work and the identity of the parties doing such work. Landlord shall have the right, on notice to Tenant, to cause Tenant or any such agent, contractor, workman or supplier to leave the Premises and the Building if Landlord determines that such interference or delay has been or may be caused or that damage to the Building has been or may be caused. Without limiting the foregoing, Tenant acknowledges that Landlord may, at its discretion, bar the entry of any such agent, contractor, workman or supplier if such entry would cause labor problems or labor disharmony at the Building. Tenant agrees that any such entry into the Premises shall be at Tenant's own risk and Landlord shall not be liable in any way for any injury, loss or damage which may occur to any of Tenant's property or Tenant's installations made in the Premises and Tenant agrees to protect, defend, indemnify and save harmless Landlord, its affiliates, beneficiaries, partners and their respective agents from all liabilities, costs, damages, fees and expenses arising out of or connected with the activities of Tenant or its agents, contractors, suppliers or workmen in or about the Premises. In addition, if requested by Landlord, prior to the initial entry to the Premises by Tenant and by each contractor or subcontractor for Tenant, Tenant shall furnish Landlord with policies of insurance covering Landlord as an insured party with such coverages and such amounts as Landlord may then reasonably require in order to insure Landlord against liability for injury or death or damage to the property of Landlord or its tenants by reason of such entry and any activity or work carried on in or about the Premises.
VI. Substantial Completion and Completion of Punchlist Items. Possession of the Premises shall be tendered to Tenant by Landlord on the Commencement Date if Landlord has substantially completed its express obligations under this Workletter. Landlord's obligations shall not be deemed incomplete if only insubstantial details of construction, decoration or mechanical adjustments remain to be done. The determination of Landlord's architect or interior space planner for the Building shall be final and conclusive on Tenant as to whether such obligations have been substantially completed. Tenant's taking possession of any portion of the Premises shall be conclusive evidence that such portion of the Premises was in good order and satisfactory condition when the Tenant took possession, except as to defects contained on a punch list to be prepared and signed by Landlord and Tenant based on an inspection made prior to the date on which Tenant takes possession of such portion of the Premises, provided, however, that if the Premises are not available to Tenant for such inspection prior to the date on which Tenant takes possession, such punch list shall be prepared and signed by Landlord and Tenant within seven (7) days after Tenant takes possession of such portion of the Premises. Landlord shall promptly correct all defects noted on such agreed punch list. No promise of the Landlord to construct, alter, remodel or improve the Premises or the Building and no representation by Landlord or its agents respecting the condition of the Premises or the Building have been made to Tenant or relied upon by Tenant other than as may be contained in this Lease.
TENANT:
COLLECTORS UNIVERSE INC.
/s Gary Patton
By:________________________________
Chief Financial Officer
Its:_______________________________
LANDLORD:
ORIX SEARLES SANTA ANA VENTURE
BY: ORIX Santa Ana, Inc.,
an Illinois corporation
Exhibit D - page 3
/s/ James H. Purinton
By:____________________________
James H. Purinton
President and CEO
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Exhibit D - page 4
BY: Alton SA, L.L.C., a California corporation
/s/ Robert J. Searles
By:_______________________________
Robert J. Searles
Its:_____________________
|
Exhibit D - page 5
EXHIBIT A
Base Rent
Initial Base Rent Per Month: $1.40/RSF
------------------------ -------------------------- Lease Month Monthly Base Rent ------------------------ -------------------------- 0-3 $ 0.00 ------------------------ -------------------------- 4-15 1.40 ------------------------ -------------------------- 16-27 1.435 ------------------------ -------------------------- 28-39 1.47 ------------------------ -------------------------- 40-51 1.50 ------------------------ -------------------------- 52-63 1.545 ------------------------ -------------------------- 64-75 1.58 ------------------------ -------------------------- 76-87 1.62 ------------------------ -------------------------- 88-99 1.66 ------------------------ -------------------------- |
Exhibit E - page 1
AGREEMENT FOR THE SALE OF GOODS AND SERVICES
This Agreement for the Sale of Goods and Services ("Agreement") made and effective this March 31, 1999, by and between DNA Technologies, Inc., a Delaware Corporation ("DTI") and Collectors Universe Inc., a Delaware Corporation ("CU").
DTI desires to sell to CU, and CU desires to purchase from DTI, certain Goods and Services of DTI.
NOW, THEREFORE, in consideration of the mutual promises herein contained, the parties hereto agree as follows:
1. SALE
DTI agrees to sell, transfer and convey to CU, and CU agrees to purchase the following goods and services (collectively the "Products"): The Goods shall include DNA encoded ink for covert collectible memorabilia markings as well as two (2) detectors or lasers. The services shall include definitive authentication of any and all products bearing DTI's DNA encoded ink. Two inks will be provided as follows: Green optical taggants and DNA to be used for "Signed in the presence" collectibles; and Red optical taggants and DNA to be used for vintage authentication.
2. PRICE
CU shall pay DTI for Goods the sum of [*] for each item marked by CU
that uses DTI's DNA authentication technology. DTI shall provide CU with copies
of its current price list for authentication service, its delivery schedule, and
its standard terms and conditions of sale, as established and as may be modified
from time to time. The price of the "Goods" may be adjusted during the course of
this contract, due to the changes in the cost of goods, however the sales price
will not be increased by more than [*] in any one year period, nor will the
price be adjusted prior to March 31, 2001. Each order for authentication
service(s) shall cost CU [*] and will involve a wet laboratory test. Additional
detectors will be provided as required by PCGS at a cost of [*] per detector and
[*] per laser.
In the event the "Products" are used for authentication of manufactured collectibles, volume discounts will be negotiated and authorized by mutual consent, which will not be unnecessarily withheld.
In the event DTI reaches a Property Asset Management agreement with Disney Studios or George Lucas Productions, pricing for these two agreements will be determined independently of the above stated pricing policy.
In the event that CU sub-licenses the technology to a third party, DTI and CU will each receive [*] of the sales price per item. Both parties will determine the sales price for the sub-licensee by mutual consent which will not be unreasonably withheld.
[*] Confidential portions omitted and filed separately with the Securities and Exchange Commission
3. EXCLUSIVITY
For good and valuable consideration articulated below, DNA Technologies Inc. agrees not to sell, assign, create or produce similar DNA ink product for any other person or entity engaged in, or seeking to be engaged in collectible memorabilia authentication in the United States. This agreement specifically excludes any Movie Studio Property Asset Management Programs and Fine Art. This agreement also excludes relationships currently under discussion namely Disney, George Lucas Productions and Warner Bros. In the event DTI reaches an agreement with Disney Studios or George Lucas Productions, DTI will attempt to structure the agreements to fall within the scope of the PSA/DNA license.
Exclusivity does not apply to the manufacture of new products. For the purpose of this Agreement a collectible will be defined as an item that is at least one year old or has certain added significance due to its actual use or provenance. By mutual consent, items manufactured for the purpose of being a collectible, may from time to time be included in this Agreement.
As consideration for this exclusivity, CU, and DTI agree that CU shall pay DTI the sum of [*], for the licensing rights to the "Products" in the collectible market which will include, but not be limited to the following: all types of memorabilia including music memorabilia, movie memorabilia, celebrity memorabilia, presidential memorabilia, limited edition collectibles, sports memorabilia, etc.
CU & DTI further agree that in order to maintain exclusivity CU will have to ensure that DTI receives the following minimum annual payments under this Agreement:
05/01/1999 - 04/31/2000 $[*] 05/01/2000 - 04/31/2001 $[*] 05/01/2001 - 04/31/2002 $[*] 05/01/2002 - 04/31/2003 $[*] 05/01/2003 - 04/31/2004 $[*] 05/01/2004 - 04/31/2005 $[*] |
The prescribed minimums will continue to increase at a rate of [*] per annum for the term of this Agreement.
4. SUBLICENSING
CU has the right to sub-license within the memorabilia/collectible market. In the event of such an agreement the licensing cost structure will be as described in Paragraph 2 of this Agreement with the exception of high volume sub-licensees for which it may be necessary to provide discount manufacturing pricing. Such pricing to be determined by mutual consent by both parties which will not be unreasonably withheld.
5. PAYMENT
CU shall pay all charges due hereunder within thirty (30) days after the date of DTI's invoice which shall be generated on shipment of the goods, subject to CU's right of inspection as set forth in Section 7 below. Payment shall be made as shown on the invoice. In the event that the purchase
price is not paid in a timely manner, in addition to its other remedies, DTI may impose, and CU shall pay, a late payment charge equal to one percent (1%) per month on overdue amounts.
(a) Amounts owed to DTI shall be computed on the number of Products bearing DTI's DNA encoded ink as marked by CU during each calendar month.
(b) CU shall submit to DTI monthly statements of amounts due and payable to DTI under the terms of this Agreement, with reference to the specific invoices on which the amounts are being paid within fifteen (15) days after the end of the calendar quarter.
(c) DTI shall have the right, at its own expense and not more than once in any four (4) month period to verify the accuracy of amounts paid by CU under the terms of this Agreement. CU shall maintain and make available to DTI accurate books, records, and accounts relating to the business of CU with respect to the Products. If the audit correctly reveals that CU has underpaid DTI by ten percent (10%) or more, then CU shall reimburse DTI for the cost of the audit, in addition to the amount of underpayment.
6. SHIPPING
DTI shall deliver the Goods to CU at its address herein. DTI shall be solely responsible for the expenses associated with shipping. The risk of loss from any casualty to the Goods, regardless of the cause, shall rest with DTI until the delivery of the Goods to CU as set forth herein. DTI will use its discretion in selecting an appropriate transportation method. Risk of loss due to damage or destruction of Products shall be borne by CU after delivery to CU.
7. RIGHT OF INSPECTION
CU shall have the right to inspect the goods on arrival at CU's facility. Within fifteen (15) business days after delivery, CU must give notice to DTI of any claim with respect to the condition, quality or grade of the Goods or non-conformance to this Agreement, specifying the basis of the claim in detail. DTI may, at its option inspect the Goods at CU's facilities to confirm that the Goods do not conform. Failure of CU to comply with these conditions within the time set forth herein shall constitute irrevocable acceptance of the Goods by CU. In the event the Goods do not conform to this Agreement, CU's sole remedy and DTI's sole obligation, shall be at DTI's option to replace the Goods at DTI's expense or credit CU the amount of the purchase price for the non-conforming goods. Return shipping shall be the responsibility of DTI.
8. PRODUCT AVAILABILITY
Under no circumstances shall DTI be responsible to CU or anyone else for its failure to fill accepted orders, or for its delay in filling accepted orders, when such failure or delay is due to strike, accident, labor trouble, acts of nature, freight embargo, civil disturbance, vendor problems or any cause beyond DTI's reasonable control.
9. WARRANTY
DTI warrants that the Goods shall be free of material defects for a period of ninety day inventory period after delivery to CU and items marked with the Products will be warrantied for the
life of the product provided the item is handled in a manner consistent with the normal standards associated with valuable collectibles. If any of the Goods sold hereunder do not conform to this limited warranty, CU shall notify DTI not more than five days following the end of the warranty period and for any Goods that do not conform to this warranty, CU's sole remedy, and DTI's sole obligation, shall be to replace the defective Goods at DTI's expense or to refund the purchase price. EXCEPT AS SET FORTH HEREIN, DTI MAKES NO WARRANTY TO CU WITH RESPECT TO THE GOODS, AND CU DISCLAIMS ALL OTHER WARRANTIES, EXPRESS OR IMPLIED, INCLUDING, WITHOUT LIMITATION, ANY IMPLIED WARRANTY OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE.
Notwithstanding the foregoing, DTI expressly warrants that:
(a) The goods supplied to CU by DTI contain DNA exclusively produced for CU.
10. ADVERTISING AND PROMOTION POLICY
In exchange for a price discount given to CU by DTI in this Agreement, CU shall, at its own expense, vigorously advertise and promote the use of DNA authentication technology in its sports memorabilia products. In no event shall CU make any representation, guarantee or warranty concerning the Products except as expressly described or authorized in writing by DTI. During the term of this Agreement, CU shall state to the public in all communications that mention DNA in connection with its sports memorabilia or authentication protection that the DNA authentication technology is provided by DNA Technologies, Inc., and to advertise such Products under the trademarks, marks, and trade names that DTI may adopt from time to time ("DTI's Trademarks"). All such statements shall be in the same font and size, and in the main body of advertising text. All presentations of DTI's Trademarks that CU intends to use shall first be submitted to DTI for approval (which shall not be unreasonably withheld) of design, color, and other details or shall be exact copies of those used by DTI. Nothing herein shall grant CU any right, title, or interest in DTI's Trademarks. At no time during or after the term of this Agreement shall CU challenge or assist others to challenge DTI's Trademarks or the registration thereof or attempt to register any trademarks, marks or trade names confusingly similar to those of DTI. DTI hereby grants to CU a limited right and non exclusive license to use DTI's name, logo, and trademarks (the "Marks") associated with the Product to perform CU's obligations in this Agreement. CU's license in the Marks shall terminate upon the conclusion of the Agreement. CU shall provide DTI with reasonable proof that advertising and promotion has been completed on a reasonable basis including, but not limited to the following evidence: a copy of the advertisement, catalog, product literature, or electronic media, etc., showing the dates of the distribution and a tear sheet to confirm that the advertisement was run, or in the case of TV and radio stations, a copy of the affidavit or certificate as provided by the station that an advertisement was aired.
11. PRESS RELEASES
Within thirty days of the date of this Agreement, the parties shall jointly prepare and issue a press release announcing the use of DNA by CU for authentication of Sports Memorabilia and generally promoting the Products. Any later press release which refers to the other party or its products must be approved by the other party prior to release.
12. LIMITATION OF LIABILITY
In no event shall DTI be liable for any special, indirect, incidental or consequential damages arising out of or connected with this Agreement or the Goods, regardless of whether a claim is based on contract, tort, strict liability or otherwise, nor shall CU's damages pursuant to any claim hereunder exceed the amount of the purchase price of the Goods which are the subject of this claim.
13. TAXES
CU shall pay or reimburse DTI as appropriate for any sales, use, excise or other tax imposed or levied with respect to the payment of the purchase price for the Goods. In no event shall CU be responsible for any tax imposed upon DTI's income or for the privilege of doing business.
14. TERM AND TERMINATION
Unless earlier terminated as provided below, the term of this Agreement shall commence April 16,1999 and shall continue until April 16, 2005. Thereafter, provided both parties have met all the terms prescribed in this Agreement, the contract shall be renewable for additional three year periods.
(a) CU may terminate this Agreement upon written notice to DTI, upon any of the following events:
(i) failure of DTI to fulfill or perform any one of the duties, obligations or responsibilities of DTI in this Agreement, other than paragraph 3, which failure is not cured with twenty (20) days notice from CU;
(ii) any assignment or attempted assignment by DTI of any interest in this Agreement or delegation of DTI's obligations without CU's written consent, which shall not be unnecessarily withheld;
(iii) failure of DTI for any reason to function in the ordinary course of business; or
(iv) conviction in a court of competent jurisdiction of DTI, or a manager, partner, principal officer or major stockholder of DTI for any violation of law tending, in CU's opinion, to affect adversely the operation or business of DTI or the good name, goodwill, or reputation of CU or DTI.
(b) DTI may terminate this Agreement upon written notice to CU upon any of the following events:
(i) failure of CU to fulfill or perform any one of the duties, obligations or responsibilities of CU in this Agreement, which failure is not cured with twenty (20) days notice from DTI;
(ii) any assignment or attempted assignment by CU of any interest in this Agreement without DTI's written consent, which shall not be unnecessarily withheld;
(iii) failure of CU for any reason to function in the ordinary course of business, including filing bankruptcy;
(iv) conviction in a court of competent jurisdiction of CU, or a manager, partner, principal officer or major stockholder of CU for any violation of law tending, in DTI's opinion, to affect adversely the operation or business of CU or the good name, goodwill, or reputation of DTI, Products of DTI, or CU; or
(v) submission by CU to DTI of false or fraudulent reports or statements, including, without limitation, monthly statements of amounts due and payable to DTI under the terms of this Agreement, or claims for any refund, credit, rebate, incentive, allowance, discount, reimbursement or other payment by DTI.
15. OBLIGATIONS UPON TERMINATION
Immediately upon termination of this Agreement:
(a) All amounts owing by CU to DTI shall, notwithstanding prior terms of sale, become immediately due and payable;
(b) All unshipped orders shall be canceled without liability of either party to the other;
(c) Neither party shall be liable to the other because of such termination for compensation, reimbursement or damages on account of the loss of prospective profits or anticipated sales, or on account of expenditures, investments, lease or commitments in connection with the business or goodwill of DTI or CU or for any other reason whatsoever growing out of such termination;
(d) CU will remove and not thereafter use any sign containing any trade name, logo or trademark of DTI including, but not limited to "DNA" or "DNA Technologies, Inc.," and will immediately destroy all stationery, advertising matter and other printed matter in its possession or under its control containing such name, or any of DTI's trademark, trade names or logos. CU will not at any time after such termination use or permit any such trademark, trade names or logo to be used in any manner in connection with any business conducted by it or in which it may have an interest or otherwise whatsoever as descriptive of or referring to anything other than merchandise or Products of DTI. Regardless of the cause of termination, CU will immediately take all appropriate steps to remove and cancel its listings in telephone books, and other directories, and public records, or elsewhere that contain the DTI's name, logo or trademark. If CU fails to obtain such removals or cancellations promptly, DTI may make application for such removals or cancellations on behalf of PCGS and in CU's name and in such event CU will render every assistance. All of DTI's trademarks, trade names, patents, copyrights, designs, drawings, formulas or other data, photographs, demonstrators, literature, and sales aid of every kind shall remain the property of DTI. Within thirty (30) days after the termination of this Agreement, CU shall return all such items to DTI at CU's expense. CU shall not make or retain any copies of any confidential items or information that may have been entrusted to it.
16. INSOLVENCY
In the event that DTI enters insolvency or bankruptcy proceedings, DTI Company will appoint Gans Ink and Supply Company, a security ink printer in Los Angeles, as an escrow agent, to administer the "Products" and to ensure that there is sufficient product on hand to meet the needs of CU. In addition, Gans Ink and Supply Company will also be provided with the source information for the DTI's products in order to ensure that CU will not be adversely affected by any proceedings against DTI and that there will be a continuous source for the product.
17. CONFLICT OF INTEREST
CU warrants to DTI that it does not currently use or promote any lines or products incorporating DNA in the sports celebrity, sports memorabilia authentication and celebrity market that compete with the Products. During the term of this Agreement and for a period of three (3) years following termination of the Agreement, CU shall not use, promote or otherwise try to sell any products incorporating DNA in the sports celebrity and sports memorabilia authentication market that compete with the Products covered by this Agreement.
18. CONFIDENTIALITY
During this Agreement, each party may disclose to the other information that is confidential and proprietary to the disclosing party ("Confidential Information"). Confidential Information may include, but is not limited to, business plans, marketing plans, financial statements, competitive analysis, market research, product development plans, computer programs, designs, and models, communicated orally, in writing, or by electronic media. Confidential Information disclosed orally or electronically shall be identified as such within five (5) days of disclosure. Confidential Information disclosed in writing shall be marked "Confidential." Each party agrees that it will maintain the Confidential Information of the other party in confidence and shall use such information only for the purposes of this Agreement. Confidential Information may be disclosed by a receiving party within its organization only to specific employees who have a need to know such information for the purposes of this Agreement and who have agreed in writing not to disclose it. Upon expiration or termination of this Agreement, or sooner if demanded by a party, a receiving party shall return to a disclosing party any of the disclosing party's Confidential Information including all copies thereof. The obligations of each party in this section shall continue for a period of five (5) years following the expiration or termination of the Agreement. The obligations of this section shall not apply to any Confidential Information that:
(a) Is or becomes public through no act of a receiving party;
(b) Is rightfully received from a third party without obligations of confidentiality; or
(c) Is independently developed by a receiving party without reference to the other party's Confidential Information.
19. NOTICES
Any notice required by this Agreement, or given in connection with it, shall be in writing and shall be given to the appropriate party by personal delivery or by certified mail, postage prepaid, or recognized overnight delivery services.
If to DTI:
DNA Technologies, Inc.
5777 W. Century Boulevard
Suite 1695
Los Angeles, California 90045
If to CU:
CU, Inc.
P.O. Box 9458
Newport Beach, California 92658
20. GOVERNING LAW
This Agreement shall be construed and enforced in accordance with the laws of the State of California.
21. FINAL AGREEMENT
This Agreement terminates and supersedes all prior understandings or Agreements including the Agreement for the Sale of Goods and Services dated July 22, 1998 on the subject matter hereof. This Agreement may be modified only by a further writing that is duly executed by both parties.
22. SEVERABILITY
If any term of this Agreement is held by a court of competent jurisdiction to be invalid or unenforceable, then this Agreement, including all of the remaining terms, will remain in full force and effect as if such invalid or unenforceable term had never been included.
23. HEADINGS
Headings used in this Agreement are provided for convenience only and shall not be used to construe meaning or intent.
24. JURISDICTION AND VENUE
Jurisdiction and Venue. The courts of Los Angeles County, California shall have exclusive jurisdiction and venue of any controversy or claim arising out of or relating to this agreement, and THE PARTIES IRREVOCABLY WAIVE THEIR RIGHTS TO A TRIAL BY JURY WITH RESPECT TO ANY SUCH CONTROVERSY OR CLAIM. The court shall award to the prevailing
party, in addition to any other relief deemed appropriate, the prevailing party's attorney's fees and costs of litigation, whether or not those are otherwise available to the prevailing party by statute.
25. PREVAILING PARTY CLAUSE
In the event a dispute arises with respect to this Agreement, the party prevailing in such dispute shall be entitled to recover all expenses incurred in connection with, including, without limitation, reasonable attorney's fees and expenses incurred.
26. REPRESENTATION AND WARRANTY
DTI represents and warrants to CU that it is the owner of all right, title and interest in, and to, or otherwise has the right to use, the DNA authentication technology referred to herein, that such DNA authentication technology is covered by patents in the name of DTI, and that this Agreement will grant CU, subject to maintaining the minimum payment schedule set forth herein and to the other terms and conditions of this Agreement, the exclusivity provided in Section 4 hereof.
DTI has the full right and authority to enter into this Agreement without anyone else's consent or concurrence. DTI will, at DTI's sole cost, defend DTI's right, title and interest in the technology, and its right to enter into this Agreement, against any adverse rights or claims, and will fully indemnify and hold harmless CU, its principals, employees and agents and any affiliated or related business entity of CU against all such claims and costs, including attorney's fees.
IN WITNESS WHEREOF, the parties hereto are duly authorized and have caused this Agreement to be executed as of the date first above written.
DNA TECHNOLOGIES, INC. COLLECTORS UNIVERSE, INC. COLLECTORS UNIVERSE, INC.
By: /s/ Deborah Smith By: /s/ David Hall By: /s/ Louis Crain
----------------- -------------------- ---------------------
Deborah Smith David Hall Louis Crain
VP President Chairman C.E.O.
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EXHIBIT 10.12
CONTRIBUTION AND ACQUISITION AGREEMENT
This CONTRIBUTION AND ACQUISITION AGREEMENT (the "Agreement"), is dated as of this 3rd day of February 1999 by and between COLLECTORS UNIVERSE, INC., a Delaware corporation ("CUI"), and HUGH SCONYERS ("Sconyers"), with reference to the following facts and circumstances:
R E C I T A L S
A. Sconyers is the record and beneficial owner of four percent (4%) of the outstanding membership interests of Internet Universe, LLC ("IU"), which is a California limited liability company that was formerly named "Collectors Universe, LLC".
B. CUI has been formed, organized and capitalized under the laws of the State of Delaware for the purposes of effecting the transactions contemplated in this Agreement and the other agreements listed on Exhibit A hereto (the "Other Contribution Agreements") and to conduct such other business and affairs as the Board of Directors of CUI may from time to time find to be in the best interests of CUI.
C. Each of the corporations or other business entities whose shares, ownership interests or assets are being contributed to CUI pursuant to this Agreement and or the Other Contribution Agreements (hereinafter sometimes referred to collectively as the "Founding Companies") is engaged in the business of marketing and selling, or providing services to, businesses that market and sell, Collectibles (as hereinafter defined) at retail establishments, by mail order, at trade shows or auctions or over the internet or by other means of electronic commerce. CUI intends to integrate the products and services offered by each of the Founding Companies in order to expand the sale of their products, increase their efficiencies and reduce their operating costs and increase their presence and expand their sales over the Internet.
D. CUI desires to acquire the Membership Interest in IU owned by Sconyers (the "Sconyers Membership Interest") and Sconyers desires to contribute and transfer and convey the Sconyers Membership Interest to CUI, in exchange for which CUI would issue shares of CUI Common Stock to Sconyers, all on the terms and conditions set forth herein, at or about the same time as and in conjunction with the consummation of the similar transactions contemplated by the Other Contribution Agreements.
E. This Agreement is being entered into by the parties, and the Other Contribution Agreements are being or have been entered into by CUI and the other parties thereto, as part of a unified plan of contribution and exchange of stock (the "Plan") that is intended by the parties to qualify for non-recognition treatment under Section 351 of the Internal Revenue Code of 1986, as amended (the "Code"). However, none of the parties to this Agreement nor any of the parties to the Other Contribution Agreements has made or is making any representations or warranties with respect to whether the transactions being consummated pursuant to and as part of such Plan will comply with the requirements of Code Section 351 or as to the consequences, under applicable federal, state or other tax laws, of such transactions to the parties to this Agreement.
NOW, THEREFORE, in consideration of the foregoing and the respective covenants and promises of each of CUI and Sconyers to the other that are hereinafter set forth, the parties agree as follows:
1. EXCHANGE OF SECURITIES.
1.1 SALE AND TRANSFER OF MEMBERSHIP INTEREST. On the terms and subject to the conditions contained in this Agreement, at the Closing (as hereinafter defined) Sconyers shall sell,
assign, transfer, covey and deliver the Sconyers Membership Interest to CUI, free and clear of any and all liens, claims, encumbrances, pledges, security interests, options, rights of first refusal, community property interests, restrictions and any other adverse interests of any kind or nature whatsoever, and CUI shall acquire and accept the Sconyers Membership Interest from Sconyers.
1.2 ACQUISITION CONSIDERATION. As the consideration for the sale and transfer to CUI of the Sconyers Membership Interest, at the Closing CUI shall issue a total of eighty six thousand one hundred twelve (86,112) shares of Common Stock of CUI (the "CUI Shares" or the "Acquisition Consideration") to Sconyers, provided that Sconyers executes and delivers a stockholders agreement in the form of Exhibit B hereto (the "Stockholders Agreement").
1.3 CLOSING. Subject to the satisfaction or waiver of the conditions set forth in Section 5 hereof, consummation of the transactions contemplated hereby (the "Closing") shall take place at the offices of Stradling Yocca Carlson & Rauth, 660 Newport Center Drive, Suite 1600, Newport Beach, California 92660, on the third (3rd) business day after satisfaction or waiver of such conditions precedent, provided, however, that, if the Closing occurs on or before March 12, 1999, the transactions contemplated hereby shall be effective for accounting purposes as of February 5, 1999 (the "Effective Date"). At the Closing, Sconyers shall execute and deliver to CUI (i) such documents or instruments of assignment as CUI or its counsel may reasonably request to evidence and effectuate the transfer of the Sconyers Membership Interest to CUI in accordance with the terms of this Agreement, (ii) the Stockholders Agreement and (iii) and the other Closing Documents listed on Exhibit C hereto (the "Closing Documents"), and CUI shall execute and deliver to Sconyers a stock certificate evidencing his ownership of the CUI Shares.
1.4 WAIVER OF RIGHT OF PURCHASE OPTION. The parties hereto agree to cooperate with each other in connection with efforts to have IU waive its right of first refusal and purchase option with respect to Sconyers' Membership Interest under Section 8 of IU's Operating Agreement.
2. REPRESENTATIONS AND WARRANTIES OF SCONYERS. Sconyers represents and warrants to CUI as follows:
2.1 AUTHORITY AND CAPACITY. Sconyers has the full legal right and capacity to execute and deliver, and to perform his obligations under this Agreement and the Stockholders Agreement, and has duly executed and delivered this Agreement with the intent to be legally bound hereby. This Agreement constitutes, and upon its execution and delivery the Stockholders Agreement shall constitute, a valid and legally binding obligation of Sconyers that is enforceable against him in accordance with its respective terms, except as such enforceability may be limited by bankruptcy, insolvency, moratorium or other similar laws affecting creditors' rights and by general principles of equity relating to the availability of equitable remedies (regardless of whether any such agreements are sought to be enforced in a proceeding at law or in equity).
2.2 NO CONFLICTS. The execution and delivery and the
performance by Sconyers of this Agreement and the Stockholders Agreement do not
and will not require any consent or approval of any third party (governmental or
other) that has not been obtained and will not result in any of the following:
(i) a termination, or a default or breach, or an event that, with notice or
lapse of time, or both, would be a default or breach, of any contract, lease,
license, promissory note, security or pledge agreement, or any other agreement,
instrument or commitment to which Sconyers is a party or is subject; (ii)
acceleration of any indebtedness owed by Sconyers or the creation or imposition
of any liens, charges or encumbrances on the Sconyers Membership Interest or any
of Sconyers' assets; or (iv) a violation or
breach of any writ, injunction or decree of any court or governmental instrumentality or any laws to which Sconyers is a party or to which he or the Sconyers Membership Interest is subject.
2.3 THE SCONYERS MEMBERSHIP INTEREST. Sconyers has good and marketable title to the Sconyers Membership Interest, free and clear of any and all liens, claims, encumbrances, pledges, security interests, options, rights of first refusal, community property interests, restrictions and any other adverse interests of any kind or nature whatsoever, other than restrictions on the transferability and rights of first refusal that are imposed on the Sconyers Membership Interest by IU's Operating Agreement. Sconyers has not sold, transferred, conveyed, assigned, hypothecated, or granted any security interest in or pledged, or granted any option or right entitling anyone to acquire, the Sconyers Membership Interest, and has not entered into nor is it bound by any agreement, commitment or understanding (written or oral) to do any of the foregoing. The Sconyers Membership Interest is not subject to any liabilities, other than those expressly provided for in the IU Operating Agreement, and no liabilities will arise as a result of or in connection with the consummation of the sale and transfer of the Sconyers Membership Interest by Sconyers to CUI.
2.4 SECURITIES LAW COMPLIANCE. Sconyers represents and warrants that:
(a) He has been advised and understands and agrees that the CUI Shares will not be registered under the Securities Act of 1933, as amended (the "1933 Act"), nor qualified under any state securities laws, on the ground (among others) that no distribution or public offering of the CUI Shares is to be effected in connection with the transactions contemplated herein or by Sconyers and in issuing the CUI Shares to Sconyers, CUI is relying on the accuracy and completeness of the representations and warranties of Sconyers in this Section 2.4.
(b) Sconyers is acquiring the CUI Shares for his own account, and not as an nominee or agent for any other persons or entities, and for investment and not with a view to distribution or resale thereof.
(c) Sconyers acknowledges that he has been informed and understands that no public market for the CUI Shares exists and that there can be no assurance that any such market may develop or exist in the future and, even if a public market does develop, that the CUI Shares may not be sold or transferred except in compliance with the 1933 Act or any exemption thereunder and there is no assurance that any exemption from registration, including Rule 144, under the 1933 Act will become available to permit resales of the CUI Shares.
(d) Sconyers has been furnished with such information regarding CUI and the CUI Shares as he has requested of CUI and has had an opportunity to ask questions of the officers of CUI regarding, and to become informed about, CUI and its business and its consolidated financial condition and results of operations.
(e) Sconyers is an "Accredited Investor" as such term is defined in Regulation D under the 1933 Act.
(f) Sconyers acknowledges and agrees that (i) until the CUI Shares become eligible for resale under Rule 144(k) under the 1933 Act, any proposed sale or other transfer or disposition of any of the CUI Shares, other than pursuant to an effective registration statement under the 1933 Act, may not be made unless and until Sconyers has furnished to CUI an opinion of counsel, reasonably acceptable to CUI and its counsel, to the effect that the proposed sale or other transfer or disposition is exempt from registration under the 1933 Act, and (ii) the CUI Shares will be subject to the Stockholders Agreement referred to in Section 1.2 hereof and, until the Stockholders Agreement has been terminated (A) no sale or other disposition of the CUI Shares may be made except in compliance
therewith and (B) the CUI Shares may be required to be sold in one or more transactions involving sales of shares of CUI initiated by certain other of the CUI Stockholders, all as more fully provided in the Stockholders Agreement. Sconyers has read and understands the Stockholders Agreement.
(g) Sconyers acknowledges and agrees that the certificate representing the CUI Shares shall contain restrictive legends in the forms set forth in the form of Stockholders Agreement attached hereto as Exhibit B or restrictive legends that are substantially similar thereto.
2.5 ACKNOWLEDGEMENTS AND AGREEMENTS REGARDING CUI REPRESENTATIONS. Sconyers acknowledges and agrees that (a) CUI has not made, and is not making, any representations or warranties to Sconyers with respect to (i) the federal, state or local income or other tax consequences to Sconyers of his consummation of the transactions contemplated hereby, or (ii) the future performance of CUI; and (b) in entering into this Agreement and the Stockholders Agreement, he is not relying on any statements or representations or warranties of CUI, or any representations or warranties made or purported to have been made by any officer, director, stockholder, employee or agent of CUI, other than the express representations and warranties of CUI contained in this Agreement.
3. REPRESENTATIONS AND WARRANTIES OF CUI. CUI makes the following representations and warranties to Sconyers as of the date of this Agreement:
3.1 ORGANIZATION. CUI is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware.
3.2 CORPORATE POWER. CUI possesses the requisite corporate power and authority to enter into and perform its obligations under this Agreement. CUI has taken all corporate action and obtained all consents necessary to authorize its execution and delivery of and its performance under this Agreement. This Agreement constitutes, and upon its execution and delivery by CUI the Stockholders Agreement will constitute, valid obligations of CUI that are legally binding on and enforceable against CUI in accordance with their respective terms, except (in each case) as such enforceability may be limited by bankruptcy, insolvency, moratorium or other similar laws affecting creditors' rights, and by general principles of equity relating to the availability of equitable remedies (regardless of whether such agreements are sought to be enforced in a proceeding at law or in equity).
3.3 NO CONFLICTS. The execution and delivery and the performance by CUI of this Agreement and the Stockholders Agreement will not result in any of the following: (i) the termination, or a default or an event that, with notice or lapse of time, or both, would constitute a default, breach or violation, of the Certificate of Incorporation or Bylaws of CUI, any contract, lease, license, promissory note, security or pledge agreement, or other agreement, instrument or commitment to which CUI is a party or is subject and which is material to CUI and its subsidiaries considered as a whole; (ii) the acceleration of the maturity of any indebtedness of CUI that is material to CUI and its subsidiaries considered as a whole; or (iii) a violation or breach of any writ, injunction or decree of any court or governmental instrumentality to which CUI is a party or by which any of its properties is bound or any laws or regulations applicable to CUI, where the violation would have a material adverse effect on CUI and its subsidiaries, considered as a whole.
3.4 CERTIFICATE OF INCORPORATION AND BY-LAWS. CUI has heretofore furnished to Sconyers, a complete and correct copy of its Certificate of Incorporation and By-Laws, as amended to date. Such Certificate of Incorporation and By-Laws are in full force and effect. CUI is not in violation of any of the provisions of its Certificate of Incorporation or By-Laws.
3.5 CAPITALIZATION. As of the date hereof, the authorized capital stock of CUI consists of 30,000,000 shares of Common Stock, par value $.001 per share. On consummation of the transactions contemplated by this Agreement and the Other Contributions Agreements, there will be (i) a total of 19,000,000 fully paid and nonassessable shares of Common Stock that will be issued and outstanding, which will include the CUI Shares being issued under this Agreement; and (ii) ___ shares of Common Stock reserved for issuance on the exercise of stock options (either granted or to be granted in the future).
3.6 FINANCIAL STATEMENTS. CUI has furnished to Sconyers unaudited consolidated financial statements of Professional Coin Grading Service, Inc. ("PCGS") which, on consummation of the transactions contemplated hereby and by the Other Contribution Agreements, will be CUI's predecessor and principal subsidiary, consisting of a balance sheet of PCGS as of June 30,1998 and a related statement of income for the year then ended, and an unaudited balance sheet as of, and related unaudited statement of income of PCGS for the six months ended, December 31, 1998, all of which have been prepared by PCGS (collectively, the "PCGS Financial Statements"). Except as otherwise set forth in Schedule 3.6 of the CUI Disclosure Schedules or in the footnotes contained in the PCGS Financial Statements, such Financial Statements fairly present, in all material respects, the financial position of PCGS as at, and the respective results of operations of PCGS for the year ended June 30, 1998 and the six months ended December 31, 1998, respectively. Except as set forth in Schedule 3.6 hereto, since December 31, 1998, there has not been a material adverse change in the financial condition or results of operations of PCGS.
3.7 THE CUI SHARES. The CUI Shares to be issued by CUI to Sconyers pursuant to Section 1.2 of this Agreement shall be, at the time of such issuance, duly authorized, validly issued, fully paid and non-assessable and free of preemptive rights under the charter documents or other agreements of CUI to which the shares of capital stock of CUI are subject, except for any preemptive rights and rights of first refusal under the Stockholders Agreement.
4. ACTIONS TO BE TAKEN PENDING AND AFTER THE CLOSING
4.1 PROHIBITED ACTIONS. Between the date hereof and the earlier of the consumation of the Closing or termination of this Agreement, Sconyers agrees not to take any action which he knows, or reasonably should know, would (i) make any of his respective representations or warranties contained in this Agreement untrue or incorrect, or (ii) prevent or interfere with the performance by Sconyers of any of his covenants contained in this Agreement. Sconyers also covenants and agrees that he will not grant any options or rights to acquire, or pledge or permit the imposition of any liens or encumbrances on or hypothecate, the Sconyers Membership Interest either in whole or in part, and he will not enter into any agreement or understanding, written or oral, that provides therefor.
4.2 ACCESS TO INFORMATION. During the period from the date hereof and continuing until the earlier of the completion of the Closing or termination of this Agreement, CUI, upon reasonable notice, and subject to the provisions of Section 4.6 hereof, shall (i) furnish Sconyers and his accountants, counsel and other representatives, reasonable access, during the period between the date hereof and continuing until the earlier of the Closing or termination of this Agreement, to all of CUI's and PCGS' properties, books, contracts, commitments and records (ii) promptly furnish to Sconyers such other information concerning the business, properties and personnel of CUI and PCGS as Sconyers may reasonably request, and (iii) make available to Sconyers the appropriate individuals (including attorneys, accountants and other professionals) at CUI for a discussion of the business, properties and personnel of CUI and PCGS as Sconyers may reasonably request.
4.3 CONSENTS; APPROVALS. Sconyers and CUI shall each use his or its (as the case may be) best reasonable efforts to obtain all consents, waivers, approvals, authorizations or orders (including, without limitation, all governmental and regulatory rulings and approvals), and Sconyers and CUI shall make all filings (including, without limitation, all filings with governmental or regulatory agencies) required in connection with the authorization, execution and delivery of this Agreement by and the consummation of the transactions contemplated hereby. Sconyers and CUI shall furnish all information required to be included in any applications or other filings to be made pursuant to the rules and regulations of any governmental body in connection with the transactions contemplated by this Agreement.
4.4 NOTIFICATION OF CERTAIN MATTERS. Sconyers shall give prompt notice to CUI, and CUI shall give prompt notice to Sconyers of (i) the occurrence or nonoccurrence of any event which would be likely to cause any representation or warranty made by such party in this Agreement to be materially untrue or inaccurate, or (ii) any failure of Sconyers or CUI materially to comply with or satisfy any covenant, condition or agreement to be complied with or satisfied by him or it hereunder; provided, however, that the delivery of any notice pursuant to this Section shall not limit or otherwise affect the remedies available hereunder to the party receiving such notice.
4.5 FURTHER ACTION. On the terms and subject to the conditions hereof, each of the parties hereto shall use all reasonable efforts to take, or cause to be taken, all actions, and to do, or cause to be done, all other things necessary, proper or advisable to consummate and make effective as promptly as practicable the transactions contemplated by this Agreement, to obtain in a timely manner all necessary waivers, consents and approvals and to effect all necessary registrations and filings, and otherwise to satisfy or cause to be satisfied all conditions precedent to its obligations under this Agreement. From and after the Closing, each party shall take such actions and execute such documents and instruments as any other party may reasonably request to better evidence or effectuate the transactions contemplated by this Agreement or the Exhibits hereto.
4.6 CONFIDENTIAL INFORMATION. Sconyers acknowledges that he or any of his agents or advisors ("Representatives") may be given, by CUI or PCGS (each, a "disclosing party") or any of such disclosing party's Representatives, access to various items of proprietary and confidential information of the disclosing party in the course of investigations and negotiations prior to Closing. Sconyers agrees that such confidential information shall be kept strictly confidential by him and his Representatives and shall not be used for any purpose other than to facilitate the consummation of the transactions contemplated herein. Confidential information shall include any proprietary business or other information which is delivered (orally or in writing) or to which access is given by a disclosing party or any of its Representatives to Sconyers or any of his Representatives, and any such information that is included in or incorporated into any notes, analyses, memoranda, projections or other documents that are prepared by Sconyers or any of his Representatives, unless such information (a) is already of public knowledge, or (b) becomes of public knowledge through no fault, action or inaction of the receiving party or its Representatives, or (c) is demonstrated convincingly by Sconyers to have been known by him or any of his Representatives prior to the disclosure of such information by the disclosing party to him or his Representatives, unless such knowledge was acquired from a person who Sconyers or his Representatives knew or reasonably should have known was subject, at the time of such disclosure, to a fiduciary or other duty of non-disclosure to the disclosing party. Except as permitted by Section 4.6, neither Sconyers nor his Representatives shall intentionally disclose any confidential information of CUI or PCGS to any third person; provided, however, that such information may be disclosed (i) with the written consent of CUI, (ii) in applications or requests required to be made to obtain licenses, permits, approvals or consents needed to consummate the transactions contemplated herein, (iii) to Sconyers' professional advisors who need to know such information in connection with the consummation of the
transactions contemplated hereby, or (iv) pursuant to court order or subpoena, provided, however, that if Sconyers or any of his Representatives is served with a court order or subpoena that would require the disclosure of any of the confidential information of a disclosing party, Sconyers or such Representative so served (as the case may be) shall promptly, but in any event within three (3) days thereafter, notify CUI thereof and shall provide reasonable cooperation, at CUI's expense, with any efforts that CUI may undertake to quash such court order or subpoena or obtain a protective order with respect to the disclosure and use of such confidential information. The restrictions and obligations contained in this Section 4.6 shall survive the consummation of the transactions contemplated hereby and any termination of this Agreement.
5. CONDITIONS PRECEDENT
5.1 CONDITIONS TO OBLIGATIONS OF EACH PARTY TO CONSUMMATE TRANSACTIONS. The performance by each party of its respective obligations under this Agreement shall be subject to the satisfaction, at or prior to the Closing Date, of each of the following conditions unless waived in writing by such party:
(a) Absence of Injunctions or Restraints; Illegality. No temporary restraining order, preliminary or permanent injunction or other order issued by any court of competent jurisdiction or other legal restraint or prohibition preventing the consummation of the transactions contemplated hereby shall be in effect, nor shall any proceeding brought by any administrative agency or commission or other governmental authority or instrumentality, domestic or foreign, seeking any of the foregoing be pending; and there shall not be any action taken, or any statute, rule, regulation or order enacted, entered, enforced or deemed applicable to the transactions contemplated hereby which makes their consummation illegal.
(b) Governmental Actions. There shall not have been instituted, pending or threatened, in writing, any action or proceeding (or any investigation or other inquiry that might result in such an action or proceeding) by any governmental authority or administrative agency before any governmental authority, administrative agency or court of competent jurisdiction, nor shall there be in effect any judgment, decree or order of any governmental authority, administrative agency or court of competent jurisdiction, in either case, seeking to prohibit or limit CUI, following the Closing, from exercising any of the material rights and privileges pertaining to its ownership of the Sconyers Membership Interest.
(c) Consents Obtained. All material consents, waivers, approvals, authorizations or orders required to be obtained by CUI, Sconyers or IU for the authorization, execution and delivery of this Agreement and the consummation by each such party of the transactions contemplated hereby shall have been obtained by CUI, IU or Sconyers (as the case may be).
5.2 ADDITIONAL CONDITIONS TO OBLIGATIONS OF CUI. The obligations of CUI to consummate its acquisition of the Sconyers Membership Interest and to perform its other obligations under this Agreement also are subject to the following conditions:
(a) Accuracy of Representations and Warranties. The
representations and warranties of Sconyers contained in this Agreement shall be
true and correct in all material respects on and as of the Closing Date, with
the same force and effect as if made on and as of the Closing Date, except for
(i) changes contemplated by this Agreement, and (ii) those representations and
warranties which address matters only as of a particular date (which shall have
been true and correct as of such date, and CUI shall have received a certificate
to such effect signed by Sconyers.
(b) Performance of Covenants. Sconyers shall have performed or complied in all material respects with all agreements and covenants required by this Agreement to be performed or complied with by him on or prior to the Closing Date, including the execution and delivery of the Stockholders Agreement, and CUI shall have received a certificate to such effect signed by Sconyers.
(c) Consummation of Other Transactions. The transactions contemplated by the Other Contribution Agreements shall have been consummated at or about the same time as the Closing hereunder.
(d) Additional Instruments. CUI shall have received the Closing Documents listed on Exhibit C hereto and such other instruments and documents as CUI or its counsel reasonably deems to be necessary.
5.3 ADDITIONAL CONDITIONS TO OBLIGATIONS OF SCONYERS. The obligation of Sconyers to consummate his obligations under this Agreement is also subject to the following conditions:
(a) Accuracy of Representations and Warranties. The
representations and warranties of CUI contained in this Agreement shall be true
and correct in all material respects on and as of the Closing Date, with the
same force and effect as if made on and as of the Closing Date, except for (i)
changes contemplated by this Agreement or in the CUI Disclosure Schedules, and
(ii) those representations and warranties which address matters only as of a
particular date (which shall have been true and correct as of such date, and
Sconyers shall have received a certificate to such effect signed by the
President of CUI.
(b) Agreements and Covenants. CUI shall have performed or complied in all material respects with all agreements and covenants required by this Agreement to be performed or complied with by it on or prior to the Closing Date, and Sealers shall have received a certificate to such effect signed by the President of CUI.
(c) Additional Instruments. Sconyers shall have received the additional Closing Documents listed on Exhibit C hereto and such other instruments and documents as Sconyers or his counsel reasonably deems to be necessary.
6. TERMINATION
6.1 Termination. This Agreement may be terminated and the transactions herein contemplated may be abandoned at any time prior to the Closing:
(a) By mutual written consent of CUI and Sconyers; or
(b) By CUI, if any of the conditions to its obligations set forth in Section 5 of this Agreement shall not have been satisfied, or waived by CUI in writing, prior to March __, 1999;
(c) By Sconyers if any of the conditions set forth in
Section 5 of this Agreement to his obligations shall not have been satisfied, or
waived in writing by Sconyers, prior to March __, 1999;
Provided, that in each of the foregoing cases the party so terminating is not in breach of any of its material obligations or representations or warranties under this Agreement.
6.2 Procedure Upon Termination. Any termination and abandonment by CUI or Sconyers, or both, pursuant to Section 6.1 hereof, shall be effective on written notice thereof from the terminating party to the other parties and upon any such termination:
(a) Each party will redeliver all documents, workpapers and other material of any other party relating to the transactions contemplated hereby, whether so obtained before or after the execution hereof, to the party furnishing the same;
(b) The obligations of confidentiality set forth in
Section 4.6 hereof shall continue despite such termination; and
(c) The parties shall be relieved of any obligation to consummate the transactions contemplated hereby, but none of the parties shall be relieved of any liability for its breach or default under this Agreement.
7. SURVIVAL OF REPRESENTATIONS AND WARRANTIES
Regardless of any due diligence or other investigation, either prior to or after the Closing, or any verification or approval by any party hereto or by anyone or on behalf of any party hereto, all of the representations and warranties set forth in this Agreement or in any certificates delivered pursuant hereto shall remain in full force and effect and shall survive the Closing until the expiration of three (3) years from the Closing Date, except that (i) Sconyers' representations and warranties contained in Sections 2.1 and 2.3, and the representations and warranties of CUI contained in Sections 3.1, 3.5 and 3.7, shall survive for a period of seven (7) years following the Closing. All covenants which by their terms require performance or compliance following the Closing shall remain in full force and effect and shall survive the Closing until they have been fully performed and discharged.
8. MISCELLANEOUS.
8.1 ASSIGNMENT. No party may assign this Agreement, or assign its rights or delegate its duties hereunder, without the prior written consent of the other party.
8.2 SEVERABILITY. Any provision of this Agreement which is illegal, invalid or unenforceable shall be ineffective to the extent of such illegality, invalidity or unenforceability, without affecting in any way the remaining provisions hereof.
8.3 GOVERNING LAW. This Agreement is deemed to have been made in the State of California, and its interpretation, its construction and the remedies for its enforcement or breach are to be applied pursuant to, and in accordance with, the laws of the State of California for contracts made and to be performed in that state. In the event any party hereto is required to initiate any legal action or proceeding to enforce its rights hereunder, such action or proceeding shall be brought and maintained exclusively in the Superior Court for the County of Orange, in California and each party agrees to accept, and not to challenge, the jurisdiction of such court over the parties and the subject matter of such action or proceeding or the convenience of the forum and to accept and not to challenge the adequacy of service by certified or registered mail. The prevailing party in any such action or proceeding shall be entitled to recover its reasonable attorneys fees and disbursements, expert witness fees and disbursements and other costs of suit from the non-prevailing party. TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, EACH PARTY HEREBY EXPRESSLY WAIVES ITS RIGHT TO A JURY TRIAL IN ANY SUCH ACTION OR PROCEEDING, IRRESPECTIVE OF WHICHEVER PARTY MAY BRING ANY SUCH ACTION OR PROCEEDING.
8.4 ENTIRE AGREEMENT; AMENDMENT. This Agreement, and the Exhibits and Schedules hereto, constitute all of the agreements of the parties with respect to, and supersede all prior agreements and understandings relating to the subject matter of, this Agreement or the transactions contemplated by this Agreement. This Agreement may not be modified or amended except by a written instrument specifically referring to this Agreement signed by the parties hereto.
8.5 WAIVER. No waiver by one party of the other party's obligations, or of any breach or default hereunder by any other party, shall be valid or effective, unless such waiver is set forth in writing and is signed by the party giving such waiver; and no such waiver shall be deemed a waiver of any subsequent breach or default of the same or similar nature or any breach or default by such other party of any of the other provisions of this Agreement.
8.6 INTERPRETATION; HEADINGS. This Agreement is the result of arms'-length negotiations between the parties hereto and no provision hereof, because of any ambiguity found to be contained therein or otherwise, shall be construed against a party by reason of the fact that such party or its legal counsel was the draftsman of that provision. The section, subsection and any paragraph headings contained herein are for the purpose of convenience only and are not intended to define, limit or affect, and shall not be considered in connection with, the interpretation of any of the terms or provisions of this Agreement.
8.7 NOTICES. All notices and other communications given or made pursuant hereto shall be in writing and shall be deemed to have been duly given or made if and when delivered personally or by overnight courier to the parties at the addresses set forth on Exhibit D hereto or sent by electronic transmission, with confirmation received, to the telecopy numbers specified on that Exhibit (or at such other address or telecopy number for a party as shall be specified by like notice).
8.8 COUNTERPARTS. This Agreement may be executed in separate counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument.
IN WITNESS WHEREOF, the undersigned have executed this Agreement on the date first above stated.
SCONYERS: CUI:
COLLECTORS UNIVERSE, INC.
EXHIBIT 10.13
CONTRIBUTION AND ACQUISITION AGREEMENT
This CONTRIBUTION AND ACQUISITION AGREEMENT (the "Agreement"), is made as of this 3rd day of February 1999 by and between COLLECTORS UNIVERSE, INC., a Delaware corporation ("CUI"), and BJ SEARLS ("Searls"), with reference to the following facts and circumstances:
R E C I T A L S
A. Searls is the record and beneficial owner of one percent (1%) of the outstanding membership interests of Internet Universe, LLC ("IU"), which is a California limited liability company that was formerly named "Collectors Universe, LLC."
B. CUI has been formed, organized and capitalized under the laws of the State of Delaware for the purposes of effecting the transactions contemplated in this Agreement and the other agreements listed on Exhibit A hereto (the "Other Contribution Agreements") and to conduct such other business and affairs as the Board of Directors of CUI may from time to time find to be in the best interests of CUI.
C. Each of the corporations or other business entities whose shares, ownership interests or assets are being contributed to CUI pursuant to this Agreement and or the Other Contribution Agreements (hereinafter sometimes referred to collectively as the "Founding Companies") is engaged in the business of marketing and selling, or providing services to, businesses that market and sell, Collectibles (as hereinafter defined) at retail establishments, by mail order, at trade shows or auctions or over the internet or by other means of electronic commerce. CUI intends to integrate the products and services offered by each of the Founding Companies in order to expand the sale of their products, increase their efficiencies and reduce their operating costs and increase their presence and expand their sales over the Internet.
D. CUI desires to acquire the Membership Interest in IU owned by Searls (the "Searls Membership Interest") and Searls desires to contribute and transfer and convey the Searls Membership Interest to CUI, in exchange for which CUI would issue shares of CUI Common Stock to Searls, all on the terms and conditions set forth herein, at or about the same time as and in conjunction with the consummation of the similar transactions contemplated by the Other Contribution Agreements.
E. This Agreement is being entered into by the parties, and the Other Contribution Agreements are being or have been entered into by CUI and the other parties thereto, as part of a unified plan of contribution and exchange of stock (the "Plan") that is intended by the parties to qualify for non-recognition treatment under Section 351 of the Internal Revenue Code of 1986, as amended (the "Code"). However, none of the parties to this Agreement nor any of the parties to the Other Contribution Agreements has made or is making any representations or warranties with respect to whether the transactions being consummated pursuant to and as part of such Plan will comply with the requirements of Code Section 351 or as to the consequences, under applicable federal, state or other tax laws, of such transactions to the parties to this Agreement.
NOW, THEREFORE, in consideration of the foregoing and the respective covenants and promises of each of CUI and Searls to the other that are hereinafter set forth, the parties agree as follows:
1. EXCHANGE OF SECURITIES.
1.1 SALE AND TRANSFER OF MEMBERSHIP INTEREST. On the terms and subject to the conditions contained in this Agreement, at the Closing (as hereinafter defined) Searls shall contribute, assign, transfer, covey and deliver the Searls Membership Interest to CUI, free and clear of any and all liens, claims, encumbrances, pledges, security interests, options, rights of first refusal, community
property interests, restrictions and any other adverse interests of any kind or nature whatsoever, and CUI shall acquire and accept the Searls Membership Interest from Searls.
1.2 ACQUISITION CONSIDERATION. As the consideration for the sale and transfer to CUI of the Searls Membership Interest, at the Closing CUI shall issue a total of twenty-one thousand five hundred eighty five (21,585) shares of common stock of CUI (the "CUI Shares" or the "Acquisition Consideration") to Searls, provided that Searls executes and delivers a stockholders agreement in the form of Exhibit B hereto (the "Stockholders Agreement").
1.3 CLOSING. Subject to the satisfaction or waiver of the
conditions set forth in Section 5 hereof, consummation of the transactions
contemplated hereby (the "Closing") shall take place at the offices of Stradling
Yocca Carlson & Rauth, 660 Newport Center Drive, Suite 1600, Newport Beach,
California 92660, on the third (3rd) business day after satisfaction or waiver
of such conditions precedent, provided, however, that, if the Closing occurs on
or before ________ __, 1999, the transactions contemplated hereby shall be
effective for accounting purposes as of February 5, 1999 (the "Effective Date").
At the Closing, Searls shall execute and deliver to CUI (i) such documents or
instruments of assignment as CUI or its counsel may reasonably request to
evidence and effectuate the transfer of the Searls Membership Interest to CUI in
accordance with the terms of this Agreement, (ii) the Stockholders Agreement and
(iii) and the other Closing Documents listed on Exhibit C hereto (the "Closing
Documents"), and CUI shall execute and deliver to Searls a stock certificate
evidencing her ownership of the CUI Shares.
1.4 WAIVER OF RIGHT OF PURCHASE OPTION. The parties hereto agree to cooperate with each other in connection with efforts to have IU waive its right of first refusal and purchase option with respect to Searls' Membership Interest under Section 8 of IU's Operating Agreement.
2. REPRESENTATIONS AND WARRANTIES OF SEARLS. Searls represents and warrants to CUI as follows:
2.1 AUTHORITY AND CAPACITY. Searls has the full legal right and capacity to execute and deliver, and to perform her obligations under this Agreement and the Stockholders Agreement, and has duly executed and delivered this Agreement with the intent to be legally bound hereby. This Agreement constitutes, and upon its execution and delivery the Stockholders Agreement shall constitute, a valid and legally binding obligation of Searls that is enforceable against her in accordance with its respective terms, except as such enforceability may be limited by bankruptcy, insolvency, moratorium or other similar laws affecting creditors' rights and by general principles of equity relating to the availability of equitable remedies (regardless of whether any such agreements are sought to be enforced in a proceeding at law or in equity).
2.2 NO CONFLICTS. The execution and delivery and the
performance by Searls of this Agreement and the Stockholders Agreement do not
and will not require any consent or approval of any third party (governmental or
other) that has not been obtained and will not result in any of the following:
(i) a termination, or a default or breach, or an event that, with notice or
lapse of time, or both, would be a default or breach, of any contract, lease,
license, promissory note, security or pledge agreement, or any other agreement,
instrument or commitment to which Searls is a party or is subject; (ii)
acceleration of any indebtedness owed by Searls or the creation or imposition of
any liens, charges or encumbrances on the Searls Membership Interest or any of
Searls' assets; or (iv) a violation or breach of any writ, injunction or decree
of any court or governmental instrumentality or any laws to which Searls is a
party or to which she or the Searls Membership Interest is subject.
2.3 THE SEARLS MEMBERSHIP INTEREST. Searls has good and marketable title to the Searls Membership Interest, free and clear of any and all liens, claims, encumbrances, pledges, security interests, options, rights of first refusal, community property interests, restrictions and any other adverse interests of any kind or nature whatsoever, other than restrictions on the transferability and rights of first refusal that are imposed on the Searls Membership Interest by IU's Operating Agreement. Searls has not sold, transferred, conveyed, assigned, hypothecated, or granted any security interest in or pledged, or granted any option or right entitling anyone to acquire, the Searls Membership Interest, and has not entered into nor is it bound by any agreement, commitment or understanding (written or oral) to do any of the foregoing. The Searls Membership Interest is not subject to any liabilities, other than those expressly provided for in the IU Operating Agreement, and no liabilities will arise as a result of or in connection with the consummation of the sale and transfer of the Searls Membership Interest by Searls to CUI.
2.4 SECURITIES LAW COMPLIANCE. Searls represents and warrants that:
(a) She has been advised and understands and agrees that the CUI Shares will not be registered under the Securities Act of 1933, as amended (the "1933 Act"), nor qualified under any state securities laws, on the ground (among others) that no distribution or public offering of the CUI Shares is to be effected in connection with the transactions contemplated herein or by Searls and in issuing the CUI Shares to Searls, CUI is relying on the accuracy and completeness of the representations and warranties of Searls in this Section 2.4.
(b) Searls is acquiring the CUI Shares for her own account, and not as an nominee or agent for any other persons or entities, and for investment and not with a view to distribution or resale thereof.
(c) Searls acknowledges that she has been informed and understands that no public market for the CUI Shares exists and that there can be no assurance that any such market may develop or exist in the future and, even if a public market does develop, that the CUI Shares may not be sold or transferred except in compliance with the 1933 Act or any exemption thereunder and there is no assurance that any exemption from registration, including Rule 144, under the 1933 Act will become available to permit resales of the CUI Shares.
(d) Searls has been furnished with such information regarding CUI and the CUI Shares as she has requested of CUI and has had an opportunity to ask questions of the officers of CUI regarding, and to become informed about, CUI and its business and its consolidated financial condition and results of operations.
(e) Searls is an "Accredited Investor" as such term is defined in Regulation D under the 1933 Act.
(f) Searls acknowledges and agrees that (i) until the CUI Shares become eligible for resale under Rule 144(k) under the 1933 Act, any proposed sale or other transfer or disposition of any of the CUI Shares, other than pursuant to an effective registration statement under the 1933 Act, may not be made unless and until Searls has furnished to CUI an opinion of counsel, reasonably acceptable to CUI and its counsel, to the effect that the proposed sale or other transfer or disposition is exempt from registration under the 1933 Act, and (ii) the CUI Shares will be subject to the Stockholders Agreement referred to in Section 1.2 hereof and, until the Stockholders Agreement has been terminated (A) no sale or other disposition of the CUI Shares may be made except in compliance therewith and (B) the CUI Shares may be required to be sold in one or more transactions involving sales of shares of CUI initiated by certain other of the CUI Stockholders, all as more fully provided in the Stockholders Agreement. Searls has read and understands the Stockholders Agreement.
(g) Searls acknowledges and agrees that the certificate representing the CUI Shares shall contain restrictive legends in the forms set forth in the form of Stockholders Agreement attached hereto as Exhibit B or restrictive legends that are substantially similar thereto.
2.5 ACKNOWLEDGEMENTS AND AGREEMENTS REGARDING CUI REPRESENTATIONS. Searls acknowledges and agrees that (a) CUI has not made, and is not making, any representations or warranties to Searls with respect to (i) the federal, state or local income or other tax consequences to Searls of her consummation of the transactions contemplated hereby, or (ii) the future performance of CUI; and (b) in entering into this Agreement and the Stockholders Agreement, she is not relying on any statements or representations or warranties of CUI, or any representations or warranties made or purported to have been made by any officer, director, stockholder, employee or agent of CUI, other than the express representations and warranties of CUI contained in this Agreement.
3. REPRESENTATIONS AND WARRANTIES OF CUI. CUI makes the following representations and warranties to Searls as of the date of this Agreement:
3.1 ORGANIZATION. CUI is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware.
3.2 CORPORATE POWER. CUI possesses the requisite corporate power and authority to enter into and perform its obligations under this Agreement. CUI has taken all corporate action and obtained all consents necessary to authorize its execution and delivery of and its performance under this Agreement. This Agreement constitutes, and upon its execution and delivery by CUI the Stockholders Agreement will constitute, valid obligations of CUI that are legally binding on and enforceable against CUI in accordance with their respective terms, except (in each case) as such enforceability may be limited by bankruptcy, insolvency, moratorium or other similar laws affecting creditors' rights, and by general principles of equity relating to the availability of equitable remedies (regardless of whether such agreements are sought to be enforced in a proceeding at law or in equity).
3.3 NO CONFLICTS. The execution and delivery and the performance by CUI of this Agreement and the Stockholders Agreement will not result in any of the following: (i) the termination, or a default or an event that, with notice or lapse of time, or both, would constitute a default, breach or violation, of the Certificate of Incorporation or Bylaws of CUI, any contract, lease, license, promissory note, security or pledge agreement, or other agreement, instrument or commitment to which CUI is a party or is subject and which is material to CUI and its subsidiaries considered as a whole; (ii) the acceleration of the maturity of any indebtedness of CUI that is material to CUI and its subsidiaries considered as a whole; or (iii) a violation or breach of any writ, injunction or decree of any court or governmental instrumentality to which CUI is a party or by which any of its properties is bound or any laws or regulations applicable to CUI, where the violation would have a material adverse effect on CUI and its subsidiaries, considered as a whole.
3.4 CERTIFICATE OF INCORPORATION AND BY-LAWS. CUI has heretofore furnished to Searls, a complete and correct copy of its Certificate of Incorporation and By-Laws, as amended to date. Such Certificate of Incorporation and By-Laws are in full force and effect. CUI is not in violation of any of the provisions of its Certificate of Incorporation or By-Laws.
3.5 CAPITALIZATION. As of the date hereof, the authorized capital stock of CUI consists of 30,000,000 shares of Common Stock, par value $.001 per share. On consummation of the transactions contemplated by this Agreement and the Other Contributions Agreements, there will be (i) a total of 19,000,000 fully paid and nonassessable shares of Common Stock that will be issued and outstanding, which will include the CUI Shares being issued under this Agreement; and (ii) ___ shares of
Common Stock reserved for issuance on the exercise of stock options (either granted or to be granted in the future).
3.6 FINANCIAL STATEMENTS. CUI has furnished to Searls unaudited consolidated financial statements of Professional Coin Grading Service, Inc. ("PCGS") which, on consummation of the transactions contemplated hereby and by the Other Contribution Agreements, will be CUI's predecessor and principal subsidiary, consisting of a balance sheet of PCGS as of June 30,1998 and a related statement of income for the year then ended, and an unaudited balance sheet as of, and related unaudited statement of income of PCGS for the six months ended, December 31, 1998, all of which have been prepared by PCGS (collectively, the "PCGS Financial Statements"). Except as otherwise set forth in Schedule 3.6 of the CUI Disclosure Schedules or in the footnotes contained in the PCGS Financial Statements, such Financial Statements fairly present, in all material respects, the financial position of PCGS as at, and the respective results of operations of PCGS for the year ended June 30, 1998 and the six months ended December 31, 1998, respectively. Except as set forth in Schedule 3.6 hereto, since December 31, 1998, there has not been a material adverse change in the financial condition or results of operations of PCGS.
3.7 THE CUI SHARES. The CUI Shares to be issued by CUI to Searls pursuant to Section 1.2 of this Agreement shall be, at the time of such issuance, duly authorized, validly issued, fully paid and non-assessable and free of preemptive rights under the charter documents or other agreements of CUI to which the shares of capital stock of CUI are subject, except for any preemptive rights and rights of first refusal under the Stockholders Agreement.
4. ACTIONS TO BE TAKEN PENDING AND AFTER THE CLOSING
4.1 PROHIBITED ACTIONS. Between the date hereof and the earlier of the consumation of the Closing or termination of this Agreement, Searls agrees not to take any action which she knows, or reasonably should know, would (i) make any of her respective representations or warranties contained in this Agreement untrue or incorrect, or (ii) prevent or interfere with the performance by Searls of any of her covenants contained in this Agreement. Searls also covenants and agrees that she will not grant any options or rights to acquire, or pledge or permit the imposition of any liens or encumbrances on or hypothecate, the Searls Membership Interest either in whole or in part, and she will not enter into any agreement or understanding, written or oral, that provides therefor.
4.2 ACCESS TO INFORMATION. During the period from the date hereof and continuing until the earlier of the completion of the Closing or termination of this Agreement, CUI, upon reasonable notice, and subject to the provisions of Section 4.6 hereof, shall (i) furnish Searls and her accountants, counsel and other representatives, reasonable access, during the period between the date hereof and continuing until the earlier of the Closing or termination of this Agreement, to all of CUI's and PCGS' properties, books, contracts, commitments and records (ii) promptly furnish to Searls such other information concerning the business, properties and personnel of CUI and PCGS as Searls may reasonably request, and (iii) make available to Searls the appropriate individuals (including attorneys, accountants and other professionals) at CUI for a discussion of the business, properties and personnel of CUI and PCGS as Searls may reasonably request.
4.3 CONSENTS; APPROVALS. Searls and CUI shall each use her or its (as the case may be) best reasonable efforts to obtain all consents, waivers, approvals, authorizations or orders (including, without limitation, all governmental and regulatory rulings and approvals), and Searls and CUI shall make all filings (including, without limitation, all filings with governmental or regulatory agencies) required in connection with the authorization, execution and delivery of this Agreement by and the consummation of the transactions contemplated hereby. Searls and CUI shall furnish all information
required to be included in any applications or other filings to be made pursuant to the rules and regulations of any governmental body in connection with the transactions contemplated by this Agreement.
4.4 NOTIFICATION OF CERTAIN MATTERS. Searls shall give prompt notice to CUI, and CUI shall give prompt notice to Searls of (i) the occurrence or nonoccurrence of any event which would be likely to cause any representation or warranty made by such party in this Agreement to be materially untrue or inaccurate, or (ii) any failure of Searls or CUI materially to comply with or satisfy any covenant, condition or agreement to be complied with or satisfied by her or it hereunder; provided, however, that the delivery of any notice pursuant to this Section shall not limit or otherwise affect the remedies available hereunder to the party receiving such notice.
4.5 FURTHER ACTION. On the terms and subject to the conditions hereof, each of the parties hereto shall use all reasonable efforts to take, or cause to be taken, all actions, and to do, or cause to be done, all other things necessary, proper or advisable to consummate and make effective as promptly as practicable the transactions contemplated by this Agreement, to obtain in a timely manner all necessary waivers, consents and approvals and to effect all necessary registrations and filings, and otherwise to satisfy or cause to be satisfied all conditions precedent to its obligations under this Agreement. From and after the Closing, each party shall take such actions and execute such documents and instruments as any other party may reasonably request to better evidence or effectuate the transactions contemplated by this Agreement or the Exhibits hereto.
4.6 CONFIDENTIAL INFORMATION. Searls acknowledges that she or any of her agents or advisors ("Representatives") may be given, by CUI or PCGS (each, a "disclosing party") or any of such disclosing party's Representatives, access to various items of proprietary and confidential information of the disclosing party in the course of investigations and negotiations prior to Closing. Searls agrees that such confidential information shall be kept strictly confidential by her and her Representatives and shall not be used for any purpose other than to facilitate the consummation of the transactions contemplated herein. Confidential information shall include any proprietary business or other information which is delivered (orally or in writing) or to which access is given by a disclosing party or any of its Representatives to Searls or any of her Representatives, and any such information that is included in or incorporated into any notes, analyses, memoranda, projections or other documents that are prepared by Searls or any of her Representatives, unless such information (a) is already of public knowledge, or (b) becomes of public knowledge through no fault, action or inaction of the receiving party or its Representatives, or (c) is demonstrated convincingly by Searls to have been known by her or any of her Representatives prior to the disclosure of such information by the disclosing party to her or her Representatives, unless such knowledge was acquired from a person who Searls or her Representatives knew or reasonably should have known was subject, at the time of such disclosure, to a fiduciary or other duty of non-disclosure to the disclosing party. Except as permitted by Section 4.6, neither Searls nor her Representatives shall intentionally disclose any confidential information of CUI or PCGS to any third person; provided, however, that such information may be disclosed (i) with the written consent of CUI, (ii) in applications or requests required to be made to obtain licenses, permits, approvals or consents needed to consummate the transactions contemplated herein, (iii) to Searls' professional advisors who need to know such information in connection with the consummation of the transactions contemplated hereby, or (iv) pursuant to court order or subpoena, provided, however, that if Searls or any of her Representatives is served with a court order or subpoena that would require the disclosure of any of the confidential information of a disclosing party, Searls or such Representative so served (as the case may be) shall promptly, but in any event within three (3) days thereafter, notify CUI thereof and shall provide reasonable cooperation, at CUI's expense, with any efforts that CUI may undertake to quash such court order or subpoena or obtain a protective order with respect to the
disclosure and use of such confidential information. The restrictions and obligations contained in this Section 4.6 shall survive the consummation of the transactions contemplated hereby and any termination of this Agreement.
5. CONDITIONS PRECEDENT
5.1 CONDITIONS TO OBLIGATIONS OF EACH PARTY TO CONSUMMATE TRANSACTIONS. The performance by each party of its respective obligations under this Agreement shall be subject to the satisfaction, at or prior to the Closing Date, of each of the following conditions unless waived in writing by such party:
(a) Absence of Injunctions or Restraints; Illegality. No temporary restraining order, preliminary or permanent injunction or other order issued by any court of competent jurisdiction or other legal restraint or prohibition preventing the consummation of the transactions contemplated hereby shall be in effect, nor shall any proceeding brought by any administrative agency or commission or other governmental authority or instrumentality, domestic or foreign, seeking any of the foregoing be pending; and there shall not be any action taken, or any statute, rule, regulation or order enacted, entered, enforced or deemed applicable to the transactions contemplated hereby which makes their consummation illegal.
(b) Governmental Actions. There shall not have been instituted, pending or threatened, in writing, any action or proceeding (or any investigation or other inquiry that might result in such an action or proceeding) by any governmental authority or administrative agency before any governmental authority, administrative agency or court of competent jurisdiction, nor shall there be in effect any judgment, decree or order of any governmental authority, administrative agency or court of competent jurisdiction, in either case, seeking to prohibit or limit CUI, following the Closing, from exercising any of the material rights and privileges pertaining to its ownership of the Searls Membership Interest.
(c) Consents Obtained. All material consents, waivers, approvals, authorizations or orders required to be obtained by CUI, Searls or IU for the authorization, execution and delivery of this Agreement and the consummation by each such party of the transactions contemplated hereby shall have been obtained by CUI, IU or Searls (as the case may be).
5.2 ADDITIONAL CONDITIONS TO OBLIGATIONS OF CUI. The obligations of CUI to consummate its acquisition of the Searls Membership Interest and to perform its other obligations under this Agreement also are subject to the following conditions:
(a) Accuracy of Representations and Warranties. The
representations and warranties of Searls contained in this Agreement shall be
true and correct in all material respects on and as of the Closing Date, with
the same force and effect as if made on and as of the Closing Date, except for
(i) changes contemplated by this Agreement, and (ii) those representations and
warranties which address matters only as of a particular date (which shall have
been true and correct as of such date, and CUI shall have received a certificate
to such effect signed by Searls.
(b) Performance of Covenants. Searls shall have performed or complied in all material respects with all agreements and covenants required by this Agreement to be performed or complied with by her on or prior to the Closing Date, including the execution and delivery of the Stockholders Agreement, and CUI shall have received a certificate to such effect signed by Searls.
(c) Consummation of Other Transactions. The transactions contemplated by the Other Contribution Agreements shall have been consummated at or about the same time as the Closing hereunder.
(d) Additional Instruments. CUI shall have received the Closing Documents listed on Exhibit C hereto and such other instruments and documents as CUI or its counsel reasonably deems to be necessary.
5.3 ADDITIONAL CONDITIONS TO OBLIGATIONS OF SEARLS. The obligation of Searls to consummate her obligations under this Agreement is also subject to the following conditions:
(a) Accuracy of Representations and Warranties. The
representations and warranties of CUI contained in this Agreement shall be true
and correct in all material respects on and as of the Closing Date, with the
same force and effect as if made on and as of the Closing Date, except for (i)
changes contemplated by this Agreement or in the CUI Disclosure Schedules, and
(ii) those representations and warranties which address matters only as of a
particular date (which shall have been true and correct as of such date, and
Searls shall have received a certificate to such effect signed by the President
of CUI.
(b) Agreements and Covenants. CUI shall have performed or complied in all material respects with all agreements and covenants required by this Agreement to be performed or complied with by it on or prior to the Closing Date, and Sealers shall have received a certificate to such effect signed by the President of CUI.
(c) Additional Instruments. Searls shall have received the additional Closing Documents listed on Exhibit C hereto and such other instruments and documents as Searls or her counsel reasonably deems to be necessary.
6. TERMINATION
6.1 Termination. This Agreement may be terminated and the transactions herein contemplated may be abandoned at any time prior to the Closing:
(a) By mutual written consent of CUI and Searls; or
(b) By CUI, if any of the conditions to its obligations set forth in Section 5 of this Agreement shall not have been satisfied, or waived by CUI in writing, prior to March __, 1999;
(c) By Searls if any of the conditions set forth in
Section 5 of this Agreement to her obligations shall not have been satisfied, or
waived in writing by Searls, prior to March __, 1999;
Provided, that in each of the foregoing cases the party so terminating is not in breach of any of its material obligations or representations or warranties under this Agreement.
6.2 Procedure Upon Termination. Any termination and abandonment by CUI or Searls, or both, pursuant to Section 6.1 hereof, shall be effective on written notice thereof from the terminating party to the other parties and upon any such termination:
(a) Each party will redeliver all documents, workpapers and other material of any other party relating to the transactions contemplated hereby, whether so obtained before or after the execution hereof, to the party furnishing the same;
(b) The obligations of confidentiality set forth in
Section 4.6 hereof shall continue despite such termination; and
(c) The parties shall be relieved of any obligation to consummate the transactions contemplated hereby, but none of the parties shall be relieved of any liability for its breach or default under this Agreement.
7. SURVIVAL OF REPRESENTATIONS AND WARRANTIES
Regardless of any due diligence or other investigation, either prior to or after the Closing, or any verification or approval by any party hereto or by anyone or on behalf of any party hereto, all of the representations and warranties set forth in this Agreement or in any certificates delivered pursuant hereto shall remain in full force and effect and shall survive the Closing until the expiration of three (3) years from the Closing Date, except that (i) Searls' representations and warranties contained in Sections 2.1 and 2.3, and the representations and warranties of CUI contained in Sections 3.1, 3.5 and 3.7, shall survive for a period of seven (7) years following the Closing. All covenants which by their terms require performance or compliance following the Closing shall remain in full force and effect and shall survive the Closing until they have been fully performed and discharged.
8. MISCELLANEOUS.
8.1 ASSIGNMENT. No party may assign this Agreement, or assign its rights or delegate its duties hereunder, without the prior written consent of the other party.
8.2 SEVERABILITY. Any provision of this Agreement which is illegal, invalid or unenforceable shall be ineffective to the extent of such illegality, invalidity or unenforceability, without affecting in any way the remaining provisions hereof.
8.3 GOVERNING LAW. This Agreement is deemed to have been made in the State of California, and its interpretation, its construction and the remedies for its enforcement or breach are to be applied pursuant to, and in accordance with, the laws of the State of California for contracts made and to be performed in that state. In the event any party hereto is required to initiate any legal action or proceeding to enforce its rights hereunder, such action or proceeding shall be brought and maintained exclusively in the Superior Court for the County of Orange, in California and each party agrees to accept, and not to challenge, the jurisdiction of such court over the parties and the subject matter of such action or proceeding or the convenience of the forum and to accept and not to challenge the adequacy of service by certified or registered mail. The prevailing party in any such action or proceeding shall be entitled to recover its reasonable attorneys fees and disbursements, expert witness fees and disbursements and other costs of suit from the non-prevailing party. TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, EACH PARTY HEREBY EXPRESSLY WAIVES ITS RIGHT TO A JURY TRIAL IN ANY SUCH ACTION OR PROCEEDING, IRRESPECTIVE OF WHICHEVER PARTY MAY BRING ANY SUCH ACTION OR PROCEEDING.
8.4 ENTIRE AGREEMENT; AMENDMENT. This Agreement, and the Exhibits and Schedules hereto, constitute all of the agreements of the parties with respect to, and supersede all prior agreements and understandings relating to the subject matter of, this Agreement or the transactions
contemplated by this Agreement. This Agreement may not be modified or amended except by a written instrument specifically referring to this Agreement signed by the parties hereto.
8.5 WAIVER. No waiver by one party of the other party's obligations, or of any breach or default hereunder by any other party, shall be valid or effective, unless such waiver is set forth in writing and is signed by the party giving such waiver; and no such waiver shall be deemed a waiver of any subsequent breach or default of the same or similar nature or any breach or default by such other party of any of the other provisions of this Agreement.
8.6 INTERPRETATION; HEADINGS. This Agreement is the result of arms'-length negotiations between the parties hereto and no provision hereof, because of any ambiguity found to be contained therein or otherwise, shall be construed against a party by reason of the fact that such party or its legal counsel was the draftsman of that provision. The section, subsection and any paragraph headings contained herein are for the purpose of convenience only and are not intended to define, limit or affect, and shall not be considered in connection with, the interpretation of any of the terms or provisions of this Agreement.
8.7 NOTICES. All notices and other communications given or made pursuant hereto shall be in writing and shall be deemed to have been duly given or made if and when delivered personally or by overnight courier to the parties at the addresses set forth on Exhibit D hereto or sent by electronic transmission, with confirmation received, to the telecopy numbers specified on that Exhibit (or at such other address or telecopy number for a party as shall be specified by like notice).
8.8 COUNTERPARTS. This Agreement may be executed in separate counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument.
IN WITNESS WHEREOF, the undersigned have executed this Agreement on the date first above stated.
SEARLS: CUI:
COLLECTORS UNIVERSE, INC.
EXHIBIT 10.14
CONTRIBUTION AND ACQUISITION AGREEMENT
This CONTRIBUTION AND ACQUISITION AGREEMENT (the "Agreement") is made as of this 3rd day of February 1999 by and between COLLECTORS UNIVERSE, INC., a Delaware corporation ("CUI") and GREG BUSSINEAU ("Bussineau"), with reference to the following facts and circumstances:
R E C I T A L S
A. Bussineau is the record and beneficial owner of 40% of the membership interests in Superior Sportcard Auctions, LLC, a Delaware limited liability company ("SCA"), that is engaged in the business of marketing and selling Sports Collectibles (as hereinafter defined), at in-person and telephonic auctions and auctions conducted over the internet or by other means of electronic commerce (the "SCA Business").
B. CUI has been formed, organized and capitalized under the laws of the State of Delaware for the purposes of effecting the transactions contemplated in this Agreement and the other agreements listed on Exhibit A hereto (the "Other Contribution Agreements") and to conduct such other business and affairs as the Board of Directors of CUI may from time to time find to be in the best interests of CUI.
C. Each of the corporations or other business entities whose shares, ownership interests or assets are being contributed to CUI pursuant to this Agreement and or the Other Contribution Agreements (hereinafter sometimes referred to collectively as the "Founding Companies") is engaged in the business of marketing and selling, or providing services to, businesses that market and sell, Collectibles (as hereinafter defined) at retail establishments, by mail order, at trade shows or auctions or over the internet or by other means of electronic commerce. CUI intends to integrate the products and services offered by each of the Founding Companies in order to expand the sale of their products, increase their efficiencies and reduce their operating costs and increase their presence and expand their sales over the Internet.
D. CUI desires to acquire the Membership Interests in SCA owned by Bussineau (the "Bussineau Membership Interest") and Bussineau desires to contribute and transfer and convey the Bussineau Membership Interest to CUI, in exchange for which CUI would issue to Bussineau shares of CUI Common Stock, all on the terms and conditions set forth herein, at or about the same time as and in conjunction with the consummation of the similar transactions contemplated by the Other Contribution Agreements.
E. This Agreement is being entered into by the parties, and the Other Contribution Agreements are being or have been entered into by CUI and the other parties thereto, as part of a unified plan of contribution and exchange of stock (the "Plan") that is intended by the parties to qualify for non-recognition treatment under Section 351 of the Internal Revenue Code of 1986, as amended (the "Code"). However, none of the parties to this Agreement nor any of the parties to the Other Contribution Agreements has made or is making any representations or warranties with respect to whether the transactions being consummated pursuant to and as part of such Plan will comply with the requirements of Code Section 351 or as to the consequences, under applicable federal, state or other tax laws, of such transactions to the parties to this Agreement.
NOW, THEREFORE, in consideration of the foregoing and the respective covenants and promises of each of CUI and Bussineau to the other that are hereinafter set forth, the parties agree as follows:
1. EXCHANGE OF SECURITIES.
1.1 CONTRIBUTION OF BUSSINEAU MEMBERSHIP INTEREST. On the terms and subject to the conditions contained in this Agreement, at the Closing (as hereinafter defined) Bussineau shall contribute, assign, transfer, covey and deliver the Bussineau Membership Interest to CUI, free and clear of any and all liens, claims, encumbrances, pledges, security interests, options, rights of first refusal, community property interests, restrictions and any other adverse interests of any kind or nature whatsoever, and CUI shall acquire and accept the Bussineau Membership Interest from Bussineau.
1.2 CONSIDERATION. As the consideration for the contribution and transfer to CUI of the Bussineau Membership Interest, at the Closing (as hereinafter defined), CUI shall issue to Bussineau a total of Six Hundred Thirty One Thousand Seven Hundred Eighteen (631,718) shares of common stock of CUI (the "CUI Shares"), against delivery by Bussineau of the instruments and documents referenced in Section 1.3 hereof.
1.3 CLOSING. Subject to the satisfaction or waiver of the conditions set forth in Section 5 hereof, consummation of the transactions contemplated hereby (the "Closing") shall take place at the offices of Stradling Yocca Carlson & Rauth, 660 Newport Center Drive, Suite 1600, Newport Beach, California 92660, on the third (3rd) business day after satisfaction or waiver of such conditions precedent, provided, however, that, if the Closing occurs on or before March 12, 1999, the transactions contemplated hereby shall be effective for accounting purposes as of February 5, 1999 (the "Effective Date"). At the Closing, Bussineau shall execute and deliver to CUI (i) such documents or instruments of assignment as CUI or its counsel may reasonably request to evidence and effectuate the transfer of the Bussineau Membership Interest to CUI in accordance with the terms of this Agreement, (ii) a stockholders agreement in the form of Exhibit B hereto (the "Stockholders Agreement") and (iii) a Non-Competition Agreement in the form of Exhibit C hereto (the "Non-Competition Agreement"), and CUI shall execute and deliver to Bussineau a stock certificate evidencing his ownership of the CUI Shares.
1.4 WAIVER OF RIGHT OF PURCHASE OPTION. The parties hereto agree to cooperate with each other to cause SCA to waive its right of first refusal and purchase option with respect to the Bussineau Membership Interest under Section 8.2 of the SCA's Amended and Restated Operating Agreement dated as of March 1996 (the "Operating Agreement").
2. REPRESENTATIONS AND WARRANTIES OF BUSSINEAU. Bussineau represents and warrants to CUI as follows:
2.1 AUTHORITY AND CAPACITY. Bussineau has the full legal right and capacity to execute and deliver, and to perform his obligations under, and has duly executed and delivered, this Agreement on the date hereof, with the intent to be legally bound hereby and thereby. This Agreement constitutes, and when executed and delivered by Bussineau at the Closing, each of the Stockholders Agreement and the Non-Competition Agreement will constitute, a valid and legally binding obligation of Bussineau that is enforceable against him in accordance with its respective terms, except as such enforceability may be limited by bankruptcy, insolvency, moratorium or other similar laws affecting creditors' rights and by general principles of equity relating to the availability of equitable remedies
(regardless of whether any such agreements are sought to be enforced in a proceeding at law or in equity).
2.2 NO CONFLICTS. The execution and delivery and the performance by Bussineau of this Agreement, the Stockholders Agreement and the Non-Competition Agreement do not and will not require any consent or approval of any third party (governmental or other) that has not been obtained and will not result in any of the following: (i) a termination of, or a default or breach under, or an event that, with notice or lapse of time, or both, would be a default or breach under, any contract, lease, license, promissory note, security or pledge agreement, or any other agreement, instrument or commitment to which Bussineau is a party or is subject; (ii) acceleration of any indebtedness owed by Bussineau or the creation or imposition of any liens, charges or encumbrances on the Bussineau Membership Interest or any of Bussineau's assets; or (iv) a violation or breach of any writ, injunction or decree of any court or governmental instrumentality or any laws to which Bussineau is a party or to which he or the Bussineau Membership Interest is subject.
2.3 THE BUSSINEAU MEMBERSHIP INTEREST.
(a) Bussineau has good and marketable title to the Bussineau Membership Interest, free and clear of any and all liens, claims, encumbrances, pledges, security interests, options, rights of first refusal, community property interests, restrictions and any other adverse interests of any kind or nature whatsoever, other than restrictions on the transferability and rights of first refusal that are imposed on the Bussineau Membership Interest by SCA's Operating Agreement. Bussineau has not sold, transferred, conveyed, assigned, hypothecated, or granted any security interest in or pledged, or granted any option or right entitling anyone to acquire, the Bussineau Membership Interest, and has not entered into nor is he bound by any agreement, commitment or understanding (written or oral) to do any of the foregoing. The Bussineau Membership Interest is not subject to any liabilities, other than those expressly provided for in the SCA Operating Agreement, and no liabilities will arise as a result of or in connection with the consummation of the sale and transfer of the Bussineau Membership Interest by Bussineau to CUI.
(b) Except as otherwise set forth on Schedule 2.3 hereto, neither Bussineau nor any corporation or other business entity in which Bussineau may have a direct or indirect ownership interest, owns or has any rights, title or interest in or to, any assets, either tangible or intangible (and including any trademarks, trade names, copyrights, patents, inventions, trade secrets, or any other intellectual property rights or assets) that are used by SCA in or in the conduct of its business.
2.4 SECURITIES LAW COMPLIANCE. Bussineau represents and warrants that:
(a) He has been advised and understands and agrees that the CUI Shares will not be registered under the Securities Act of 1933, as amended (the "1933 Act"), nor qualified under any state securities laws, on the ground (among others) that no distribution or public offering of the CUI Shares is to be effected in connection with the transactions contemplated herein or by Bussineau and in issuing the CUI Shares to Bussineau, CUI is relying on the accuracy and completeness of the representations and warranties of Bussineau in this Section 2.4.
(b) Bussineau is acquiring the CUI Shares for his own account, and not as an nominee or agent for any other persons or entities, and for investment and not with a view to distribution or resale thereof.
(c) Bussineau acknowledges that he has been informed and understands that no public market for the CUI Shares exists and that there can be no assurance that any such market may develop or exist in the future and, even if a public market does develop, that sales or other transfers of the CUI Shares may be made only in compliance with the 1933 Act or any exemption thereunder and there is no assurance that any exemption from registration, including Rule 144, under the 1933 Act will become available to permit resales of the CUI Shares or that CUI will satisfy the conditions to the availability of such exemptions.
(d) Bussineau has been furnished with such information regarding CUI and the CUI Shares as he has requested of CUI and has had an opportunity to ask questions of the officers of CUI regarding, and to become informed about, CUI and its business and its consolidated financial condition and results of operations.
(e) Bussineau is an "Accredited Investor" as such term is defined in Regulation D under the 1933 Act.
(f) Bussineau acknowledges and agrees that (i) until the CUI Shares become eligible for resale under Rule 144(k) under the 1933 Act, any proposed sale or other transfer or disposition of any of the CUI Shares, other than pursuant to an effective registration statement under the 1933 Act, may not be made unless and until Bussineau has furnished to CUI an opinion of counsel, reasonably acceptable to CUI and its counsel, to the effect that the proposed sale or other transfer or disposition is exempt from registration under the 1933 Act, and (ii) the CUI Shares will be subject to the Stockholders Agreement referred to in Section 1.3 hereof and, until the Stockholders Agreement has been terminated (A) no sale or other disposition of the CUI Shares may be made except in compliance therewith and (B) the CUI Shares may be required to be sold in one or more transactions involving sales of shares of CUI initiated by certain other of the CUI Stockholders, all as more fully provided in the Stockholders Agreement. Bussineau has read and understands the Stockholders Agreement.
(g) Bussineau acknowledges and agrees that the certificate representing the CUI Shares shall contain restrictive legends in the forms set forth in the form of Stockholders Agreement attached hereto as Exhibit B or restrictive legends that are substantially similar thereto.
2.5 ACKNOWLEDGEMENTS AND AGREEMENTS REGARDING CUI REPRESENTATIONS. Bussineau acknowledges and agrees that:
(a) Neither CUI nor any of its officers, employees or agents has made, and none of them is making, any representations or warranties to Bussineau with respect to (i) the federal, state or local income or other tax consequences to Bussineau of his consummation of the transactions contemplated hereby, or (ii) the future performance of CUI; and
(b) In entering into this Agreement, the Stockholders Agreement and the Non-Competition Agreement, he is not relying on any statements or representations or warranties of CUI, or any representations or warranties made or purported to have been made by any officer, director, stockholder, employee or agent of CUI, other than the express representations and warranties of CUI contained in this Agreement; and
(c) He has relied on the advice of his own professional advisors with respect to the foregoing matters.
3. REPRESENTATIONS AND WARRANTIES OF CUI. CUI makes the following representations and warranties to Bussineau as of the date of this Agreement:
3.1 ORGANIZATION. CUI is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware.
3.2 CORPORATE POWER. CUI possesses the requisite corporate power and authority to enter into and perform its obligations under this Agreement. CUI has taken all corporate action and obtained all consents necessary to authorize its execution and delivery of and its performance under this Agreement. This Agreement constitutes, and upon its execution and delivery by CUI the Stockholders Agreement will constitute, valid obligations of CUI that are legally binding on and enforceable against CUI in accordance with their respective terms, except (in each case) as such enforceability may be limited by bankruptcy, insolvency, moratorium or other similar laws affecting creditors' rights, and by general principles of equity relating to the availability of equitable remedies (regardless of whether such agreements are sought to be enforced in a proceeding at law or in equity).
3.3 NO CONFLICTS. The execution and delivery and the performance by CUI of this Agreement and the Stockholders Agreement will not result in any of the following: (i) the termination, or a default or an event that, with notice or lapse of time, or both, would constitute a default, breach or violation, of the Certificate of Incorporation or Bylaws of CUI, any contract, lease, license, promissory note, security or pledge agreement, or other agreement, instrument or commitment to which CUI is a party or is subject and which is material to CUI and its subsidiaries considered as a whole; (ii) the acceleration of the maturity of any indebtedness of CUI that is material to CUI and its subsidiaries considered as a whole; or (iii) a violation or breach of any writ, injunction or decree of any court or governmental instrumentality to which CUI is a party or by which any of its properties is bound or any laws or regulations applicable to CUI, where the violation would have a material adverse effect on CUI and its subsidiaries, considered as a whole.
3.4 CERTIFICATE OF INCORPORATION AND BY-LAWS. CUI has heretofore furnished to Bussineau or his counsel, a complete and correct copy of its Certificate of Incorporation and By-Laws, as amended to date. Such Certificate of Incorporation and By-Laws are in full force and effect. CUI is not in violation of any of the provisions of its Certificate of Incorporation or By-Laws.
3.5 CAPITALIZATION. As of the date hereof, the authorized capital stock of CUI consists of 30,000,000 shares of Common Stock, par value $.001 per share. On consummation of the transactions contemplated by this Agreement and the Other Contributions Agreements, there will be (i) a total of 19,000,000 fully paid and nonassessable shares of Common Stock that will be issued and outstanding, which will include the CUI Shares being issued under this Agreement; and (ii) 3,250,000 shares of Common Stock reserved for issuance on the exercise of stock options (either granted or to be granted in the future).
3.6 FINANCIAL STATEMENTS. CUI has furnished to Bussineau unaudited financial statements of Professional Coin Grading Service, Inc. ("PCGS") which, on consummation of the transactions contemplated hereby and by the Other Contribution Agreements, will be CUI's predecessor and principal subsidiary, consisting of a balance sheet of PCGS as of June 30,1998 and a related statement of income for the year then ended, and an unaudited balance sheet as of, and related unaudited statement of income of PCGS for the six months ended, December 31, 1998, all of which have been prepared by PCGS (collectively, the "PCGS Financial Statements"). Except as otherwise set forth in Schedule 3.6 of the CUI Disclosure Schedules or in the footnotes contained in the PCGS Financial Statements, such Financial Statements fairly present, in all material respects, the financial position of
PCGS as at, and the respective results of operations of PCGS for the year ended June 30, 1998 and the six months ended December 31, 1998, respectively. Except as set forth in Schedule 3.6 hereto, since December 31, 1998, there has not been a material adverse change in the financial condition or results of operations of PCGS.
3.7 THE CUI SHARES. The CUI Shares to be issued by CUI to Bussineau pursuant to Section 1.2 of this Agreement shall be, at the time of such issuance, duly authorized, validly issued, fully paid and non-assessable and free of preemptive rights under the charter documents or other agreements of CUI to which the shares of capital stock of CUI are subject, except for any preemptive rights and rights of first refusal under the Stockholders Agreement.
4. ACTIONS TO BE TAKEN PENDING AND AFTER THE CLOSING
4.1 PROHIBITED ACTIONS. Between the date hereof and the earlier of the consumation of the Closing or termination of this Agreement, Bussineau agrees not to take any action which he knows, or reasonably should know, would (i) make any of his respective representations or warranties contained in this Agreement untrue or incorrect, or (ii) prevent or interfere with the performance by Bussineau of any of his covenants contained in this Agreement. Bussineau also covenants and agrees that he will not grant any options or rights to acquire, or pledge or permit the imposition of any liens or encumbrances on or hypothecate, the Bussineau Membership Interest either in whole or in part, and he will not enter into any agreement or understanding, written or oral, that provides therefor. Bussineau also agrees that, without the approval of PCGS, he shall not make any material changes in SCA's business or sell or hypothecate or grant any security interests, liens, or encumbrances on any of the assets of SCA and he shall cause SCA's Business to be conducted only in the ordinary course, consistent with past practice. Notwithstanding the foregoing, however, the distribution to the owners of SCA, as of the day preceding the Effective Date, of an amount in cash or promissory notes equal to SCA's AAA account shall not constitute a breach of this Agreement.
4.2 ACCESS TO INFORMATION. During the period from the date hereof and continuing until the earlier of the completion of the Closing or termination of this Agreement, CUI, upon reasonable notice, and subject to the provisions of Section 4.6 hereof, shall (i) furnish Bussineau and his accountants, counsel and other representatives, reasonable access, during the period between the date hereof and continuing until the earlier of the Closing or termination of this Agreement, to all of CUI's and PCGS' properties, books, contracts, commitments and records (ii) promptly furnish to Bussineau such other information concerning the business, properties and personnel of CUI and PCGS as Bussineau may reasonably request, and (iii) make available to Bussineau the appropriate individuals (including attorneys, accountants and other professionals) at CUI for a discussion of the business, properties and personnel of CUI and PCGS as Bussineau may reasonably request.
4.3 CONSENTS; APPROVALS. Bussineau and CUI shall each use his or its (as the case may be) best reasonable efforts to obtain all consents, waivers, approvals, authorizations or orders (including, without limitation, all governmental and regulatory rulings and approvals), and Bussineau and CUI shall make all filings (including, without limitation, all filings with governmental or regulatory agencies) required in connection with the authorization, execution and delivery of this Agreement by and the consummation of the transactions contemplated hereby. Bussineau and CUI shall furnish all information required to be included in any applications or other filings to be made pursuant to the rules and regulations of any governmental body in connection with the transactions contemplated by this Agreement.
4.4 NOTIFICATION OF CERTAIN MATTERS. Bussineau shall give prompt notice to CUI, and CUI shall give prompt notice to Bussineau of (i) the occurrence or nonoccurrence of any event which would be likely to cause any representation or warranty made by such party in this Agreement to be materially untrue or inaccurate, or (ii) any failure of the Bussineau or CUI materially to comply with or satisfy any covenant, condition or agreement to be complied with or satisfied by him or it (as the case may be) hereunder; provided, however, that the delivery of any notice pursuant to this Section shall not limit or otherwise affect the remedies available hereunder to the party receiving such notice.
4.5 FURTHER ACTION. On the terms and subject to the conditions hereof, each of the parties hereto shall use all reasonable efforts to take, or cause to be taken, all actions, and to do, or cause to be done, all other things necessary, proper or advisable to consummate and make effective as promptly as practicable the transactions contemplated by this Agreement, to obtain in a timely manner all necessary waivers, consents and approvals and to effect all necessary registrations and filings, and otherwise to satisfy or cause to be satisfied all conditions precedent to his or its (as the case may be) obligations under this Agreement. From and after the Closing, each party shall take such actions and execute such documents and instruments as the other party may reasonably request to better evidence or effectuate the transactions contemplated by this Agreement or the Exhibits hereto.
4.6 CONFIDENTIAL INFORMATION. Bussineau acknowledges that he
or any of his agents or advisors ("Representatives") may be given, by CUI or
PCGS (each, a "disclosing party") or any of such disclosing party's
Representatives, access to various items of proprietary and confidential
information of the disclosing party in the course of investigations and
negotiations prior to Closing. Bussineau agrees that such confidential
information shall be kept strictly confidential by him and his Representatives
and shall not be used for any purpose other than to facilitate the consummation
of the transactions contemplated herein. Confidential information shall include
any proprietary business or other information which is delivered (orally or in
writing) or to which access is given by a disclosing party or any of its
Representatives to Bussineau or any of his Representatives, and any such
information that is included in or incorporated into any notes, analyses,
memoranda, projections or other documents that are prepared by Bussineau or any
of his Representatives, unless such information (a) is already of public
knowledge, or (b) becomes of public knowledge through no fault, action or
inaction of the receiving party or its Representatives, or (c) is demonstrated
convincingly by Bussineau to have been known by him or any of his
Representatives prior to the disclosure of such information by the disclosing
party to him or his Representatives, unless such knowledge was acquired from a
person who Bussineau or his Representatives knew or reasonably should have known
was subject, at the time of such disclosure, to a fiduciary or other duty of
non-disclosure to the disclosing party. Except as permitted by Section 4.6,
neither Bussineau no nor his Representatives shall intentionally disclose any
confidential information of CUI or PCGS to any third person; provided, however,
that such information may be disclosed (i) with the written consent of CUI, (ii)
in applications or requests required to be made to obtain licenses, permits,
approvals or consents needed to consummate the transactions contemplated herein,
(iii) to Bussineau's professional advisors who need to know such information in
connection with the consummation of the transactions contemplated hereby, or
(iv) pursuant to court order or subpoena, provided, however, that if Bussineau
or any of his Representatives is served with a court order or subpoena that
would require the disclosure of any of the confidential information of a
disclosing party, Bussineau or such Representative so served (as the case may
be) shall promptly, but in any event within three (3) days thereafter, notify
CUI thereof and shall provide reasonable cooperation, at CUI's expense, with any
efforts that CUI may undertake to quash such court order or subpoena or obtain a
protective order with respect to the disclosure and use of such confidential
information. The restrictions and obligations contained in this Section 4.6
shall survive the consummation of the transactions contemplated hereby and any
termination of this Agreement.
5. CONDITIONS PRECEDENT
5.1 CONDITIONS TO OBLIGATIONS OF EACH PARTY TO CONSUMMATE TRANSACTIONS. The performance by each party of its respective obligations under this Agreement shall be subject to the satisfaction, at or prior to the Closing Date, of each of the following conditions unless waived in writing by such party:
(a) Absence of Injunctions or Restraints; Illegality. No temporary restraining order, preliminary or permanent injunction or other order issued by any court of competent jurisdiction or other legal restraint or prohibition preventing the consummation of the transactions contemplated hereby shall be in effect, nor shall any proceeding brought by any administrative agency or commission or other governmental authority or instrumentality, domestic or foreign, seeking any of the foregoing be pending; and there shall not be any action taken, or any statute, rule, regulation or order enacted, entered, enforced or deemed applicable to the transactions contemplated hereby which makes their consummation illegal.
(b) Governmental Actions. There shall not have been instituted, pending or threatened, in writing, any action or proceeding (or any investigation or other inquiry that might result in such an action or proceeding) by any governmental authority or administrative agency before any governmental authority, administrative agency or court of competent jurisdiction, nor shall there be in effect any judgment, decree or order of any governmental authority, administrative agency or court of competent jurisdiction, in either case, seeking to prohibit or limit CUI, following the Closing, from exercising any of the material rights and privileges pertaining to its ownership of SCA or the ownership or conduct of its business.
(c) Consents Obtained. All material consents, waivers, approvals, authorizations or orders required to be obtained by CUI, SCA or Bussineau for the authorization, execution and delivery of this Agreement and the consummation by each such party of the transactions contemplated hereby shall have been obtained by CUI, SCA or Bussineau (as the case may be), except where the failure to receive such consents, waivers, approvals, authorizations or orders could not reasonably be expected to have a Material Adverse Effect on the Business or CUI;
5.2 ADDITIONAL CONDITIONS TO OBLIGATIONS OF CUI. The obligations of CUI to consummate its acquisition of the Bussineau Membership Interest and to perform its other obligations under this Agreement also are subject to the following conditions:
(a) Accuracy of Representations and Warranties. The
representations and warranties of Bussineau contained in this Agreement shall be
true and correct in all material respects on and as of the Closing Date, with
the same force and effect as if made on and as of the Closing Date, except for
(i) changes contemplated by this Agreement or by the Bussineau Disclosure
Schedules, and (ii) those representations and warranties which address matters
only as of a particular date (which shall have been true and correct as of such
date, and CUI shall have received a certificate to such effect signed by
Bussineau.
(b) Performance of Covenants. Bussineau shall have performed or complied in all material respects with all agreements and covenants required by this Agreement to be performed or complied with by him on or prior to the Closing Date, including the execution and delivery of the Stockholders Agreement and the Non-Competition Agreement, and CUI shall have received a certificate to such effect signed by Bussineau.
(c) Consummation of Other Transactions. The transactions contemplated by the Other Contribution Agreements shall have been consummated at or about the same time as the Closing hereunder.
(d) Additional Instruments. CUI shall have received the Closing Documents listed on Exhibit D hereto and such other instruments and documents as CUI or its counsel reasonably deems to be necessary.
5.3 ADDITIONAL CONDITIONS TO OBLIGATIONS OF BUSSINEAU. The obligation of Bussineau to consummate his obligations under this Agreement is also subject to the following conditions:
(a) Accuracy of Representations and Warranties. The
representations and warranties of CUI contained in this Agreement shall be true
and correct in all material respects on and as of the Closing Date, with the
same force and effect as if made on and as of the Closing Date, except for (i)
changes contemplated by this Agreement or in the CUI Disclosure Schedules, and
(ii) those representations and warranties which address matters only as of a
particular date (which shall have been true and correct as of such date, and
Bussineau shall have received a certificate to such effect signed by the
President of CUI.
(b) Agreements and Covenants. CUI shall have performed or complied in all material respects with all agreements and covenants required by this Agreement to be performed or complied with by it on or prior to the Closing Date, and Bussineau shall have received a certificate to such effect signed by the President of CUI.
(c) Additional Instruments. Bussineau shall have received the additional Closing Documents listed on Exhibit D hereto and such other instruments and documents as Bussineau or his counsel reasonably deems to be necessary.
6. TERMINATION
6.1 Termination. This Agreement may be terminated and the transactions herein contemplated may be abandoned at any time prior to the Closing:
(a) By mutual written consent of CUI and Bussineau; or
(b) By CUI, if any of the conditions to its obligations set forth in Section 5 of this Agreement shall not have been satisfied, or waived by CUI in writing, prior to March 12, 1999;
(c) By Bussineau if any of the conditions set forth in
Section 5, if this Agreement to his obligations shall not have been satisfied,
or waived in writing by Bussineau, prior to March 12, 1999;
Provided, that in each of the foregoing cases the party so terminating is not in breach of any of its material obligations or representations or warranties under this Agreement.
Notwithstanding anything to the contrary contained elsewhere in this Agreement, if a party hereto has breached this Agreement (a "Breaching Party") and such breach is of a nature that it is susceptible of cure, and the other party determines to terminate this Agreement by reason thereof, such other party shall give prompt written notice of such termination to the Breaching Party and such intended termination shall not become effective provided that the Breaching Party effectuates a cure of such breach by the earlier of (i) the 30th day following such notice of termination or (ii) March 12, 1999.
6.2 Procedure Upon Termination. Any termination and abandonment by CUI or Bussineau, or both, pursuant to Section 6.1 hereof, shall be effective on written notice thereof from the terminating party to the other parties and upon any such termination:
(a) Each party will redeliver all documents, workpapers and other material of any other party relating to the transactions contemplated hereby, whether so obtained before or after the execution hereof, to the party furnishing the same;
(b) The obligations of confidentiality set forth in
Section 4.6 hereof shall continue despite such termination; and
(c) The parties shall be relieved of any obligation to consummate the transactions contemplated hereby, but none of the parties shall be relieved of any liability for its breach or default under this Agreement.
7. SURVIVAL OF REPRESENTATIONS AND WARRANTIES
Regardless of any due diligence or other investigation, either prior to or after the Closing, or any verification or approval by any party hereto or by anyone or on behalf of any party hereto, all of the representations and warranties set forth in this Agreement or in any certificates delivered pursuant hereto shall remain in full force and effect and shall survive the Closing until the expiration of three (3) years from the Closing Date, except that (i) Bussineau's representations and warranties contained in Sections 2.1 and 2.3, and the representations and warranties of CUI contained in Sections 3.1,3.5 and 3.7, shall survive for a period of seven (7) years following the Closing. All covenants which by their terms require performance or compliance following the Closing shall remain in full force and effect and shall survive the Closing until they have been fully performed and discharged.
8. MISCELLANEOUS.
8.1 ASSIGNMENT. No party may assign this Agreement, or assign its rights or delegate its duties hereunder, without the prior written consent of the other party.
8.2 SEVERABILITY. Any provision of this Agreement which is illegal, invalid or unenforceable shall be ineffective to the extent of such illegality, invalidity or unenforceability, without affecting in any way the remaining provisions hereof.
8.3 GOVERNING LAW. This Agreement is deemed to have been made in the State of Delaware, and its interpretation, its construction and the remedies for its enforcement or breach are to be applied pursuant to, and in accordance with, the laws of the State of Delaware for contracts made and to be performed in that state. In the event any party hereto is required to initiate any legal action or proceeding to enforce its rights hereunder, such action or proceeding shall be brought and maintained exclusively in the Superior Court for the County of Orange, in California and each party agrees to accept, and not to challenge, the jurisdiction of such court over the parties and the subject matter of such action or proceeding or the convenience of the forum and to accept and not to challenge the adequacy of service by certified or registered mail. The prevailing party in any such action or proceeding shall be entitled to recover its reasonable attorneys fees and disbursements, expert witness fees and disbursements and other costs of suit from the non-prevailing party. TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, EACH PARTY HEREBY EXPRESSLY WAIVES ITS RIGHT TO A JURY TRIAL IN ANY SUCH ACTION OR PROCEEDING, IRRESPECTIVE OF WHICHEVER PARTY MAY BRING ANY SUCH ACTION OR PROCEEDING.
8.4 ENTIRE AGREEMENT; AMENDMENT. This Agreement, and the Exhibits and Schedules hereto, constitute all of the agreements of the parties with respect to, and supersede all prior agreements and understandings relating to, the subject matter of and the transactions contemplated by this Agreement. This Agreement may not be modified or amended except by a written instrument specifically referring to this Agreement signed by the parties hereto.
8.5 WAIVER. No waiver by one party of the other party's obligations or of any breach or default hereunder by the other party, shall be valid or effective unless such waiver is set forth in writing and is signed by the party giving such waiver; and no such waiver shall be deemed a waiver of any subsequent breach or default of the same or similar nature or any breach or default by such other party of any of the other provisions of this Agreement.
8.6 INTERPRETATION AND CERTAIN DEFINITIONS. This Agreement is the result of arms'-length negotiations between the parties hereto and no provision hereof, because of any ambiguity found to be contained therein or otherwise, shall be construed against a party by reason of the fact that such party or its legal counsel was the draftsman of that provision. The section, subsection and any paragraph headings contained herein are for the purpose of convenience only and are not intended to define, limit or affect, and shall not be considered in connection with, the interpretation of any of the terms or provisions of this Agreement. Unless otherwise indicated elsewhere in this Agreement, (a) the term "or" shall not be exclusive, (b) the term "including" shall mean "including, but not limited to," and (c) the terms "herein," "hereof," "hereto," "hereunder" and other terms similar to such terms shall refer to this Agreement as a whole and not merely to the specific section, subsection, paragraph or clause where such terms may appear. In addition, for purposes of this Agreement, the term "Sports Collectibles" means any products or items, including but not limited to, (i) new or game-used baseballs, footballs, basketballs, hockey pucks, sports gear and player uniforms, and (ii) photographs, illustrations, trading cards or paintings or etchings, and (iii) other items, that have a value in excess of the customary retail prices of similar types of unused or new items, because of their prior use in sports events or games or because they have been autographed by or are associated with well-known athletes or other sports celebrities or are associated with well known sports events.
8.7 NOTICES. All notices and other communications given or made pursuant hereto shall be in writing and shall be deemed to have been duly given or made if and when delivered personally or by overnight courier to the parties at the addresses set forth on Exhibit E hereto or sent by electronic transmission, with confirmation received, to the telecopy numbers specified on that Exhibit (or at such other address or telecopy number for a party as shall be specified by like notice).
8.8 COUNTERPARTS. This Agreement may be executed in separate counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument.
IN WITNESS WHEREOF, the undersigned have executed this Agreement on the date first above stated.
BUSSINEAU: CUI:
COLLECTORS UNIVERSE, INC.
/s/ Greg Bussineau By: /s/ David Hall ---------------------- -------------------------- Greg Bussineau David Hall, Chairman |
EXHIBIT 10.15
CONTRIBUTION AND ACQUISITION AGREEMENT
This CONTRIBUTION AND ACQUISITION AGREEMENT, dated as of February 3, 1999 (the "Agreement"), among COLLECTORS UNIVERSE, INC., a Delaware corporation ("CUI"), and LYN F. KNIGHT RARE COINS, INC., a Kansas corporation (the "Company") and LYN F. KNIGHT, an individual who is the sole stockholder of the Company ("Stockholder").
RECITALS:
A. CUI has been formed, organized and capitalized under the laws of the State of Delaware for the purposes of effecting the transactions contemplated in this Agreement and the other agreements listed on Exhibit A hereto (the "Other Contribution Agreements") and to conduct such other business and affairs as the Board of Directors of CUI may from time to time find to be in the best interests of CUI.
B. Each of the corporations or other business entities whose shares, ownership interests or assets are being contributed to CUI pursuant to this Agreement and or the Other Contribution Agreements (hereinafter sometimes referred to collectively as the "Founding Companies") is engaged in the business of marketing and selling, or providing services to businesses that market and sell, Collectibles (as defined in Section 9.2 of this Agreement) at retail establishments, by mail order, at trade shows or auctions or over the internet or by other means of electronic commerce. CUI intends to integrate the products and services offered by each of the Founding Companies in order to expand the sale of their products, increase the efficiencies and reduce the operating costs of the Founding Companies and to increase their presence and expand their sales over the Internet.
C. The Company is engaged in the business of marketing and selling rare currencies that are Collectibles (the "Business"). CUI desires to acquire, and the Company and Stockholder desire to contribute and transfer and convey to CUI the Business and the Contributed Assets (as hereinafter defined) of the Business, in exchange for CUI shares and other consideration, all on the terms and conditions set forth herein, at or about the same time as and in conjunction with the consummation of the similar transactions contemplated by the Other Contribution Agreements.
D. This Agreement is being entered into by the parties, and the Other Contribution Agreements are being or have been entered into by CUI and the other parties thereto, as part of a unified plan of contribution and exchange of stock (the "Plan") that is intended by the parties to qualify for non-recognition treatment under Section 351 of the Internal Revenue Code of 1986, as amended (the "Code"). However, none of the parties to this Agreement, nor any of the parties to the Other Contribution Agreements, has made or is making any representations or warranties with respect to whether the transactions being consummated pursuant to and as part of such Plan will comply with the requirements of Code Section 351 or as to the consequences, under applicable federal, state or other tax laws, of such transactions to the parties to this Agreement.
NOW, THEREFORE, in consideration of the foregoing and the mutual covenants and agreements herein contained, and intending to be legally bound hereby, CUI, and the Company and Stockholder hereby agree as follows:
ARTICLE I
CONTRIBUTION OF ASSETS; EXCHANGE OF CONSIDERATION
1.1 The Contributed Assets. Upon the terms and subject to the conditions set forth in this Agreement, at the Closing (as hereinafter defined), the Company shall contribute, transfer, convey and assign to CUI, and CUI shall acquire from the Company, free and clear of any and all Liens and Encumbrances (as hereinafter defined), the Business and the assets that are used in or necessary for the
conduct of the Business, which are described in Exhibit B hereto ("Contributed Assets"). The Company is not contributing or transferring to CUI and CUI is not acquiring from the Company, any of the cash (other than as provided in Section 5.6 hereof) or any accounts receivables or equipment, leasehold improvements or other tangible assets owned by the Company or any inventory owned by and in the possession of the Company on the Closing Date (the "Retained Assets").
1.2 Acquisition Consideration. On the terms and subject to the
conditions that are set forth in this Agreement, at the Closing CUI shall, as
consideration for the contribution of the Contributed Assets and Business to CUI
issue to Stockholder (i) an aggregate of Seven Hundred Sixty Thousand (760,000)
validly issued, fully paid and nonassessable shares of Common Stock of CUI ("CUI
Shares"), (ii) a promissory note, substantially in the form of Exhibit C hereto
(the "CUI Note") in the principal amount of One Million Dollars and payable six
(6) months from the Closing Date, and (iii) the sum of $100,000 in cash (the
"Cash Payment"). The CUI Shares and CUI Note and the Cash Payment shall
constitute and will sometimes be referred to herein as the "Acquisition
Consideration."
1.3 Allocation of Purchase Price. The amount of the Acquisition Consideration shall be allocated among the Contributed Assets as set forth in Exhibit D attached hereto (the "Consideration Allocation"). Each of the parties, when reporting the transactions consummated hereunder in their respective Tax Returns (as hereinafter defined), before any governmental agency charged with the collection of any tax or in any judicial proceeding, shall allocate the Acquisition Consideration in a manner that is consistent with the Consideration Allocation set forth in Exhibit D hereto. Additionally, each of the parties will comply with, and furnish the information required by, Section 1060 of the Internal Revenue Code of 1986, as amended (the "Code"), and any regulations thereunder.
1.4 Closing. The consummation of the transactions contemplated hereby (the "Closing") shall take place at the offices of Stradling Yocca Carlson & Rauth, 660 Newport Center Drive, Suite 1600, Newport Beach, California 92660, on the third (3rd) business day after satisfaction or waiver of the conditions precedent set forth in Article VI of this Agreement (the "Closing Date"), provided, however, that, if the Closing occurs on or before March 12, 1999, the transactions contemplated hereby shall be effective for accounting purposes as of February 5, 1999 (the "Effective Date"). At the Closing, (i) the Company shall execute and deliver a Bill of Sale and Assignment Agreement substantially in the form of Exhibit E hereto (the "Bill of Sale") and (ii) a non-competition agreement in the form of Exhibit F hereto (the "Company Non-Competition Agreement"), and (ii) the Stockholder shall execute and deliver a Stockholders Agreement substantially in the form of Exhibit G hereto and a non-competition agreement substantially in the form of Exhibit H hereto (respectively, the "Stockholders Agreement" and the "Stockholders Non-Competition Agreement" and, collectively with the Company Non-Competition Agreement (the "Additional Agreements"). In exchange therefor, CUI shall deliver to Stockholder a certificate evidencing the CUI Shares, issued in the name of Stockholder, the CUI Note made payable to the order of the Stockholder and the Cash Payment. At the Closing, the parties also shall execute and deliver the additional documents and instruments listed on Exhibit I hereto (the "Closing Documents").
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND STOCKHOLDER
The Company and the Stockholder hereby jointly and severally represent and warrant to CUI that, except as set forth in the written disclosure schedule delivered on or prior to the date hereof by the Company to CUI that is arranged in paragraphs corresponding to the numbered and lettered paragraphs contained in this Article II (the "Company Disclosure Schedule"):
2.1 Organization and Qualification. The Company is a corporation duly organized, validly existing and in good standing under the laws of the State of Kansas and it has the requisite corporate
power and authority to own, lease and operate the Contributed Assets and to conduct the Business as it is now being conducted, except where the failure to be so organized, existing and in good standing or to have such power, authority and Approvals would not have a Material Adverse Effect (as hereinafter defined). The Company is duly qualified or licensed as a foreign corporation to do business, and is in good standing, in each jurisdiction where the character of its properties owned, leased or operated by it or the nature of its activities make such qualification or licensing necessary, except for any such failure to be so duly qualified or licensed and in good standing that would not have a Material Adverse Effect. Except as set forth in Section 2.1 of the Company Disclosure Schedule, the Company does not directly or indirectly own any ownership, equity or similar interest in, or any interest convertible into or exchangeable or exercisable for, any equity or similar interest in, any corporation, limited liability company, partnership, joint venture or other business association or entity. The term "Material Adverse Effect," when used in connection with the Company or the Business, means any change, effect or circumstance that is materially adverse to the Business, or its financial condition, assets, results of operations or prospects, or the ability of CUI to conduct the Business after the Closing, other than any such changes, circumstances or effects that are described in the Company Disclosure Schedule.
2.2 Articles of Incorporation and By-Laws. Stockholder has heretofore furnished to CUI a complete and correct copy of its Articles of Incorporation and By-Laws, as amended to date. Such Articles of Incorporation and By-Laws are in full force and effect. The Company is not in violation of any of the provisions of its Articles of Incorporation or By-Laws.
2.3 Capitalization. Stockholder is, and between the date hereof and completion of the Closing shall be, the sole owner, beneficially and of record, of all of the outstanding shares of capital stock of the Company.
2.4 Authority Relative to this Agreement.
(a) The Company has all necessary corporate power and authority to execute and deliver this Agreement and the Company Non-Competition Agreement and to perform its obligations hereunder and thereunder. The execution and delivery of this Agreement and the Company Non-Competition Agreement by the Company and the consummation by the Company of the transactions contemplated hereby and thereby have been duly and validly authorized by all necessary corporate and stockholder action, and no other corporate or stockholder proceedings or actions are necessary for or in connection therewith.
(b) This Agreement has been duly and validly executed and delivered by the Company and, assuming due authorization, execution and delivery by CUI, this Agreement constitutes, and upon its execution and delivery by the Company, the Company Non-Competition Agreement will constitute, a legal, valid and binding obligation of the Company enforceable against the Company in accordance with its terms, except as the enforceability thereof may be limited by (i) bankruptcy, insolvency, reorganization, arrangement, moratorium, or other similar laws relating to or affecting rights of creditors, and (ii) general equitable principles, regardless of whether the issue of enforceability is considered in a proceeding in equity or at law.
2.5 Material Contracts; No Conflict.
(a) Section 2.5 of the Company Disclosure Schedule includes a list of all promissory notes, mortgages, contracts, leases, licenses, permits, franchises, employment and severance agreements and all other agreements and obligations to which the Company is a party or by which it is bound and (i) which provide for payments either by or to the Company of more than $1,000 per month or more than
$15,000 in the aggregate, or (ii) which requires the giving of more than 30 days notice or the payment of any amounts by the Company as a condition or requirement of its termination or non-renewal by the Company, or (iii) as to which a termination or non-renewal or a breach or default could have a Material Adverse Effect on the Company, or (iv) which, in the absence of a the obtaining of a consent or approval from the other party or parties thereto, would be breached or violated by reason of the consummation of the transactions contemplated hereby or (vi) which imposes any restrictions on the conduct of the Company's business or any Liens or Encumbrances on the Contributed Assets (collectively, the "Material Contracts"). The Company and Stockholder have furnished true and correct copies of all such Material Contracts to the CUI or its counsel. The Company is not in default of, and there is no event, condition or circumstance which has occurred that, with the passage of time or the giving of notice, or both, would constitute a default by the Company under, any of the Material Contracts.
(b) Except as set forth in Section 2.5 of the Company Disclosure Schedule, the execution, delivery and performance of this Agreement by the Company and Stockholder and the execution, delivery and performance by the Company of the Company Non-Competition Agreement, do not and will not, (i) conflict with or violate the Articles of Incorporation or By-Laws of the Company, (ii) conflict with or violate any law, rule, regulation, order, judgment or decree applicable to the Company or by which its properties are bound or affected, or (iii) require the consent or approval of any party to, or result in any breach of or constitute a default (or an event that with notice or lapse of time or both would become a default) under, or impair the Company's rights or alter the rights or obligations of any third party under, or give to others any rights of termination, amendment, acceleration or cancellation of any Material Contract or Company Permit (as hereinafter defined), or result in the creation of a Lien or Encumbrance on any of the Contributed Assets pursuant to any Material Contract or Company Permit.
2.6 Compliance, Permits.
(a) Except as disclosed in Section 2.6 of the Company Disclosure Schedule, the Company is not in default or violation of, (i) any law, rule, regulation, writ, order, judgment or decree applicable to the Company or by which any of its properties is bound or affected or (ii) any Material Contract, and no event has occurred which, either with the passage of time or the giving of notice, or both, would constitute a breach or violation of any such law, rule, regulation, writ, order, judgment or decree or any Material Contract.
(b) Except as disclosed in Section 2.6 of the Company Disclosure Schedule, the Company holds and is in compliance with the terms of all permits, licenses, easements, variances, exemptions, consents, certificates, orders and approvals from governmental authorities which are material to the ownership and use of the Contributed Assets or the operation of the Business as it is now being conducted (collectively, the "Company Permits"), except where any failure to have or to comply with any Company Permits would not have a Material Adverse Effect on the Business. A list of the Company Permits is set forth in Section 2.6 of the Company Disclosure Schedule. .
2.7 Financial Statements and Liabilities.
(a) Financial Statements. The Company and Stockholder have furnished true and complete copies of the financial statements of the Company, consisting of balance sheets as of, and related statements of income, cash flow and stockholders equity for the twelve month period ended, December 31, 1997 and 1998 (the "Company Financial Statements"). The Company Financial Statements were prepared on a accrual basis, in accordance with generally accepted accounting principles ("GAAP") applied on a consistent basis throughout the periods involved (except as may be
indicated in the footnotes thereto), and the Company Financial Statements fairly present in all material respects the financial position of the Company as at the respective dates thereof and the consolidated results of its operations and cash flows for the periods covered thereby.
(b) No Undisclosed Liabilities. Except as is disclosed in
Section 2.7 of the Company Disclosure Schedule, the Company does not have any
liabilities (absolute, accrued, contingent or otherwise), except (i) liabilities
that individually and in the aggregate are adequately provided for in the
Company's balance sheet (including any related notes thereto) as of December 31,
1998 included in the Company Financial Statement (the "1998 Company Balance
Sheet"), (ii) non-material liabilities which were incurred in the ordinary
course of business and were not required under generally accepted accounting
principles to be reflected on the 1998 Company Balance Sheet, or which were
incurred after December 31, 1998 in the ordinary course of business and
consistent with past practice and would not be required, under generally
accepted accounting principles, to be reflected on a Company balance sheet
prepared in accordance with GAAP.
2.8 Absence of Certain Changes or Events. Except as set forth in
Section 2.8 of the Company Disclosure Schedule, since January 1, 1999, the
Company has conducted its business in the ordinary course and there has not
occurred: (i) any damage to, destruction or loss of any of the Contributed
Assets(whether or not covered by insurance); (ii) the commencement or threat of
litigation or governmental proceeding or investigation, that, if adversely
determined against the Company, would have a Material Adverse Effect on the
Company or would interfere with the consummation of the transactions
contemplated hereby; (iii) any material revaluation by the Company of any of the
Contributed Assets; (iv) any other action or event that, if it had occurred
after the date of this Agreement and prior to the Closing, would have violated,
or required the consent of CUI under, Section 5.1 of this Agreement; (v) the
execution of any agreement to do any of the foregoing, or (vi) the occurrence of
any event or circumstance or the taking of any action that has had or might have
a Material Adverse Effect on the Company.
2.9 Absence of Litigation. Except as set forth in Section 2.9 of the Company Disclosure Schedule, there are no claims, actions, suits, proceedings or investigations (governmental or other) that are pending or, to the knowledge of the Company or Stockholder, threatened against the Company, the Business or the Contributed Assets, before any court, arbitrator or administrative, governmental or regulatory authority or body, domestic or foreign. There are no facts or circumstances known to the Company or the Stockholder which is reasonably likely to result in the bringing of any such action or proceeding against the Company, the Business or any of the Contributed Assets.
2.10 Employee Benefit Plans, Employment Agreements. Neither the Company nor any trade or business (whether or not incorporated) which is a member of a controlled group including the Company or which is under common control with the Company (an "ERISA Affiliate") maintains or, during the past 10 years has maintained any employee pension plans (as defined in Section 3(2) of the Employee Retirement Income Security Act of 1974, as amended ("ERISA"), or any employee welfare plans (as defined in Section 3(1) of ERISA). Except for health insurance and term life insurance maintained by the Company for its employees, or as otherwise set forth in Section 2.10 of the Company Disclosure Schedule, the Company does not have or maintain, and during the past five (5) years has not maintained, any bonus, stock option, stock purchase, incentive, deferred compensation, supplemental retirement, severance or other similar fringe or employee benefit plans, programs or arrangements for any current or former employees or independent contractors or consultants to the Company ("Company Employee Plans"), excluding agreements with former employees under which the Company has no remaining monetary or other obligations. No Company Employee Plan promises or provides retiree
medical or other retiree welfare benefits to any person, and no Company Employee Plan is a "multiemployer plan" as such term is defined in Section 3(37) of ERISA.
2.11 Labor Matters. Except as disclosed in Section 2.11 of the Company Disclosure Schedule, (i) there are no controversies pending or, to the knowledge of the Company or Stockholder, threatened, between the Company and any of its employees; (ii) the Company is a not party to any collective bargaining agreement or other labor union contract, nor does the Company or Stockholder know of any activities or proceedings of any labor union to organize any of its employees; and (iii) neither the Company nor the Stockholder has any knowledge of any strikes, slowdowns, work stoppages, lockouts, or threats thereof, by or with respect to any employees of the Company. The Company is in compliance with all laws and regulations governing the employment of and working conditions of its employees.
2.12 Restrictions on Business Activities. Except for this Agreement or as set forth in Section 2.12 of the Company Disclosure Schedule, there is no agreement, judgment, injunction, order or decree binding upon the Company or Stockholder which has or could reasonably be expected to have the effect of prohibiting or impairing any material business practice of the Company or the conduct of Business, as currently conducted, by the Company or by CUI after the Closing.
2.13 Title to and Adequacy of Contributed Assets. Except as set forth in Section 2.13 of the Company Disclosure Schedule, the Company has and at the Closing shall convey to CUI, good, defensible and marketable title to all of the Contributed Assets, free and clear of all liens, security interests, mortgages, pledges, options, charges and encumbrances (collectively, "Liens and Encumbrances"), except for liens for taxes not yet due and payable and such liens or other imperfections of title, if any, as do not materially detract from the value of or interfere with the present use or subsequent disposition of such Assets or the consummation of the transactions contemplated hereby. The Contributed Assets, together with assets subject to leases included in the Assigned Contracts, are all of the assets required to enable CUI to conduct the Business as it has been conducted by the Company during the past 12 months.
2.14 Taxes. Except as disclosed in Section 2.14 of the Company Disclosure Schedule, the Company has filed all United States federal income tax returns and all other material tax returns required to be filed by it, and the Company has paid and discharged all Taxes (as defined in Section 9.2) due with respect to the periods or transactions covered by such tax returns and have paid all other taxes as are due, except as may be determined to be owed upon completion of any tax return not yet filed based upon an extension of time to file, and there are no other Taxes that would be due if asserted by a taxing authority, except with respect to which the Company is maintaining reserves to the extent currently required. There are no tax liens on any of the Contributed Assets; and the Company has not granted any waiver of any statute of limitations with respect to, or any extension of a period for the assessment of, any Tax.
2.15 Intellectual Property.
(a) Except as set forth in Section 2.15 of the Company Disclosure Schedule, the Company owns, or is licensed or otherwise possesses legally enforceable rights to use all patents, trademarks, trade names, service marks, copyrights, and any applications therefor, trade secrets, technology, know-how, computer software programs or applications, and tangible or intangible proprietary information that are used in the Business of the Company as currently conducted and a list of which is set forth as part of Exhibit B hereto (collectively, the "Company Intellectual Property").
(b) Except as disclosed in Section 2.15 of the Company Disclosure Schedule, the Company is not, nor will it be as a result of the execution and delivery of this Agreement or the performance of its obligations hereunder, in violation of any licenses, sublicenses and other agreements as to which the Company is a party and pursuant to which the Company is authorized to use any patents, trademarks, trade names, service marks, copyrights, trade secrets, technology, know-how, computer software programs or applications, or other tangible or intangible proprietary information owned by any third party ("Third-Party Intellectual Property Rights"). No claims with respect to any of the Company Intellectual Property or Third Party Intellectual Property Rights (to the extent arising out of any use, reproduction or distribution of such Third Party Intellectual Property Rights by or through the Company), are currently pending or, to the knowledge of the Company or Stockholder, are threatened by any person. Neither the Company nor the Stockholder knows of any valid grounds for any bona fide claims (i) to the effect that the conduct of the Business or the sale, licensing or use of any product as now used, sold or licensed or proposed for use, sale or license by Company infringes on any copyright, patent, trademark, service mark or trade secret or other intellectual property rights of any person; (ii) against the use by the Company of any Company or any Third Party Intellectual Property Rights; (iii) challenging the ownership, validity or effectiveness of any of the Company's Intellectual Property; or (iv) challenging the license or legally enforceable right of the Company to use of the Third Party Intellectual Property Rights.
(c) To the knowledge Company and the Stockholder, (i) all Company Intellectual Property and its rights therein, including patents, registered trademarks, service marks and copyrights held by the Company, are valid and subsisting. Except as set forth in Section 2.15 of the Company Disclosure Schedule, and (ii) there is no material unauthorized use, infringement or misappropriation of any of the Company Intellectual Property by any third party, including employee or former employee of the Company.
(d) All computer software and hardware used in the conduct of the Company's business and operations are Year 2000 compliant, which means that such software and hardware are designed to be used prior to, during, and after the calendar year 2000 A.D., and such software and hardware will operate during each of such time periods without error relating to date data, specifically including any error relating to, or the product of, date data which represents or references different centuries or more than one century.
2.16 Customers and Suppliers. Set forth on Section 2.16 of the Company
Disclosure Schedule are lists of the identities of the twenty (20) largest
customers and twenty (20) largest suppliers, respectively, of the Company in
each of calendar years 1997 and 1998, ranked by and setting forth the dollar
volume of their transactions with the Company during those respective calendar
years. Except as set forth on Section 2.16 of the Company Disclosure Schedule,
(i) since July 1, 1998 there has been no material adverse change in the business
relationship of the Company with any such customer or supplier or any other
event which has had or could reasonably be expected to have a Material Adverse
Effect on the Company, and (ii) neither the Company nor the Stockholder has any
present information or is aware of any facts indicating that any of such
customers or suppliers of the Company intends to cease doing or alter materially
the amount of the business that any of them did with the Company during the 12
months ended December 31, 1998.
2.17 Related Party Transactions. Except for employment agreements or relationships that the Company has with its officers and employees and any agreements or transactions that are set forth in Section 2.5 or Section 2.17 of the Company Disclosure Schedule, the Company is not a party to any agreement or transaction with any of its officers, directors, stockholders or employees, or any of their relatives or affiliates that would or is expected to continue beyond the Closing Date. To the knowledge of
the Stockholder and the Company, no officer, director, stockholder or employee, or any relative or affiliate thereof, owns any interest in any competitor, lessor, lessee or customer or supplier of the Company.
2.18 Insurance. Section 2.18 of the Company Disclosure Schedule contains a list of each policy of fire, general liability, product liability, business interruption, worker's compensation and other forms of insurance maintained by the Company for the protection of the Company and its assets and business. True and correct copies of such policies have been delivered to CUI. All such policies are, and for at least the past five (5) years such policies (or policies substantially equivalent thereto) have been, in full force and effect and without any gaps in coverage, all premiums with respect thereto covering all periods up to and including the date hereof have been paid, and no notice of cancellation, termination or denial of coverage has been received with respect to any such policy.
2.19 Brokers. No broker, finder or investment banker is entitled to any brokerage, finder's or other fee or commission in connection with the transactions contemplated by this Agreement based upon arrangements made by or on behalf of the Company.
2.20 Full Disclosure. No representation or warranty made by the Company or the Stockholder contained in this Agreement and none of their respective or joint statements contained in any certificate or schedule furnished or to be furnished by the Company or the Stockholder to CUI in, or pursuant to the provisions of, this Agreement, including without limitation the Company Disclosure Schedule, contains or shall contain any untrue statement of a material fact or omits or will omit to state any material fact necessary, in light of the circumstances under which it was made, in order to make statements herein or therein not misleading.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE STOCKHOLDER
The Stockholder hereby represents and warrants to CUI that:
3.1 Authority and Capacity. Stockholder has the full legal right and capacity to execute and deliver, and to perform his obligations under, and has duly executed and delivered, this Agreement with the intent to be legally bound hereby. This Agreement constitutes, and when executed and delivered by the Stockholder, the Stockholders Agreement and Stockholder Non-Competition Agreement will constitute, valid and legally binding obligations of the Stockholder that are enforceable against him in accordance with their respective terms, except as such enforceability may be limited by bankruptcy, insolvency, moratorium or other similar laws affecting creditors' rights and by general principles of equity relating to the availability of equitable remedies (regardless of whether any such agreements are sought to be enforced in a proceeding at law or in equity). Stockholder is not obligated to obtain any consent or approval of any other person in connection with the execution and delivery of this Agreement or the Stockholders Agreement or his Non-Competition Agreement or the consummation of the transactions contemplated hereby or thereby and the execution and delivery of this Agreement and such other Agreements and the consummation by him of the transactions contemplated hereby or thereby will not violate, or constitute a breach or default under or cause the acceleration of any obligation or liability under any contract, promissory note, mortgage, lease, license, permit, writ, decree or other instrument or agreement to which Stockholder is a party or is subject.
3.2 Securities Law Compliance. Stockholder represents and warrants that:
(a) He has been advised and understands and agrees that the CUI Shares will not be registered under the Securities Act of 1933, as amended (the "1933 Act"), nor qualified under any state securities laws, on the ground (among others) that no distribution or public offering of the CUI Shares is to be effected in connection with the transactions contemplated herein and in issuing the CUI Shares to Stockholder, CUI is relying on the accuracy and completeness of the representations and warranties of Stockholder in this Section 3.2.
(b) Stockholder is acquiring the CUI Shares and the CUI Note for his own account, and not as an nominee or agent for any other persons or entities, and for investment and not with a view to distribution or resale thereof.
(c) Stockholder acknowledges that he has been informed and understands that no public market for the CUI Shares exists and that there can be no assurance that any such market may develop or exist in the future and, even if a public market does develop, that the CUI Shares may not be sold or transferred except in compliance with the 1933 Act or any exemption thereunder and there is no assurance that any exemption from registration, including Rule 144 under the 1933 Act will become available to permit resales of the CUI Shares.
(d) Stockholder has been furnished with such information regarding CUI and the CUI Shares as he has requested of CUI and has had an opportunity to ask questions of the officers of CUI regarding, and to become informed about, CUI and its business and its consolidated financial condition and results of operations.
(e) Stockholder is an "Accredited Investor" as such term is defined in Regulation D under the 1933 Act.
(f) Stockholder acknowledges and agrees that (i) until the CUI Shares become eligible for resale under Rule 144(k) under the 1933 Act, any proposed sale or other transfer or disposition of any of the CUI Shares, other than pursuant to an effective registration statement under the 1933 Act, may not be made unless and until Stockholder has furnished to CUI an opinion of counsel, reasonably acceptable to CUI and its counsel, to the effect that the proposed sale or other transfer or disposition is exempt from registration under the 1933 Act, and (ii) the CUI Shares will be subject to the Stockholders Agreement referred to in Section 1.5 hereof and, until the Stockholders Agreement has been terminated (A) no sale or other disposition of the CUI Shares may be made except in compliance therewith and (B) the CUI Shares may be required to be sold in one or more transactions involving sales of shares of CUI initiated by certain other of the CUI Stockholders, all as more fully provided in the Stockholders Agreement. Stockholder has read and understands the Stockholders Agreement.
(g) Stockholder acknowledges and agrees that the certificate representing the CUI Shares shall contain restrictive legends in the forms set forth in the form of Stockholders Agreement attached hereto as Exhibit G or restrictive legends that are substantially similar thereto, and that the CUI Note shall contain the legends set forth on the form of such Note attached hereto as Exhibit C.
3.3 Acknowledgements Regarding CUI Representations. Stockholder acknowledges and agrees that (a) neither CUI nor any of its officers, directors, employees or agents has made, and none of them is making, any representations or warranties to the Company or the Stockholder with respect to (i) the federal, state or local income or other tax consequences to the Company or the Stockholder of the consummation of the transactions contemplated hereby, or (ii) the future performance of CUI; and (b) in entering into this Agreement, and the Stockholders Agreement and Non-Competition Agreement, he is not relying on any statements or representations or warranties of CUI, or any representations or warranties made or purported to have been made by any officer, director, stockholder, employee or agent of CUI, other than the express representations and warranties of CUI contained in this Agreement.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF CUI
CUI hereby represents and warrants to the Company and the Stockholder that, except as set forth in the written disclosure schedule delivered on or prior to the date hereof by CUI to the Company that is arranged in paragraphs corresponding to the numbered and lettered paragraphs contained in this Article IV (the "CUI Disclosure Schedule"):
4.1 Organization and Qualification; Subsidiaries. CUI is a corporation duly organized, validly existing and in good standing under the laws of the jurisdiction of its incorporation and has the requisite corporate power and authority to own, lease and operate the properties it purports to own, and to operate or lease and to carry on its business as it is now being conducted, except where the failure to be so organized, existing and in good standing or to have such power, authority and Approvals would not have a Material Adverse Effect (as hereinafter defined) on CUI. CUI is duly qualified or licensed as a foreign corporation to do business, and is in good standing, in each jurisdiction where the character of its properties owned, leased or operated by it or the nature of its activities makes such qualification or licensing necessary, except for such failures to be so duly qualified or licensed and in good standing that would not have a Material Adverse Effect. The term "Material Adverse Effect," when used in connection with the CUI or any of its subsidiaries, means any change, effect or circumstance that is materially adverse to the business, assets, financial condition, results of operations or prospects of the CUI and its subsidiaries, taken as a whole, other than any such changes, circumstances or effects that are set forth or described in the CUI Disclosure Schedule.
4.2 Certificate of Incorporation and By-Laws. CUI has heretofore furnished to the Company and the Stockholder a complete and correct copy of its Certificate of Incorporation and By-Laws, as amended to date. Such Certificate of Incorporation and By-Laws are in full force and effect. CUI is not in violation of any of the provisions of Certificate of Incorporation or By-Laws.
4.3 Capitalization. As of the date hereof, the authorized capital stock of CUI consists of 30,000,000 shares of Common Stock, par value $.001 per share. On consummation of the transactions contemplated by this Agreement and the Other Contributions Agreements, there will be (i) a total of 19,000,000 fully paid and nonassessable shares of Common Stock that will be issued and outstanding, which will include the CUI Shares being issued under this Agreement; and (ii) ___ shares of Common Stock reserved for issuance on the exercise of stock options (either granted or to be granted in the future). Except as set forth in Section 4.3 of the CUI Disclosure Schedule, as of the date of hereof there are no options, warrants or other rights, agreements, arrangements or commitments of any character relating to the issued or unissued capital stock of CUI or obligating CUI to issue or sell any shares of capital stock of, or other equity interests in, CUI. There are no obligations, contingent or otherwise, of CUI to repurchase, redeem or otherwise acquire any of the capital stock of CUI.
4.4 Power and Authority. CUI has all necessary corporate power and
authority to execute and deliver this Agreement and to perform its obligations
hereunder and to consummate the transactions contemplated hereby. The execution
and delivery of this Agreement by CUI and the consummation by CUI of the
transactions contemplated hereby have been duly and validly authorized by all
necessary corporate action on the part of CUI, and no other corporate
proceedings on the part of CUI are necessary to authorize this Agreement or to
consummate the transactions contemplated hereby. This Agreement has been duly
and validly executed and delivered by CUI and, assuming due authorization,
execution and delivery by the Company and Stockholder, constitutes a legal,
valid and binding obligation of CUI enforceable against it in accordance with
its terms, except as the enforceability thereof may be subject to or limited by
(i) bankruptcy, insolvency, reorganization, arrangement, moratorium, or other
similar laws
relating to or affecting rights of creditors, and (ii) general equitable principles, regardless of whether the issue of enforceability is considered in a proceeding in equity or at law.
4.5 No Conflict, Required Filings and Consents.
(a) The execution and delivery of this Agreement by CUI does not, and the performance of this Agreement by CUI will not, (i) conflict with or violate the Certificate of Incorporation or By-Laws of CUI, (ii) conflict with or violate any law, rule, regulation, order, judgment or decree applicable to CUI or by which its properties are bound or affected, or (iii) result in any breach of or constitute a default (or an event which with notice or lapse of time or both would become a default) under, or impair CUI's rights or alter the rights or obligations of any third party under, or give to others any rights of termination, amendment, acceleration or cancellation, or result in the creation of a lien or encumbrance on any of the properties or assets of CUI pursuant to, any note, bond, mortgage, indenture, contract, agreement, lease, license, permit, franchise or other instrument or obligation to which CUI is a party or by which CUI or its or properties are bound or affected, except in any such case for any such conflicts, violations, breaches, defaults or other occurrences that would not have a Material Adverse Effect on CUI.
(b) The execution and delivery of this Agreement by CUI does not, and the performance of this Agreement by CUI will not, require any consent, approval, authorization or permit of, or filing with or notification to, any governmental or regulatory authority, domestic or foreign, except (i) for applicable requirements, if any, of the 1933 Act and any applicable state securities laws, and (ii) where the failure to obtain such consents, approvals, authorization or permits, or to make such filings or notifications, would not prevent or delay consummation of the transactions contemplated hereby, or otherwise prevent CUI from performing its obligations under this Agreement, and would not have a Material Adverse Effect.
4.6 Financial Statements; Liabilities.
(a) CUI has furnished to the Company and Stockholder unaudited financial statements of Professional Coin Grading Service, Inc. ("PCGS"), which is CUI's predecessor company. Such financial statements are comprised of a balance sheet of PCGS as of June 30,1998 and related statements of income, cash flows and stockholders equity for the year then ended, and an unaudited balance sheet as of, and a related unaudited statement of income of PCGS for the six months ended, December 31, 1998, all of which have been prepared by PCGS (collectively, the "PCGS Financial Statements"). Except as otherwise set forth in Section 4.6 of the CUI Disclosure Schedule or in the footnotes contained in the PCGS Financial Statements, such Financial Statements fairly present, in all material respects, the financial position of PCGS as at June 30, 1998 and December 31, 1998, respectively, and the respective results of operations of PCGS and changes in cash flows and stockholders equity for the year and six months ended on June 30, 1998 and December 31, 1998, respectively.
(b) No Undisclosed Liabilities. Except as is disclosed in
Section 4.6 of the CUI Disclosure Schedule, neither CUI nor PCGS has any
liabilities (absolute, accrued, contingent or otherwise), except (a) liabilities
that individually and in the aggregate are adequately provided for in the PCGS
balance sheet (including any related notes thereto) as of December 31, 1998
included in the PCGS Financial Statement (the "1998 PCGS Balance Sheet"), (b)
non-material liabilities which were incurred in the ordinary course of business
and were not required under generally accepted accounting principles to be
reflected on the 1998 PCGS Balance Sheet, or which were incurred after December
31, 1998 in the ordinary course of business and consistent with past practice
and would not be required, under generally
accepted accounting principles, to be reflected on a PCGS balance sheet prepared in accordance with GAAP.
4.7 Absence of Material Adverse Changes. Except as is disclosed in
Section 4.7 of the CUI Disclosure Schedule, since December 31, 1998, there has
not been (i) a change in the consolidated financial condition or consolidated
results of operations or business of PCGS or (ii) any action or legal proceeding
that has been brought or is known by CUI to have been threatened against PCGS,
or (iii) any other event known to CUI, that has had or is reasonably expected to
have a Material Adverse Effect on CUI (assuming that CUI's acquisition of PCGS
is consummated concurrently with the Closing).
4.8 Restrictions on Business Activities. To the best knowledge of CUI, there is no material agreement, judgment, injunction, order or decree binding upon CUI or any of its subsidiaries which has or could reasonably be expected to have the effect of prohibiting or materially impairing any material business practice of CUI or any of its subsidiaries, any acquisition of property by CUI or the conduct of business by CUI or any of its subsidiaries as currently conducted or as proposed to be conducted by CUI, except for any prohibition or impairment as would not have a Material Adverse Effect on CUI.
4.9 Related Party Transactions. Except for employment agreements or relationships that CUI has with its officers and employees, any agreements or transactions that would not have a Material Adverse Effect on CUI and any agreements or transactions that are set forth in Section 4.9 of the CUI Disclosure Schedule, CUI is not a party to any agreement or transaction with any of its officers, directors, stockholders or employees, or to its knowledge, any of their respective relatives or affiliates. To CUI's knowledge, no officer, director, stockholder or employee of CUI, or any relative or affiliate thereof, owns any interest in any competitor, lessor, lessee or customer or supplier of CUI.
4.10 Brokers. No broker, finder or investment banker is entitled to any brokerage, finder's or other fee or commission in connection with the transactions contemplated by this Agreement based upon arrangements made by or on behalf of CUI.
4.11 Full Disclosure. No representation or warranty of CUI contained in this Agreement and no statement contained in any certificate or schedule furnished or to be furnished by CUI to the Company in, or pursuant to the provisions of, this Agreement, including without limitation the CUI Disclosure Schedule, contains or will contain any untrue statement of a material fact or omits or shall omit to state any material fact necessary, in light of the circumstances under which it was made, in order to make the statements herein or therein not misleading.
ARTICLE V
ACTIONS BEFORE AND AFTER THE CLOSING
5.1 Conduct of Business by the Company Pending the Closing. The Company and Stockholder jointly and severally covenant and agree that, during the period from the date of this Agreement and continuing until the earlier of the termination of this Agreement or the Closing, the Company (i) shall conduct its business only, and shall not take any action except, in the ordinary course of business and consistent with past practice; and (ii) shall use reasonable commercial efforts to preserve substantially intact the business organization of the Company, to keep available the services of the present officers, employees and consultants of the Company and to preserve the present relationships of the Company with customers, suppliers and other persons with which the Company has significant business relations. By way of amplification and not limitation, except as contemplated by this Agreement, during the period from the date of this Agreement and continuing until the earlier of the termination of this Agreement or the Closing, the Company shall not, either directly or indirectly, do or
propose to do any of the following without the prior written consent of CUI, which consent shall not be unreasonably withheld:
(a) amend or otherwise change its Articles of Incorporation or By-Laws;
(b) sell, pledge, dispose of, or permit the imposition or existence of any Liens or Encumbrances on, any of the Contributed Assets or sell or dispose of or encumber any of the other assets of the Company if such sale, disposition or encumbrance would adversely affect CUI's ability, after the Closing, to conduct the Business as currently conducted or would interfere with the consummation of the transactions contemplated hereby;
(c) Take any of the following actions: (i) acquire (by merger, consolidation, or acquisition of stock or assets) any corporation, limited liability company, partnership or other business organization or division thereof; (ii) incur any indebtedness for borrowed money or issue any debt securities that could result in the imposition of any liens, mortgages, security interests, claims, charges or encumbrances on any of the Contributed Assets or the Business or could interfere with the consummation of the transactions contemplated hereby or subject CUI or any of its subsidiaries to any liabilities; (iii) enter into or amend any Material Contract except where the entry into the Contract or the amendment thereto would not have a Material Adverse Effect on the Company or increase the liabilities thereof; or (iv) authorize any capital expenditures or purchase of fixed assets which are, in the aggregate, in excess of $10,000;
(d) Increase the compensation or employee benefits payable or to become payable to its officers, directors or employees or independent contractors, except for increases in salary or wages of employees (other than officers) of the Company in accordance with past practice, or grant any severance to termination pay to, or enter into or amend or terminate any employment or severance agreement with any director, officer or other employee of the Company or establish, adopt, enter into or amend any collective bargaining agreement or any Company Employee Plans (as hereinabove defined) or other plan, agreement, trust, fund, policy or arrangement for the benefit of any current or former directors, officers or employees, except, in each case, as may be required by law;
(e) Take any action to change accounting policies, principles, practices or procedures (including, without limitation, procedures with respect to revenue recognition, payments of accounts payable and collection of accounts receivable);
(f) pay, discharge or satisfy any claims, liabilities or obligations (absolute, accrued, asserted or unasserted, contingent or otherwise), if such payment, discharge or satisfaction would require the disposition or encumbrance of any of the Contributed Assets, adversely affect the Business or interfere with the consummation of the transactions contemplated hereby.
(g) take, or agree in writing or otherwise to take, any of the actions described in Sections 5.1(a) through (f) above.
The Company and Stockholder also each agree, jointly and severally,
that neither of them will take any action which would (i) make any of their
representations or warranties contained in this Agreement untrue or incorrect or
(ii) prevent or interfere with the performance by the Company or Stockholder of
any of their respective covenants contained in this Agreement.
5.2 No Solicitation. During the period from the date hereof and continuing until the earlier of the completion of the Closing or termination of this Agreement:
(a) The Company shall not directly, or indirectly through any officer, director, employee, representative or agent, and the Stockholder shall not directly, or indirectly through any agent or representative:
(i) solicit, initiate or encourage the initiation of any inquiries or proposals regarding any merger, sale of substantial assets, sale of shares of capital stock (including without limitation by way of a tender offer) or similar transactions involving the Company or the Company Shares (any of the foregoing inquiries or proposals being referred to herein as an "Acquisition Proposal"),
(ii) engage in negotiations or discussions concerning any Acquisition Proposal, (iii) provide any nonpublic information to any person relating to the Company or its business or any of the transactions contemplated hereby, or
(iv) enter into any agreement or understanding, written or oral, relating to any Acquisition Proposal.
The Company and Stockholder also shall immediately cease and cause to be terminated any existing discussions or negotiations that either of them may be having with any person (other than CUI) with respect to any Acquisition Proposal or which could conceivably lead to the making of an Acquisition Proposal. The Company and the Stockholder agree not to release any third party from the provisions of any confidentiality agreement that such third party may have with the Company or Stockholder.
(b) Each of the Company and Stockholder shall notify CUI immediately after receipt by either of them of any Acquisition Proposal or any request for nonpublic information relating to, or for access to the properties, books or records of, the Company by any person or entity. Such notice to CUI shall be made orally and in writing.
(c) The Company shall ensure that the officers, directors and
employees of the Company and any advisor or representative retained by the
Company are aware of and will comply with the restrictions described in this
Section 5.2.
5.3 Access to Information. During the period from the date hereof and continuing until the earlier of the completion of the Closing or termination of this Agreement, each of the Company and CUI, upon reasonable notice, and subject to the provisions of Section 5.9 hereof, shall each (i) afford to the officers, employees, accountants, counsel and other representatives of the other, reasonable access, during the period from the date hereof to the earlier of the Closing or the termination of this Agreement, to all its properties, books, contract, commitments and records (ii) furnish promptly to the other all information concerning its business, properties and personnel as such other party may reasonably request, and (iii) make available to the other the appropriate individuals (including attorneys, accountants and other professionals) for discussion of the other's business, properties and personnel as either CUI or the Company may reasonably request.
5.4 Consents; Approvals. The Company, Stockholder and CUI shall each use their best reasonable efforts to obtain all consents, waivers, approvals, authorizations or orders (including, without limitation, all governmental and regulatory rulings and approvals), and the Company, Stockholder and CUI shall make all filings (including, without limitation, all filings with governmental or regulatory agencies) required in connection with the authorization, execution and delivery of this Agreement by the Company, the Stockholder and CUI and the consummation by them of the transactions contemplated hereby. The Company, the Stockholder and CUI shall furnish all information required to be included in
any applications or other filings to be made pursuant to the rules and regulations of any governmental body in connection with the transactions contemplated by this Agreement.
5.5 Obligations Being Assumed; Obligations and Liabilities Not Being Assumed.
(a) Assumed Contractual Obligations. CUI hereby agrees to assume only those executory obligations arising from or after the Closing Date under the Assigned Contracts listed in Exhibit B hereto (the "Assumed Contractual Obligations"); provided, however, that CUI shall not be obligated to assume, and CUI shall not have any liability for or in connection with, any Assumed Contractual Obligation that is in default as of the Closing Date or as to which there exists as of the Closing Date an event or circumstance that, with the passage of time or the giving of notice, or both, would give rise to a default thereunder.
(b) Liabilities Not Being Assumed. Except for the Assumed Contractual Obligations, the Company and the Stockholder agree that CUI shall not be obligated to assume or perform or discharge, and that CUI will not be assuming, performing or otherwise discharging, any liabilities or obligations of the Company, whether known or unknown, fixed or contingent, matured or unmatured, certain or uncertain, that have arisen prior hereto or may arise between the date hereof and the Closing or which may arise after the Closing out of the conduct of any business or other activities by the Company (collectively, the "Retained Liabilities"). The Company and Stockholder jointly and severally covenant and agree that the Company shall be responsible for performing and satisfying, and shall perform and satisfy, the Retained Liabilities, at the Company's sole expense, and without liability, cost, loss or expense of or to CUI. The Retained Liabilities shall include, but shall not be limited to, any and all of the following obligations and liabilities of the Company:
(i) Taxes. All Taxes (as defined in Section 9.2 hereof) that have arisen prior to the Closing or may arise thereafter out of any business or other operations conducted by the Company, either prior to or after the Closing Date.
(ii) Liens and Encumbrances. Any Liens or Encumbrances on any of the Contributed Assets or any other assets of the Company.
(iii) Monetary Obligations. Any accounts or notes payable and obligations for borrowed money or purchase money indebtedness of the Company.
(iv) Claims and Legal Proceedings. Any claims, demands, actions, suits or legal proceedings that have been asserted or threatened prior to the Closing against the Company, the Business or the Contributed Assets or which may be threatened or asserted hereafter against the Contributed Assets, the Business or CUI that arises in any way from or in connection with the conduct or operation of the Business prior to the Closing, or any other business or non-business activities of the Company conducted prior hereto or hereafter.
(v) Contingent Liabilities. Any liability, deficiency, penalty, cost or expense arising out of the sale of any currency or the conduct of the Business by the Company or any other activities of the Company, whether or not disclosed in the Company's Financial Statements (as hereinafter defined) or in the Company Disclosure Schedule.
(vi) Transaction Related Liabilities. Any liabilities of the Company that may arise out of the consummation of this Agreement, or actions that may be taken by the Company or Stockholder in connection therewith, including, but not limited to, any liabilities or
obligations for accrued but unpaid salaries, vacation, and holiday and such pay and any liabilities or obligations that may arise under any employment, consulting, independent contractor or severance agreements or arrangements (whether written or oral) or any bonus or employee benefit programs or arrangements between the Company and any of its employees or independent contractors.
(c) Indemnification. In furtherance of the foregoing covenants of the Company and Stockholder, the Company and Stockholder agree that, from and after the Closing, they shall jointly and severally indemnify and hold harmless CUI and its subsidiaries, and their respective officers, directors, stockholders, employees and agents (other than the Stockholder himself) (collectively, the "Indemnified Parties"), and the respective successors, heirs and assigns of the Indemnified Parties, from and against (i) the Retained Liabilities, (ii) any breach of or default with respect to any of the representations and warranties of the Company or Stockholder contained in this Agreement, and (iii) all costs and expenses, including reasonable attorneys and accountants and expert witness fees and disbursements that are incurred by any of the Indemnified Parties, or their successors, heirs or assigns, in connection with the prosecution or defense of any action or proceeding brought by or against any of the Indemnified Parties by reason of the Company's failure to have discharged or paid any of the Retained Liabilities or which assert claims that, if established, would evidence that one or more representations or warranties of the Company or the Stockholder contained in this Agreement were untrue either when made or at the time of the Closing.
5.6 Effective Date. If the transactions contemplated by this Agreement are consummated, then, for accounting and other recordkeeping purposes, the Closing shall be deemed to have occurred as of February 5, 1999 and all auction and other sales of Rare Currencies by the Company that occur between February 5, 1999 and the actual Closing Date shall be for the account of CUI. In addition, and notwithstanding anything to the contrary contained elsewhere in this Agreement, all cash generated by the Company from such sales of Rare Currencies shall be paid to CUI and shall not constitute a Retained Asset and shall not be retained by the Company. In furtherance thereof, the Company shall furnish CUI with all records and reports relating to all auction and other sales of Rare Currencies that may occur between February 5, 1999 and the Closing Date.
5.7 Notification of Certain Matters. The Company or the Stockholder shall give prompt notice to CUI, and CUI shall give prompt notice to the Company, of (i) the occurrence or nonoccurrence of any event which would be likely to cause any representation or warranty made by such party in this Agreement to be materially untrue or inaccurate, or (ii) any inability or failure of the Company, the Stockholder or CUI, as the case may be, materially to comply with or satisfy any covenant, condition or agreement to be complied with or satisfied by hereunder; provided, however, that the delivery of any notice pursuant to this Section shall not limit or otherwise affect the remedies available hereunder to the party receiving such notice.
5.8 Further Action. On the terms and subject to the conditions hereof, each of the parties hereto shall use all reasonable efforts to take, or cause to be taken, all actions, and to do, or cause to be done, all other things necessary, proper or advisable to consummate and make effective as promptly as practicable the transactions contemplated by this Agreement, to obtain in a timely manner all necessary waivers, consents and approvals and to effect all necessary registrations and filings, and otherwise to satisfy or cause to be satisfied all conditions precedent to its obligations under this Agreement. From and after the Closing, each party shall take such actions and execute such documents and instruments as any other party may reasonably request to better evidence or effectuate the transactions contemplated by this Agreement or the Exhibits hereto. Without limiting the generality of the foregoing, the Company and the Stockholder shall approve and, within five (5) business days of the Closing shall cause to be
filed, an amendment to the Company's Articles of Incorporation changing its name to a name this is not confusing similar to Lyn F. Knight Rare Coins or any variant thereof that combines or associates the name Lyn Knight together with any currency or other Collectibles.
5.9 Confidential Information. Each party acknowledges that it or any of its officers, directors, employees, agents or advisors ("Representatives") may be given, by one of the other parties hereto (a "disclosing party") or any of such disclosing party's Representatives, access to various items of proprietary and confidential information of the disclosing party in the course of investigations and negotiations prior to Closing. Each party agrees that confidential information of any disclosing party furnished or delivered to the other party (the "receiving party") or to any of the receiving party's Representatives shall be kept strictly confidential by the receiving party and by its Representatives and shall not be used for any purpose other than to facilitate the consummation of the transactions contemplated herein. Confidential information shall include any proprietary business or other information which is delivered (orally or in writing) or to which access is given by a disclosing party or any of its Representatives to the receiving party or any of its Representatives, and any such information that is included in or incorporated into any notes, analyses, memoranda, projections or other documents that are prepared by the receiving party or any of its Representatives, unless such information (a) is already of public knowledge, or (b) becomes of public knowledge through no fault, action or inaction of the receiving party or its Representatives, or (c) is demonstrated convincingly by the receiving party to have been known by the receiving party, or any of its Representatives, prior to the disclosure of such information by the disclosing party to the receiving party, unless such knowledge was acquired from a person who the receiving party or its Representatives knew or reasonably should have known was subject, at the time of such disclosure, to a fiduciary or other duty of non-disclosure to the disclosing party. Except as permitted by Section 5.9, no party hereto, nor its respective Representatives, shall intentionally disclose any confidential information of any of the other parties to any third person; provided, however, that such information may be disclosed (i) with the written consent of the other parties hereto, (ii) in applications or requests required to be made to obtain licenses, permits, approvals or consents needed to consummate the transactions contemplated herein, (iii) to the professional advisors of each party hereto who need to know such information in connection with the consummation of the transactions contemplated hereby, or (iv) pursuant to court order or subpoena, provided, however, that if any receiving party or any of its Representatives is served with a court order or subpoena that would require the disclosure of any of the confidential information of a disclosing party, the receiving party or such Representative so served (as the case may be) shall promptly, but in any event within three (3) days thereafter, notify the disclosing party thereof and shall provide reasonable cooperation, at the disclosing party's expense, with any efforts that the disclosing party may undertake to quash such court order or subpoena or obtain a protective order with respect to the disclosure and use of such confidential information. The restrictions and obligations contained in this Section 5.9 shall survive any termination of this Agreement; provided, however, that, if the transactions contemplated hereby are consummated, the obligations of CUI and any subsidiaries thereof under this Section 5.9 shall terminate, but all of the obligations of the Company and the Stockholder under this Section 5.9 shall survive and shall continue in full force and effect at all times after the Closing. Notwithstanding the foregoing, however, following the Closing Stockholder may use Confidential Information for the sole purpose of procuring Rare Currencies which, for purposes of any subsequent sale or disposition of value, he is obligated to utilize the auction or selling services of CUI or any subsidiary thereof.
ARTICLE VI
CONDITIONS PRECEDENT
6.1 Conditions to Obligations of Each Party to Consummate Transactions. The performance by each party of its respective obligations under this Agreement shall be subject to the satisfaction, at or prior to the Closing Date, of each of the following conditions unless waived in writing by such party:
(a) Absence of Injunctions or Restraints; Illegality. No temporary restraining order, preliminary or permanent injunction or other order issued by any court of competent jurisdiction or other legal restraint or prohibition preventing the consummation of the transactions contemplated hereby shall be in effect, nor shall any proceeding brought by any administrative agency or commission or other governmental authority or instrumentality, domestic or foreign, seeking any of the foregoing be pending; and there shall not be any action taken, or any statute, rule, regulation or order enacted, entered, enforced or deemed applicable to the transactions contemplated hereby which makes their consummation illegal.
(b) Governmental Actions. There shall not have been instituted, pending or threatened, in writing, any action or proceeding (or any investigation or other inquiry that might result in such an action or proceeding) by any governmental authority or administrative agency before any governmental authority, administrative agency or court of competent jurisdiction, nor shall there be in effect any judgment, decree or order of any governmental authority, administrative agency or court of competent jurisdiction, in either case, seeking to prohibit or limit CUI, following the Closing, from exercising any of the material rights and privileges pertaining to its ownership of the Contributed Assets or the ownership or conduct of the Business.
(c) Consents Obtained. All material consents, waivers, approvals, authorizations or orders required to be obtained by CUI or the Company or the Stockholder for the authorization, execution and delivery of this Agreement and the consummation by each such party of the transactions contemplated hereby shall have been obtained by CUI, the Company or the Stockholder (as the case may be), except where the failure to receive such consents, waivers, approvals, authorizations or orders could not reasonably be expected to have a Material Adverse Effect on the Business or CUI.
(d) Consummation of Other Transactions. The transactions contemplated by the Other Contribution Agreements shall have been consummated at or about the same time as the Closing hereunder.
6.2 Additional Conditions to Obligations of CUI. The obligations of CUI to consummate its acquisition of the Business and the Contributed Assets and to perform its other obligations under this Agreement also are subject to the following conditions:
(a) Accuracy of Representations and Warranties. The representations
and warranties of the Company and Stockholder contained in this Agreement shall
be true and correct in all material respects on and as of the Closing Date, with
the same force and effect as if made on and as of the Closing Date, except for
(i) changes contemplated by this Agreement or by the Company Disclosure
Schedule, and (ii) those representations and warranties which address matters
only as of a particular date (which shall have been true and correct as of such
date, and CUI shall have received a certificate to such effect signed by the
President of the Company and the Stockholder.
(b) Performance of Covenants. The Company and the Stockholder shall have performed or complied in all material respects with all agreements and covenants required by this Agreement to be performed or complied with by it or him (as the case may be) on or prior to the Closing Date, including the execution and delivery by the Company of its Non-Competition Agreement and the execution and delivery by Stockholder of the Stockholders Agreement and the Stockholder's Non-
Competition Agreement, and CUI shall have received a certificate to such effect signed by the President of the Company and the Stockholder.
(c) Additional Instruments. CUI shall have received the Closing Documents listed on Exhibit I hereto and such other instruments and documents as CUI or its counsel reasonably deems to be necessary.
6.3 Additional Conditions to Obligations of the Company and Stockholder. The obligation of the Company and Stockholder to consummate their respective obligations under this Agreement is also subject to the following conditions:
(a) Accuracy of Representations and Warranties. The
representations and warranties of CUI contained in this Agreement shall be true
and correct in all material respects on and as of the Closing Date, with the
same force and effect as if made on and as of the Closing Date, except for (i)
changes contemplated by this Agreement or by the CUI Disclosure Schedule, and
(ii) those representations and warranties which address matters only as of a
particular date (which shall have been true and correct as of such date, and the
Stockholder shall have received a certificate to such effect signed by the
President of CUI.
(b) Agreements and Covenants. CUI shall have performed or complied in all material respects with all agreements and covenants required by this Agreement to be performed or complied with by it on or prior to the Closing Date, and the Stockholder shall have received a certificate to such effect signed by the President of CUI.
(c) Employment Agreements. At the Closing, CUI or a wholly-owned subsidiary thereof that will operate the Business following the Closing, shall have entered into (i) an employment agreement, substantially in the form of Exhibit J hereto, with the Stockholder (the "Stockholder Employment Agreement") and (ii) an employment agreement with Deborah Knight (the "D. Knight Employment Agreement"), both of which shall become effective on consummation of the contribution and transfer of the Contributed Assets to CUI as contemplated by this Agreement.
(d) Additional Instruments. Stockholder shall have received the additional Closing Documents listed on Exhibit I hereto and such other instruments and documents as Stockholder or its counsel reasonably deems to be necessary.
ARTICLE VII
TERMINATION
7.1 Termination. This Agreement may be terminated and the transactions herein contemplated may be abandoned at any time prior to the Closing:
(a) By mutual written consent of CUI and the Stockholder; or
(b) By CUI, if any of the conditions to its obligations set forth in Section 6 of this Agreement shall not have been satisfied, or waived by CUI in writing, prior to March 12, 1999;
(c) By the Company, if any of the conditions set forth in Section 6 of this Agreement to the obligations of the Company or Stockholder shall not have been satisfied, or waived in writing by the Company or Stockholder, prior to March 12, 1999;
Provided, that in each of the foregoing cases the party so terminating is not in breach of any of its material obligations or representations or warranties under this Agreement.
Notwithstanding anything to the contrary contained elsewhere in this Agreement, if a party hereto has breached this Agreement (a "Breaching Party") and such breach is of a nature that it is susceptible of cure, and the other party determines to terminate this Agreement by reason thereof, such other party shall give prompt written notice of such termination to the Breaching Party and such intended termination shall not become effective provided that the Breaching Party effectuates a cure of such breach by the earlier of (i) the 30th day following such notice of termination or (ii) March 12, 1999.
7.2 Procedure Upon Termination. Any termination and abandonment by CUI or the Stockholder, or both, pursuant to Section 7.1 hereof, shall be effective on written notice thereof from the terminating party to the other parties and upon any such termination:
(a) Each party will redeliver all documents, workpapers and other material of any other party relating to the transactions contemplated hereby, whether so obtained before or after the execution hereof, to the party furnishing the same;
(b) The obligations of confidentiality set forth in
Section 5.9 hereof shall continue despite such termination; and
(c) The parties shall be relieved of any obligation to consummate the transactions contemplated hereby, but none of the parties shall be relieved of any liability for its breach or default under this Agreement.
ARTICLE VIII
SURVIVAL OF REPRESENTATIONS AND WARRANTIES
Regardless of any due diligence or other investigation, either prior to
or after the Closing, or any verification or approval by any party hereto or by
anyone or on behalf of any party hereto, all of the representations and
warranties set forth in this Agreement or in any certificates delivered pursuant
hereto shall remain in full force and effect and shall survive the Closing until
the expiration of three (3) years from the Closing Date, except that (i) the
representations and warranties of the Company and the Stockholder relating to
Taxes shall survive until six (6) months following the expiration of the
statutory limitations period applicable to such Taxes, (ii) the representations
and warranties of the Company and Stockholder contained in Sections 2.4 and
2.12, the representations and warranties of the Stockholder contained in Section
3.1 and the representations and warranties of CUI contained in Sections 4.3 and
4.4, shall survive for a period of seven (7) years following the Closing. All
covenants which by their terms require performance or compliance following the
Closing, including the obligations of the Company and Stockholder under Section
5.5, shall remain in full force and effect and shall survive the Closing until
they have been fully performed and discharged; provided, however, that the
covenants of the Company and Stockholder under Paragraphs 5.5(b) and 5.5(c) with
respect to Taxes that constitute Retained Liabilities shall survive until six
(6) months following the expiration of the statutory limitations period
applicable to the payment of Taxes.
ARTICLE IX
MISCELLANEOUS
9.1 Notices. All notices and other communications given or made pursuant hereto shall be in writing and shall be deemed to have been duly given or made if and when delivered personally or by overnight courier to the parties at the addresses set forth on Exhibit K hereto or sent by electronic transmission, with confirmation received, to the telecopy numbers or E-Mail addresses specified on that Exhibit (or at such other address or telecopy number for a party as shall be specified hereafter by like notice).
9.2 Interpretation and Certain Definitions. This Agreement is the result of arms'-length negotiations between the parties hereto and no provision hereof, because of any ambiguity found to be contained therein or otherwise, shall be construed against a party by reason of the fact that such party or its legal counsel was the draftsman of that provision. Unless otherwise indicated elsewhere in this Agreement, (a) the term "or" shall not be exclusive, (b) the term "including" shall mean "including, but not limited to," and (c) the terms "herein," "hereof," "hereto," "hereunder" and other terms similar to such terms shall refer to this Agreement as a whole and not merely to the specific section, subsection, paragraph or clause where such terms may appear. In addition, for purposes of this Agreement, the term:
(a) "business day" means any day other than a day on which banks in California or Kansas are required or authorized to be closed.
(b) "Collectibles" means rare or valuable coins, stamps, sports cards, sports memorabilia, comic books, movie posters, items autographed by recording artists, or sports, movie, television or other celebrities, game-used and other products or items the value of which is greater than the customary retail price of similar items or products because they are associated with a recording artist, or sports, movie, television or other celebrities or a well-known event and other products or items (such as antiques) which derive their value largely from their uniqueness or the limited quantity or availability thereof.
(c) "control" (including the terms "controlled by" and "under common control with") means possession, directly or indirectly or as trustee or executor, or the power to direct or cause the direction of the management or policies of a person, whether through the ownership of stock, as trustee or executor, by contract or credit arrangement or otherwise.
(d) "person" means an individual, corporation, limited liability company, partnership, association, trust, unincorporated organization, other entity or group (as defined in Section 13(d)(3) of the Securities Exchange Act of 1934).
(e) "Tax" or "Taxes" shall mean taxes, fees, levies, duties, tariffs, imposts, and governmental impositions or charges of any kind in the nature of (or similar to) taxes, payable to any federal, state, local or foreign taxing authority, including (without limitation) (i) income, franchise, profits, gross receipts, ad valorem, net worth, value added, sales, use, service, real or personal property, special assessments, capital stock, license, payroll, withholding, employment, social security, workers' compensation, unemployment compensation, utility, severance, production, excise, stamp, occupation, premiums, windfall profits, transfer and gains taxes, and (ii) interest, penalties, additional taxes and additions to tax imposed with respect thereto.
9.3 Amendment. This Agreement may not be amended except by an instrument in writing signed by the parties hereto, provided, however, the signature of the Company shall not be required if such instrument has been signed by Stockholder.
9.4 Waiver. At any time prior to the Closing, the Stockholder, on behalf of himself and the Company, may with respect to CUI and CUI may with respect to the Stockholder and the Company (i) extend the time for the performance of any of the obligations or other acts of the other, (ii) waive any inaccuracies in the representations and warranties contained herein or in any document delivered pursuant hereto by the other, or (c) waive compliance with any of the agreements or conditions contained herein. Any such extension or waiver shall be valid if set forth in an instrument in writing signed by the party or parties to be bound thereby.
9.5 Headings. The section, subsection and any paragraph headings contained herein are for the purpose of convenience only and are not intended to define, limit or affect, and shall not be considered in connection with, the interpretation of any of the terms or provisions of this Agreement.
9.6 Severability. If any term or other provision of this Agreement is determined by a court of competent jurisdiction to be invalid, illegal or incapable of being enforced by reason of any rule of law or public policy, all other conditions and provisions of this Agreement shall nevertheless remain in full force and effect, unless such invalidity, illegality or unenforceability would prevent consummation of the material transactions contemplated hereby or would have a Material Adverse Effect on the Business or CUI.
9.7 Entire Agreement. This Agreement (inclusive of the Exhibits hereto and the Company and CUI Disclosure Schedules) constitutes the entire agreement and supersedes all prior agreements and undertakings, both oral and written, among the parties, or any of them, with respect to the subject matter of this Agreement and the Exhibits hereto.
9.8 Assignment. This Agreement shall not be assigned voluntarily by any of the parties nor by operation of law or otherwise.
9.9 Parties In Interest. This Agreement shall be binding upon and inure
solely to the benefit of each party hereto, and nothing in this Agreement,
express or implied, is intended to or shall confer upon any other person any
right, benefit or remedy of any nature whatsoever under or by reason of this
Agreement, including, without limitation, by way of subrogation, other than
Section 5.5 (which is intended to be for the benefit of the Indemnified Parties
and the others specifically referenced therein as beneficiaries of the
agreements contained in Section 5.5, and may be enforced by such Indemnified
Parties and other persons).
9.10 Failure or Indulgence Not Waiver; Remedies Cumulative. No failure or delay on the part of any party hereto in the exercise of any right hereunder shall impair such right or be construed to be a waiver of, or acquiescence in, any breach of any representation, warranty or agreement herein, nor shall any single or partial exercise of any such right preclude other or further exercise thereof or of any other right. All rights and remedies existing under this Agreement are cumulative to, and not exclusive of, any rights or remedies otherwise available.
9.11 Governing Law; Jurisdiction over Legal Actions. This Agreement shall be governed by, and construed in accordance with, the internal laws of the State of Delaware applicable to contracts executed and fully performed within the State of Delaware. In the event any party hereto is required to initiate any legal action or proceeding to enforce its rights hereunder, such action or proceeding shall be brought and maintained exclusively in the Superior Court for the County of Orange, in California and each party agrees to accept, and not to challenge, the jurisdiction of such court over the parties and the subject matter of such action or proceeding or the convenience of the forum and to accept and not to challenge the adequacy of service by certified or registered mail. The prevailing party in any such action or
proceeding shall be entitled to recover its reasonable attorneys fees and disbursements, expert witness fees and disbursements and other costs of suit from the non-prevailing party. TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, EACH PARTY HEREBY EXPRESSLY WAIVES ITS RIGHT TO A JURY TRIAL IN ANY SUCH ACTION OR PROCEEDING, IRRESPECTIVE OF WHICHEVER PARTY MAY BRING ANY SUCH ACTION OR PROCEEDING.
9.12 Counterparts. This Agreement may be executed in one or more counterparts, and by the different parties hereto in separate counterparts, each of which when executed shall be deemed to be an original but all of which taken together shall constitute one and the same agreement.
(Signatures follow on next page)
IN WITNESS WHEREOF, each of CUI and the Company has caused this Agreement to be executed by its respective officers thereunto duly authorized, and Stockholder has executed this Agreement, as of the date first written above.
COLLECTORS UNIVERSE, INC.
By: /s/ David Hall
-----------------------
David Hall, Chairman
LYN F. KNIGHT LYN F. KNIGHT RARE COINS, INC.
/s/ Lyn F. Knight By: /s/ Lyn F. Knight
--------------------- --------------------------
Lyn F. Knight Lyn F. Knight, President
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EXHIBIT 10.16
CONTRIBUTION AND ACQUISITION AGREEMENT
This CONTRIBUTION AND ACQUISITION AGREEMENT, dated as of February 3rd, 1999 (this "Agreement"), among COLLECTORS UNIVERSE, INC., a Delaware corporation ("CUI"), and KINGSWOOD COIN AUCTION, LLC., a California limited liability company ("Kingswood" or the "Company"), and the Persons named on Exhibit A hereto, who are Members of Kingswood (individually, a "Member" and collectively, the "Members").
RECITALS:
A. CUI has been formed, organized and capitalized under the laws of the State of Delaware for the purposes of effecting the transactions contemplated by the agreements listed on Exhibit B hereto (the "Other Contribution Agreements") and to conduct such other business and affairs as the Board of Directors of CUI may from time to time find to be in the best interests of CUI.
B. Each of the corporations or other business entities whose shares, membership interests or assets are being contributed to CUI pursuant to this Agreement and the Other Contribution Agreements (hereinafter sometimes referred to collectively as the "Founding Companies") is engaged in the business of marketing and selling, or providing services to, businesses that market and sell, Collectibles (as hereinafter defined) at retail establishments, by mail order, at trade shows or auctions or over the internet or by other means of electronic commerce. CUI intends to integrate the products and services offered by each of the Founding Companies in order to expand the sale of their products, increase the efficiencies and reduce the operating costs of the Founding Companies and to increase their presence and expand their sales over the Internet.
B. Kingswood is engaged in the business of auctioning rare and collectible coins (the "Business"). Kingswood and its Members desire to contribute and transfer to CUI, and CUI desires to acquire from Kingswood, the Business and all of the Contributed Assets (as more fully described hereinafter), all for the consideration and on the terms and conditions hereinafter set forth;
C. This Agreement is being entered into by the parties, and the Other Contribution Agreements are being or have been entered into by CUI and the other parties thereto, as part of a unified plan of contribution and exchange of stock (the "Plan") that is intended by the parties to qualify for non-recognition treatment under Section 351 of the Internal Revenue Code of 1986, as amended (the "Code"). However, none of the parties to this Agreement or to the Other Contribution Agreements has made or is making any representations or warranties with respect to whether the transactions being consummated pursuant to and as part of such Plan will comply with the requirements of Code Section 351 or as to the consequences, under applicable federal, state or other tax laws, of such transactions to the parties to this Agreement.
NOW, THEREFORE, in consideration of the foregoing and the mutual covenants and agreements herein contained, and intending to be legally bound hereby, CUI, and the Company and Contributor hereby agree as follows:
ARTICLE I
CONTRIBUTION OF ASSETS AND EXCHANGE OF CONSIDERATION
1.1 The Contributed Assets. On the terms and subject to the conditions set forth in this Agreement, at the Closing (as hereinafter defined), the Company shall contribute, transfer and convey to CUI, and CUI shall acquire from the Company, free and clear of all Liens and Encumbrances (as hereinafter defined), the Business and the Contributed Assets, which are described on Exhibit C hereto
(the "Contributed Assets"). The Contributed Assets shall not include, and Kingswood is not contributing, but shall retain ownership of, all of its cash and accounts receivable (the "Excluded Assets").
1.2 Acquisition Consideration.
(a) On the terms and subject to the conditions that are set
forth in this Agreement, at the Closing CUI shall, as consideration for the
contribution of the Contributed Assets and Business to CUI issue to Kingswood
(i) an aggregate of 190,000 validly issued, fully paid and nonassessable shares
of Common Stock of CUI ("CUI Shares"), and (ii) a promissory note, substantially
in the form of Exhibit D hereto (the "CUI Note") in the principal amount of One
Million Dollars and payable on the first (1st) anniversary of the Closing Date.
The CUI Shares and CUI Note shall constitute and will sometimes be referred to
herein as the "Acquisition Consideration."
(b) The amount of the Acquisition Consideration shall be allocated among the Contributed Assets as set forth in Exhibit E attached hereto (the "Consideration Allocation"). Each of the parties, when reporting the transactions consummated hereunder in their respective Tax Returns (as hereinafter defined), before any governmental agency charged with the collection of any tax or in any judicial proceeding, shall allocate the Acquisition Consideration in a manner that is consistent with the Consideration Allocation set forth in Exhibit E hereto. Additionally, each of the parties will comply with, and furnish the information required by, Section 1060 of the Internal Revenue Code of 1986, as amended (the "Code"), and any regulations thereunder.
1.3 Closing. Subject to the satisfaction or waiver of the conditions set forth in Article VI, the consummation of the transactions contemplated hereby (the "Closing") shall take place at the offices of Stradling Yocca Carlson & Rauth, 660 Newport Center Drive, Suite 1600, Newport Beach, California 92660, on the third (3rd) business day after satisfaction or waiver of such conditions precedent, provided, however, that, if the Closing occurs on or before March 12, 1999, the transactions contemplated hereby shall be effective for accounting purposes as of February 5, 1999 (the "Effective Date"). At the Closing, the Company shall execute and deliver a Bill of Sale and Assignment and Assumption Agreement substantially in the form of Exhibit F hereto (the "Bill of Sale") and each Member shall execute and deliver a Stockholders Agreement substantially in the form of Exhibit G hereto (the "Stockholders Agreement"). In exchange therefor, CUI shall deliver to each Member a certificate evidencing the number of CUI Shares set forth opposite the name of such Member on Exhibit A hereto, and shall deliver to the Company the CUI Note to the order of the Company. The parties also shall execute and deliver the additional documents and instruments listed on Exhibit H hereto (the "Closing Documents").
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF THE CONTRIBUTORS
The Company and each of the Members, severally, make the following representations and warranties to CUI, as modified by the written disclosure schedule delivered on or prior to the date hereof by the Company, arranged in paragraphs corresponding to the numbered and lettered paragraphs contained in this Article II (the "Company Disclosure Schedule"); provided, however, that each Member's representations and warranties contained in this Article II are being made to the such Member's actual knowledge, without independent investigation and provided further, that none of the Members are making any of the representations and warranties contained in Section 2.12 hereof.
2.1 Organization and Qualification. The Company is a limited liability company that is duly organized, validly existing and in good standing under the laws of the State of California and it has the requisite power and authority that are necessary, under its Operating Agreement (as hereinafter
defined) and California laws applicable to California limited liability companies (the "Limited Liability Company Laws"), to own, lease and operate the Contributed Assets, and to conduct and carry on the Business as it is now being conducted. Except as set forth in Section 2.1 of the Company Disclosure Schedule, the Company does not directly or indirectly own any ownership, equity or similar interest in, or any interest convertible into or exchangeable or exercisable for, any equity or similar interest in, any corporation, limited liability company, partnership, joint venture or other business association or entity.
2.2 Articles of Organization and Operating Agreement. There has been furnished to CUI a complete and correct copy of the Company's Articles of Organization and Operating Agreement dated as of November 8, 1996 (the "Operating Agreement"), and all amendments thereto. Such Articles of Organization and Operating Agreement are in full force and effect and the Company is not in violation of any of the provisions thereof.
2.3 Membership Interests. Exhibit A hereto sets forth the record and beneficial owners of the all of the Company's outstanding Membership Interests and the percentage of such outstanding Membership Interests owned by each of them. There are no obligations, contingent or otherwise, of the Company to issue any new or repurchase, redeem or otherwise acquire any outstanding Membership Interests or to provide funds to or make any investment (in the form of a loan, capital contribution or otherwise) in any business entity.
2.4 Authority Relative to this Agreement.
(a) The Company has all necessary power and authority, under its Operating Agreement and the Limited Liability Company Laws, to execute and deliver this Agreement and to perform its obligations hereunder. The execution and delivery of this Agreement by the Company and the consummation by the Company of the transactions contemplated hereby have been duly and validly authorized by all Member action and all other actions required under the Operating Agreement or the Limited Liability Company Laws, and no other actions or proceedings on the part of the Company or its Members are necessary for or in connection therewith.
(b) This Agreement has been duly and validly executed and delivered by the Company and, assuming due authorization, execution and delivery by CUI, this Agreement constitutes, a legal, valid and binding obligation of the Company enforceable against the Company in accordance with its terms, except as the enforceability thereof may be limited by (i) bankruptcy, insolvency, reorganization, arrangement, moratorium, or other similar laws relating to or affecting rights of creditors, and (ii) general equitable principles, including the possible unavailability of specific performance or injunctive relief, regardless of whether the issue of enforceability is considered in a proceeding in equity or at law.
2.5 No Conflict; Required Filings and Consents.
(a) Except as otherwise provided below in this Paragraph 2.5(a), Section 2.5 of the Company Disclosure Schedule includes a list of all promissory notes, mortgages, contracts, leases, licenses, permits, franchises and all other agreements and obligations to which the Company is a party or by which it is bound, (i) which provide for payments either by or to the Company of more than $1,000 per month or more than $15,000 in the aggregate, or (ii) which requires the giving of more than 30 days notice or the payment of any amounts by the Company as a condition or requirement of its termination or non-renewal by the Company, or (iii) as to which a termination or non-renewal or a breach or default could have a material adverse effect on the Business, the Contributed Assets or the operating results or future prospects of the Business (a "Material Adverse Effect"), or (iv) which, in the absence of a the
obtaining of a consent or approval from the other party or parties thereto, would be breached or violated by reason of the consummation of the transactions contemplated hereby or (vi) which imposes any restrictions on the conduct of the Company's business or any Liens or Encumbrances on the Contributed Assets (collectively, the "Material Contracts"). The Company has furnished true and correct copies of all such Material Contracts to the CUI or its counsel. To the best knowledge of the Company and to the actual knowledge of the Members, the Company is not in default of, and to the knowledge of the Company there is no event, condition or circumstance which has occurred that, with the passage of time or the giving of notice, or both, would constitute a default by the Company under, any of the Material Contracts. For purposes hereof, the Company Disclosure Schedule need not include any Material Contract entered into on behalf of the Company by Professional Coin Grading Service, Inc. ("PCGS") or at the direction of any officer of PCGS.
(b) Except as set forth in Section 2.5 of the Company Disclosure Schedule, the execution, delivery and performance of this Agreement by the Company and the Members do not and will not (i) conflict with or violate the Articles of Organization or Operating Agreement of the Company; (ii) to the best knowledge of the Company and the actual knowledge of the Members, conflict with or violate any law, rule, regulation, order, judgment or decree applicable to the Company or by which its properties are bound or affected, or (iii) require the consent or approval of any party to, or result in any breach of or constitute a default (or an event that with notice or lapse of time or both would become a default) under, or impair the Company's rights or alter the rights or obligations of any third party under, or give to others any rights of termination, amendment, acceleration or cancellation of any Material Contract or Company Permit (as hereinafter defined), or result in the creation of a Lien or Encumbrance on any of the Contributed Assets pursuant to any Material Contract or Company Permit.
2.6 Compliance, Permits.
(a) Except as disclosed in Section 2.6 of the Company Disclosure Schedule or as and to the extent known by any officers of PCGS, to the best knowledge of the Company and the actual knowledge of the Members, the Company is not in default or violation of, (i) any law, rule, regulation, writ, order, judgment or decree applicable to the Company or by which any of the Contributed Assets or the Business is bound or affected or (ii) any Material Contract, and no event has occurred which, either with the passage of time or the giving of notice, or both, would constitute a breach or violation of any such law, rule, regulation, writ, order, judgment or decree or any Material Contract.
(b) Except as disclosed in Section 2.6 of the Company Disclosure Schedule or as and to the extent known by any offices of PCGS, to the best knowledge of the Company and the actual knowledge of the Members, the Company holds and is in compliance with the terms of all permits, licenses, easements, variances, exemptions, consents, certificates, orders and approvals from governmental authorities which are material to the ownership and use of the Contributed Assets or the operation of the Business as it is now being conducted (collectively, the "Company Permits"), except where any failure to have or to comply with any Company Permits would not have a Material Adverse Effect on the Business. A list of the Company Permits is set forth in Section 2.6 of the Company Disclosure Schedule.
2.7 Liabilities. Except as is disclosed in Section 2.7 of the Company Disclosure Schedule, the Company does not have any liabilities (absolute, accrued, contingent or otherwise) in an amount in excess of $5,000 individually or $10,000 in the aggregate and all such liabilities were incurred in the ordinary course of the Company's business and the Company is not in default of or delinquent with respect to any such liabilities.
2.8 Absence of Litigation. Except as set forth in Section 2.8 of the Company Disclosure Schedule or as and to the extent known by any of the officers of PCGS, there are no claims, actions, suits, proceedings or investigations (governmental or other) that are pending or, to the knowledge of the Company or the actual knowledge of any of the Members, threatened against the Company, the Business or the Contributed Assets, before any court, arbitrator or administrative, governmental or regulatory authority or body, domestic or foreign. There are no facts or circumstances known to the Company or any of the Members which are reasonably likely to result in the bringing of any such action or proceeding against the Company, the Business or any of the Contributed Assets.
2.9 Restrictions on Business Activities. Except for this Agreement or as and to the extent known to any officer of PCGS or as set forth in Section 2.9 of the Company Disclosure Schedule, there is no agreement, judgment, injunction, order or decree binding upon the Company or known to any of the Members which has or could reasonably be expected to have the effect of prohibiting or impairing any material business practice of the Company or CUI's conduct, after the Closing, of Business, as currently conducted by the Company.
2.10 Title to Assets. Except as set forth in Section 2.10 of the Company Disclosure Schedule, the Company has good, defensible and marketable title to all of the Contributed Assets, free and clear of all liens, security interests, charges, pledges, options, mortgages and encumbrances of any nature whatsoever (collectively "Liens and Encumbrances"), except liens for taxes not yet due and payable and such liens or other imperfections of title, if any, as do not materially detract from the value of or interfere with the present use or subsequent disposition of any of the Contributed Assets. The Contributed Assets, together with assets subject to leases included in the Assigned Contracts (as defined in Exhibit C hereto), are all of the assets required to enable CUI to conduct the Business as it has been conducted by the Company during the past 12 months.
2.11 Taxes. Except as disclosed in Section 2.11 of the Company Disclosure Schedule, the Company has filed all United States federal income tax returns and all other material tax returns required to be filed by it, and the Company has paid and discharged all Taxes (as defined in Section 9.2) due with respect to the periods or transactions covered by such tax returns and have paid all other taxes as are due, except as may be determined to be owed upon completion of any tax return not yet filed based upon an extension of time to file, and there are no other Taxes that would be due if asserted by a taxing authority, except with respect to which the Company is maintaining reserves to the extent currently required. There are no tax liens on any of the Contributed Assets; and the Company has not granted any waiver of any statute of limitations with respect to, or any extension of a period for the assessment of, any Tax.
2.12 Intellectual Property.
(a) Except as set forth in Section 2.12 of the Company Disclosure Schedule or as and to the extent known to any officers of PCGS, the Company owns, or is licensed or otherwise possesses legally enforceable rights to use all patents, trademarks, trade names, service marks, copyrights, and any applications therefor, trade secrets, technology, know-how, computer software programs or applications, and tangible or intangible proprietary information that are used in the Business of the Company as currently conducted and a list of which is set forth as part of Exhibit C hereto (collectively, the "Company Intellectual Property").
(b) Except as disclosed in Section 2.12 of the Company Disclosure Schedule or as and to the extent known by any officers of PCGS, the Company is not, nor will it be as a result of the execution and delivery of this Agreement or the performance of its obligations hereunder, in violation of any licenses, sublicenses and other agreements as to which the Company is a party and pursuant to which
the Company is authorized to use any patents, trademarks, trade names, service
marks, copyrights, trade secrets, technology, know-how, computer software
programs or applications, or other tangible or intangible proprietary
information owned by any third party ("Third-Party Intellectual Property
Rights"). No claims with respect to any of the Company Intellectual Property or
Third Party Intellectual Property Rights (to the extent arising out of any use,
reproduction or distribution of such Third Party Intellectual Property Rights by
or through the Company), are currently pending or, to the knowledge of the
Company or the actual knowledge of any of the Members, are threatened by any
person. The Company does not know of any valid grounds for any bona fide claims
(i) to the effect that the conduct of the Business or the sale, licensing or use
of any product as now used, sold or licensed or proposed for use, sale or
license by Company infringes on any copyright, patent, trademark, service mark
or trade secret or other intellectual property rights of any person; (ii)
against the use by the Company of any Company or any Third Party Intellectual
Property Rights; (iii) challenging the ownership, validity or effectiveness of
any of the Company's Intellectual Property; or (iv) challenging the license or
legally enforceable right of the Company to use of the Third Party Intellectual
Property Rights.
(c) To the knowledge Company, except as set forth in Section 2.12 of the Company Disclosure Schedule or as and to the extent known by any officers of PCGS, (i) all Company Intellectual Property and its rights therein, including patents, registered trademarks, service marks and copyrights held by the Company, are valid and subsisting, and (ii) there is no material unauthorized use, infringement or misappropriation of any of the Company Intellectual Property by any third party, including employee or former employee of the Company.
2.13 Related Party Transactions. Except as set forth in Section 2.13 of the Company Disclosure Schedule or as and to the extent known by any officers of PCGS, the Company is not a party to any agreement or transaction with any of its Members, Managers, officers or employees, or any of their relatives or affiliates.
2.14 Brokers. No broker, finder or investment banker is entitled to any brokerage, finder's or other fee or commission in connection with the transactions contemplated by this Agreement based upon arrangements made by or on behalf of the Company or any of the Members.
2.15 Full Disclosure. The Company represents and warrants that none of the representations and warranties of the Company contained in this Agreement, the Company Disclosure Schedule or in any certificates delivered by it at the Closing ("Closing Certificates"), and each Member represents and warrants, severally and not jointly with any other party hereto, that none of such Member's representations or warranties contained in this Agreement or in any Closing Certificate delivered by such Member, contains or shall contain any untrue statement of a material fact or omits or will omit to state any material fact necessary, in light of the circumstances under which it was made, in order to make statements herein or therein not misleading.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF MEMBERS
Each Member hereby represents and warrants to CUI that:
3.1 Authority and Capacity. Member has the full legal right and capacity to execute and deliver, and to perform his or her obligations under, and has duly executed and delivered, this Agreement with the intent to be legally bound hereby. This Agreement constitutes, and when executed and delivered by the Member, the Stockholders Agreement will constitute, valid and legally binding obligations of the Member that are enforceable against him or her in accordance with their respective
terms, except as such enforceability may be limited by bankruptcy, insolvency, moratorium or other similar laws affecting creditors' rights and by general principles of equity relating to the availability of equitable remedies (regardless of whether any such agreements are sought to be enforced in a proceeding at law or in equity). Member is not obligated to obtain any consent or approval of any other person in connection with the execution and delivery of this Agreement or the Stockholders Agreement or the consummation of the transactions contemplated hereby or thereby and the execution and delivery of this Agreement and the Stockholders Agreement and the consummation by him or her of the transactions contemplated hereby or thereby will not violate, or constitute a breach or default under or cause the acceleration of any obligation or liability under any contract, promissory note, mortgage, lease, license, permit, writ, decree or other instrument or agreement to which such Member is a party or is subject.
3.2 Securities Law Compliance. Member represents and warrants that:
(a) Member has been advised and understands and agrees that the CUI Shares will not be registered under the Securities Act of 1933, as amended (the "1933 Act"), nor qualified under any state securities laws, on the ground (among others) that no distribution or public offering of the CUI Shares is to be effected in connection with the transactions contemplated herein and in issuing the CUI Shares to Member, CUI is relying on the accuracy and completeness of the representations and warranties of Member in this Section 3.2.
(b) Member is acquiring the CUI Shares for his own account, and not as an nominee or agent for any other persons or entities, and for investment and not with a view to distribution or resale thereof.
(c) Member acknowledges that he has been informed and understands that no public market for the CUI Shares exists and that there can be no assurance that any such market may develop or exist in the future and, even if a public market does develop, that the CUI Shares may not be sold or transferred except in compliance with the 1933 Act or any exemption thereunder and there is no assurance that any exemption from registration, including Rule 144 under the 1933 Act will become available to permit resales of the CUI Shares.
(d) Member has been furnished with such information regarding CUI and the CUI Shares as he has requested of CUI and has had an opportunity to ask questions of the officers of CUI regarding, and to become informed about, CUI and its business and its consolidated financial condition and results of operations.
(e) The Member is, or all of the owners of the Member are, "Accredited Investors" as such term is defined in Regulation D under the 1933 Act.
(f) Member acknowledges and agrees that (i) until the CUI Shares become eligible for resale under Rule 144(k) under the 1933 Act, any proposed sale or other transfer or disposition of any of the CUI Shares, other than pursuant to an effective registration statement under the 1933 Act, may not be made unless and until Member has furnished to CUI an opinion of counsel, reasonably acceptable to CUI and its counsel, to the effect that the proposed sale or other transfer or disposition is exempt from registration under the 1933 Act, and (ii) the CUI Shares will be subject to the Stockholders Agreement referred to in Section 1.5 hereof and, until the Stockholders Agreement has been terminated (A) no sale or other disposition of the CUI Shares may be made except in compliance therewith and (B) the CUI Shares may be required to be sold in one or more transactions involving sales of shares of CUI initiated by certain other of the CUI Stockholders, all as more fully provided in the Stockholders Agreement. Member has read and understands the Stockholders Agreement.
(g) Member acknowledges and agrees that the certificate representing the CUI Shares shall contain restrictive legends in the forms set forth in the form of Stockholders Agreement attached hereto as Exhibit G or restrictive legends that are substantially similar thereto, and that the CUI Note shall contain the legends set forth on the form of such Note attached hereto as Exhibit D.
3.3 Acknowledgements Regarding CUI Representations. Member acknowledges and agrees that (a) neither CUI nor any of its officers, directors, employees or agents has made, and none of them is making, any representations or warranties to the Company or the Member with respect to (i) the federal, state or local income or other tax consequences to the Company or the Member of the consummation of the transactions contemplated hereby, or (ii) the future performance of CUI; and (b) in entering into this Agreement, and the Stockholders Agreement, the Member is not relying on any statements or representations or warranties of CUI, or any representations or warranties made or purported to have been made by any officer, director, stockholder, employee or agent of CUI, other than the express representations and warranties of CUI contained in this Agreement.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF CUI
CUI hereby represents and warrants to the Company and the Members that, except as set forth in the written disclosure schedule delivered on or prior to the date hereof by CUI to the Company that is arranged in paragraphs corresponding to the numbered and lettered paragraphs contained in this Article IV (the "CUI Disclosure Schedule"):
4.1 Organization and Qualification; Subsidiaries. CUI is a corporation duly organized, validly existing and in good standing under the laws of the jurisdiction of its incorporation and has the requisite corporate power and authority to own, lease and operate the properties it purports to own, and to operate or lease and to carry on its business as it is now being conducted, except where the failure to be so organized, existing and in good standing or to have such power, authority and Approvals would not have a Material Adverse Effect (as hereinafter defined) on CUI. CUI is duly qualified or licensed as a foreign corporation to do business, and is in good standing, in each jurisdiction where the character of its properties owned, leased or operated by it or the nature of its activities makes such qualification or licensing necessary, except for such failures to be so duly qualified or licensed and in good standing that would not have a Material Adverse Effect. The term "Material Adverse Effect," when used in connection with the CUI or any of its subsidiaries, means any change, effect or circumstance that is materially adverse to the business, assets, financial condition, results of operations or prospects of the CUI and its subsidiaries, taken as a whole, other than any such changes, circumstances or effects that are set forth or described in the CUI Disclosure Schedule.
4.2 Certificate of Incorporation and By-Laws. CUI has heretofore furnished to the Company and the Members a complete and correct copy of its Certificate of Incorporation and By-Laws, as in effect on the date hereof. Such Certificate of Incorporation and By-Laws are in full force and effect. CUI is not in violation of any of the provisions of Certificate of Incorporation or By-Laws.
4.3 Capitalization. Immediately prior to the consummation of the transactions contemplated by this Agreement and the Other Contribution Agreements (the "Section 351 Transactions"), the authorized capital stock of CUI consists of 30,000,000 shares of Common Stock, par value $.001 per share, of which no shares are outstanding. On consummation of the Section 351 Transactions, there will be (i) a total of 19,000,000 fully paid and nonassessable shares of Common Stock that will be issued and outstanding, all of which will have been issued pursuant to this Contribution Agreement and the Other Contribution Agreements. In addition, the Company will reserve 3,250,000 shares of Common Stock for
future issuance on the exercise of stock options (either granted or to be
granted in the future), which includes a total of approximately 1,800,000 shares
issuable on exercise of options that will be exchanged for employee stock
options held by existing employees of or consultants to PCGS). Except for the
this Agreement and the Other Contribution Agreements and as set forth in this
Section 4.3, as of the date of hereof there are no options, warrants or other
rights, agreements, arrangements or commitments of any character relating to the
issued or unissued capital stock of CUI or obligating CUI to issue or sell any
shares of capital stock of, or other equity interests in, CUI. There are no
obligations, contingent or otherwise, of CUI to repurchase, redeem or otherwise
acquire any of the capital stock of CUI.
4.4 Power and Authority. CUI has all necessary corporate power and authority to execute and deliver this Agreement and to perform its obligations hereunder and to consummate the transactions contemplated hereby. The execution and delivery of this Agreement by CUI and the consummation by CUI of the transactions contemplated hereby have been duly and validly authorized by all necessary corporate action on the part of CUI, and no other corporate proceedings on the part of CUI are necessary to authorize this Agreement or to consummate the transactions contemplated hereby. This Agreement has been duly and validly executed and delivered by CUI and, assuming due authorization, execution and delivery by the Company and Members, constitutes a legal, valid and binding obligation of CUI enforceable against it in accordance with its terms, except as the enforceability thereof may be subject to or limited by (i) bankruptcy, insolvency, reorganization, arrangement, moratorium, or other similar laws relating to or affecting rights of creditors, and (ii) general equitable principles, including the possible unavailability of specific performance or injunctive relief, regardless of whether the issue of enforceability is considered in a proceeding in equity or at law.
4.5 No Conflict, Required Filings and Consents.
(a) The execution and delivery of this Agreement by CUI does
not, and the performance of this Agreement by CUI will not, (i) conflict with or
violate the Certificate of Incorporation or By-Laws of CUI, (ii) conflict with
or violate any law, rule, regulation, order, judgment or decree applicable to
CUI or by which its properties are bound or affected, or (iii) result in any
breach of or constitute a default (or an event which with notice or lapse of
time or both would become a default) under, or impair CUI's rights or alter the
rights or obligations of any third party under, or give to others any rights of
termination, amendment, acceleration or cancellation, or result in the creation
of a lien or encumbrance on any of the properties or assets of CUI pursuant to,
any note, bond, mortgage, indenture, contract, agreement, lease, license,
permit, franchise or other instrument or obligation to which CUI is a party or
by which CUI or its or properties are bound or affected, except in any such case
for any such conflicts, violations, breaches, defaults or other occurrences that
would not have a Material Adverse Effect on CUI.
(b) The execution and delivery of this Agreement by CUI does not, and the performance of this Agreement by CUI will not, require any consent, approval, authorization or permit of, or filing with or notification to, any governmental or regulatory authority, domestic or foreign, except (i) for applicable requirements, if any, of the 1933 Act and any applicable state securities laws, and (ii) where the failure to obtain such consents, approvals, authorization or permits, or to make such filings or notifications, would not prevent or delay consummation of the transactions contemplated hereby, or otherwise prevent CUI from performing its obligations under this Agreement, and would not have a Material Adverse Effect.
4.6 Financial Statements; Liabilities.
(a) CUI has furnished to the Company and the Members unaudited consolidated financial statements of PCGS, which is CUI's predecessor company. Such financial statements are comprised of a consolidated balance sheet of PCGS as of June 30,1998 and related consolidated statements of income, cash flows and stockholders equity for the year then ended, and an unaudited consolidated balance sheet as of, and a related unaudited consolidated statement of income of PCGS for the six months ended, December 31, 1998, all of which have been prepared by PCGS (collectively, the "PCGS Financial Statements"). Except as otherwise set forth in Section 4.6 of the CUI Disclosure Schedule or in the footnotes contained in the PCGS Financial Statements, such Financial Statements fairly present, in all material respects, the financial position of PCGS as at June 30, 1998 and December 31, 1998, respectively, and the respective results of operations of PCGS and changes in cash flows and stockholders equity for the year and six months ended on June 30, 1998 and December 31, 1998, respectively.
(b) No Undisclosed Liabilities. Except as is disclosed in
Section 4.6 of the CUI Disclosure Schedule, neither CUI nor PCGS has any
liabilities (absolute, accrued, contingent or otherwise), except (a) liabilities
that individually and in the aggregate are adequately provided for in the PCGS
balance sheet (including any related notes thereto) as of December 31, 1998
included in the PCGS Financial Statement (the "1998 PCGS Balance Sheet"), (b)
non-material liabilities which were incurred in the ordinary course of business
and were not required under generally accepted accounting principles to be
reflected on the 1998 PCGS Balance Sheet, or which were incurred after December
31, 1998 in the ordinary course of business and consistent with past practice
and would not be required, under generally accepted accounting principles, to be
reflected on a PCGS balance sheet prepared in accordance with GAAP.
4.7 Absence of Material Adverse Changes. Except as is disclosed in
Section 4.7 of the CUI Disclosure Schedule, since December 31, 1998, there has
not been (i) a change in the financial condition or results of operations or
business of PCGS or (ii) any action or legal proceeding that has been brought or
is known by CUI to have been threatened against PCGS, or (iii) any other event
known to CUI, that has had or is reasonably expected to have a Material Adverse
Effect on CUI (assuming that CUI's acquisition of PCGS is consummated
concurrently with the Closing).
4.8 Restrictions on Business Activities. To the best knowledge of CUI, there is no material agreement, judgment, injunction, order or decree binding upon CUI or any of its subsidiaries which has or could reasonably be expected to have the effect of prohibiting or materially impairing any material business practice of CUI or any of its subsidiaries, any acquisition of property by CUI or the conduct of business by CUI or any of its subsidiaries as currently conducted or as proposed to be conducted by CUI, except for any prohibition or impairment as would not have a Material Adverse Effect on CUI.
4.9 Brokers. No broker, finder or investment banker is entitled to any brokerage, finder's or other fee or commission in connection with the transactions contemplated by this Agreement based upon arrangements made by or on behalf of CUI.
4.11 Full Disclosure. No representation or warranty of CUI contained in this Agreement and no statement contained in any certificate or schedule furnished or to be furnished by CUI to the Company or the Members in, or pursuant to the provisions of, this Agreement, including without limitation the CUI Disclosure Schedule, contains or will contain any untrue statement of a material fact or omits or shall omit to state any material fact necessary, in light of the circumstances under which it was made, in order to make the statements herein or therein not misleading.
ARTICLE V
CONDUCT OF BUSINESS PENDING THE CLOSING
5.1 Conduct of Business by the Company Pending the Closing. The Company and Members jointly and severally covenant and agree that, during the period from the date of this Agreement and continuing until the earlier of the termination of this Agreement or the Closing, the Company (i) shall conduct its business only, and shall not take any action except, in the ordinary course of business and consistent with past practice; and (ii) shall use reasonable commercial efforts to preserve substantially intact the business organization of the Company, to keep available the services of the present officers, employees and consultants of the Company and to preserve the present relationships of the Company with customers, suppliers and other persons with which the Company has significant business relations. By way of amplification and not limitation, except as contemplated by this Agreement, during the period from the date of this Agreement and continuing until the earlier of the termination of this Agreement or the Closing, the Company shall not, either directly or indirectly, do or propose to do any of the following without the prior written consent of CUI, which consent shall not be unreasonably withheld:
(a) Amend or otherwise change its Articles of Organization or Operating Agreement;
(b) Sell, pledge, dispose of, or permit the imposition or existence of any Liens or Encumbrances on, any of the Contributed Assets or sell or dispose of or encumber any of the other assets of the Company if such sale, disposition or encumbrance would adversely affect CUI's ability, after the Closing, to conduct the Business as currently conducted or would interfere with the consummation of the transactions contemplated hereby;
(c) Take any of the following actions: (i) acquire (by merger, consolidation, or acquisition of stock or assets) any corporation, limited liability company, partnership or other business organization or division thereof; (ii) incur any indebtedness for borrowed money or issue any debt securities that could result in the imposition of any liens, mortgages, security interests, claims, charges or encumbrances on any of the Contributed Assets or the Business or could interfere with the consummation of the transactions contemplated hereby or subject CUI or any of its subsidiaries to any liabilities, (iii) enter into or amend any Material Contract except where the entry into the Contract or the amendment thereto would not have a Material Adverse Effect on the Company or increase the liabilities thereof; or (iv) authorize any capital expenditures or purchase of fixed assets which are, in the aggregate, in excess of $10,000;
(d) Increase the compensation or employee benefits payable or to become payable to its officers, directors or employees or independent contractors, except for increases in salary or wages of employees (other than officers) of the Company in accordance with past practice, or grant any severance to termination pay to, or enter into or amend or terminate any employment or severance agreement with any director, officer or other employee of the Company or establish, adopt, enter into or amend any collective bargaining agreement or any Company Employee Plans (as hereinabove defined) or other plan, agreement, trust, fund, policy or arrangement for the benefit of any current or former directors, officers or employees, except, in each case, as may be required by law;
(e) Take any action to change accounting policies, principles, practices or procedures (including, without limitation, procedures with respect to revenue recognition, payments of accounts payable and collection of accounts receivable);
(f) Make any material tax election inconsistent with past practice or settle or compromise any material federal, state, local or foreign tax liability or agreement to an extension of a statute of limitations, except to the extent the amount of any such settlement has been reserved for in the Company Financial Statements;
(g) Pay, discharge or satisfy any claims, liabilities or obligations (absolute, accrued, asserted or unasserted, contingent or otherwise), if such payment, discharge or satisfaction would require the disposition or encumbrance of any of the Contributed Assets, adversely affect the Business or interfere with the consummation of the transactions contemplated hereby.
(h) Take, or agree in writing or otherwise to take, any of the actions described in Sections 5.1(a) through (g) above;
The Company agrees that it will not, and each Member also agrees,
severally as to himself and not jointly that he or it (as the case may be) will
not take any action which would (i) make any of its or his respective
representations or warranties contained in this Agreement untrue or incorrect or
(ii) prevent or interfere with the performance by the Company or such Member of
any of its or his respective covenants contained in this Agreement.
5.2 No Solicitation. During the period from the date hereof and continuing until the earlier of the completion of the Closing or termination of this Agreement:
(a) The Company shall not directly, or indirectly through any officer, Manager, employee, representative or agent, and each Member agrees that he or it shall not directly, or indirectly through any agent or representative:
(i) solicit, initiate or encourage the initiation of any inquiries or proposals regarding any merger, sale of substantial assets, sale of shares of capital stock (including without limitation by way of a tender offer) or similar transactions involving the Company or the Company's Membership Interest, (any of the foregoing inquiries or proposals being referred to herein as an "Acquisition Proposal");
(ii) engage in negotiations or discussions concerning any Acquisition Proposal, (iii) provide any nonpublic information to any person relating to the Company or the Business or any of the transactions contemplated hereby, or
(iv) enter into any agreement or understanding, written or oral, relating to any Acquisition Proposal.
The Company and Members also shall immediately cease and cause to be terminated any existing discussions or negotiations that any of them may be having with any person (other than CUI) with respect to any Acquisition Proposal or which could conceivably lead to the making of an Acquisition Proposal. The Company and the Members agree not to release any third party from the provisions of any confidentiality agreement that such third party may have with the Company or Members.
(b) Each of the Company and Members shall notify CUI immediately after receipt by any of them of any Acquisition Proposal or any request for nonpublic information relating to, or for access to the properties, books or records of, the Company by any person or entity. Such notice to CUI shall be made orally and in writing.
(c) The Company shall ensure that the officers, Managers and
employees of the Company and any advisor or representative retained by the
Company are aware of and will comply with the restrictions described in this
Section 5.2.
5.3 Access to Information. During the period from the date hereof and continuing until the earlier of the completion of the Closing or termination of this Agreement, each of the Company and CUI, upon reasonable notice, and subject to the provisions of Section 5.8 hereof, shall each (i) afford to the officers, employees, accountants, counsel and other representatives of the other, reasonable access,
during the period between the date hereof and continuing until the earlier of the Closing or termination of this Agreement, to all its properties, books, contract, commitments and records (ii) furnish promptly to the other all information concerning its business, properties and personnel as such other party may reasonably request, and (iii) make available to the other the appropriate individuals (including attorneys, accountants and other professionals) for discussion of the other's business, properties and personnel as either CUI or the Company may reasonably request.
5.4 Consents; Approvals. The Company, the Members and CUI shall each use their best reasonable efforts to obtain all consents, waivers, approvals, authorizations or orders (including, without limitation, all governmental and regulatory rulings and approvals), and the Company, the Members and CUI shall make all filings (including, without limitation, all filings with governmental or regulatory agencies) required in connection with the authorization, execution and delivery of this Agreement by the Company, the Members and CUI and the consummation by them of the transactions contemplated hereby. The Company, the Members and CUI shall furnish all information that is required to be included and is reasonably available for inclusion in any applications or other filings to be made pursuant to the rules and regulations of any governmental body in connection with the transactions contemplated by this Agreement.
5.5 Obligations Being Assumed; Obligations and Liabilities Not Being Assumed.
(a) Assumed Contractual Obligations. CUI hereby agrees to assume only those obligations of the Company under the Assigned Contracts listed in Exhibit C to this Agreement (the "Assumed Contractual Obligations"); provided, however, that CUI shall not be obligated to assume, and CUI shall not have any liability for or in connection with, any Assumed Contractual Obligation that is in default as of the Closing Date or as to which there exists as of the Closing Date an event or circumstance that, with the passage of time or the giving of notice, or both, would give rise to a default thereunder.
(b) Liabilities Not Being Assumed. Except for the Assumed Contractual Obligations, the Company and the Members agree that CUI shall not be obligated to assume or perform or discharge, and that CUI will not be assuming, performing or otherwise discharging, any liabilities or obligations of the Company, whether known or unknown, fixed or contingent, matured or unmatured, certain or uncertain, that have arisen prior hereto or may arise between the date hereof and the Closing or which may arise after the Closing out of the conduct of any business or other activities conducted by the Company (collectively, the "Retained Liabilities"). The Company and Members jointly and severally covenant and agree that the Company shall be responsible for performing and satisfying, and shall perform and satisfy, the Retained Liabilities, at the Company's sole expense, and without liability, cost, loss or expense of or to CUI. The Retained Liabilities shall include, but shall not be limited to, any and all of the following obligations and liabilities of the Company:
(i) Taxes. All Taxes (as defined in Section 9.2 hereof) that have arisen prior to the Closing or may arise thereafter out of any business or other operations conducted by the Company, either prior to or after the Closing Date.
(ii) Liens and Encumbrances. Any Liens or Encumbrances on any of the Contributed Assets or any other assets of the Company.
(iii) Monetary Obligations. Any accounts or notes payable and obligations for borrowed money or purchase money indebtedness of the Company.
(iv) Claims and Legal Proceedings. Any claims, demands, actions, suits or legal proceedings that have been asserted or threatened prior to the Closing against the Company, the Business or the Contributed Assets or which may be threatened or asserted hereafter against the Contributed Assets, the Business or CUI that arises in any way from or in connection with the conduct or operation of the Business prior to the Closing, or any other business or non-business activities of the Company conducted prior hereto or hereafter.
(v) Contingent Liabilities. Any liability, deficiency, penalty, cost or expense arising out of the sale of any currency or the conduct of the Business by the Company or any other activities of the Company, whether or not disclosed in the Company's Financial Statements (as hereinafter defined) or in the Company Disclosure Schedule.
(vi) Transaction Related Liabilities. Any liabilities of the Company that may arise out of the consummation of this Agreement, or actions that may be taken by the Company or Members in connection therewith, including, but not limited to, any liabilities or obligations for accrued but unpaid salaries, vacation, and holiday and such pay and any liabilities or obligations that may arise under any employment, consulting, independent contractor or severance agreements or arrangements (whether written or oral) or any bonus or employee benefit programs or arrangements between the Company and any of its employees or independent contractors.
5.6 Notification of Certain Matters. The Company or the Members shall
give prompt notice to CUI, and CUI shall give prompt notice to the Company, of
(i) the occurrence or nonoccurrence of any event which would be likely to cause
any representation or warranty made by such party in this Agreement to be
materially untrue or inaccurate, or (ii) any inability or failure of the
Company, the Members or CUI, as the case may be, materially to comply with or
satisfy any covenant, condition or agreement to be complied with or satisfied by
hereunder; provided, however, that the delivery of any notice pursuant to this
Section shall not limit or otherwise affect the remedies available hereunder to
the party receiving such notice.
5.7 Further Action. On the terms and subject to the conditions hereof, each of the parties hereto shall use all reasonable efforts to take, or cause to be taken, all actions, and to do, or cause to be done, all other things necessary, proper or advisable to consummate and make effective as promptly as practicable the transactions contemplated by this Agreement, to obtain in a timely manner all necessary waivers, consents and approvals and to effect all necessary registrations and filings, and otherwise to satisfy or cause to be satisfied all conditions precedent to its obligations under this Agreement. From and after the Closing, each party shall take such actions and execute such documents and instruments as any other party may reasonably request to better evidence or effectuate the transactions contemplated by this Agreement or the Exhibits hereto.
5.8 Confidential Information. Each party acknowledges that it or any of its officers, directors, managers, employees, agents or advisors ("Representatives") may be given, by one of the other parties hereto (a "disclosing party") or any of such disclosing party's Representatives, access to various items of proprietary and confidential information of the disclosing party in the course of investigations and negotiations prior to Closing. Each party hereto who is furnished or given access to the confidential information of a disclosing party (a "receiving party") agrees that such confidential information shall be kept strictly confidential by the receiving party and by its Representatives and shall not be used for any purpose other than to facilitate the consummation of the transactions contemplated herein. Confidential information shall include any proprietary business or other information which is delivered (orally or in writing) or to which access is given by a disclosing party or any of its Representatives to the receiving
party or any of its Representatives, and any such information that is included
in or incorporated into any notes, analyses, memoranda, projections or other
documents that are prepared by the receiving party or any of its
Representatives, unless such information (a) is already of public knowledge, or
(b) becomes of public knowledge through no fault, action or inaction of the
receiving party or its Representatives, or (c) is demonstrated convincingly by
the receiving party to have been known by the receiving party, or any of its
Representatives, prior to the disclosure of such information by the disclosing
party to the receiving party, unless such knowledge was acquired from a person
who the receiving party or its Representatives knew or reasonably should have
known was subject, at the time of such disclosure, to a fiduciary or other duty
of non-disclosure to the disclosing party. Except as permitted by Section 5.8,
no party hereto, nor its respective Representatives, shall intentionally
disclose any confidential information of any of the other parties to any third
person; provided, however, that such information may be disclosed (i) with the
written consent of the other parties hereto, (ii) in applications or requests
required to be made to obtain licenses, permits, approvals or consents needed to
consummate the transactions contemplated herein, (iii) to the professional
advisors of each party hereto who need to know such information in connection
with the consummation of the transactions contemplated hereby, or (iv) pursuant
to court order or subpoena, provided, however, that if any receiving party or
any of its Representatives is served with a court order or subpoena that would
require the disclosure of any of the confidential information of a disclosing
party, the receiving party or such Representative so served (as the case may be)
shall promptly, but in any event within three (3) days thereafter, notify the
disclosing party thereof and shall provide reasonable cooperation, at the
disclosing party's expense, with any efforts that the disclosing party may
undertake to quash such court order or subpoena or obtain a protective order
with respect to the disclosure and use of such confidential information. The
restrictions and obligations contained in this Section 5.8 shall survive any
termination of this Agreement; provided, however, that, if the transactions
contemplated hereby are consummated, the obligations of CUI and any subsidiaries
thereof under this Section 5.8 shall terminate, but all of the obligations of
the Company and Members under this Section 5.8 shall survive and shall continue
in full force and effect at all times after the Closing.
5.9 Effective Date.
(a) If the transactions contemplated by this Agreement are consummated by March 12, 1999, then, for accounting, Tax and other recordkeeping purposes, the Closing shall be deemed to have occurred as of February 5, 1999. In that event, all auction and other sales of coins or other Collectibles by the Company that occur between February 5, 1999 and the actual Closing Date ("Post-Effective Date Coin Sales") shall be for the account of CUI. In addition, and notwithstanding anything to the contrary contained elsewhere in this Agreement, all cash and accounts receivable generated by the Company from, net of expenditures made in connection with, such Post-Effective Date Coin Sales shall be paid to CUI as part of the Purchased Assets and shall not be retained by the Company. In furtherance thereof, the Company shall furnish CUI with all records and reports relating to all such Post-Effective Date Coin Sales. CUI agrees that it shall assume the payment obligations (that have not yet been paid by the Closing Date) incurred by the Company, in the ordinary course and consistent with past practices, in connection with the preparations for and the conduct of such Post-Effective Date Coin Sales.
(b) Each of the parties agrees to report the Post Effective Date Income (as hereinafter defined), on their respective federal and state tax returns, in a manner consistent with an effective closing date of February 5, 1999. In the event that Kingswood or its Members are required by any federal or state Tax agency to recognize and pay income tax on the net income derived from any such Post-Effective Date Coin Sales ("Post Effective Date Income"), CUI shall pay to Kingswood, or its Members according to their relative allocable amounts of such income, an amount of additional
Acquisition Consideration equal to 22.64 percent of the Post Effective Date Income. The parties agree that such amount will provide for the difference between the increase in state and federal tax on such Post Effective Date Income and the decrease in state and federal tax on long term capital gains due to an increased basis in Kingswood assets and/or in the Members membership interests. As a condition to the obligation of CUI to pay such amounts, Kingswood or its Members shall promptly notify CUI in writing of any formal or informal assertion or proposal, by an state or federal Tax agency, that Kingswood or its Members be required to recognize any Post Effective Date Income. If, as a result of any such assertion or proposal Kingswood or its Members incur any liability to pay any interest or penalties to any Tax Agency, CUI shall indemnify and hold them harmless therefrom.
ARTICLE VI
CONDITIONS PRECEDENT
6.1 Conditions to Obligations of Each Party to Consummate Transactions. The performance by each party of its respective obligations under this Agreement shall be subject to the satisfaction, at or prior to the Closing Date, of each of the following conditions unless waived in writing by such party:
(a) Absence of Injunctions or Restraints; Illegality. No temporary restraining order, preliminary or permanent injunction or other order issued by any court of competent jurisdiction or other legal restraint or prohibition preventing the consummation of the transactions contemplated hereby shall be in effect, nor shall any proceeding brought by any administrative agency or commission or other governmental authority or instrumentality, domestic or foreign, seeking any of the foregoing be pending; and there shall not be any action taken, or any statute, rule, regulation or order enacted, entered, enforced or deemed applicable to the transactions contemplated hereby which makes their consummation illegal.
(b) Governmental Actions. There shall not have been instituted, pending or threatened, in writing, any action or proceeding (or any investigation or other inquiry that might result in such an action or proceeding) by any governmental authority or administrative agency before any governmental authority, administrative agency or court of competent jurisdiction, nor shall there be in effect any judgment, decree or order of any governmental authority, administrative agency or court of competent jurisdiction, in either case, seeking to prohibit or limit CUI, following the Closing, from exercising any of the material rights and privileges pertaining to its ownership of the Contributed Assets or the ownership or conduct of the Business.
(c) Consents Obtained. All material consents, waivers, approvals, authorizations or orders required to be obtained by CUI, the Company or the Members for the authorization, execution and delivery of this Agreement and the consummation by each such party of the transactions contemplated hereby shall have been obtained by CUI, the Company or such Members (as the case may be), except where the failure to receive such consents, waivers, approvals, authorizations or orders could not reasonably be expected to have a Material Adverse Effect on the Business or CUI;
(d) Consummation of Other Transactions. The transactions contemplated by the Other Contribution Agreements shall have been consummated at or about the same time as the Closing hereunder.
6.2 Additional Conditions to Obligations of CUI. The obligations of CUI to consummate its acquisition of the Business and the Contributed Assets and to perform its other obligations under this Agreement also are subject to the following conditions:
(a) Accuracy of Representations and Warranties. The representations and warranties of the Company and Members contained in this Agreement shall be true and correct in all material respects on and as of the Closing Date, with the same force and effect as if made on and as of the Closing Date, except for (i) changes contemplated by this Agreement or by the Company Disclosure Schedule, and (ii) those representations and warranties which address matters only as of a particular date (which shall have been true and correct as of such date, and CUI shall have received a certificate to such effect signed by the President of the Company and the Members.
(b) Performance of Covenants. The Company and the Members shall have performed or complied in all material respects with all agreements and covenants required by this Agreement to be performed or complied with by it or them (as the case may be) on or prior to the Closing Date, including the execution and delivery by each Member of his or its Stockholders Agreement, and CUI shall have received a certificate to such effect signed by the President of the Company and the Members.
(c) Additional Instruments. CUI shall have received the Closing Documents listed on Exhibit H hereto and such other instruments and documents as CUI or its counsel reasonably deems to be necessary.
6.3 Additional Conditions to Obligations of the Company and Members. The obligation of the Company and Members to consummate their respective obligations under this Agreement is also subject to the following conditions:
(a) Accuracy of Representations and Warranties. The
representations and warranties of CUI contained in this Agreement shall be true
and correct in all material respects on and as of the Closing Date, with the
same force and effect as if made on and as of the Closing Date, except for (i)
changes contemplated by this Agreement or by the CUI Disclosure Schedule, and
(ii) those representations and warranties which address matters only as of a
particular date (which shall have been true and correct as of such date, and the
Members shall have received a certificate to such effect signed by the President
of CUI.
(b) Agreements and Covenants. CUI shall have performed or complied in all material respects with all agreements and covenants required by this Agreement to be performed or complied with by it on or prior to the Closing Date, and the Company and the Members shall have received a certificate to such effect signed by the President of CUI.
(c) Additional Instruments. Members shall have received the additional Closing Documents listed on Exhibit H hereto and such other instruments and documents as Members or their counsel reasonably deems to be necessary.
ARTICLE VII
TERMINATION
7.1 Termination. This Agreement may be terminated and the transactions herein contemplated may be abandoned at any time prior to the Closing:
(a) By mutual written consent of CUI and the Company; or
(b) By CUI, if any of the conditions to its obligations set forth in Section 6 of this Agreement shall not have been satisfied, or waived by CUI in writing, prior to March 12, 1999;
(c) By the Company, if any of the conditions set forth in
Section 6 of this Agreement to the obligations of the Company or the Members
shall not have been satisfied, or waived in writing by the Company, prior to
March 12, 1999;
Provided, that in each of the foregoing cases the party so terminating is not in breach of any of its material obligations or representations or warranties under this Agreement.
Notwithstanding anything to the contrary contained elsewhere in this Agreement, if a party hereto has breached this Agreement (a "Breaching Party") and such breach is of a nature that it is susceptible of cure, and the other party determines to terminate this Agreement by reason thereof, such other party shall give prompt written notice of such termination to the Breaching Party and such intended termination shall not become effective provided that the Breaching Party effectuates a cure of such breach by the earlier of (i) the 30th day following such notice of termination or (ii) March 12, 1999.
7.2 Procedure Upon Termination. Any termination and abandonment by CUI or the Company, or both, pursuant to Section 7.1 hereof, shall be effective on written notice thereof from the terminating party to the other parties and upon any such termination:
(a) Each party will redeliver all documents, workpapers and other material of any other party relating to the transactions contemplated hereby, whether so obtained before or after the execution hereof, to the party furnishing the same;
(b) The obligations of confidentiality set forth in Section 5.8 hereof shall continue despite such termination; and
(c) The parties shall be relieved of any obligation to consummate the transactions contemplated hereby, but none of the parties shall be relieved of any liability for its breach or default under this Agreement.
ARTICLE VIII
SURVIVAL OF REPRESENTATIONS AND WARRANTIES
Regardless of any due diligence or other investigation, either prior to or after the Closing, or any verification or approval by any party hereto or by anyone or on behalf of any party hereto, all of the representations and warranties set forth in this Agreement or in any certificates delivered pursuant hereto shall remain in full force and effect and shall survive the Closing until the expiration of twelve (12) months from the Closing Date, except that (i) the representations and warranties of the Company and the Members relating to Taxes shall survive until six (6) months following the expiration of the statutory limitations period applicable to such Taxes, (ii) the representations and warranties of the Company and Members contained in Sections 2.4 and 2.10, the representations and warranties of each of the Members contained in Section 3.1 and the representations and warranties of CUI contained in Sections 4.3 and 4.4, shall survive for a period of five (5) years following the Closing. All covenants which by their terms require performance or compliance following the Closing, including the obligations of the Company and the Members under Section 5.5, shall remain in full force and effect and shall survive the Closing until they have been fully performed and discharged; provided, however, that the covenants of the Company and the Members under Paragraphs 5.5(b) with respect to Taxes that constitute Retained Liabilities shall survive until six (6) months following the expiration of the statutory limitations period applicable to the payment of Taxes.
ARTICLE IX
MISCELLANEOUS
9.1 Notices. All notices and other communications given or made pursuant hereto shall be in writing and shall be deemed to have been duly given or made if and when delivered personally or by overnight courier to the parties at the addresses set forth on Exhibit I hereto or sent by electronic transmission, with confirmation received, to the telecopy numbers or E-Mail addresses specified on that Exhibit (or at such other address or telecopy number for a party as shall be specified hereafter by like notice).
9.2 Interpretation and Certain Definitions. This Agreement is the result of arms'-length negotiations between the parties hereto and no provision hereof, because of any ambiguity found to be contained therein or otherwise, shall be construed against a party by reason of the fact that such party or its legal counsel was the draftsman of that provision. Unless otherwise indicated elsewhere in this Agreement, (a) the term "or" shall not be exclusive, (b) the term "including" shall mean "including, but not limited to," and (c) the terms "herein," "hereof," "hereto," "hereunder" and other terms similar to such terms shall refer to this Agreement as a whole and not merely to the specific section, subsection, paragraph or clause where such terms may appear. In addition, for purposes of this Agreement, the term:
(a) "business day" means any day other than a day on which banks in California are required or authorized to be closed.
(b) "Collectibles" means rare or valuable coins, stamps, sports cards, sports memorabilia, comic books, movie posters, items autographed by recording artists, or sports, movie, television or other celebrities, game-used and other products or items the value of which is greater than the customary retail price of similar items or products because they are associated with a recording artist, or sports, movie, television or other celebrities or a well-known event and other products or items (such as antiques) which derive their value largely from their uniqueness or the limited quantity or availability thereof.
(c) "control" (including the terms "controlled by" and "under common control with") means possession, directly or indirectly or as trustee or executor, or the power to direct or cause the direction of the management or policies of a person, whether through the ownership of stock, as trustee or executor, by contract or credit arrangement or otherwise.
(d) "person" means an individual, corporation, limited liability company, partnership, association, trust, unincorporated organization, other entity or group (as defined in Section 13(d)(3) of the Securities Exchange Act of 1934).
(e) "Tax" or "Taxes" shall mean taxes, fees, levies, duties, tariffs, imposts, and governmental impositions or charges of any kind in the nature of (or similar to) taxes, payable to any federal, state, local or foreign taxing authority, including (without limitation) (i) income, franchise, profits, gross receipts, ad valorem, net worth, value added, sales, use, service, real or personal property, special assessments, capital stock, license, payroll, withholding, employment, social security, workers' compensation, unemployment compensation, utility, severance, production, excise, stamp, occupation, premiums, windfall profits, transfer and gains taxes, and (ii) interest, penalties, additional taxes and additions to tax imposed with respect thereto.
9.3 Amendment. This Agreement may not be amended except by an instrument in writing signed by the parties hereto, provided, however, the signatures of the Members shall not be required if such instrument has been signed by the Company.
9.4 Waiver. At any time prior to the Closing, the Company, on behalf of itself and the Members, may with respect to CUI and CUI may with respect to the Members and the Company (i) extend the time for the performance of any of the obligations or other acts of the other, (ii) waive any inaccuracies in the representations and warranties contained herein or in any document delivered pursuant hereto by the other, or (c) waive compliance with any of the agreements or conditions contained herein. Any such extension or waiver shall be valid if set forth in an instrument in writing signed by the party or parties to be bound thereby.
9.5 Headings. The section, subsection and any paragraph headings contained herein are for the purpose of convenience only and are not intended to define, limit or affect, and shall not be considered in connection with, the interpretation of any of the terms or provisions of this Agreement.
9.6 Severability. If any term or other provision of this Agreement is determined by a court of competent jurisdiction to be invalid, illegal or incapable of being enforced by reason of any rule of law or public policy, all other conditions and provisions of this Agreement shall nevertheless remain in full force and effect, unless such invalidity, illegality or unenforceability would prevent consummation of the material transactions contemplated hereby or would have a Material Adverse Effect on the Business or CUI.
9.7 Entire Agreement. This Agreement (inclusive of the Exhibits hereto and the Company and CUI Disclosure Schedules) constitutes the entire agreement and supersedes all prior agreements and undertakings, both oral and written, among the parties, or any of them, with respect to the subject matter of this Agreement and the Exhibits hereto.
9.8 Assignment. This Agreement shall not be assigned voluntarily by any of the parties nor by operation of law or otherwise.
9.9 Parties In Interest. This Agreement shall be binding upon and inure
solely to the benefit of each party hereto, and nothing in this Agreement,
express or implied, is intended to or shall confer upon any other person any
right, benefit or remedy of any nature whatsoever under or by reason of this
Agreement, including, without limitation, by way of subrogation, other than
Section 5.5 (which is intended to be for the benefit of the Indemnified Parties
and the others specifically referenced therein as beneficiaries of the
agreements contained in Section 5.5, and may be enforced by such Indemnified
Parties and other persons).
9.10 Failure or Indulgence Not Waiver; Remedies Cumulative. No failure or delay on the part of any party hereto in the exercise of any right hereunder shall impair such right or be construed to be a waiver of, or acquiescence in, any breach of any representation, warranty or agreement herein, nor shall any single or partial exercise of any such right preclude other or further exercise thereof or of any other right. All rights and remedies existing under this Agreement are cumulative to, and not exclusive of, any rights or remedies otherwise available.
9.11 Governing Law; Jurisdiction over Legal Actions. This Agreement shall be governed by, and construed in accordance with, the internal laws of the State of California applicable to contracts executed and fully performed within the State of California. In the event any party hereto is required to initiate any legal action or proceeding to enforce its rights hereunder, such action or proceeding shall be
brought and maintained exclusively in the Superior Court for the County of Orange, in California and each party agrees to accept, and not to challenge, the jurisdiction of such court over the parties and the subject matter of such action or proceeding or the convenience of the forum and to accept and not to challenge the adequacy of service by certified or registered mail. The prevailing party in any such action or proceeding shall be entitled to recover its reasonable attorneys fees and disbursements, expert witness fees and disbursements and other costs of suit from the non-prevailing party. TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, EACH PARTY HEREBY EXPRESSLY WAIVES ITS RIGHT TO A JURY TRIAL IN ANY SUCH ACTION OR PROCEEDING, IRRESPECTIVE OF WHICHEVER PARTY MAY BRING ANY SUCH ACTION OR PROCEEDING.
9.12 Counterparts. This Agreement may be executed in one or more counterparts, and by the different parties hereto in separate counterparts, each of which when executed shall be deemed to be an original but all of which taken together shall constitute one and the same agreement.
(Signatures of parties follow on next page.)
IN WITNESS WHEREOF, each of CUI and the Company has caused this Agreement to be executed, by its respective officers thereunto duly authorized, and each Member has executed this Agreement, as of the date first written above.
KINGSWOOD COIN AUCTIONS, LLC COLLECTORS UNIVERSE, INC.
By: /s/ David Hall By: /s/ David Hall
-------------------- --------------------
David Hall, Chairman
|
MEMBERS:
DAVID HALL'S NORTH AMERICAN KENSINGTON ASSOCIATES, LLC
TRADING, LLC ("DHNAT")
By: /s/ David Hall By: /s/ Joel H. Safriet -------------------- ------------------------ David Hall, President Joel H. Safriet, Manager /s/ David Hall /s/ Van Simmons -------------------- -------------------- David Hall Van Simmons /s/ Q. David Bowers /s/ Raymond Merena -------------------- -------------------- Q. David Bowers Raymond Merena |
EXHIBIT A
THE MEMBERS OF KINGSWOOD
OWNERS OF MEMBERSHIP INTERESTS; ALLOCATION OF CONSIDERATION
Allocation of Acquisition Consideration Among Members
Membership -----------------------------------------------------
Name of Owner Interest CUI Shares CUI Note Payment
------------- -------- ---------- ----------------
DHNAT 25% 47,500 $ 250,000
Kensington Associates, LLC 25% 47,500 $ 250,000
David Hall 15% 28,500 $ 150,000
Van Simmons 15% 28,500 $ 150,000
Q. David Bowers 12% 22,800 $ 120,000
Raymond Merena 8% 15,200 $ 80,000
--- ------- -------------
100% 190,000 $ 1,000,000
=== ======= =============
|
EXHIBIT 10.17
CONTRIBUTION AND ACQUISITION AGREEMENT
This CONTRIBUTION AND ACQUISITION AGREEMENT, dated as of February 3, 1999 (this "Agreement"), among COLLECTORS UNIVERSE, INC., a Delaware corporation ("CUI"), and PROFESSIONAL COIN GRADING SERVICE, INC., a Delaware corporation (the "Company" or "PCGS"), and the individuals set forth on Exhibit A hereto, who are all of the stockholders of the Company (each a "Stockholder" and collectively, the "Stockholders").
RECITALS:
A. CUI has been formed, organized and capitalized under the laws of the State of Delaware for the purposes of effecting the transactions contemplated in this Agreement and the other agreements listed on Exhibit B hereto (the "Other Contribution Agreements") and to conduct such other business and affairs as the Board of Directors of CUI may from time to time find to be in the best interests of CUI.
B. Each of the corporations or other business entities whose shares, ownership interests or assets are being contributed to CUI pursuant to this Agreement and or the Other Contribution Agreements (hereinafter sometimes referred to collectively as the "Founding Companies") is engaged in the business of marketing and selling, or providing services to, businesses that market and sell, Collectibles (as hereinafter defined) at retail establishments, by mail order, at trade shows or auctions or over the internet or by other means of electronic commerce (collectively, the "Businesses" or, individually, the "Business"). CUI intends to integrate the products and services offered by each of the Founding Companies in order to increase their sales, achieve efficiencies and reduce operating costs and to increase their presence and expand their sales over the Internet.
C. CUI desires to acquire all of the capital stock of the Company, and Stockholder desires to contribute and convey all of his or her shares of capital stock of the Company to CUI and obtain, in exchange therefor, the number of shares of CUI Common Stock set forth opposite his or her name on Exhibit A hereto, all on the terms and conditions set forth herein, at or about the same time as and in conjunction with consummation of the similar transactions under the Other Contribution Agreements.
D. This Agreement is being entered into by the parties, and the Other Contribution Agreements are being or have been entered into by CUI and the other parties thereto, as part of a unified plan of contribution and exchange of stock (the "Plan") that is intended by the parties to qualify for non-recognition treatment under Section 351 of the Internal Revenue Code of 1986, as amended (the "Code"). However, none of the parties to this Agreement nor any of the parties to the Other Contribution Agreements has made or is making any representations or warranties with respect to whether the transactions being consummated pursuant to and as part of such Plan will comply with the requirements of Code Section 351 or as to the consequences, under applicable federal, state or other tax laws, of such transactions to the parties to this Agreement.
NOW, THEREFORE, in consideration of the foregoing and the mutual covenants and agreements herein contained, and intending to be legally bound hereby, CUI, and the Company and Stockholders hereby agree as follows:
ARTICLE I
EXCHANGE OF CONSIDERATION
1.1 Contribution of Company Shares. On the terms and subject to the conditions that are set forth in this Agreement, on the Closing Date (as hereinafter defined), each Stockholder shall contribute, convey, assign, transfer and deliver to CUI all of the shares of Common Stock of the Company owned of record and beneficially by such Stockholder (his or her "Company Shares"), free and clear of all liens,
claims, encumbrances, pledges, options, security interests and any other adverse interests of any kind or nature whatsoever, in exchange for the Acquisition Consideration (as defined in Section 1.2 below).
1.2 Acquisition Consideration. On the terms and subject to the conditions that are set forth in this Agreement, at the Closing CUI shall, as consideration for the contribution by each Stockholder of his or her Company Shares to CUI, issue to such Stockholder the number of validly issued, fully paid and nonassessable shares of CUI Common Stock set forth opposite the name of such Stockholder on Exhibit A hereto. The CUI Shares that each Stockholder will receive pursuant to this Section 1.2 shall constitute and will sometimes be referred to herein as the "Acquisition Consideration" or the "CUI Shares".
1.3 Closing. Subject to the satisfaction or waiver of the conditions set forth in Article VI, the consummation of the transactions contemplated hereby (the "Closing") shall take place at the offices of Stradling Yocca Carlson & Rauth, 660 Newport Center Drive, Suite 1600, Newport Beach, California 92660, on the third (3rd) business day after satisfaction or waiver of such conditions precedent, provided, however, that, if the Closing occurs on or before March 12, 1999, the transactions contemplated hereby shall be effective for accounting purposes as of February 5, 1999 (the "Effective Date"). At the Closing, Each Stockholder shall (i) surrender to CUI all of the certificates evidencing his or her Company Shares, together with one or more stock assignments separate from certificate, each duly endorsed in blank and with signature guaranteed, and (ii) shall execute and deliver to CUI a Stockholders Agreement substantially in the form of Exhibit C hereto (the "Stockholders Agreement"). In exchange therefor, CUI shall deliver to each such Stockholder a certificate evidencing the CUI Shares constituting such Stockholder's Acquisition Consideration, issued in the name of such Stockholder The parties also shall execute and deliver the additional documents and instruments listed on Exhibit D hereto (the "Closing Documents").
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND STOCKHOLDERS
The Company and the Stockholders hereby jointly and severally represent and warrant to CUI that, except as set forth in the written disclosure schedule delivered on or prior to the date hereof by the Company to CUI that is arranged in paragraphs corresponding to the numbered and lettered paragraphs contained in this Article II (the "Company Disclosure Schedule"):
2.1 Organization and Qualification. The Company is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware and it has the requisite corporate power and authority and is in possession of all franchises, grants, authorizations, licenses, permits, easements, consents, certificates, approvals and orders necessary to own, lease and operate the properties it purports to own, and to operate or lease and to carry on its business as it is now being conducted, except where the failure to be so organized, existing and in good standing or to have such power, authority and Approvals would not have a Material Adverse Effect (as hereinafter defined). The Company is duly qualified or licensed as a foreign corporation to do business, and is in good standing, in each jurisdiction where the character of its properties owned, leased or operated by it or the nature of its activities make such qualification or licensing necessary, except for any such failure to be so duly qualified or licensed and in good standing that would not have a Material Adverse Effect. Except as set forth in Section 2.1 of the Company Disclosure Schedule, the Company does not directly or indirectly own any ownership, equity or similar interest in, or any interest convertible into or exchangeable or exercisable for, any equity or similar interest in, any corporation, limited liability company, partnership, joint venture or other business association or entity. The term "Material Adverse Effect," when used in connection with the Company, means any change, effect or circumstance that is materially adverse to the business, assets, financial condition, results of operations or prospects of the Company, other than any
such changes, circumstances or effects that are set forth or described in the Company Disclosure Schedule.
2.2 Certificate of Incorporation and By-Laws. Stockholders have heretofore furnished to CUI a complete and correct copy of its Certificate of Incorporation and By-Laws, as amended to date. Such Certificate of Incorporation and By-Laws are in full force and effect. The Company is not in violation of any of the provisions of its Articles of Incorporation or By-Laws.
2.3 Capitalization.
(a) The authorized capital stock of the Company consists of
(i) _____ shares of Company Common Stock, par value $0.01 per share. Of the
authorized Company Shares, a total of ____ Company Shares are issued and
outstanding , and all of such Company Shares were validly issued and are fully
paid and nonassessable. The Company is not authorized to issue or sell and has
not issued or sold any shares of capital stock other than shares of Common
Stock.
(b) Except as otherwise set forth in Section 2.3 of the Company Disclosure Schedule there are no shares of Common Stock held in treasury or reserved for future issuance pursuant to stock options, warrants or other rights to acquire, by purchase, exchange conversion or otherwise, any shares of Common Stock of the Company. There are no options, warrants or other rights, and there are no agreements, arrangements or commitments of any character relating to the issued or unissued capital stock of the Company or obligating the Company to issue or sell any shares of capital stock of, or other equity interests in, the Company.
(c) There are no obligations, contingent or otherwise, of the Company to repurchase, redeem or otherwise acquire any shares of Company Common Stock or to provide funds to or make any investment (in the form of a loan, capital contribution or otherwise) in any business entity.
2.4 Authority Relative to this Agreement.
(a) The Company has all necessary corporate power and authority to execute and deliver this Agreement and to perform its obligations hereunder and to consummate the transactions contemplated hereby. The execution and delivery of this Agreement by the Company and the consummation by the Company of the transactions contemplated hereby have been duly and validly authorized by all necessary corporate and stockholder action, and no other corporate or stockholder proceedings or actions are necessary to authorize this Agreement or to consummate the transactions contemplated hereby. The Board of Directors of the Company has determined that it is advisable and in the best interest of the Company's stockholders for the Company to enter into this Agreement and to consummate the transactions contemplated hereby.
(b) This Agreement has been duly and validly executed and delivered by the Company and, assuming due authorization, execution and delivery by CUI, as applicable, constitutes a legal, valid and binding obligation of the Company enforceable against the Company in accordance with its terms, except as the enforceability thereof may be subject to or limited by (i) bankruptcy, insolvency, reorganization, arrangement, moratorium, or other similar laws relating to or affecting rights of creditors, and (ii) general equitable principles, regardless of whether the issue of enforceability is considered in a proceeding in equity or at law.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE STOCKHOLDER
Each Stockholders, severally and not jointly, hereby represent and warrant to CUI that:
3.1 Authority and Capacity. Such Stockholder has the full legal right and capacity to execute and deliver, and to perform his or her obligations under, and has duly executed and delivered, this Agreement with the intent to be legally bound hereby. This Agreement constitutes, and when executed and delivered by such Stockholder, the Stockholders Agreement and any Non-Competition Agreement (as hereinafter defined) which, pursuant to Section 5.6 hereof, such Stockholder has agreed to execute and deliver, will constitute, valid and legally binding obligations of such Stockholder that are enforceable against such Stockholder in accordance with their respective terms, except as such enforceability may be limited by bankruptcy, insolvency, moratorium or other similar laws affecting creditors' rights and by general principles of equity relating to the availability of equitable remedies (regardless of whether any such agreements are sought to be enforced in a proceeding at law or in equity). Such Stockholder is not obligated to obtain any consent or approval of any other person (other than of his or her spouse, if any) in connection with the execution and delivery of this Agreement or the other Agreements that the Stockholder is entering into pursuant hereto (the "Additional Agreements") or the consummation of the transactions contemplated hereby or thereby. The execution and delivery of this Agreement and the Additional Agreements and the consummation by such Stockholder of the transactions contemplated hereby or thereby will not violate, or constitute a breach or default under or cause the acceleration of any obligation or liability under any contract, promissory note, mortgage, lease, license, permit, writ, decree or other instrument or agreement to which such Stockholder is a party or is subject.
3.2 The Company Shares. Such Stockholder is the record and beneficial owner of, and has and on the Closing Date will transfer and convey to CUI, good and marketable title to, the shares of Company Common Stock set forth opposite his or her name on Exhibit A hereto, free and clear of any and all liens, claims, encumbrances, pledges, security interests, options, rights of first refusal, community property interests, restrictions and any other adverse interests of any kind or nature whatsoever, other than restrictions on the transferability under the federal securities laws which, however, are not an impediment to consummation of the transactions contemplated hereby. Such Stockholder has not sold, transferred, conveyed, assigned, hypothecated, or granted any security interest in or pledged, or granted any option or right entitling anyone to acquire, any of the Company Shares owned by him or her, and has not entered into nor is he or she a party to or bound by any agreement, commitment or understanding (written or oral) to do any of the foregoing. The Company Shares owned by such Stockholder are not subject to any liabilities and no liabilities will arise as a result of or in connection with the consummation by such Stockholder of the transactions contemplated hereby.
3.3 Securities Law Compliance. Each Stockholder represents and warrants that:
(a) He or she has been advised and understands and agrees that the CUI Shares will not be registered under the Securities Act of 1933, as amended (the "1933 Act"), nor qualified under any state securities laws, on the ground (among others) that no distribution or public offering of the CUI Shares is to be effected in connection with the transactions contemplated herein and in issuing the CUI Shares to such Stockholder, CUI is relying on the accuracy and completeness of the representations and warranties of such Stockholder set forth in this Section 3.3.
(b) He or she is acquiring the CUI Shares for his or her own account, and not as a nominee or agent for any other persons or entities, and for investment and not with a view to distribution or resale thereof.
(c) He or she acknowledges that he or she has been informed and understands that no public market for the CUI Shares exists and that there can be no assurance that any such market may develop or exist in the future and, even if a public market does develop, that the CUI Shares may not be sold or transferred except in compliance with the 1933 Act or any exemption thereunder and there is no
assurance that any exemption from registration, including Rule 144 under the 1933 Act will become available to permit resales of the CUI Shares.
(d) He or she has or has been furnished with such information regarding CUI and the CUI Shares as he or she has requested of CUI and has had an opportunity to ask questions of the officers of CUI regarding, and to become informed about, CUI and its business and its consolidated financial condition and results of operations.
(e) Such Stockholder is an "Accredited Investor" as such term is defined in Regulation D under the 1933 Act.
(f) Such Stockholder acknowledges and agrees that (i) until his or her CUI Shares become eligible for resale under Rule 144(k) under the 1933 Act, any proposed sale or other transfer or disposition of any of the CUI Shares, other than pursuant to an effective registration statement under the 1933 Act, may not be made unless and until such Stockholder has furnished to CUI an opinion of counsel, reasonably acceptable to CUI and its counsel, to the effect that the proposed sale or other transfer or disposition is exempt from registration under the 1933 Act, and (ii) the CUI Shares will be subject to the Stockholders Agreement referred to in Section 1.4 hereof and, until such Stockholders Agreement has been terminated (A) no sale or other disposition of the CUI Shares may be made except in compliance therewith and (B) the CUI Shares may be required to be sold in one or more transactions involving sales of shares of CUI initiated by certain other of the CUI Stockholders, all as more fully provided in the Stockholders Agreement. The Stockholder has read and understands the Stockholders Agreement.
(g) Such Stockholder acknowledges and agrees that the certificate representing the CUI Shares shall contain restrictive legends in the forms set forth in the form of Stockholders Agreement attached hereto as Exhibit C or restrictive legends that are substantially similar thereto.
3.4 Acknowledgements and Agreements Regarding CUI Representations. Each
Stockholder acknowledges and agrees that (a) CUI has not made, and is not
making, any representations or warranties to such Stockholder with respect to
(i) the federal, state or local income or other tax consequences to such
Stockholder of his or her consummation of the transactions contemplated hereby,
or (ii) the future performance of CUI; and (b) in entering into this Agreement,
and the Additional Agreements, each such Stockholder is not relying on any
statements or representations or warranties of CUI, or any representations or
warranties made or purported to have been made by any officer, director,
stockholder, employee or agent of CUI, other than the express representations
and warranties of CUI contained in this Agreement.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF CUI
CUI hereby represents and warrants to each of the Stockholders that, except as set forth in the written disclosure schedule delivered on or prior to the date hereof by CUI to the Company that is arranged in paragraphs corresponding to the numbered and lettered paragraphs contained in this Article IV (the "CUI Disclosure Schedule"):
4.1 Organization and Qualification; Subsidiaries. CUI is a corporation duly organized, validly existing and in good standing under the laws of the jurisdiction of its incorporation and has the requisite corporate power and authority to own, lease and operate the properties it purports to own, and to operate or lease and to carry on its business as it is now being conducted, except where the failure to be so organized, existing and in good standing or to have such power, authority and Approvals would not have a Material Adverse Effect (as hereinafter defined) on CUI. CUI is duly qualified or licensed as a foreign corporation to do business, and is in good standing, in each jurisdiction where the character of its properties owned, leased or operated by it or the nature of its activities makes such qualification or
licensing necessary, except for such failures to be so duly qualified or licensed and in good standing that would not have a Material Adverse Effect. The term "Material Adverse Effect," when used in connection with the CUI or any of its subsidiaries, means any change, effect or circumstance that is materially adverse to the business, assets, financial condition, results of operations or prospects of the CUI and its subsidiaries, taken as a whole, other than any such changes, circumstances or effects that are set forth or described in the CUI Disclosure Schedule.
4.2 Certificate of Incorporation and By-Laws. CUI has heretofore furnished to the Stockholders a complete and correct copy of its Certificate of Incorporation and By-Laws, as amended to date. Such Certificate of Incorporation and By-Laws are in full force and effect. CUI is not in violation of any of the provisions of Certificate of Incorporation or By-Laws.
4.3 Capitalization. As of the date hereof, the authorized capital stock
of CUI consists of 30,000,000 shares of Common Stock, par value $.001 per share.
On consummation of the transactions contemplated by this Agreement and the Other
Contributions Agreements, there will be (i) a total of 19,000,000 fully paid and
nonassessable shares of Common Stock that will be issued and outstanding, which
will include the CUI Shares being issued under this Agreement; and (ii)
3,250,000 shares of Common Stock reserved for issuance on the exercise of stock
options (either granted or to be granted in the future). Except as set forth in
Section 4.3 of the CUI Disclosure Schedule, as of the date of hereof there are
no options, warrants or other rights, agreements, arrangements or commitments of
any character relating to the issued or unissued capital stock of CUI or
obligating CUI to issue or sell any shares of capital stock of, or other equity
interests in, CUI. There are no obligations, contingent or otherwise, of CUI to
repurchase, redeem or otherwise acquire any of the capital stock of CUI.
4.4 Power and Authority. CUI has all necessary corporate power and
authority to execute and deliver this Agreement and to perform its obligations
hereunder and to consummate the transactions contemplated hereby. The execution
and delivery of this Agreement by CUI and the consummation by CUI of the
transactions contemplated hereby have been duly and validly authorized by all
necessary corporate action on the part of CUI, and no other corporate
proceedings on the part of CUI are necessary to authorize this Agreement or to
consummate the transactions contemplated hereby. This Agreement has been duly
and validly executed and delivered by CUI and, assuming due authorization,
execution and delivery by the Company and Stockholders, constitutes a legal,
valid and binding obligation of CUI enforceable against it in accordance with
its terms, except as the enforceability thereof may be subject to or limited by
(i) bankruptcy, insolvency, reorganization, arrangement, moratorium, or other
similar laws relating to or affecting rights of creditors, and (ii) general
equitable principles, regardless of whether the issue of enforceability is
considered in a proceeding in equity or at law.
ARTICLE V
ACTIONS TO BE TAKEN PENDING AND AFTER THE CLOSING
5.1 Prohibited Actions. Between the date hereof and the earlier of the consumation of the Closing or termination of this Agreement, the Company and each of the Stockholders agree not to take any action which they know, or reasonably should have known (i) would make any of their respective representations or warranties contained in this Agreement untrue or incorrect, or (ii) would prevent or interfere with the performance by the Company or such Stockholder of any of their respective covenants contained in this Agreement. Each Stockholder also covenants and agrees that he or she will not grant any options or rights to acquire, or pledge or permit the imposition of any liens or encumbrances on or hypothecate, any of such Stockholder's Company Shares and he or she will not enter into any agreement or understanding, written or oral, that provides therefor.
5.2 Access to Information. During the period from the date hereof and continuing until the earlier of the completion of the Closing or termination of this Agreement, each of the Company and CUI, upon reasonable notice, and subject to the provisions of Section 5.8 hereof, shall each (i) afford to the
officers, employees, accountants, counsel and other representatives of the other, reasonable access, during the period between the date hereof and continuing until the earlier of the Closing or termination of this Agreement, to all its properties, books, contract, commitments and records (ii) furnish promptly to the other all information concerning its business, properties and personnel as such other party may reasonably request, and (iii) make available to the other the appropriate individuals (including attorneys, accountants and other professionals) for discussion of the other's business, properties and personnel as either CUI or the Company may reasonably request.
5.3 Consents; Approvals. The Company, the Stockholders and CUI shall each use their best reasonable efforts to obtain all consents, waivers, approvals, authorizations or orders (including, without limitation, all governmental and regulatory rulings and approvals), and the Company, the Stockholders and CUI shall make all filings (including, without limitation, all filings with governmental or regulatory agencies) required in connection with the authorization, execution and delivery of this Agreement by the Company, the Stockholders and CUI and the consummation by them of the transactions contemplated hereby. The Company, the Stockholders and CUI shall furnish all information required to be included in any applications or other filings to be made pursuant to the rules and regulations of any governmental body in connection with the transactions contemplated by this Agreement.
5.4 Notification of Certain Matters. The Company or the Stockholders
shall give prompt notice to CUI, and CUI shall give prompt notice to the Company
of (i) the occurrence or nonoccurrence of any event which would be likely to
cause any representation or warranty made by such party in this Agreement to be
materially untrue or inaccurate, or (ii) any failure of the Company, the
Stockholders or CUI, as the case may be, materially to comply with or satisfy
any covenant, condition or agreement to be complied with or satisfied by it
hereunder; provided, however, that the delivery of any notice pursuant to this
Section shall not limit or otherwise affect the remedies available hereunder to
the party receiving such notice.
5.5 Non-Competition and Employment Agreements. Each of the Stockholders named on Exhibit E hereto shall execute, and deliver to CUI at the Closing, Non-Competition Agreements substantially in the form of Exhibit F hereto (the "Non-Competition Agreements"). At the Closing, CUI shall assume any employment agreement that may exist between the Company and any officer thereof.
5.6 Option Plan. Upon consummation of the Closing, CUI shall assume the Company's Employee Stock Option Plan (the "Plan") and each stock option that is outstanding under the Plan as of the Closing Date, and entitles the option holder to acquire Company Shares now or in the future ("Company Options"). Upon such assumption, each Company Option shall automatically be converted into an option (a "CUI Option") entitling the holder of such Company Option (the "Optionee") to purchase, on the terms set forth in the Option Agreement evidencing such Company Option (a "Company Option Agreement") a number of shares of Common Stock of CUI ("CUI Option Shares") that is equal to the number of shares of Common Stock of CUI that the option holder would have received pursuant to this Agreement had he exercised such Company Options in their entirety to purchase Company Shares immediately prior to the date hereof and had been a party to this Agreement. Promptly following the Closing, CUI shall execute and deliver to each such Optionee an Option Agreement, substantially identical to the Company Option Agreement, entitling him or her to purchase such CUI Option Shares at an option exercise price per share that is equal to the number that, when multiplied by the total number of CUI Option Shares the Optionee has become entitled to purchase by reason of the provisions hereof and of the provisions of the Company Plan, would be equal to the aggregate option exercise price that such Optionee would have been required to pay if he had exercised all of the Company Options immediately prior to the consummation of the transactions contemplated hereby.
5.7 Further Action. On the terms and subject to the conditions hereof, each of the parties hereto shall use all reasonable efforts to take, or cause to be taken, all actions, and to do, or cause to be done, all other things necessary, proper or advisable to consummate and make effective as promptly as
practicable the transactions contemplated by this Agreement, to obtain in a timely manner all necessary waivers, consents and approvals and to effect all necessary registrations and filings, and otherwise to satisfy or cause to be satisfied all conditions precedent to its obligations under this Agreement. From and after the Closing, each party shall take such actions and execute such documents and instruments as any other party may reasonably request to better evidence or effectuate the transactions contemplated by this Agreement or the Exhibits hereto.
5.8 Confidential Information. Each party acknowledges that it or any of
its officers, directors, managers, employees, agents or advisors
("Representatives") may be given, by one of the other parties hereto (a
"disclosing party") or any of such disclosing party's Representatives, access to
various items of proprietary and confidential information of the disclosing
party in the course of investigations and negotiations prior to Closing. Each
party hereto who is furnished or given access to the confidential information of
a disclosing party (a "receiving party") agrees that such confidential
information shall be kept strictly confidential by the receiving party and by
its Representatives and shall not be used for any purpose other than to
facilitate the consummation of the transactions contemplated herein.
Confidential information shall include any proprietary business or other
information which is delivered (orally or in writing) or to which access is
given by a disclosing party or any of its Representatives to the receiving party
or any of its Representatives, and any such information that is included in or
incorporated into any notes, analyses, memoranda, projections or other documents
that are prepared by the receiving party or any of its Representatives, unless
such information (a) is already of public knowledge, or (b) becomes of public
knowledge through no fault, action or inaction of the receiving party or its
Representatives, or (c) is demonstrated convincingly by the receiving party to
have been known by the receiving party, or any of its Representatives, prior to
the disclosure of such information by the disclosing party to the receiving
party, unless such knowledge was acquired from a person who the receiving party
or its Representatives knew or reasonably should have known was subject, at the
time of such disclosure, to a fiduciary or other duty of non-disclosure to the
disclosing party. Except as permitted by Section 5.8, no party hereto, nor its
respective Representatives, shall intentionally disclose any confidential
information of any of the other parties to any third person; provided, however,
that such information may be disclosed (i) with the written consent of the other
parties hereto, (ii) in applications or requests required to be made to obtain
licenses, permits, approvals or consents needed to consummate the transactions
contemplated herein, (iii) to the professional advisors of each party hereto who
need to know such information in connection with the consummation of the
transactions contemplated hereby, or (iv) pursuant to court order or subpoena,
provided, however, that if any receiving party or any of its Representatives is
served with a court order or subpoena that would require the disclosure of any
of the confidential information of a disclosing party, the receiving party or
such Representative so served (as the case may be) shall promptly, but in any
event within three (3) days thereafter, notify the disclosing party thereof and
shall provide reasonable cooperation, at the disclosing party's expense, with
any efforts that the disclosing party may undertake to quash such court order or
subpoena or obtain a protective order with respect to the disclosure and use of
such confidential information. The restrictions and obligations contained in
this Section 5.8 shall survive any termination of this Agreement; provided,
however, that, if the transactions contemplated hereby are consummated, the
obligations of CUI and any subsidiaries thereof under this Section 5.8 shall
terminate, but all of the obligations of the Company and Stockholders under this
Section 5.8 shall survive and shall continue in full force and effect at all
times after the Closing.
5.9 Certain Consents and Agreements of Stockholders. By executing this Agreement, each Stockholder:
(a) Consents hereby to the approval and adoption of the amendment, set forth in Exhibit G to this Agreement, to the Certificate of Incorporation of PCGS, which provides that Article V of the Certificate of Incorporation, which limits the number of record stockholders that the Company may have to 30 and requires the Company to maintain its status as an "S" corporation for federal income tax purposes, be deleted in its entirety from the Certificate of Incorporation.
(b) Consents to the termination of the Company status as an "S" corporation for federal income tax purposes that will result from consummation of the transactions contemplated by this Agreement.
(c) Acknowledges and agrees that, (i) except as such Stockholder sets forth otherwise on a Disclosure Schedule addressed and delivered to CUI, and signed and dated by such Stockholder, on the date of this Agreement (the "Stockholder's Disclosure Schedule"), the number of shares of Common Stock of PCGS set forth opposite the name of such Stockholder on Exhibit A hereto is the total number of shares of PCGS Common Stock owned, of record or beneficially, by such Stockholder and the Stockholder does not have any options or rights to purchase or otherwise acquire any additional shares of PCGS Common Stock either from PCGS or from any other Stockholder of PCGS; and (ii) except for compensation that is payable to him or her for services rendered as an employee of PCGS or rights under the Option Agreements set forth in Section 2.3 of the Company Disclosure Schedule, such Stockholder does not have any claims or causes of action, whether asserted or unasserted, against PCGS, or any of its officers or directors, arising out of any transactions that may have occurred between such Stockholder and PCGS or such Stockholder and any officer or director of PCGS, either in his or her capacity as such or in his or her individual capacity, relating in any way to PCGS or its business or to shares of stock of PCGS or arising out of the management or conduct of PCGS' businesses.
5.10 Releases.
(a) Each Stockholder hereby irrevocably and unconditionally releases, acquits and forever discharges PCGS and each of its directors and executive officers, in the capacity as directors or officers and also in their individual capacities, from any and all claims, actions, charges, complaints, causes of action, rights, damages (including attorneys' fees and costs), demands, debts, or accountings of any nature whatsoever, known or unknown, suspected or unsuspected, whether statutory or common law, which such they may have against each other based any transactions that have taken place prior to the date hereof between such Stockholder and PCGS or such Stockholder and any officer or director of PCGS involving the sale, transfer or other disposition of any shares of Common Stock of PCGS by such Stockholder to PCGS or any officer or director thereof (collectively, the "Released Claims").
(b) WAIVER OF CIVIL CODE SECTION 1542: Each Stockholder expressly waives and relinquishes any and all rights which he or she may have under the provisions of Section 1542 of the California Civil Code, pertaining or relating solely to the Released Claims. Section 1542 of the California Civil Code reads as follows:
A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS WHICH THE CREDITOR DOES NOT KNOW OR SUSPECT TO EXIST IN HIS FAVOR AT THE TIME OF EXECUTING THE RELEASE, WHICH IF KNOWN BY HIM MUST HAVE MATERIALLY AFFECTED HIS SETTLEMENT WITH THE DEBTOR.
ARTICLE VI
CONDITIONS PRECEDENT
6.1 Conditions to Obligations of Each Party to Consummate Transactions. The performance by each party of its respective obligations under this Agreement shall be subject to the satisfaction, at or prior to the Closing Date, of each of the following conditions unless waived in writing by such party:
(a) Absence of Injunctions or Restraints; Illegality. No temporary restraining order, preliminary or permanent injunction or other order issued by any court of competent jurisdiction or other legal restraint or prohibition preventing the consummation of the transactions contemplated hereby shall
be in effect, nor shall any proceeding brought by any administrative agency or commission or other governmental authority or instrumentality, domestic or foreign, seeking any of the foregoing be pending; and there shall not be any action taken, or any statute, rule, regulation or order enacted, entered, enforced or deemed applicable to the transactions contemplated hereby which makes their consummation illegal.
(b) Governmental Actions. There shall not have been instituted, pending or threatened, in writing, any action or proceeding (or any investigation or other inquiry that might result in such an action or proceeding) by any governmental authority or administrative agency before any governmental authority, administrative agency or court of competent jurisdiction, nor shall there be in effect any judgment, decree or order of any governmental authority, administrative agency or court of competent jurisdiction, in either case, seeking to prohibit or limit CUI, following the Closing, from exercising any of the material rights and privileges pertaining to its ownership of the Company or the ownership or conduct of its business.
(c) Consents Obtained. All material consents, waivers, approvals, authorizations or orders required to be obtained by CUI or the Company or any of the Stockholders for the authorization, execution and delivery of this Agreement and the consummation by each such party of the transactions contemplated hereby shall have been obtained by CUI, the Company or the Stockholders (as the case may be), except where the failure to receive such consents, waivers, approvals, authorizations or orders could not reasonably be expected to have a Material Adverse Effect on the Business or CUI;
6.2 Additional Conditions to Obligations of CUI. The obligations of CUI to consummate its acquisition of the Business and the Contributed Assets and to perform its other obligations under this Agreement also are subject to the following conditions:
(a) Accuracy of Representations and Warranties. The representations and warranties of the Company and each Stockholder contained in this Agreement shall be true and correct in all material respects on and as of the Closing Date, with the same force and effect as if made on and as of the Closing Date, except for (i) changes contemplated by this Agreement or by the Company Disclosure Schedule, and (ii) those representations and warranties which address matters only as of a particular date (which shall have been true and correct as of such date, and CUI shall have received a certificate to such effect signed by the President of the Company and by each Stockholder.
(b) Performance of Covenants. The Company and each Stockholder shall have performed or complied in all material respects with all agreements and covenants required by this Agreement to be performed or complied with by it or him or her (as the case may be) on or prior to the Closing Date, including the execution and delivery by each Stockholder of the Stockholders Agreement and the execution and delivery of a Non-Competition Agreement by each of the Stockholders named on Exhibit E hereto, and CUI shall have received a certificate to such effect signed by the President of the Company and the Stockholder.
(c) Consummation of Other Transactions. The transactions contemplated by the Other Contribution Agreements shall have been consummated at or about the same time as the Closing hereunder.
(d) Additional Instruments. CUI shall have received the Closing Documents listed on Exhibit D hereto and such other instruments and documents as CUI or its counsel reasonably deems to be necessary.
6.3 Additional Conditions to Obligations of the Company and Stockholder. The obligation of the Company and Stockholder to consummate their respective obligations under this Agreement is also subject to the following conditions:
(a) Accuracy of Representations and Warranties. The
representations and warranties of CUI contained in this Agreement shall be true
and correct in all material respects on and as of the Closing Date, with the
same force and effect as if made on and as of the Closing Date, except for (i)
changes contemplated by this Agreement or by the CUI Disclosure Schedule, and
(ii) those representations and warranties which address matters only as of a
particular date (which shall have been true and correct as of such date, and the
Stockholder shall have received a certificate to such effect signed by the
President of CUI.
(b) Agreements and Covenants. CUI shall have performed or complied in all material respects with all agreements and covenants required by this Agreement to be performed or complied with by it on or prior to the Closing Date, and the Stockholder shall have received a certificate to such effect signed by the President of CUI.
(c) Additional Instruments. Each Stockholder shall have received the additional Closing Documents listed on Exhibit D hereto and such other instruments and documents as such Stockholder or its counsel reasonably deems to be necessary.
ARTICLE VII
TERMINATION
7.1 Termination. This Agreement may be terminated and the transactions herein contemplated may be abandoned at any time prior to the Closing:
(a) By mutual written consent of CUI and the Company; or
(b) By CUI, if any of the conditions to its obligations set forth in Section 6 of this Agreement shall not have been satisfied, or waived by CUI in writing, prior to March 12, 1999;
(c) By the Company if any of the conditions set forth in
Section 6 of this Agreement to the obligations of the Company or the
Stockholders shall not have been satisfied, or waived in writing by the
Stockholders, prior to March 12, 1999;
Provided, that in each of the foregoing cases the party so terminating is not in breach of any of its material obligations or representations or warranties under this Agreement.
Notwithstanding anything to the contrary contained elsewhere in this Agreement, if a party hereto has breached this Agreement (a "Breaching Party") and such breach is of a nature that it is susceptible of cure, and the other party determines to terminate this Agreement by reason thereof, such other party shall give prompt written notice of such termination to the Breaching Party and such intended termination shall not become effective provided that the Breaching Party effectuates a cure of such breach by the earlier of (i) the 30th day following such notice of termination or (ii) March 12, 1999.
7.2 Procedure Upon Termination. Any termination and abandonment by CUI or the Stockholders, or both, pursuant to Section 7.1 hereof, shall be effective on written notice thereof from the terminating party to the other parties and upon any such termination:
(a) Each party will redeliver all documents, workpapers and other material of any other party relating to the transactions contemplated hereby, whether so obtained before or after the execution hereof, to the party furnishing the same;
(b) The obligations of confidentiality set forth in Section 5.8 hereof shall continue despite such termination; and
(c) The parties shall be relieved of any obligation to consummate the transactions contemplated hereby, but none of the parties shall be relieved of any liability for its breach or default under this Agreement.
ARTICLE VIII
SURVIVAL OF REPRESENTATIONS AND WARRANTIES
Regardless of any due diligence or other investigation, either prior to or after the Closing, or any verification or approval by any party hereto or by anyone or on behalf of any party hereto, all of the representations and warranties set forth in this Agreement or in any certificates delivered pursuant hereto shall remain in full force and effect and shall survive the Closing until the expiration of three (3) years from the Closing Date, except that (i) the representations and warranties of the Company and each of the Stockholders contained in Sections 2.3 and 2.4, the representations and warranties of the Stockholders contained in Sections 3.1 and 3.2 and the representations and warranties of CUI contained in Sections 4.3 and 4.4, shall survive for a period of seven (7) years following the Closing. All covenants which by their terms require performance or compliance following the Closing shall remain in full force and effect and shall survive the Closing until they have been fully performed and discharged.
ARTICLE IX
MISCELLANEOUS
9.1 Notices. All notices and other communications given or made pursuant hereto shall be in writing and shall be deemed to have been duly given or made if and when delivered personally or by overnight courier to the parties at the addresses set forth on Exhibit H hereto or sent by electronic transmission, with confirmation received, to the telecopy numbers specified on that Exhibit (or at such other address or telecopy number for a party as shall be specified by like notice).
9.2 Interpretation and Certain Definitions. This Agreement is the result of arms'-length negotiations between the parties hereto and no provision hereof, because of any ambiguity found to be contained therein or otherwise, shall be construed against a party by reason of the fact that such party or its legal counsel was the draftsman of that provision. Unless otherwise indicated elsewhere in this Agreement, (a) the term "or" shall not be exclusive, (b) the term "including" shall mean "including, but not limited to," and (c) the terms "herein," "hereof," "hereto," "hereunder" and other terms similar to such terms shall refer to this Agreement as a whole and not merely to the specific section, subsection, paragraph or clause where such terms may appear. In addition, for purposes of this Agreement, the term:
(a) "business day" means any day other than a day on which banks in California are required or authorized to be closed.
(b) "Collectibles" means rare or valuable coins, stamps, sports cards, sports memorabilia, comic books, movie posters, items autographed by recording artists, or sports, movie, television or other celebrities, game-used and other products or items the value of which is greater than the customary retail price of similar items or products because they are associated with a recording artist, or sports, movie, television or other celebrities or a well-known event and other products or items (such as antiques) which derive their value largely from their uniqueness or the limited quantity or availability thereof.
(c) "control" (including the terms "controlled by" and "under common control with") means possession, directly or indirectly or as trustee or executor, or the power to direct or cause the direction of the management or policies of a person, whether through the ownership of stock, as trustee or executor, by contract or credit arrangement or otherwise.
(d) "person" means an individual, corporation, limited liability company, partnership, association, trust, unincorporated organization, other entity or group (as defined in Section 13(d)(3) of the Securities Exchange Act of 1934).
9.3 Amendment. This Agreement may not be amended except by an instrument in writing signed by the parties hereto, provided, however, the signature of the Company shall not be required if such instrument has been signed by Stockholders.
9.4 Waiver. At any time prior to the Closing, the Stockholders, on behalf of the Stockholders and the Company, may with respect to CUI and CUI may with respect to the Stockholders and the Company (i) extend the time for the performance of any of the obligations or other acts of the other, (ii) waive any inaccuracies in the representations and warranties contained herein or in any document delivered pursuant hereto by the other, or (c) waive compliance with any of the agreements or conditions contained herein. Any such extension or waiver shall be valid if set forth in an instrument in writing signed by the party or parties to be bound thereby.
9.5 Headings. The section, subsection and any paragraph headings contained herein are for the purpose of convenience only and are not intended to define, limit or affect, and shall not be considered in connection with, the interpretation of any of the terms or provisions of this Agreement.
9.6 Severability. If any term or other provision of this Agreement is determined by a court of competent jurisdiction to be invalid, illegal or incapable of being enforced by reason of any rule of law or public policy, all other conditions and provisions of this Agreement shall nevertheless remain in full force and effect, unless such invalidity, illegality or unenforceability would prevent consummation of the material transactions contemplated hereby or would have a Material Adverse Effect on the Business or CUI.
9.7 Entire Agreement. This Agreement (inclusive of the Company Disclosure Schedule and CUI Disclosure Schedule) constitutes the entire agreement and supersedes all prior agreements and undertakings, both oral and written, among the parties, or any of them, with respect to the subject matter hereof.
9.8 Assignment. This Agreement shall not be assigned voluntarily by any of the parties nor by operation of law or otherwise.
9.9 Parties In Interest. This Agreement shall be binding upon and inure solely to the benefit of each party hereto, and nothing in this Agreement, express or implied, is intended to or shall confer upon any other person any right, benefit or remedy of any nature whatsoever under or by reason of this Agreement, including, without limitation, by way of subrogation.
9.10 Failure or Indulgence Not Waiver; Remedies Cumulative. No failure or delay on the part of any party hereto in the exercise of any right hereunder shall impair such right or be construed to be a waiver of, or acquiescence in, any breach of any representation, warranty or agreement herein, nor shall any single or partial exercise of any such right preclude other or further exercise thereof or of any other right. All rights and remedies existing under this Agreement are cumulative to, and not exclusive of, any rights or remedies otherwise available.
9.11 Governing Law; Jurisdiction over Legal Actions. This Agreement shall be governed by, and construed in accordance with, the internal laws of the State of California applicable to contracts executed and fully performed within the State of California. In the event any party hereto is required to initiate any legal action or proceeding to enforce its rights hereunder, such action or proceeding shall be brought and maintained exclusively in the Superior Court for the County of Orange, in California and each party agrees to accept, and not to challenge, the jurisdiction of such court over the parties and the subject matter of such action or proceeding or the convenience of the forum and to accept and not to challenge the adequacy of service by certified or registered mail. The prevailing party in any such action or
proceeding shall be entitled to recover its reasonable attorneys fees and disbursements, expert witness fees and disbursements and other costs of suit from the non-prevailing party. TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, EACH PARTY HEREBY EXPRESSLY WAIVES ITS RIGHT TO A JURY TRIAL IN ANY SUCH ACTION OR PROCEEDING, IRRESPECTIVE OF WHICHEVER PARTY MAY BRING ANY SUCH ACTION OR PROCEEDING.
9.12 Counterparts. This Agreement may be executed in one or more counterparts, and by the different parties hereto in separate counterparts, each of which when executed shall be deemed to be an original but all of which taken together shall constitute one and the same agreement.
IN WITNESS WHEREOF, each of CUI and the Company has caused this Contribution and Acquisition Agreement to be executed, by its respective officers thereunto duly authorized, and the Stockholders have executed this Agreement, as of the date first written above.
COLLECTORS UNIVERSE, INC. PROFESSIONAL COIN GRADING SERVICE, INC
By: /s/ David Hall By: /s/ David Hall
--------------------------- --------------------------------
Name: David Hall Name: David Hall
--------------------------- --------------------------------
Title: President Title: President
--------------------------- --------------------------------
(Signatures of Stockholders follow on next page)
|
STOCKHOLDERS:
/s/ David Hall /s/ Van Simmons ------------------------------------ ------------------------------------- David Hall Van Simmons /s/ Gordon Wrubel and Betty Wrubel /s/ John Dannreuther ------------------------------------ ------------------------------------- Gordon Wrubel and Betty Wrubel John Dannreuther /s/ Steve Cyrkin /s/ Carol Cyrkin ------------------------------------ ------------------------------------- Steve Cyrkin Carol Cyrkin /s/ Q. David Bowers /s/ Stephen Mayer ------------------------------------ ------------------------------------- Q. David Bowers Stephen Mayer /s/ Rick Montgomery /s/ Steve Rocchi ------------------------------------ ------------------------------------- Rick Montgomery Steve Rocchi /s/ Michael J. Standish /s/ Louis M. Crain ------------------------------------ ------------------------------------- Michael J. Standish Louis M. Crain /s/ Mike Baker /s/ Brent Gutekunst ------------------------------------ ------------------------------------- Mike Baker Brent Gutekunst |
EXHIBIT 10.18
EMPLOYMENT AGREEMENT
This EMPLOYMENT AGREEMENT (the "Agreement") is dated as of March, 1999, by and between SUPERIOR SPORTCARD AUCTIONS, LLC, a Delaware limited liability company (the "Company"), and GREG BUSSINEAU, an individual (the "Executive").
WITNESSETH:
A. The Company is engaged in the business of selling, primarily in-person or by telephonic auctions or by means of electronic commerce, over the internet, (i) sports trading card and (ii) sports memorabilia and sports collectibles, including but not limited to game-used baseballs, footballs, basketballs, hockey pucks, sports gear and player uniforms or other items that have a value in excess of the customary retail prices of similar types of unused or new items, because of their prior use in sports events or games or because they have been autographed by or are associated with well-known athletes or other sports celebrities or are associated with well known sports events (collectively, "Sports Collectibles").
B. The Company, which is an indirect wholly-owned subsidiary of Collectors Universe, Inc., a Delaware corporation ("CUI"), desires to employ Executive as President of the Company, and Executive desires to accept and serve in such position with the Company, pursuant to the terms and conditions set forth herein.
NOW, THEREFORE, in consideration of the premises and the respective covenants and agreements of each party to the other set forth herein, the Company and the Executive, intending to be legally bound, hereby agree as follows:
1. Employment.
1.1 Position with the Company. The Executive is hereby employed as the President of the Company, and the Executive accepts such employment, on the terms and conditions set forth in this Agreement. In that position, Executive shall be responsible for (a) obtaining the Company's requirements for sports trading cards and Sports Collectibles for resale to the public, and (b) performing such other duties as are assigned to Executive by the Chairman of the Company (the "Chairman") or by the Managers of the Company (the "Management Committee").
1.2 Responsibilities. Except as otherwise provided in Exhibit A hereto (which, by this reference is made an integral part of this Section 1), Executive agrees that during the Executive's employment hereunder:
(a) He shall devote his full business time and all of his skills and efforts to the diligent and timely performance of the responsibilities and duties described in Section 1.1 hereof; and
(b) He shall not serve as an officer, director, employee, consultant or advisor to any other business or otherwise engage in any other business activities (other than personal investing); provided, however, that the Executive may serve as a director of another corporation so long as (i) such corporation does not compete, directly or indirectly, with the Company or any of its Affiliates (as defined in Subsection 11.8 hereof), (ii) such services do not adversely affect Executive's ability to perform his duties under this Agreement, and (iii) such service is first approved by the Management Committee of the Company.
1.3 No Conflicting Duties. Executive hereby represents and warrants that, except as provided in Exhibit A hereto, he is under no contractual or other commitments (written or oral) that are inconsistent with his obligations set forth in this Agreement, including, but not limited to, any employment, services, consulting, non-competition, trade secret or confidentiality agreements. Without limiting the generality of the foregoing, Executive represents that none of the information that he needs or will use in performing his duties hereunder belongs to any other person or entity.
2. Term. The term of this Agreement and Executive's employment hereunder shall be approximately three (3) years, commencing on March, 1999 (the "Employment Commencement Date") and ending on December 31, 2001; provided, however, that this Agreement and Executive's employment hereunder shall be subject to earlier termination as provided in Section 7 hereof.
3. Compensation.
3.1 Base Salary. As compensation for all services to be rendered by Executive to the Company, or any of its Affiliates, whether under this Agreement or otherwise, the Company shall pay to the Executive a base salary of One Hundred Twenty Thousand Dollars ($120,000) each year during the term of this Agreement (the "Annual Base Salary"). The Annual Base Salary shall be paid in periodic installments on a regular basis in accordance with the Company's normal payroll procedures and policies.
3.2 Incentive Compensation. During the term of this Agreement Executive shall become entitled to earn bonus compensation on the following terms and conditions:
(a) Bonus Schedule. Set forth below are the Company's respective net earnings goals for each of 1999, 2000, 2001 (the "Earnings Goals"). If the Company's net earnings, determined in accordance with generally accepted accounting principles, consistently applied ("GAAP"), in any such year equal or exceed the Earnings Goal for such year Executive shall receive bonus compensation for such year, as is indicated in the table below:
Year Earnings Goal Bonus Amount ---- ------------- ------------ 1999 $ 640,000 $100,000 2000 $ 750,000 $100,000 2001 $1,000,000 $100,000 |
(b) It shall be a condition precedent to the payment of any annual bonus pursuant to Paragraph 3.2(a) that Executive shall have been employed with the Company or any parent corporation or subsidiary of CUI or of the Company for the entire calendar year (except in 1999 when he shall be employed from the date hereof), to and including the last day of such year, and Executive shall not be entitled to receive a partial or pro-rated bonus pursuant to Paragraph 3.2(a) for any partial year of employment hereunder.
(c) In the event that the Company's net earnings for any such calendar year are less than the Earnings Goal for such year, Executive shall not be entitled to receive a partial or pro-rated bonus pursuant to Paragraph 3.2(a) computed on the basis of the ratio of the Company's actual net earnings to the Earnings Goal or otherwise; provided, however, that, in such event the Management Committee, in its sole and absolute discretion, may elect (but it shall not have any obligation) to award a discretionary bonus to Executive on such basis and on such terms and conditions as it deems appropriate.
(d) The net earnings of the Company for each such calendar year will be determined, on an accrual basis and in accordance with GAAP, by CUI's Chief Financial Officer, who shall communicate that determination in a written report to the Company's Management Committee. A true and correct copy of such report shall be furnished to Executive, together with payment of any bonus earned under Paragraph 3.2(a) within 15 days after that report is received by the Management Committee. If the Executive disagrees with such determination, he shall notify the Chairman of CUI, in writing, not later than ten (10) days following the receipt of such report, specifying in reasonable detail the nature of his disagreements and the Chairman and the Executive shall, in good faith, use their reasonable efforts to resolve such dispute within the next succeeding ten (10) days. If they are unable to resolve such dispute the matter will be submitted for resolution to an accounting firm mutually selected by the Chairman and the Executive. The determination of such accounting firm shall be final, non-appealable and binding on the Executive, the Company and CUI. The fees of such accountants shall be paid by the non-prevailing party with respect to such dispute.
3.3 Participation in Fringe Benefit Programs. During his employment with the Company, the Executive shall be entitled to participate in all employee benefit plans or programs (including vacation time, sick leave and holidays, but excluding any incentive or bonus compensation plans or programs other than that described in Section 3.2 above) generally available to all employees of Company, to the extent that his position, title, tenure, salary, age, health and other qualifications make him eligible to participate therein. The Executive's participation in any such plan or program shall be subject to the provisions, rules and regulations thereof that are generally applicable to all participants therein. Notwithstanding the foregoing, participation by Executive in any stock option or equity compensation plan shall be determined solely by the Board of Directors of CUI or any committee thereof, in its sole and absolute discretion.
3.4 Expense Reimbursement. In accordance with Company's policies established from time to time, the Company will pay or reimburse Executive for all reasonable and necessary out-of-pocket expenses incurred by him in the performance of his duties under this Agreement, subject to the presentment to the Company of reports and receipts identifying the amounts and business purposes of such expenses and the payees thereof.
3.5 Waiver of Certain Fees. If, during the term of this Agreement, Executive consigns to the Company, for resale by it, any sports trading cards or Sports Collectibles that are owned personally by him or by his spouse or children, the Company will waive the commission that is customarily charged, in the ordinary course of business, by the Company to owners of consigned products on their sale by the Company.
4. Confidential Information and Company Property.
4.1 Confidential Information.
(a) Unless the Management Committee provides its express prior written consent to the contrary, during the term of this Agreement and at all times thereafter Executive shall hold in strict confidence and shall not disclose to any person or entity, and Executive shall not use, other than for the sole benefit of the Company and CUI, any Confidential Information of the Company or CUI or any of their Affiliates (collectively, including CUI and the Company, the "member companies of the CUI Group"). For purposes hereof, "Confidential Information of the member companies of the CUI Group shall mean any (i) financial statements or other financial information or data (historical or prospective) of or relating to any of the member companies of the CUI Group or any customer of any of the member
companies of the CUI Group that has not been publicly disclosed by the owner of such information, (ii) software used in any of the businesses of the member companies of the CUI Group, (iii) manufacturing or marketing data and any other information relating to any technique, process, formula, software, invention, developmental or experimental work, work in progress, business methods or trade secrets of any of the member companies of the CUI Group, (iv) information relating to customers or clients of any of the member companies of the CUI Group (including, without limitation, any customer or client list or lists of customer or client sources), (v) information relating to the supply sources for sports trading cards and Sports Collectibles obtained for the Company or any of the other members of the CUI Group, (vi) business or marketing plans of any of the member companies of the CUI Group and (vii) any other proprietary, confidential or secret information belonging or relating to any of the member companies of the CUI Group or any of their products or services or other business activities.
(b) The foregoing restrictions with respect to the disclosure of Confidential Information shall not apply to (i) the communication, to competitors of the Company, of information that is required to be communicated to them in order to effectuate purchases or sales of Sports Collectibles by or for the account of the Company; (ii) the sharing of purchase and sale prospects between the Company and Superior Sports Cards, Inc., which makes direct sales of Sports Collectibles other than by means of auctions ("SSC"); (iii) information which is or becomes, other than as a result of a breach of this Agreement, generally available to the public; or (iv) the disclosure of information required pursuant to a subpoena or other legal process; provided that the Executive shall notify the Company, in writing, of the receipt of any such subpoena or other legal process requiring such disclosure immediately after receipt thereof and the Company shall have a reasonable opportunity to quash such subpoena or other legal process or to obtain appropriate protective orders prior to any disclosure by the Executive.
4.2 Other Company Property. Upon termination of his employment for any reason whatsoever, Executive shall promptly return and deliver to the Company (i) all documents, records, notebooks, work papers and all similar repositories containing any Confidential Information of any of the member companies of the CUI Group or any other information belonging to or concerning any of the member companies of the CUI Group or any of their respective customers or suppliers, whether prepared by Executive, the Company, CUI or anyone else, and (ii) all other property of any of the member companies in Executive's possession, such as but not limited to, computers, printers and other computer accessories, software products, telephones, pagers and other communication devices, furniture and keys.
5. Covenants Against Actions Damaging the CUI Group.
5.1 Executive agrees that, during the term of this Agreement or at any time thereafter, he will not (i) make any claim that he has any right, interest or title, of any kind or nature whatsoever, in or to any of the assets of the Company or any of the other member companies of the CUI Group, or any improvements or enhancements thereto or derivative works derived or developed therefrom, or in or to any products, methods, practices, processes, discoveries, ideas, inventions, software, improvements, enhancements, devices, creations, business plans or systems relating to any of the respective businesses of, or used, developed, invented or discovered by, any of the member companies of the CUI Group or by Executive at any time during his employment either with Company or any of the other member companies of the CUI Group, or (ii) disclose any of such matters to any third party. Executive further agrees that, at the request of the Company or CUI, at any time during or after his employment with Company, he will assign to the Company or to such other member company of the CUI Group that is designated by the Company or CUI, all rights, title and interests that he may have in or to any inventions, works of authorship, software, developments, improvements, enhancements or trade secrets, patents, copyrights or other proprietary or intellectual property that he may develop during the
course of his employment with the Company or any of the other member companies of the CUI Group and will execute, acknowledge and deliver to the Company or CUI such documents and instruments as the Company or CUI may reasonably require to evidence or effectuate all such assignments.
5.2 Executive further agrees that during the term of this Agreement, and for a period of two (2) years following the termination (for any reason) of his employment with Company, he shall not, whether for himself or on behalf of or in conjunction with any third party, (i) hire any employee of the Company, CUI or any Affiliate thereof, or induce or entice any such employee to leave his employment with Company, CUI or any Affiliate, and (ii) attempt to induce any person that, at the time of or within the 12 months immediately preceding the termination of his employment, was a customer of or supplier to the Company, CUI or any of their Affiliates to cease doing business, or to reduce the volume of business that such customer or supplier had been doing, with Company, CUI or any such Affiliate. Notwithstanding the foregoing, if Executive's employment with the Company is terminated, then, he may hire any employee of the Company who, prior to the date hereof, was employed by Superior SportsCard, Inc. and is hereafter hired by the Company.
6. Non-Competition.
6.1 Executive agrees that he will not engage, either directly or indirectly, in any Competitive Activities (as hereinafter defined) at any time during the term of this Agreement.
6.2 In addition, if Executive's employment is terminated without Cause pursuant to Paragraph 7.2 hereof, and Executive engages in any Competitive Activities, or breaches any of his obligations under Sections 4 or 5 of this Agreement, at any time during the Severance Period (as hereinafter defined in Section 8.2 below), then, Executive's right to receive Severance Compensation, and any other amounts under this Agreement (including any amounts otherwise payable under Section 8 hereof), shall terminate automatically and without the necessity of any further action on the part of the Company or Executive.
6.3 For purposes of this Section 6, Executive shall be deemed to be engaged in "Competitive Activities" in violation of this Agreement if he engages, either directly or indirectly, in or participates or provides any assistance (financial, advisory or other and whether as employee, employer, consultant, agent, principal, partner, stockholder, lender, officer, director, manager, or in any other representative capacity) in or to any person, corporation, or other business entity that engages or is proposing to engage in, any business or business activities that compete with or are substantially similar to the business or business activities of the Company or CUI, or any of the other member companies of the CUI Group, in any city or county within the United States in which any of the member companies of the CUI Group is engaging in its business. Notwithstanding the foregoing, however, Executive's ownership of up to one percent (1%) of the outstanding shares of any class of equity securities of any corporation that are listed for trading on the New York or American Stock Exchanges or on the NASDAQ Stock Market shall not constitute a breach of this Section 6.
6.4 In furtherance and not in limitation of the foregoing provisions of this Section 6, should the duration or geographical extent of, or business activities covered by any provision of this Section 6, or any of the provisions of Sections 4 or 5 of this Agreement, be in excess of that which is valid and enforceable under applicable law, then such provision shall be construed to cover only the maximum duration, extent or activities (as the case may be) which may validly and enforceably covered under applicable law. The Executive acknowledges the uncertainty of the law in this respect and expressly stipulates that such provisions shall be given the construction which renders its provisions
valid and enforceable to the maximum extent (not exceeding its express terms) possible under applicable law.
7. Termination Prior to Expiration of the Term.
7.1 Terminations Other than without Cause.
(a) Disability. Executive's employment shall terminate immediately, without notice, upon the Executive's becoming totally disabled. For purposes of this Agreement, the term "totally disabled" or "total disability" means an inability of Executive, due to a physical or mental illness, injury or impairment, to perform a substantial portion of his duties for a period of 120 or more consecutive days, or for an aggregate of 180 days (whether or not consecutive) in any 12-month period, as determined by Company's Management Committee.
(b) Death of Executive. Executive's employment shall terminate immediately, without notice, upon the death of Executive.
(c) Termination for Cause. The Company may terminate Executive's employment at any time for "Cause" (as hereinafter defined) immediately upon written notice to Executive. For purposes hereof "Cause" shall exist and the Company shall be entitled to terminate Executive's employment pursuant to this Paragraph 7.1(c), if:
(i) Executive has committed a material breach of his duty of loyalty to Company or CUI or has violated any conflict of interest policy of CUI or the Company; or
(ii) Executive has committed an act or has failed to act, where such act or failure to act constitutes intentional misconduct, a reckless disregard of the consequences of such act or failure to act, or gross carelessness by Executive; or
(iii) Executive has committed, or is charged with the commission of, an act that, under applicable law or government regulations, could be held to constitute the commission of a felony, or the commission of a misdemeanor involving moral turpitude, or could subject the Company, CUI or any Affiliate to civil or criminal penalties or fines or civil liabilities; or
(iv) Executive commits a breach of any of his covenants contained in any of Sections 4, 5 or 6 hereof; or
(v) Executive commits any other breach of this Agreement, or of any duties assigned to Executive by the Chairman or Management Committee, which is willful on the part of Executive, or Executive habitually neglects his duties under this Agreement, and fails to cure such breach or neglect of duties within fifteen (15) days following written notice thereof from the Management Committee or if there are more than two (2) instances of any such breach or of any habitual neglect of duties in any period of 12 consecutive months, even if remedied within a period of fifteen (15) days after notice thereof from the Management Committee.
7.2 Termination Without Cause. The Company may terminate Executive's employment for any reason, other than one of the reasons enumerated in Paragraphs 7.1(a), 7.1(b) or 7.1(c) hereof, or for no reason whatsoever, at any time effective upon written notice to Executive. Any
such termination pursuant to this Section 7.2 shall constitute a "termination without Cause" to which Section 8.2 hereof shall be applicable. In the event that the Company commits a material breach of this Agreement and fails to cure such breach within thirty (30) days of its receipt of a written notice from Executive specifying the nature of such breach, Executive's sole right and remedy shall be (i) to terminate this Agreement effective on ten (10) days' prior written notice to the Company, and (ii) to receive the compensation set forth in Section 8.2 hereof, to the same extent and with the same consequences as if such breach by the Company constituted a termination of Executive's employment by the Company without Cause.
8. Compensation upon the Termination of the Executive's Employment by the Company.
8.1 Termination due to Disability or Death or for Cause. In
the event that the Executive ceases to be employed by the Company by reason of
the termination of Executive's employment by the Company pursuant to Paragraph
7.1(a), Paragraph 7.1(b) or Paragraph 7.1(c) above, then, he shall not be
entitled to any compensation, nor shall the Company have any obligation to pay
any sum or have any liability to Executive whether as compensation for his
services or as a result of such termination of employment, or otherwise, other
than (i) the portion of his then current Annual Base Salary which has accrued
through, but was unpaid as of, the date of such termination of employment; and
(ii) if and to the extent unpaid as of the effective date of such termination of
employment, any bonus earned for the calendar year immediately preceding the
year in which such termination occurred. Without limiting the foregoing, in the
event of a termination of Executive's employment pursuant to Paragraph 7.1(a),
Paragraph 7.1(b) or Paragraph 7.1(c), Executive shall not be deemed to have
earned and shall not be entitled to receive any bonus compensation for or in
respect of the calendar year in which such termination occurred.
8.2 Termination By the Company Without Cause. In the event that Executive ceases to be employed by the Company by reason of the termination of Executive's employment by Company without Cause pursuant to Section 7.2 above (including a termination of Executive's employment by Executive due to a material breach of this Agreement by the Company which goes uncured), Executive shall not be entitled to any compensation, nor shall the Company have any obligation to pay any sum or have any liability to Executive whether as compensation for his services or as a result of such termination of employment, or otherwise, other than (i) the portion of his then current Annual Base Salary which has accrued through, but was unpaid as of, the date of such termination of employment, (ii) if and to the extent unpaid as of the effective date of such termination of employment, any bonus earned for the calendar year immediately preceding the year in which such termination occurred, and (iii) severance payments in an aggregate amount (the "Severance Amount") equal to the lesser of (A) one year's Annual Base Salary (as then in effect) or (B) the result obtained by multiplying one-twelfth (1/12th) of Executive's then current Annual Base Salary by the number of months then remaining in the term of this Agreement (the "Severance Period"). Without limiting the foregoing, in the event of a termination of Executive's employment pursuant to Section 7.2, Executive shall not be deemed to have earned and shall not be entitled to receive any bonus compensation for or in respect of the calendar year in which such termination occurred.
8.3 Timing of Payments and Withholding. All payments required to be made by the Company to the Executive pursuant to this Section 8, including, but not limited to any Severance Amount that may become payable pursuant to Section 8.2, shall be paid in accordance with the Company's normal payroll procedures and policies and will be subject to withholding of all payroll and similar taxes required, under applicable law to be withheld by the Company. In addition, if the Executive becomes entitled to receive the Severance Amount pursuant to Section 8.2, such Amount shall
be paid during the Severance Period in installments in the same amounts and at the same times as the installments of his Annual Base Salary would have been paid hereunder had he been employed by the Company for the remainder of the Severance Period and had voluntarily resigned his employment at the end of such Severance Period.
9. Assignment. This Agreement shall not be assignable, in whole or in part, by either party without the prior written consent of the other party, except that the Company may, without the consent of the Executive, assign its rights and obligations under this Agreement to (i) CUI, (ii) an Affiliate of the Company or of CUI, or (iii) to any unaffiliated corporation, firm or other business entity with or into which the Company may merge or consolidate, or to which the Company may sell or transfer all or substantially all of its assets. After any such assignment by the Company, the Company shall be discharged from all further liability hereunder and such assignee shall thereafter be deemed to be the Company for the purposes of all provisions of this Agreement including this Section 9.
10. Injunctive Relief. The Executive is being employed by the Company due to his knowledge of the industry in which the Company conducts business and his substantial experience and his record of achievement with his prior employers within such industry. The parties acknowledge, and Executive agrees, that for these reasons, it would be difficult to compensate the Company or CUI fully for the damages they would incur if Executive were to violate or breach any of his material obligations under this Agreement, which shall include, without limitation, the Executive's obligations under Sections 4, 5 and Subsection 6.1 hereof. Accordingly, the Executive specifically agrees that each of the Company and CUI, individually or jointly, shall be entitled to temporary, preliminary and permanent injunctive relief to halt a breach or to prevent a threatened breach of this Agreement by Executive and to the remedy of specific enforcement of Executive's obligations under this Agreement, without any obligations on the part of the Company or CUI either (i) to join the other in any proceeding brought to obtain such relief or remedies and (ii) to post a bond or cash or other security in connection therewith. Nothing herein, however, shall diminish the right of the Company and the right of CUI to claim and recover monetary damages in addition to injunctive relief and specific performance.
11. Miscellaneous.
11.1 Governing Law. This Agreement is deemed to have been made in the State of Michigan, and its interpretation, its construction and the remedies for its enforcement or breach are to be applied pursuant to, and in accordance with, the laws of the State of California for contracts made and to be performed in that state. Notwithstanding the foregoing, in the event any party hereto chooses or is required to initiate any legal action or proceeding to enforce its rights hereunder, such action or proceeding shall be brought and maintained exclusively in the Superior Court for the County of Orange, in California and each party agrees to accept, and not to challenge, the jurisdiction of such court over the parties and the subject matter of such action or proceeding or the convenience of the forum and to accept and not to challenge the adequacy of service by certified or registered mail. The prevailing party in any such action or proceeding shall be entitled to recover its reasonable attorneys fees and disbursements, expert witness fees and disbursements and other costs of suit from the non-prevailing party. TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, EACH PARTY HEREBY EXPRESSLY WAIVES ITS RIGHT TO A JURY TRIAL IN ANY SUCH ACTION OR PROCEEDING, IRRESPECTIVE OF WHICHEVER PARTY MAY BRING ANY SUCH ACTION OR PROCEEDING.
11.2 Prior Agreements.
(a) This Agreement contains the entire agreement of the parties relating to Executive's employment with the Company and supersedes all prior or concurrent agreements and understandings with respect thereto between them, and the parties hereto have made no agreements, representations or warranties relating to such employment which are not set forth herein. Executive further acknowledges and agrees that, except as otherwise provided in Paragraph 11.2(b) hereof, there are no agreements or understandings between him and CUI regarding his employment or any of the other matters contained in this Agreement.
(b) Concurrently herewith Executive and CUI are entering into an Acquisition Agreement (the "Acquisition Agreement"), which provides for the sale by Executive to CUI of Executive's entire ownership interest in the Company and a Non-Competition Agreement (the "Non-Competition Agreement") on which CUI is and will be relying in entering into, and paying to Executive the consideration for such ownership interest in the Company pursuant to, the Acquisition Agreement. Notwithstanding anything to the contrary contained in this Section 11.2, nothing in this Agreement shall diminish or adversely affect any of the rights of CUI or any of the obligations of Executive under the Acquisition Agreement or the Non-Competition Agreement. Executive acknowledges and agrees that (i) he has received separate consideration for his covenants and agreements under the Acquisition Agreement and such Non-Competition Agreement and (ii) each of the Acquisition Agreement and the Non-Competition Agreement are obligations of his that are separate and independent of his obligations under this Agreement and (iii) each of the Acquisition Agreement and the Non-Competition Agreement shall survive the execution and delivery of this Agreement and any termination of this Agreement or Executive's employment with the Company.
11.3 Withholding Taxes. The Company may withhold from any salary and benefits payable under this Agreement all federal, state, city or other taxes or amounts as shall be required to be withheld pursuant to any law or governmental regulation or ruling.
11.4 Amendments. No amendment or modification of this Agreement shall be deemed effective unless made in writing signed by the parties hereto.
11.5 No Waiver. No term or condition of this Agreement shall be deemed to have been waived nor shall there be any estoppel to enforce any provisions of this Agreement, except by a statement in writing signed by the party against whom enforcement of the waiver or estoppel is sought. Any written waiver shall not be deemed a continuing waiver unless specifically stated, shall operate only as to the specific term or condition waived and shall not constitute a waiver of such term or condition for the future or as to any act other than that specifically waived.
11.6 Severability. If, but only to the extent that, any provision of this Agreement shall be invalid or unenforceable, then, subject to the provisions contained in Section 6.4 hereof, such offending provision shall be deleted from this Agreement, but only to the extent necessary to preserve the validity and effectiveness of this Agreement to the fullest extent permitted under applicable law.
11.7 Interpretation. This Agreement is the result of arms-length negotiations between the parties hereto and no provision hereof, because of any ambiguity found to be contained herein or otherwise, shall be construed against a party because such party or its legal counsel was the draftsman of that provision. Unless otherwise indicated elsewhere in this Agreement, (a) the term "or" shall not be exclusive, (b) the term "including" shall mean "including, but not limited to," (c) the terms "herein," "hereof," "hereto," "hereunder" and other terms similar to such terms shall refer to this
Agreement as a whole and not merely to the specific section, subsection, paragraph or clause where such terms may appear.
11.8 Affiliate. As used in this Agreement, the term "Affiliate"(when used with reference to the Company or CUI, as the case may be) means any corporation, association or other business entity (i) which owns or controls more than 50% of the total voting power of the Company or CUI (as the case may be) or, (ii) of which more than 50% of the shares of stock or other ownership interests entitled to vote in the election of directors, managers, or trustees thereof is owned or controlled, directly or indirectly, by the Company or CUI (as the case may be), and in the case of the Company, includes CUI.
11.9 CUI as Third Party Beneficiary. CUI is an intended third party beneficiary of the covenants and agreements of Executive hereunder and shall be entitled to enforce such covenants and agreements independently of the Company.
11.10 Counterpart Execution. This Agreement may be executed by facsimile and in counterparts, each of which shall be deemed an original and all of which when taken together shall constitute but one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year set forth above.
"EXECUTIVE" SUPERIOR CARD AUCTIONS, LLC
a Delaware limited liability company
/s/ Greg Bussineau By: /s/ David Hall
-------------------------------- --------------------------------
Greg Bussineau David Hall, Chairman
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EXHIBIT A
CERTAIN EXCEPTIONS
Superior Sportcard Auctions, LLC, a Delaware limited liability company (the "Company"), and Greg Bussineau, an individual (the "Executive"), are entering an Employment Agreement dated as of February 5, 1999 (the "Employment Agreement"), of which this Exhibit A forms an integral part.
1. The Company hereby acknowledges that Executive owns all of the stock and manages a corporation, under the name Superior SportCard, Inc. ("SSC"), which sell sports trading cards and Sports Collectibles at trade shows and by telephone, mail or by means of electronic commerce (the "SSC Business"). However, SSC does not conduct, and the SSC Business does not include the conduct of, auctions at which sports trading cards or Sports Collectibles are sold.
2. Notwithstanding any provision to the contrary contained in the Employment Agreement, it is agreed that Executive shall be entitled to continue to own all of the shares of capital stock and to serve as the President of SSC and to devote a portion of his business time to the management and conduct of the SSC Business, without thereby violating or breaching his obligations to the Company under the Employment Agreement, provided that and for so long as Executive complies with the following covenants:
(a) Executive shall cause SSC to maintain its inventories of sports trading cards and Sports Collectibles at amounts, determined in accordance with GAAP, that will not at any time exceed $100,000 in the aggregate, valued at cost;
(b) Executive shall cause SSC (i) to refrain from engaging in the sale of Sports Collectibles by means of in-person or telephonic auctions or by means of auctions that are conducted over the internet or over any other medium of electronic commerce (whether in existence on the date hereof or hereafter developed), and (ii) to make any auction sales of Sports Collectibles solely through the auction facilities or media of the Company or other member companies of the CUI Group.
(c) The time that Executive's devotes to the management and conduct of the SSC Business shall not unduly interfere with the performance of Executive's duties to the Company under this Agreement.
3. Terms with initial capital letters contained in this Exhibit A shall have the meanings given to them in the Employment Agreement unless such terms are otherwise defined herein or by reference to a definition contained in another agreement to which the Company or CUI and Executive are parties.
EXHIBIT 10.19
EMPLOYMENT AGREEMENT
This EMPLOYMENT AGREEMENT (the "Agreement") is made and entered into this 5th day of March 1999, by and among LYN F. KNIGHT, an individual (the "Executive"), LYN F. KNIGHT CURRENCY AUCTIONS, INC. a Delaware corporation (the "Company"), and COLLECTORS UNIVERSE, INC. ("CUI"), which is a Delaware corporation and the parent corporation of the Company.
RECITALS:
A. The Company is engaged in the business of marketing and selling, rare currencies the value of which are largely predicated on their age, uniqueness, limited availability and condition ("Rare Currencies"), primarily at in-person or telephonic auctions and by means of auctions effectuated over the internet or by other means of electronic commerce (the "Currency Business").
B. The Company has acquired the Currency Business from Lyn F. Knight Rare Coins, Inc. ("LKRC"), of which Executive was sole shareholder and President for more than 20 years.
C. CUI and the Company desire that Executive be employed, and Executive desires to serve, as President of the Company on the terms and conditions set forth herein.
NOW, THEREFORE, in consideration of the foregoing premises and the respective covenants and agreements of each party to the other set forth herein, the parties hereto, intending to be legally bound, hereby agree, as follows:
1. Employment.
1.1 Position and Responsibilities with the Company. The Executive is hereby employed as the President of the Company, and the Executive accepts such employment, on the terms and conditions set forth in this Agreement. In that position, Executive shall be responsible for planning and conducting, each calendar year during the term of this Agreement, major Rare Currency auctions on behalf of the Company that shall be on a scale and scope at least comparable to and shall be conducted substantially in the same manner as the major Rare Currency auctions that have been conducted each year, during the past 8 years, by Executive for LKRC. The number of such major Rare Currency Auctions to be conducted by Executive for the Company each calendar year shall be the number which Executive determines, after consultation with the Chairman and the President of CUI, will enable the Company to maximize the profitability of the Company's Currency Business, while preserving the goodwill of its customers and suppliers. Executive also shall perform such other duties as are assigned to Executive by the Chairman or President of CUI or by its Board of Directors (the "Board"), provided that such other duties are commensurate with his position as President and related to the management of the Currency Business.
1.2 No Conflicting Duties.
(a) Subject to the exceptions set forth in Paragraph 1.2(c) and in Section 1.3 hereof, during the Executive's employment hereunder, Executive shall devote (i) the full amount of business time necessary to enable him to perform fully and successfully the responsibilities that he has under this Agreement, and (ii) all of his skills and efforts to the diligent and timely performance of those responsibilities. In no event, however, shall the time devoted by Executive to the performance of such responsibilities during each year of the term of this Agreement be less than the average amount of time
per year expended by him in the performance of his duties as President of LKRC during the past five (5) years.
(b) Executive hereby represents and warrants that he is under no contractual or other commitments (written or oral) that are inconsistent with his obligations set forth in this Agreement, including, but not limited to, any employment, services, consulting, non-competition, trade secret or confidentiality agreements. Without limiting the generality of the foregoing, Executive represents that none of the information that he needs or will use in performing his duties hereunder belongs to any other person or entity.
(c) Executive agrees that he shall not serve as an officer, director, employee, consultant or advisor to any other business without the prior written consent of the Board or otherwise engage in any other business activities, other than personal investing and other business activities which will not interfere with the full, timely and faithful performance by him of his responsibilities under this Agreement.
1.3 Certain Exceptions. Notwithstanding anything to the contrary that may be contained elsewhere in this Section 1, Executive shall be permitted to devote a substantial period of his business time to acquiring Rare Currencies for his own account, provided, however, that (i) Executive covenants that, so long as Executive is employed or is receiving any compensation or benefits pursuant to Section 8.2 or Section 8.3 hereof, he shall effectuate all sales and any other dispositions for value of any Rare Currencies that he may acquire or own, or which he may have the right to sell, solely and exclusively through Currency auctions or other Currency sales conducted by the Company on the same terms as the Company effectuates sales of Rare Currencies for unaffiliated customers; and (ii) Executive shall not permit his personal Rare Currency acquisition activities to interfere with his management and conduct of the major Rare Currency Auctions to be conducted by him on behalf of the Company, as provided in Section 1.1 hereof or with the procurement, on a consignment basis, of Rare Currencies required to enable the Company to conduct such major Rare Currency Auctions. The commission schedule set forth in Exhibit A hereto shall apply to sales made by the Company of Rare Currencies owned by Executive.
2. Term. The term of this Agreement and Executive's employment hereunder shall be approximately five (5) years, effective beginning as of February __, 1999 (the "Effective Date") and ending on January 31, 2004; provided, however, that this Agreement and Executive's employment hereunder shall be subject to earlier termination as provided in Section 7 hereof.
3. Compensation.
3.1 Base Salary. As compensation for all services to be rendered by Executive to the Company, or any of its Affiliates, whether under this Agreement or otherwise, CUI or the Company shall pay to the Executive a base salary of Two Hundred Thousand Dollars ($200,000) each year during the term of this Agreement (the "Annual Base Salary"). The Annual Base Salary shall be paid in periodic installments on a regular basis in accordance with the Company's normal payroll procedures and policies.
3.2 Bonus Compensation. During the term of this Agreement Executive shall become entitled to earn bonus compensation on the following terms and conditions:
(a) Bonus Schedule. Set forth below are the Company's respective pre-tax earnings goals for the each of the years during the term of this Agreement commencing with 1999 (the
"Earnings Goals"). If, in any year during the term of this Agreement, the Company's pre-tax earnings, as determined on an accrual basis in accordance with the procedures set forth in Paragraph 3.2(d) ("Company Pre-Tax Earnings"), equal or exceed the any of the Earnings Goals established for such year, CUI or the Company shall pay to Executive bonus compensation for such year in the dollar amount that corresponds to such Earnings Goal as indicated in the table below:
Year Earnings Goal Bonus Amount
---- ------------- ------------
1999 $ 500,000 $ 50,000
$ 750,000 $100,000
$1,000,000 $150,000
$1,500,000 $200,000
2000 $ 750,000 $ 50,000
$1,000,000 $100,000
$1,250,000 $150,000
$1,750,000 $200,000
2001* $1,000,000 $ 50,000
2002* $1,250,000 $100,000
2003* $1,500,000 $150,000
$2,000,000 $200,000
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* The Earnings Goals and Bonus Amounts in the years 2002 and 2003 shall be identical to those applicable in the year 2001.
(b) If Executive is employed only for a portion of a year, rather than a full year (for any reason other than a termination of his employment for Cause, as defined in Paragraph 7.1(c) hereof), but the Company achieves one of the Earnings Goals during the portion of such year that Executive was employed by the Company (a "Partial Year of Employment"), Executive shall be entitled to receive a bonus for such Partial Year of Employment based on the Company Pre-Tax Earnings during and for that Partial Year, which shall be determined by the CPA's, in accordance with the procedures set forth in Paragraph 3.2(d), after the end of the full Year so that year-end accruals can be allocated appropriately to such Partial Year of Employment.
(c) In the event that the Company Pre-Tax Earnings for any such year are less than the lowest Earnings Goal for such year, as set forth in the table above, Executive shall not be entitled to receive a partial or pro-rated bonus pursuant to Paragraph 3.2(a) or Paragraph 3.2(b) computed on the basis of the ratio of the Company's actual net earnings to the lowest Earnings Goal or otherwise; provided, however, that, in such event the Board, in its sole and absolute discretion, may elect to award a discretionary bonus to Executive on such basis and on such terms and conditions as it deems appropriate.
(d) The Company Pre-Tax Earnings for each full year or any Partial Year of Employment will be determined by the Chief financial officer of CUI by (i) determining the Net Revenues of the Company (as defined in Exhibit B hereto) for such year or Partial Year (as the case may be), and (ii) subtracting from such Net Revenues the costs and expenses set forth in Exhibit B hereto. The Net Revenues and such costs and expenses shall be determined on an accrual basis and in accordance with generally accepted accounting principles, consistently applied ("GAAP"), unless otherwise provided in Exhibit B hereto. The determination of Company Pre-Tax Earnings made by the Chief financial officer of CUI shall be communicated in a written report from him or her addressed to the Board that shall also contain the calculation of the Net Revenues of the Company and an itemization of the costs and expenses deducted from such Net Revenues to determine such Pre-Tax Earnings. A true
and correct copy of such report shall be furnished to Executive, together with payment of any bonus earned under Paragraph 3.2(a) or 3.2(b) within 15 days after that report is received by the Board. If the Executive disagrees with such report, he shall notify the Chairman of CUI, in writing, not later than ten (10) days following the receipt of such report, specifying in reasonable detail the nature of his disagreements and the Chairman and the Executive shall, in good faith, use their reasonable efforts to resolve such dispute within the next succeeding ten (10) days. If they are unable to resolve such dispute the matter will be submitted for resolution to an accounting firm mutually selected by the Chairman and the Executive. The determination of such accounting firm shall be final, non-appealable and binding on the Executive, the Company and CUI. The fees of such accountants shall be paid by the non-prevailing party with respect to such dispute.
3.3 Participation in Fringe Benefit Programs. During his employment with the Company, the Executive shall be entitled to participate in all employee benefit plans or programs (including vacation time, sick leave and holidays, but excluding any incentive or bonus compensation plans or programs other than that described in Section 3.2 above) generally available to all employees of Company, to the extent that his position, title, tenure, salary, age, health and other qualifications make him eligible to participate therein. The Executive's eligibility for participation and his participation in any such plan or program shall be subject to the provisions, rules and regulations thereof that are generally applicable to all prospective and actual participants therein. Notwithstanding the foregoing, as is the case with all other officers and employees of CUI and its subsidiaries, participation by Executive in any stock option or equity compensation plan shall be determined solely by the Board of Directors of CUI or any committee thereof, in its sole and absolute discretion.
3.4 Location of Offices. Executive shall be entitled to maintain his principal office at such location in the Continental United States as he may determine, after consultation with the Company's Chairman. The Company shall pay for the reasonable costs of maintaining such office, including paying the reasonable costs of support staff and of procuring office equipment and supplies and postage, on a basis consistent with the facilities and office costs that Executive was incurring during his employment by LKRC. Executive agrees, however, that nothing in this Section 3.4 is intended to interfere with, and he shall cooperate with, the efforts and actions of CUI to transfer to and consolidate at its headquarters office, in Southern California, a number of administrative services now performed at the local offices of its subsidiaries, including the Company and that such actions may include, without limitation, the transfer of accounting, payroll, accounts payable and receivable and human resources functions to Southern California.
3.5 Expense Reimbursement. In accordance with Company's policies established from time to time, the Company will pay or reimburse Executive for all reasonable and necessary out-of-pocket expenses, including reasonable travel expenses, incurred by him in the performance of his duties under this Agreement, subject to the presentment to the Company of reports and receipts identifying the amounts and business purposes of such expenses and the payees thereof.
4. Confidential Information and Company Property.
4.1 Confidential Information.
(a) Unless the Board provides its express prior written consent to the contrary, during the term of this Agreement and at all times thereafter Executive shall hold in strict confidence and shall not disclose to any person or entity, and Executive shall not use, other than for the sole benefit of the Company and CUI, any Confidential Information of the Company or CUI or any of their Affiliates (collectively, including CUI and the Company, the "member companies of the CUI
Group"). For purposes hereof, "Confidential Information of the member companies of the CUI Group shall mean any (i) financial statements or other financial information or data (historical or prospective) of or relating to any of the member companies of the CUI Group or any customer of any of the member companies of the CUI Group that has not been publicly disclosed by the owner of such information, (ii) software used in any of the businesses of the member companies of the CUI Group, (iii) manufacturing or marketing data and any other information relating to any technique, process, formula, software, invention, developmental or experimental work, work in progress, business methods or trade secrets of any of the member companies of the CUI Group, (iv) information relating to customers or clients of any of the member companies of the CUI Group (including, without limitation, any customer or client list or lists of customer or client sources), (v) information relating to the supply sources for currency and other collectible products obtained for the Company or any of the other members of the CUI Group, (vi) business or marketing plans of the Company or any other of the member companies of the CUI Group, and (vii) any other proprietary, confidential or secret information belonging or relating to any of the member companies of the CUI Group or any of their products or services or other business activities.
(b) The foregoing restrictions with respect to the disclosure of Confidential Information shall not apply to (i) information which is or becomes, other than as a result of a breach of this Agreement, generally available to the public, or (ii) the disclosure of information required pursuant to a subpoena or other legal process; provided that the Executive shall notify the Company, in writing, of the receipt of any such subpoena or other legal process requiring such disclosure immediately after receipt thereof and the Company shall have a reasonable opportunity to quash such subpoena or other legal process or to obtain appropriate protective orders prior to any disclosure by the Executive.
4.2 Other Company Property. Upon termination of his employment for any reason whatsoever, Executive shall promptly return and deliver to the Company (i) all documents, records, notebooks, work papers and all similar repositories containing any Confidential Information of any of the member companies of the CUI Group or any other information belonging to or concerning any of the member companies of the CUI Group or any of their respective customers or suppliers, whether prepared by Executive, the Company, CUI or anyone else, and (ii) all other property of any of the member companies in Executive's possession, such as, but not limited to, computers, printers and other computer accessories, software products, telephones, pagers and other communication devices, furniture and keys.
5. Covenants Against Actions Damaging the CUI Group.
5.1 Executive agrees that, during the term of this Agreement or at any time thereafter, he will not (i) make any claim that he has any right, interest or title, of any kind or nature whatsoever, in or to any of the assets of the Company or any of the other member companies of the CUI Group, or any improvements or enhancements thereto or derivative works derived or developed therefrom, or in or to any products, methods, practices, processes, discoveries, ideas, inventions, software, improvements, enhancements, devices, creations, business plans or systems relating to any of the respective businesses of, or used, developed, invented or discovered by, any of the member companies of the CUI Group or by Executive at any time during his employment either with Company or any of the other member companies of the CUI Group, or (ii) disclose any of such matters to any third party. Executive further agrees that, at the request of the Company or CUI, at any time during or after his employment with Company, he will assign to the Company or to such other member company of the CUI Group that is designated by the Company or CUI, all rights, title and interests that he may have in or to any inventions, works of authorship, software, developments, improvements, enhancements or trade secrets, patents, copyrights or other proprietary or intellectual property that he may develop during the course of his employment with the Company or any of the other member companies of the CUI Group
and will execute, acknowledge and deliver to the Company or CUI such documents and instruments as the Company or CUI may reasonably require to evidence or effectuate all such assignments.
5.2 Executive further agrees that during the term of this Agreement, and for a period of two (2) years following the termination (for any reason) of his employment with Company he shall not, whether for himself or on behalf of or in conjunction with any third party, (i) hire any employee of the Company, CUI or any Affiliate thereof, or induce or entice any such employee to leave his or her employment with Company, CUI or any Affiliate, other than Deborah Knight and Stockholder's Secretary, and (ii) attempt to induce any person that, at the time of or within the 12 months immediately preceding the termination of his employment, was a customer of or supplier to the Company, CUI or any of their Affiliates to cease doing business, or to reduce the volume of business that such customer or supplier had been doing, with Company, CUI or any such Affiliate.
6. Non-Competition.
6.1 Executive agrees that during the term of this Agreement he will not engage, either directly or indirectly, in any Competitive Activities (as hereinafter defined).
6.2 In addition, if Executive's employment is terminated
pursuant to Section 7.2 or Section 7.3 hereof, and Executive engages in any
Competitive Activities, or breaches any of his obligations under Section 1.3,
Section 4 or Section 5 of this Agreement, at any time during the period he is
receiving Severance Compensation under Section 8.2 or Continuing Compensation
under Section 8.3, then, without limiting any other rights or remedies that the
Company or CUI may have by reason of any such breach, Executive's right to
receive such Severance Compensation or Continuing Compensation (as the case may
be), and any other amounts under this Agreement (including any amounts otherwise
payable under Section 8 hereof), shall terminate automatically and without the
necessity of any further action on the part of the Company or Executive.
6.3 For purposes of this Section 6, Executive shall be deemed to be engaged in "Competitive Activities" in violation of this Agreement if:
(a) Executive engages, either directly or indirectly, in any business or business activities that compete with or are substantially similar to the Currency Business (as defined in the Recitals to this Agreement) or in any other business activities in which the Company may engage during the term of Executive's employment with the Company ("Other Businesses"); or
(b) Executive participates in, or provides any assistance (financial, advisory or other and whether as employee, employer, consultant, agent, principal, partner, stockholder, lender, officer, director, manager, or in any other representative capacity) to, any person, corporation, or other business entity that engages or is proposing to engage in, any business or business activities that compete with or are substantially similar to the Currency Business or any Other Businesses in which the Company may engage during the term of Executive's employment with the Company.
Notwithstanding the foregoing, however, (i) the ownership, in the aggregate, by Executive or his Affiliates of up to one percent (1%) of the outstanding shares of any class of equity securities of any corporation that are listed for trading on the New York or American Stock Exchanges or on the NASDAQ National Market System and engage in the Currency Business or any Other Businesses, (ii) Executive's engaging or participation in any of the businesses set forth in Exhibit C hereto (the "Exhibit C Businesses") (which Executive represents are businesses in which he currently engages when not engaged or required to be engaged in the Currency Business), shall not constitute a breach of this
Section 6, so long as those Exhibit C Businesses do not conduct sales by internet or electronic commerce auctions. In addition, Executive shall not be deemed to have breached his obligations under this Section 6 or under Section 1.3 by reason of the fact that he sells any collectible items or products, such as rare coins, to or by means of the services or facilities of companies or entities other than member companies of the CUI Group (as hereinabove defined), so long as such collectible items or products do not include any Rare Currencies.
6.4 In furtherance and not in limitation of the foregoing provisions of this Section 6, should the duration or geographical extent of, or business activities covered by any provision of this Section 6, or any of the provisions of Sections 4 or 5 of this Agreement, be in excess of that which is valid and enforceable under applicable law, then such provision shall be construed to cover only the maximum duration, extent or activities (as the case may be) which may validly and enforceably covered under applicable law. The Executive acknowledges the uncertainty of the law in this respect and expressly stipulates that such provisions shall be given the construction which renders its provisions valid and enforceable to the maximum extent (not exceeding its express terms) possible under applicable law.
7. Termination Prior to Expiration of the Term.
7.1 Terminations Other than without Cause.
(a) Disability. Executive's employment shall terminate immediately, without notice, upon the Executive's becoming totally disabled. For purposes of this Agreement, the term "totally disabled" or "total disability" means an inability of Executive, due to a physical or mental illness, injury or impairment, to perform a substantial portion of his duties for a period of 120 or more consecutive days, or for an aggregate of 180 days (whether or not consecutive) in any 12-month period, as determined by Company's Board.
(b) Death of Executive. Executive's employment shall terminate immediately, without notice, upon the death of Executive.
(c) Termination for Cause. The Company may, in the manner hereinafter set forth in this Paragraph 7.1(c), terminate Executive's employment at any time for "Cause" (as hereinafter defined). For purposes hereof "Cause" shall exist and the Company shall be entitled to terminate Executive's employment pursuant to this Paragraph 7.1(c), if:
(i) Executive has committed a material breach of his duty of loyalty to Company or CUI or has violated any conflict of interest policy of CUI or the Company; or
(ii) Executive has committed an act or has failed to act, where such act or failure to act constitutes intentional misconduct, a reckless disregard of the consequences of such act or failure to act, or gross carelessness by Executive; or
(iii) Executive has committed an act that (A) under applicable law or government regulations, could be held to constitute the commission of a felony, or a misdemeanor involving moral turpitude or (B) constitutes a violation of any statute that is enforced by or any regulation of a federal or state regulatory agency that has jurisdiction over the Company's operations, if that violation could subject the Company, CUI or any Affiliate to civil or criminal penalties or fines or material civil liabilities; or
(iv) Executive commits a breach of any of his covenants contained in any of Sections 1.3, 4, 5 or 6 hereof; or
(v) Executive willfully commits any other breach of this Agreement, or of any material duties assigned to Executive, in accordance with Section 1 of this Agreement, by the Chairman or Board, or Executive habitually neglects his duties under this Agreement.
Any termination of Executive's employment for Cause pursuant to this Paragraph 7.1(c) shall be effective on thirtieth (30th) day following the date of such written notice of termination unless Executive effectuates such cure within that thirty (30) day period, in which case the notice of termination shall be rescinded. Notwithstanding the foregoing, however, if there occurs an event constituting Cause which Executive does cure within such thirty (30) day period, but another event constituting Cause occurs within the succeeding twelve (12) months, then, unless the Company otherwise agrees, termination by reason of such other event constituting Cause shall be effective immediately on the giving of notice of such termination to Executive.
7.2 Termination Due to Company Performance. Executive`s employment may be terminated by the Company, if the Company's performance, measured in the manner set forth in Exhibit D hereto, falls below the minimum performance requirements set forth in that Exhibit (a "Performance-Based Termination"). Any such termination shall be effective on thirty (30) days prior written notice to Executive; provided, however, that in such event Executive shall become entitled to the Severance Compensation set forth in Section 8.2 of this Agreement.
7.3 Termination without Cause. The Company may terminate Executive's employment, effective on not less than 30 days' prior written notice, for any reason other than those set forth in Sections 7.1 and 7.2 hereof (hereinafter, a "Termination without Cause"); provided, however, that in such event Executive shall continue to receive the compensation that he would have received under this Agreement had he remained employed hereunder for the remainder of the original term of this Agreement in accordance with Section 8.3 hereof. In the event that the Company commits a material breach of this Agreement and fails to cure such breach within thirty (30) days of its receipt of a written notice from Executive specifying the nature of such breach, Executive's sole right and remedy shall be to terminate his employment effective on ten (10) days' prior written notice to the Company, and to receive the compensation set forth in Section 8.3 hereof, to the same extent and with the same consequences as if such breach by the Company constituted a Termination without Cause of Executive's employment.
8. Compensation upon the Termination of the Executive's Employment by the Company.
8.1 Termination due to Disability or Death or for Cause. In the event that the Executive's employment is terminated by the Company pursuant to Paragraph 7.1(a), Paragraph 7.1(b) or Paragraph 7.1(c) above, then, he shall not be entitled to any compensation, nor shall the Company have any obligation to pay any sum or have any liability to Executive whether as compensation for his services or as a result of such termination of employment, or otherwise, other than (i) the portion of his then current Annual Base Salary which has accrued through, but was unpaid as of, the date of such termination of employment; (ii) if and to the extent unpaid as of the effective date of such termination of employment, any bonus earned for the calendar year immediately preceding the year in which such termination occurred, and (iii) solely in the case of a termination pursuant to Paragraph 7.1(a) or Paragraph 7.1(b), any partial bonus earned for the year in which such termination occurred as provided in Paragraph 3.2(b) of this Agreement.
8.2 Section 7.2 Termination. In the event that Executive
ceases to be employed due to a Performance-Based Termination as provided in
Section 7.2 above, Executive shall not be entitled to any compensation, nor
shall the Company have any obligation to pay any sum or have any liability to
Executive whether as compensation for his services or as a result of such
termination of employment, or otherwise, other than (i) the portion of his then
current Annual Base Salary which has accrued through, but was unpaid as of, the
date of such termination of employment, (ii) if and to the extent unpaid as of
the effective date of such termination of employment, any bonus earned for the
calendar year immediately preceding the year in which such termination occurred,
and (iii) subject to Section 6.2 hereof, severance payments in an aggregate
amount (the "Severance Compensation") equal to the lesser of (A) one year's
Annual Base Salary (as then in effect) or (B) the result obtained by multiplying
one-twelfth (1/12th) of Executive's then current Annual Base Salary by the
number of months then remaining in the term of this Agreement (the "Severance
Period"), which shall be payable in installments in the same amounts and at the
same times as the installments of Executive's Annual Base Salary would have been
paid hereunder had he been employed by the Company for the remainder of the
Severance Period.
8.3 Section 7.3 Termination. In the event that Executive ceases to be employed by the Company by reason of the Termination without Cause pursuant to Section 7.3 above (including a termination of Executive's employment by Executive due to a material breach of this Agreement by the Company which goes uncured), as his sole and exclusive remedy therefor, Executive shall be entitled, subject to Section 6.2 of this Agreement, to continue receiving for the remainder of the original five (5) year term of this Agreement: (i) his Annual Base Salary as in effect on the date of such termination, which shall be paid in installments at the times and in the amounts that he would have received had he remained in the Company's employ for the remainder of the original term of this Agreement, (ii) [the bonuses he would have received pursuant to Paragraph 3.2(a) if there had not been such a termination, at the times he would have received them,] and (iii) the health insurance benefits he would have received during the remainder of the original term of this Agreement had there been no such termination (collectively, the "Continuing Compensation").
8.4 Timing of Payments and Withholding. All payments required to be made by the Company to the Executive pursuant to this Section 8, including, but not limited to, any Severance Compensation or any Continuing Compensation that may become payable pursuant to Section 8.2 or Section 8.3 hereof, shall be paid in accordance with the Company's normal payroll procedures and policies and will be subject to withholding of all payroll and similar taxes required, under applicable law to be withheld by the Company.
9. Assignment. This Agreement shall not be assignable, in whole or in part, by either party without the prior written consent of the other party, except that the Company may, without the consent of the Executive, assign its rights and obligations under this Agreement to (i) CUI, (ii) an Affiliate of the Company or of CUI, or (iii) to any unaffiliated corporation, firm or other business entity with or into which the Company may merge or consolidate, or to which the Company may sell or transfer all or substantially all of its assets. After any such assignment by the Company, the Company shall be discharged from all further liability hereunder and such assignee shall thereafter be deemed to be the Company for the purposes of all provisions of this Agreement including this Section 9.
10. Injunctive Relief. Executive is being employed by the Company due to his knowledge of the industry in which the Company conducts business and his substantial experience and his record of achievement as President of the Company prior to its acquisition by CUI. The parties acknowledge, and Executive agrees, that for these reasons, it would be difficult to compensate the Company or CUI fully for the damages they would incur if Executive were to violate or breach any of his material obligations under this Agreement, which shall include, without limitation, the Executive's obligations under
Sections 1.3, 4, 5 and 6.1 hereof. Accordingly, Executive specifically agrees that each of the Company and CUI, individually or jointly, shall be entitled to temporary, preliminary and permanent injunctive relief to halt a breach or to prevent a threatened breach of this Agreement by Executive and to the remedy of specific enforcement of Executive's obligations under this Agreement, without any obligations on the part of the Company or CUI either (i) to join the other in any proceeding brought to obtain such relief or remedies, or (ii) to post a bond or cash or other security in connection therewith. Nothing herein, however, shall diminish the right of the Company and the right of CUI to claim and recover monetary damages in addition to injunctive relief and specific performance.
11. Miscellaneous.
11.1 Governing Law. This Agreement is deemed to have been made in the State of Michigan, and its interpretation, its construction and the remedies for its enforcement or breach are to be applied pursuant to, and in accordance with, the laws of the State of Kansas for contracts made and to be performed in that state. Notwithstanding the foregoing, in the event any party hereto chooses or is required to initiate any legal action or proceeding to enforce its rights hereunder, such action or proceeding shall be brought and maintained exclusively in the Superior Court for the County of Orange, in California and each party agrees to accept, and not to challenge, the jurisdiction of such court over the parties and the subject matter of such action or proceeding or the convenience of the forum and to accept and not to challenge the adequacy of service by certified or registered mail. The prevailing party in any such action or proceeding shall be entitled to recover its reasonable attorneys fees and disbursements, expert witness fees and disbursements and other costs of suit from the non-prevailing party. TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, EACH PARTY HEREBY EXPRESSLY WAIVES ITS RIGHT TO A JURY TRIAL IN ANY SUCH ACTION OR PROCEEDING, IRRESPECTIVE OF WHICHEVER PARTY MAY BRING ANY SUCH ACTION OR PROCEEDING.
11.2 Prior Agreements.
(a) This Agreement contains the entire agreement of the parties relating to Executive's employment with the Company and supersedes all prior or concurrent agreements and understandings with respect thereto between them, and the parties hereto have made no agreements, representations or warranties relating to such employment which are not set forth herein. Executive further acknowledges and agrees that, except as otherwise provided in Paragraph 11.2(b) hereof, there are no agreements or understandings between him and CUI regarding his employment or any of the other matters contained in this Agreement.
(b) Concurrently herewith Executive and CUI are
entering into a Contribution and Acquisition Agreement (the "Contribution
Agreement"), which provides for the contribution by Executive to CUI of
Executive's entire ownership interest in the Company and a Non-Competition
Agreement (the "Non-Competition Agreement") on which CUI is and will be relying
in entering into, and paying to Executive the consideration for such ownership
interest in the Company pursuant to, the Contribution Agreement. Notwithstanding
anything to the contrary contained in this Section 11.2, nothing in this
Agreement shall diminish or adversely affect any of the rights of CUI or any of
the obligations of Executive under the Contribution Agreement or the
Non-Competition Agreement. Executive acknowledges and agrees that (i) he has
received separate consideration for his covenants and agreements under the
Contribution Agreement and such Non-Competition Agreement and (ii) each of the
Contribution Agreement and the Non-Competition Agreement are obligations of his
that are separate and independent of his obligations under this Agreement and
(iii) each of the Contribution Agreement and the Non-Competition Agreement shall
survive the execution and delivery of this Agreement and any termination of this
Agreement or Executive's employment with the Company.
11.3 Withholding Taxes. The Company may withhold from any salary and benefits payable under this Agreement all federal, state, city or other taxes or amounts as shall be required to be withheld pursuant to any law or governmental regulation or ruling.
11.4 Amendments. No amendment or modification of this Agreement shall be deemed effective unless made in writing signed by the parties hereto.
11.5 No Waiver. No term or condition of this Agreement shall be deemed to have been waived nor shall there be any estoppel to enforce any provisions of this Agreement, except by a statement in writing signed by the party against whom enforcement of the waiver or estoppel is sought. Any written waiver shall not be deemed a continuing waiver unless specifically stated, shall operate only as to the specific term or condition waived and shall not constitute a waiver of such term or condition for the future or as to any act other than that specifically waived.
11.6 Severability. If, but only to the extent that, any provision of this Agreement shall be invalid or unenforceable, then, subject to the provisions contained in Section 6.4 hereof, such offending provision shall be deleted from this Agreement, but only to the extent necessary to preserve the validity and effectiveness of this Agreement to the fullest extent permitted under applicable law.
11.7 Interpretation. This Agreement is the result of arms-length negotiations between the parties hereto and no provision hereof, because of any ambiguity found to be contained herein or otherwise, shall be construed against a party because such party or its legal counsel was the draftsman of that provision. Unless otherwise indicated elsewhere in this Agreement, (a) the term "or" shall not be exclusive, (b) the term "including" shall mean "including, but not limited to," (c) the terms "herein," "hereof," "hereto," "hereunder" and other terms similar to such terms shall refer to this Agreement as a whole and not merely to the specific section, subsection, paragraph or clause where such terms may appear.
11.8 Affiliate. As used in this Agreement, the term "Affiliate"(when used with reference to the Company or CUI, as the case may be) means any corporation, association or other business entity (i) which owns or controls more than 50% of the total voting power of the Company or CUI (as the case may be) or, (ii) of which more than 50% of the shares of stock or other ownership interests entitled to vote in the election of directors, managers, or trustees thereof is owned or controlled, directly or indirectly, by the Company or CUI (as the case may be), and in the case of the Company, includes CUI.
11.9 CUI as Third Party Beneficiary. CUI is an intended third party beneficiary of the covenants and agreements of Executive hereunder and shall be entitled to enforce such covenants and agreements independently of the Company.
11.10 Notices. The Notice provisions of and the addresses of the parties hereto that are contained in the Contribution Agreement are incorporated herein by this reference and made an integral part of this Agreement.
11.11 Counterpart Execution. This Agreement may be executed by facsimile and in counterparts, each of which shall be deemed an original and all of which when taken together shall constitute but one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year set forth above.
"EXECUTIVE" LYN KNIGHT CURRENCY AUCTIONS, INC.
a Delaware corporation
/s/ Lyn F. Knight By: /s/ David Hall
--------------------------------- ---------------------------------
Lyn F. Knight David Hall, Chairman
COLLECTORS UNIVERSE, INC.
By: /s/ David Hall
---------------------------------
David Hall, Chairman
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EXHIBIT B
NET REVENUES AND EXPENSES
A. Definition and Determination of Net Revenues: Net Revenues of the Currency Business shall consist of (i) all commissions paid to the Company by customers who have consigned Currencies to the Company for sale by the Company to prospective purchasers, and (ii) all fees paid to the Company by purchasers of Currencies sold by the Company.
B. Expenses:
The following costs and expenses shall be deducted from Net Revenues of the Company to determine the Company Pre-Tax Earnings for any year or Partial Year (as the case may be):
1. Salaries and other compensation paid and the costs of employee benefits provided to Executive, and to Deborah Knight and other personnel employed at Executive's principal offices (the "Principal Offices") or any other offices established at the request or direction, or with the approval, of the Executive ("Additional Offices").
2. Fees or charges and reimbursable expenses of consultants and independent contractors whose services are retained by or at the direction or with the approval of Executive.
3. Rent and other amounts paid or payable under any real property lease where the Principal Offices and any Additional Offices are located, under leases for office or other equipment that is located or used at the Principal Offices or at any Additional Offices or at any auction sites or for mobile equipment (such as, but not limited to mobile phones, laptop or portable computers or pagers) used by Executive or any of the employees referenced in Paragraph 1 above (the "Other Personnel").
4. Depreciation and/or amortization of (i) equipment and leasehold improvements owned by the Company or CUI that are located at the Principal Offices or Additional Offices and (ii) goodwill and other amortizable intangibles.
5. The costs and expenses of planning and conducting Rare Currency and other Collectibles Auctions conducted by the Company, including, but not limited to, all related marketing and sales expenses and the costs of printing and preparing catalogues and advertising materials.
6. The costs of all general Company advertising conducted at the direction or with the approval of Executive.
7. All travel costs and expenses (including costs of accommodations while traveling) and all entertainment costs incurred by the Executive or the Other Personnel in connection with the conduct of the Currency Business which are reimbursable by the Company under its expense reimbursement policies.
8. Costs of Insurance required for the conduct of the Company's Business.
9. All legal fees and expenses and other liabilities and costs incurred in connection with any legal actions or proceedings arising out of the conduct of the Company's Currency Business.
10. Reserves for bad debts and other contingencies arising out of the Company's Business, determined in accordance with GAAP consistently applied.
11. All government filing fees and licensing and permit fees and charges required to be paid by the Company in connection with the conduct of its business.
12. Charges for services rendered to the Company by CUI, or any of the other member companies of the CUI Group, at the direction or with the approval of the Executive, including software programming and support services related to the establishment and operation of internet and electronic Currency Auctions.
13. An administrative charge levied by CUI for administrative and support services rendered by it or any of the other member companies of the CUI Group, the amount of which shall not exceed the lesser of ____ percent of CUI's consolidated administrative and overhead charges, or the Company's pro rata share of CUI's consolidated administrative and overhead charges based on the ratio of the Company's Net Revenues to the consolidated Net Revenues of CUI.
14. All rebates and discounts extended to customers that have not already been netted against gross revenues to arrive at Net Revenues.
15. Any expenses incurred due to cancelled sales or returns from purchasers of Rare Currencies approved by Executive, to the extent not netted against gross revenues to arrive at Net Revenues.
EXHIBIT 10.20
EMPLOYMENT AGREEMENT
This EMPLOYMENT AGREEMENT (the "Agreement") is made and entered into this 25th day of January 1999, by and between INTERNET UNIVERSE, LLC (formerly named Collectors Universe, LLC), a California limited liability company (the "Company"), and BRENT GUTEKUNST, an individual (the "Executive").
WITNESSETH:
WHEREAS, the Company, which is wholly-owned by Professional Coin Grading Service ("PCGS" or "Parent"), is engaged in the business of conducting auctions, over the internet, at which it sells rare and valuable collectibles, including, coins, stamps, comic books, movie posters, records and products and other items that have been autographed by sports and other celebrities (collectively, "Collectibles"); and
WHEREAS, pursuant to an Asset Acquisition Agreement of even date herewith (the "Asset Acquisition Agreement"), PCGS has acquired a substantial portion of the assets of Info Exchange, Inc. ("Info Exchange"), which has been engaged in the business of developing and maintaining software and other data needed for and used in the conduct of auctions and sales of products, including Collectibles, over the internet; and
WHEREAS, PCGS is contributing the assets of Info Exchange to the Company and the Company desires to employ Executive, who was the President of Info Exchange, as its President and Chief Operating Officer, and Executive desires to accept and serve in such position with the Company, pursuant to the terms and conditions set forth herein.
NOW, THEREFORE, in consideration of the premises and the respective covenants and agreements of each party to the other set forth herein, the Company and the Executive, intending to be legally bound, hereby agree as follows:
1. Employment; Appointment as a Director.
1.1 Employment. The Executive is hereby employed as the President of the Company, and the Executive accepts such employment, on the terms and conditions set forth in this Agreement. In that position, Executive shall be responsible for (i) developing and maintaining the software and other proprietary data and techniques required to establish, operate and maintain separate internet websites (each of which shall sometimes be referred to hereinafter as a "Universe") through which the Company or PCGS will be able to operate and manage auctions of and to sell Collectibles and other products and to provide services to the public over the internet, and (ii) performing such other duties as are assigned to Executive by the Chairman of the Company (the "Chairman") or by the Managers of the Company (the "Management Committee"). During the Executive's employment hereunder, Executive agrees that:
(a) He shall devote his full business time and all of his skills and efforts to the diligent and timely performance of the foregoing responsibilities and such other duties as shall be assigned to him from time to time by the Chairman or the Management Committee; and
(b) He shall not serve as an officer, director, employee, consultant or advisor to any other business or otherwise engage in any business activities; provided, however, that the Executive may serve as a director of another corporation so long as (i) such corporation does not
compete, directly or indirectly, with the Company or any of its Affiliates (as defined in Subsection 11.8 hereof), (ii) such services do not adversely affect Executive's ability to perform his duties under this Agreement, and (iii) such service is first approved by the Management Committee of the Company. Executive hereby represents and warrants that he is under no contractual commitments (written or oral) that are inconsistent with his obligations set forth in this Agreement, including, but not limited to, any non-competition, trade secret or confidentiality agreements. Without limiting the generality of the foregoing, Executive represents that none of the information that he needs or will use in performing his duties hereunder belongs to any other person or entity.
1.2 Directorship. Executive also shall be appointed as a director to serve on the Board of Directors of PCGS, effective beginning as of January 4, 1999 and continuing until such time as a successor is elected to the PCGS Board of Directors. Executive shall not be entitled to any compensation for his services as a member of the PCGS Board of Directors.
2. Term. The term of this Agreement and Executive's employment hereunder shall be approximately three (3) years, commencing on January 4, 1999 (the "Employment Commencement Date") and ending on December 31, 2001; provided, however, that this Agreement and Executive's employment hereunder shall be subject to earlier termination as provided in Section 7 hereof.
3. Compensation.
3.1 Base Salary. As compensation for all services to be rendered by Executive to the Company, or any of its Affiliates, whether under this Agreement or otherwise, the Company shall pay to the Executive a base salary of One Hundred Twenty Thousand Dollars ($120,000) each year during the term of this Agreement (the "Annual Base Salary"). The Annual Base Salary shall be paid in periodic installments on a regular basis in accordance with the Company's normal payroll procedures and policies.
3.2 Incentive Compensation. Executive shall become entitled, upon commencement of his employment, to earn bonus compensation on the following terms and conditions:
(a) 1999 Bonus. Executive shall be entitled to receive a cash bonus of $60,000 if, during the calendar year ending December 31, 1999, the Company is able to establish and operate at least ten (10) fully functional website Universes, at least five of which must be "Major Universes" and the other five shall be "Minor Universes" (as such terms are hereinafter defined).
(i) The Major Universes may consist of separate Universes for the auctioning and sale of (A) coins, (B) stamps, (C) sports cards and sports memorabilia, (D) products and items autographed by (sports, music, performing arts and other) celebrities, (E) comic books and other collectibles as mutually agreed. To qualify as a fully functional Major Universe, a Universe must (x) have average gross revenues (whether from sales or advertising) of at least five thousand dollars ($5,000) per week and at least one thousand (1,000) different customers each day, for at least 4 consecutive weeks during any 4 weeks of calendar 1999, and (y) contain functional content, that includes at least a price guide and editorials that are accessible to and usable by PCGS, the Company and such customers.
(ii) The requirement of at least five (5) fully functional Minor Universes will be deemed to have been satisfied if at least five (5) Universes, in addition to the five Major Universes, have been established and are operational for the sale of other collectible products or items over the internet, each such additional Universe contains functional content that includes a price guide and editorials that are accessible to and usable by PCGS, the
Company and such customers and, for at least two (2) consecutive weeks during any 4 weeks of calendar 1999: (A) those additional Universes generate aggregate gross revenues $15,000 (whether from sales or advertising) per week, (B) each such additional Universe has at least one hundred (100) different customers per day and (C) all of such additional Universes have, in the aggregate, at least 2,500 different customers per day.
(b) Subsequent Year Bonuses. For services rendered in calendar year 2000 and 2001, Executive shall have the opportunity to earn bonuses equal to as much as fifty percent (50%) of his Annual Base Salary for such year based on the achievement of overall profitability goals established for the Company by its Management Committee. Achievement of such goals will be determined by reference to the financial statements of the Company for each of such calendar years and, if earned, shall be payable within fifteen (15) days following the final determination that such goals have been achieved.
(c) It shall be a condition precedent to the payment of any annual bonus pursuant to this Section 3.2 that Executive shall have be employed with the Company or any parent corporation or subsidiary of PCGS or of the Company for the entire calendar year, to and including the last day of such year, and Executive shall not be entitled to receive a partial or pro-rated bonus for any partial year of employment hereunder.
3.3 Participation in Fringe Benefit Programs. During his employment with the Company, the Executive shall be entitled to participate in all employee benefit plans or programs (including vacation time, sick leave and holidays, but excluding any incentive or bonus compensation plans or programs other than those described in Section 3.2 above) generally available to all employees of Company, to the extent that his position, title, tenure, salary, age, health and other qualifications make him eligible to participate therein. The Executive's participation in any such plan or program shall be subject to the provisions, rules and regulations thereof that are generally applicable to all participants therein.
3.4 Expense Reimbursement. In accordance with Company's policies established from time to time, the Company will pay or reimburse Executive for all reasonable and necessary out-of-pocket expenses incurred by him in the performance of his duties under this Agreement, subject to the presentment to Company of reports and receipts identifying the amounts and business purposes of such expenses and the payees thereof.
3.5 Moving Expenses. The Company shall pay Executive the sum of $10,000 to defray the costs of moving his personal residence to Orange County, California.
3.6 Stock Options. Effective as of January 22, 1999, Executive shall be granted employee stock options to purchase (i) 675 shares of PCGS common stock at an exercise price of $600 per share and (ii) an additional 500 shares of PCGS common stock at an exercise price of $1,200 per share pursuant to and on the terms and conditions contained in the form of Stock Option Agreement attached hereto as Exhibit A.
4. Confidential Information and Company Property.
4.1 Confidential Information. Unless the Management Committee expressly agrees to the contrary in writing, during the term of this Agreement and at all times thereafter Executive shall hold in strict confidence and shall not disclose to any person or entity, and Executive shall not use, other than for the sole benefit of the Company and PCGS, any Confidential Information of the Company or of PCGS. For purposes hereof, "Confidential Information of the Company or PCGS" shall mean any (i)
financial statements or other financial information or data (historical or prospective) of or relating to Company, PCGS or any Affiliate or customer of Company or PCGS that has not been publicly disclosed by the owner of such information, (ii) the Proprietary Assets (as defined in the Asset Acquisition Agreement) and any improvements or enhancements thereto; (iii) software used in the business of the Company or that of PCGS (iv) manufacturing or marketing data and any other information relating to any technique, process, formula, software, developmental or experimental work, work in progress, business methods or trade secrets, (v) information relating to customers or clients of the Company, PCGS or any of their respective Affiliates (including, without limitation, any customer or client list or lists of customer or client sources), (vi) business or marketing plans of the Company or PCGS, and (v) any other proprietary, confidential or secret information belonging or relating to the Company, PCGS or any of its Affiliates or any of their products or services or other business activities. The foregoing restrictions with respect to the disclosure of Confidential Information shall not apply to (x) information which is or becomes, other than as a result of a breach of this Agreement, generally available to the public, or (y) the disclosure of information required pursuant to a subpoena or other legal process; provided that the Executive shall notify the Company, in writing, of the receipt of any such subpoena or other legal process requiring such disclosure immediately after receipt thereof and the Company shall have a reasonable opportunity to quash such subpoena or other legal process or to obtain appropriate protective orders prior to any disclosure by the Executive.
4.2 Other Company Property. Upon termination of his employment for any reason whatsoever, Executive shall promptly return and deliver to the Company (i) all documents, records, notebooks, work papers and all similar repositories containing any information belonging to or concerning the Company, PCGS or any Affiliate or any customer or supplier of Company, whether prepared by Executive, the Company, PCGS or anyone else, including all of the Proprietary Assets and all copies thereof, and (ii) all other property of Company or PCGS in Executive's possession, such as but not limited to, computers, printers and other computer accessories, telephones, pagers and other communication devices, furniture and keys.
5. Covenants Against Actions Damaging the Company. Executive agrees
that, during the term of this Agreement or at any time thereafter, he will not
(i) make any claim that he has any right, interest or title, of any kind or
nature whatsoever, in or to any of the Proprietary Assets or any improvements or
enhancements thereto or derivative works therefrom, or in or to any products,
methods, practices, processes, discoveries, ideas, software, improvements,
enhancements, devices, creations, business plans or systems, or, subject to
applicable labor laws, inventions, relating to the business of Company, PCGS or
any Affiliate thereof, or used, developed or discovered by the Company, PCGS,
any Affiliate or by Executive at any time during his employment with Company,
PCGS or any Affiliate thereof, or (ii) disclose any of such matters to any third
party. Executive further agrees that, at the Company's request, at any time
during or after his employment with Company, he will assign to the Company all
rights that he may have to any inventions, works of authorship, software,
developments, improvements, enhancements or trade secrets or other proprietary
or intellectual property that he may have developed during the course of his
employment with Info Exchange, Inc. or which he may develop during the course of
his employment with the Company or PCGS and will execute and deliver to the
Company or PCGS such documents and instruments as the Company or PCGS may
reasonably require to evidence or effectuate such assignment. Executive further
agrees that during the term of this Agreement, and for a period of two (2) years
following the termination (for any reason) of his employment with Company he
shall not, whether for himself or on behalf of or in conjunction with any third
party, (x) hire any employee of the Company, PCGS or any Affiliate thereof, or
induce or entice any such employee to leave his employment with Company, PCGS or
any Affiliate, and (y) attempt to induce any person that, at the time of or
within the 12 months immediately preceding the termination of his employment,
was a customer of or supplier to the Company, PCGS or any of their Affiliates to
cease doing business, or to
reduce the volume of business that such customer or supplier had been doing, with Company, PCGS or any such Affiliate.
6. Non-Competition.
6.1 Executive agrees that he will not engage, either directly or indirectly, in any Competitive Activities (as hereinafter defined) at any time during the term of this Agreement.
6.2 In addition, if Executive's employment is terminated without Cause pursuant to Paragraph 7.2 hereof, and Executive engages in any Competitive Activities, or breaches any of his obligations under Sections 4 or 5 of this Agreement, at any time during the Severance Period (as hereinafter defined in Section 8.2 below), then, Executive's right to receive Severance Compensation, and any other amounts under this Agreement (including any amounts otherwise payable under Section 8 hereof), shall terminate automatically and without the necessity of any further action on the part of the Company or Executive.
6.3 For purposes of this Section 6, Executive shall be deemed to be engaged in "Competitive Activities" in violation of this Agreement if he engages, either directly or indirectly, in or participates or provides any assistance (financial or advisory or other and whether as employee, employer, consultant, agent, principal, partner, stockholder, lender, officer, director, manager, or in any other representative capacity) in or to any person, corporation, or other business entity that engages or is proposing to engage in, any business or business activities that compete with or are substantially similar to the business or business activities of the Company or PCGS, or any of their Affiliates, in any city or county within the United States in which the Company or PCGS or any of their Affiliates is engaging and continues to engage in its business. Notwithstanding the foregoing, however, Executive's ownership of up to one percent (1%) of the outstanding shares of any class of equity securities of any corporation that are listed for trading on the New York or American Stock Exchanges or on the NASDAQ Stock Market shall not constitute a breach of this Section 6.
6.4 In furtherance and not in limitation of the foregoing provisions of this Section 6, should the duration or geographical extent of, or business activities covered by any provision of this Section 6, or any of the provisions of Sections 4 or 5 of this Agreement, be in excess of that which is valid and enforceable under applicable law, then such provision shall be construed to cover only the maximum duration, extent or activities which may validly and enforceably covered under applicable law. The Executive acknowledges the uncertainty of the law in this respect and expressly stipulates that such provisions shall be given the construction which renders its provisions valid and enforceable to the maximum extent (not exceeding its express terms) possible under applicable law.
7. Termination Prior to Expiration of the Term.
7.1 Terminations Other than without Cause.
(a) Disability. Executive's employment shall terminate immediately, without notice, upon the Executive's becoming totally disabled. For purposes of this Agreement, the term "totally disabled" or "total disability" means an inability of Executive, due to a physical or mental illness, injury or impairment, to perform a substantial portion of his duties for a period of 120 or more consecutive days, or for an aggregate of 180 days (whether or not consecutive) in any 12-month period, as determined by Company's Management Committee.
(b) Death of Executive. Executive's employment shall terminate immediately, without notice, upon the death of Executive.
(c) Termination for Cause. The Company may terminate Executive's employment at any time for "Cause" (as hereinafter defined) immediately upon written notice to Executive. For purposes hereof "Cause" shall exist and the Company shall be entitled to terminate Executive's employment pursuant to this Section 7.1(c), if:
(i) Executive has committed a material breach of his duty of loyalty to Company or PCGS or has violated any conflict of interest policy of PCGS or the Company; or
(ii) Executive has committed an act or has failed to act, where such act or failure to act constitutes intentional misconduct, a reckless disregard of the consequences of such act or failure to act, or gross carelessness by Executive; or
(iii) Executive has committed, or is charged with the commission of, an act that, under applicable law or government regulations, could be held to constitute the commission of a felony, or the commission of a misdemeanor involving moral turpitude, or could subject the Company, PCGS or any Affiliate to civil or criminal penalties or fines or civil liabilities; or
(iv) Executive commits a breach of any of his covenants contained in any of Sections 4, 5 or 6 hereof; or
(v) Executive commits any other breach of this Agreement, or of any duties assigned to Executive by the Chairman or Management Committee, which is willful on the part of Executive, or Executive habitually neglects his duties under this Agreement, and fails to cure such breach or neglect of duties within fifteen (15) days following written notice thereof from the Management Committee or if there are more than two (2) instances of any such breach or of any habitual neglect of duties in any period of 12 consecutive months, even if remedied within a period of fifteen (15) days after notice thereof from the Management Committee.
7.2 Termination Without Cause. The Company may terminate Executive's employment for any reason, other than one of the reasons enumerated in Paragraphs 7.1(a), 7.1(b) or 7.1(c) hereof, or for no reason whatsoever, at any time effective upon written notice to Executive. Any such termination pursuant to this Section 7.2 shall constitute a "termination without Cause" to which Subsection 8.2 hereof shall be applicable. In the event that the Company commits a material breach of this Agreement and fails to cure such breach within thirty (30) days of its receipt of a written notice from Executive specifying the nature of such breach, Executive's sole right and remedy shall be (i) to terminate this Agreement effective on ten (10) days' prior written notice to the Company, and (ii) to receive the compensation set forth in Subsection 8.2 hereof, to the same extent as if such breach by the Company constituted a termination of Executive's employment by the Company without Cause.
8. Compensation upon the Termination of the Executive's Employment by the Company.
8.1 Termination due to Disability or Death or for Cause. In the event that the Executive ceases to be employed by the Company by reason of the termination of Executive's employment by the Company pursuant to Paragraph 7.1(a), Paragraph 7.1(b) or Paragraph 7.1(c) above, then, he shall not be entitled to any compensation, nor shall the Company have any obligation to pay any sum or have any liability to Executive whether as compensation for his services or as a result of such termination of employment, or otherwise, other than (i) the portion of his then current Base Salary which has accrued through, but was unpaid as of, the date of such termination of employment; and (ii) if and to the extent unpaid as of the effective date of such termination of employment, any bonus earned for the calendar year immediately preceding the year in which such termination occurred. Without limiting the foregoing, in the event of a termination of Executive's employment pursuant to Paragraph 7.1(a), Paragraph 7.1(b) or Paragraph 7.1(c), Executive shall not be deemed to have earned and shall not be
entitled to receive any bonus compensation for or in respect of the calendar year in which such termination occurred.
8.2 Termination By the Company Without Cause. In the event that Executive ceases to be employed by the Company by reason of the termination of Executive's employment by Company without Cause pursuant to Section 7.2 above (including a termination of Executive's employment by Executive due to a material breach of this Agreement by the Company which goes uncured), Executive shall not be entitled to any compensation, nor shall the Company have any obligation to pay any sum or have any liability to Executive whether as compensation for his services or as a result of such termination of employment, or otherwise, other than (i) the portion of his then current Base Salary which has accrued through, but was unpaid as of, the date of such termination of employment, (ii) if and to the extent unpaid as of the effective date of such termination of employment, any bonus earned for the calendar year immediately preceding the year in which such termination occurred, and (iii) severance payments in an aggregate amount (the "Severance Amount") equal to the lesser of (A) one year's Annual Base Salary (as then in effect) or (B) the result obtained by multiplying one-twelfth (1/12th) of Executive's then current Annual Base Salary by the number of months then remaining in the term of this Agreement (the "Severance Period"). Without limiting the foregoing, in the event of a termination of Executive's employment pursuant to Section 7.2, Executive shall not be deemed to have earned and shall not be entitled to receive any bonus compensation for or in respect of the calendar year in which such termination occurred.
8.3 Timing of Payments and Withholding. All payments required to be made by the Company to the Executive pursuant to this Section 8, including, but not limited to any Severance Amount that may become payable pursuant to Section 8.2, shall be paid in accordance with the Company's normal payroll procedures and policies and will be subject to withholding of all applicable payroll and similar taxes required, under applicable law. In addition, if the Executive becomes entitled to receive the Severance Amount pursuant to Section 8.2, such Amount shall be paid during the Severance Period in installments in the same amounts and at the same times as the installments of his annual base salary would have been paid hereunder had he been employed by the Company for the remainder of the term of this Agreement.
9. Assignment. This Agreement shall not be assignable, in whole or in part, by either party without the written consent of the other party, except that the Company may, without the consent of the Executive, assign its rights and obligations under this Agreement to (i) PCGS, (ii) an Affiliate of the Company or of PCGS, or (iii) to any unaffiliated corporation, firm or other business entity with or into which the Company may merge or consolidate, or to which the Company may sell or transfer all or substantially all of its assets. After any such assignment by the Company, the Company shall be discharged from all further liability hereunder and such assignee shall thereafter be deemed to be the Company for the purposes of all provisions of this Agreement including this Section 9.
10. Injunctive Relief. The Executive is being employed by the Company due to his knowledge of the industry in which the Company conducts business and his substantial experience and his record of achievement with his prior employers within such industry. The parties acknowledge, and Executive agrees, that for these reasons, it would be difficult to compensate the Company or PCGS fully for the damages they would incur if Executive were to violate or breach any of his material obligations under this Agreement, which shall include, without limitation, the Executive's obligations under Sections 4, 5 and Subsection 6.1 hereof. Accordingly, the Executive specifically agrees that each of the Company and PCGS shall be entitled to temporary, preliminary and permanent injunctive relief to halt a breach or to prevent a threatened breach of this Agreement by Executive and to the remedy of specific enforcement of Executive's obligations under this Agreement, without any obligation to post a bond or cash or other security in connection therewith. Nothing herein, however, shall diminish the right of the
Company and the right of PCGS to claim and recover monetary damages in addition to injunctive relief and specific performance.
11. Miscellaneous.
11.1 Governing Law. This Agreement is deemed to have been made in the State of California, and its interpretation, its construction and the remedies for its enforcement or breach are to be applied pursuant to, and in accordance with, the laws of the State of California for contracts made and to be performed in that state. In the event any party hereto is required to initiate any legal action or proceeding to enforce its rights hereunder, such action or proceeding shall be brought and maintained exclusively in the Superior Court for the County of Orange, in California and each party agrees to accept, and not to challenge, the jurisdiction of such court over the parties and the subject matter of such action or proceeding or the convenience of the forum and to accept and not to challenge the adequacy of service by certified or registered mail. The prevailing party in any such action or proceeding shall be entitled to recover its reasonable attorneys fees and disbursements, expert witness fees and disbursements and other costs of suit from the non-prevailing party. TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, EACH PARTY HEREBY EXPRESSLY WAIVES ITS RIGHT TO A JURY TRIAL IN ANY SUCH ACTION OR PROCEEDING, IRRESPECTIVE OF WHICHEVER PARTY MAY BRING ANY SUCH ACTION OR PROCEEDING.
11.2 Prior Agreements. This Agreement contains the entire agreement of the parties relating to the subject matter hereof and supersedes all prior or concurrent agreements and understanding with respect to such subject matter, and the parties hereto have made no agreements, representations or warranties relating to the subject matter of this Agreement which are not set forth herein. Notwithstanding the foregoing, nothing in this Agreement shall affect any of the rights of the Company or the obligations of Executive under the Asset Acquisition Agreement or under that certain Non-Competition Agreement of even date herewith entered into by Executive with the Company pursuant to the Asset Acquisition Agreement (the "Non-Compete Agreement). Executive acknowledges and agrees that he has received separate consideration for his covenants and agreements under the Asset Acquisition Agreement and his Non-Compete Agreement and that each of the Asset Acquisition Agreement and the Non-Compete Agreement shall survive the execution and delivery of this Agreement and any termination of this Agreement or Executive's employment hereunder.
11.3 Withholding Taxes. The Company may withhold from any salary and benefits payable under this Agreement all federal, state, city or other taxes or amounts as shall be required to be withheld pursuant to any law or governmental regulation or ruling.
11.4 Amendments. No amendment or modification of this Agreement shall be deemed effective unless made in writing signed by the parties hereto.
11.5 No Waiver. No term or condition of this Agreement shall be deemed to have been waived nor shall there be any estoppel to enforce any provisions of this Agreement, except by a statement in writing signed by the party against whom enforcement of the waiver or estoppel is sought. Any written waiver shall not be deemed a continuing waiver unless specifically stated, shall operate only as to the specific term or condition waived and shall not constitute a waiver of such term or condition for the future or as to any act other than that specifically waived.
11.6 Severability. If, but only to the extent that, any provision of this Agreement shall be invalid or unenforceable, then, subject to the provisions contained in Section 7.4 hereof, such offending provision shall be deleted from this Agreement, but only to the extent necessary to preserve the validity and effectiveness of this Agreement to the fullest extent permitted under applicable law.
11.7 Interpretation. This Agreement is the result of arms-length negotiations between the parties hereto and no provision hereof, because of any ambiguity found to be contained herein or otherwise, shall be construed against a party because such party or its legal counsel was the draftsman of that provision. Unless otherwise indicated elsewhere in this Agreement, (a) the term "or" shall not be exclusive, (b) the term "including" shall mean "including, but not limited to," (c) the terms "herein," "hereof," "hereto," "hereunder" and other terms similar to such terms shall refer to this Agreement as a whole and not merely to the specific section, subsection, paragraph or clause where such terms may appear.
11.8 Affiliate. As used in this Agreement, the term "Affiliate"(when used with reference to the Company or PCGS, as the case may be) means any corporation, association or other business entity (i) which owns or controls more than 50% of the total voting power of the Company or PCGS (as the case may be) or, (ii) of which more than 50% of the shares of stock or other ownership interests entitled to vote in the election of directors, managers, or trustees thereof is owned or controlled, directly or indirectly, by the Company or PCGS (as the case may be), and in the case of the Company, includes PCGS.
11.9 PCGS as Third Party Beneficiary. PCGS is an intended third party beneficiary of the covenants and agreements of Executive hereunder and shall be entitled to enforce such covenants and agreements independently of the Company.
11.10 Counterpart Execution. This Agreement may be executed by facsimile and in counterparts, each of which shall be deemed an original and all of which when taken together shall constitute but one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year set forth above.
"EXECUTIVE" INTERNET UNIVERSE, LLC
a California limited liability company
/s/ Brent Gutekunst By: /s/ David Hall
------------------------------------- -------------------------------------
|
BRENT GUTEKUNST
EXHIBIT 11.1
COLLECTORS UNIVERSE, INC.
COMPUTATION OF NET INCOME PER SHARE
(IN THOUSANDS, EXCEPT PER SHARE DATA)
YEAR ENDED JUNE 30,
-------------------------------
1997 1998 1999
------- -------- --------
Basic:
Net income $ 505 $ 873 $ 387
Basic weighted average shares outstanding 16,217 16,064 17,644
------- -------- --------
Basic net income per share $ 0.03 $ 0.05 0.02
======= ======== ========
Diluted:
Net income $ 505 $ 873 $ 387
Basic weighted average shares outstanding 16,217 16,064 17,644
Net effect of dilutive stock options -- -- 1,121
------- -------- --------
Diluted weighted average shares outstanding 16,217 16,064 18,765
------- -------- --------
Diluted net income per share $ 0.03 $ 0.05 $ 0.02
======= ======== ========
|
EXHIBIT 21.1
SUBSIDIARIES
Professional Coin Grading Service, Inc.
Lyn Knight Currency Auctions, Inc.
Internet Universe, LLC
Superior Sportcard Auctions, LLC
EXHIBIT 23.2
INDEPENDENT AUDITORS' CONSENT
AND REPORT ON SCHEDULE
To the Board of Directors and Stockholders of Collectors Universe, Inc.
We consent to the use in this Registration Statement of Collectors Universe, Inc. on Form S-1 of our report dated August 27, 1999 (September 1, 1999 as to Note 14), appearing in the Prospectus, which is a part of this Registration Statement, and to the references to us under the headings "Selected Consolidated Financial Data" and "Experts" in such Prospectus.
Our audits of the financial statements referred to in our aforementioned report also included the financial statement schedule of Collectors Universe, Inc. and subsidiaries listed in Item 16(b). These financial statement schedule is the responsibility of the management of Collectors Universe, Inc. Our responsibility is to express an opinion based on our audits. In our opinion, such financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein.
DELOITTE & TOUCHE LLP
Costa Mesa, California
September 1, 1999
EXHIBIT 23.3
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Registration Statement of Collectors Universe, Inc. on Form S-1 of our report dated May 26, 1999, related to the statement of income and retained earnings and of cash flows of Kingswood Coin Auctions, LLC, for the year ended December 31, 1998, appearing in the Prospectus, which is part of this Registration Statement.
We also consent to the reference to us under the heading "Experts" in such Prospectus.
DELOITTE & TOUCHE LLP
Costa Mesa, California
September 1, 1999
EXHIBIT 23.4
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Registration Statement of Collectors Universe, Inc. on Form S-1 of our report dated June 4, 1999, related to the statements of income and (deficiency) equity and of cash flows of the auction business of Lyn F. Knight Rare Coins, Inc. for the years ended December 31, 1997 and 1998, appearing in the Prospectus, which is part of this Registration Statement.
We also consent to the reference to us under the heading "Experts" in such Prospectus.
DELOITTE & TOUCHE LLP
Costa Mesa, California
September 1, 1999
| ARTICLE 5 |
| MULTIPLIER: 1,000 |
| PERIOD TYPE | 12 MOS |
| FISCAL YEAR END | JUN 30 1999 |
| PERIOD START | JUL 01 1998 |
| PERIOD END | JUN 30 1999 |
| CASH | 1,852 |
| SECURITIES | 0 |
| RECEIVABLES | 2,064 |
| ALLOWANCES | 38 |
| INVENTORY | 3,148 |
| CURRENT ASSETS | 7,779 |
| PP&E | 2,963 |
| DEPRECIATION | 1,762 |
| TOTAL ASSETS | 14,898 |
| CURRENT LIABILITIES | 5,449 |
| BONDS | 0 |
| PREFERRED MANDATORY | 0 |
| PREFERRED | 0 |
| COMMON | 20 |
| OTHER SE | 9,429 |
| TOTAL LIABILITY AND EQUITY | 14,898 |
| SALES | 22,563 |
| TOTAL REVENUES | 22,563 |
| CGS | 8,654 |
| TOTAL COSTS | 22,526 |
| OTHER EXPENSES | 0 |
| LOSS PROVISION | 0 |
| INTEREST EXPENSE | 27 |
| INCOME PRETAX | 39 |
| INCOME TAX | (348) |
| INCOME CONTINUING | 387 |
| DISCONTINUED | 0 |
| EXTRAORDINARY | 0 |
| CHANGES | 0 |
| NET INCOME | 387 |
| EPS BASIC | 0.02 |
| EPS DILUTED | 0.02 |