AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 10, 1999
DAG MEDIA, INC.
(Exact name of Registrant as specified in its charter)
NEW YORK 2741 11-3474831
(State or Other Jurisdiction of (Primary Standard Industrial (I.R.S. Employer
Incorporation or Organization) Classification Code Number) Identification No.)
|
COPIES TO:
STEPHEN A. ZELNICK, ESQ. MARK A. VON BERGEN, ESQ.
MORSE, ZELNICK, ROSE & LANDER, LLP WEISS, JENSEN, ELLIS & HOWARD
450 PARK AVE. 2300 U.S. BANCORP TOWER
NEW YORK, NY 10022 111 S.W. FIFTH AVENUE
(212) 838-8040 PORTLAND, OR 97204
(212) 838-9190 (FACSIMILE) (503)243-2300
(503) 241-8014 (FACSIMILE)
|
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the 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, as amended (the "Securities Act"), 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 registration statement for the same offering. / /
CALCULATION OF REGISTRATION FEE
PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AMOUNT TO BE OFFERING PRICE PER AGGREGATE OFFERING AMOUNT OF
SECURITIES TO BE REGISTERED REGISTERED SHARE (1) PRICE (1) REGISTRATION FEE
Common Shares, par value $.001 per share (2)...... 1,523,750 $6.50 $9,904,375.00 $2,921.79
Representative's Warrants(3)...................... 132,500 $-0- $-0- $-0-
Common Shares issuable upon exercise of
Representative's Warrants (4)................... 132,500 $7.80 $1,033,500.00 $304.88
Total Registration Fee............................ $3,217.67
|
(1) Estimated solely for purposes of determining the registration fee pursuant to Rule 457 under the Securities Act.
(2) Includes 198,750 shares issuable upon exercise of Underwriters' over-allotment option.
(3) No registration fee required pursuant to Rule 457(g) under the Securities Act.
(4) Pursuant to Rule 416 under the Securities Act, there are also being registered hereby such additional indeterminate number of shares as may become issuable pursuant to the antidilution provisions of the Representative's Warrants.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME EFFECTIVE
ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(A), MAY DETERMINE.
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 IS EFFECTIVE. THIS PRELIMINARY PROSPECTUS IS NOT AN OFFER TO SELL NOR DOES IT SEEK TO OFFER TO BUY THESE SECURITIES IN ANY JURISDICTION WHERE THE OFFER OR SALE IS NOT PERMITTED.
PROSPECTUS (SUBJECT TO COMPLETION)
DATED MARCH 10, 1999
1,325,000 COMMON SHARES
[LOGO]
DAG MEDIA, INC.
This is the initial public offering of DAG Media, Inc. We are offering 1,250,000 Common Shares, and Assaf Ran, our founder and principal shareholder, is offering 75,000 Common Shares. Mr. Ran will repay a loan of $295,262 owed to us out of the net proceeds from the sale of his Common Shares.
There has been no prior market for our Common Shares. We will apply to have our Common Shares listed on the Nasdaq SmallCap Market under the symbol "DAGM."
SEE "RISK FACTORS" BEGINNING ON PAGE 6 FOR CERTAIN FACTORS YOU SHOULD
CONSIDER BEFORE BUYING COMMON SHARES.
Neither the Securities and Exchange Commission nor any other regulatory body has approved or disapproved of these securities or determined if this Prospectus is truthful or complete. Any representation to the contrary is a criminal offense.
DAG MEDIA SELLING SHAREHOLDER
------------------------- -----------------------
PER SHARE TOTAL PER SHARE TOTAL
----------- ------------ ----------- ----------
Initial Public Offering Price.................................. $ 6.50 $ 8,125,000 $ 6.50 $ 487,500
Underwriting discounts and commissions......................... $ 0.65 $ 812,500 $ 0.65 $ 48,750
Proceeds before expenses....................................... $ 5.85 $ 7,312,500 $ 5.85 $ 438,750
|
We have granted the underwriters a 45-day option to purchase up to an additional 198,750 Common Shares from us at the initial public offering price less the underwriting discounts and commissions to cover over-allotments.
The underwriters expect to deliver the Common Shares offered by this Prospectus against payment on or about , 1999.
PAULSON INVESTMENT COMPANY, INC.
The date of this Prospectus is , 1999
The JEWISH ISRAELI YELLOW PAGES-Registered Trademark- and variants thereof, and THE JEWISH REFERRAL SERVICE-Registered Trademark- are registered trademarks or service marks of the Company. We also plan to seek federal trademark and service mark protection for THE JEWISH MASTER GUIDE-TM- and for NEWYELLOW-TM-. All other trademarks, service marks and trade names appearing in this Prospectus are the property of their respective holders.
We maintain a web site at HTTP://WWW.PORTY.COM.
SUMMARY
THIS SUMMARY HIGHLIGHTS INFORMATION THAT WE PRESENT MORE FULLY IN THE OTHER SECTIONS OF THIS PROSPECTUS. THIS SUMMARY IS NOT COMPLETE AND DOES NOT CONTAIN ALL OF THE INFORMATION THAT YOU SHOULD CONSIDER BEFORE BUYING COMMON SHARES IN THIS OFFERING.
UNLESS STATED TO THE CONTRARY, REFERENCES TO "WE," "US," "OUR" OR "THE COMPANY" REFER TO DAG MEDIA AND, WHERE APPROPRIATE, OUR PREDECESSORS AND SUBSIDIARIES. IN ADDITION, UNLESS OTHERWISE INDICATED, ALL INFORMATION IN THIS PROSPECTUS ASSUMES THAT THE UNDERWRITERS WILL NOT EXERCISE THE OPTION GRANTED BY US TO PURCHASE ADDITIONAL COMMON SHARES IN THIS OFFERING.
DAG MEDIA
We publish and distribute yellow page directories in print and on the world wide web. Our largest directory, THE JEWISH ISRAELI YELLOW PAGES (the "JI Directory"), is published, bilingually, in English and Hebrew. The first edition of the JI Directory was published in February 1990 and it has been published in February and August of each year since 1991. The JI Directory covers the New York metropolitan area, which includes New York City, the counties of Nassau, Suffolk, Westchester and Rockland, and northern New Jersey. Our 18(th) edition, distributed in February 1999, has 1,696 pages and more than 3,200 ads, and we believe it is the largest yellow page directory in the New York metropolitan area not published by Bell Atlantic. We also publish a smaller English-only yellow page directory, THE JEWISH MASTER GUIDE (the "Master Guide"), which is distributed to the Hasidic and ultra-Orthodox Jewish communities in the New York metropolitan area. To give added value to advertisers in our directories, we also operate THE JEWISH REFERRAL SERVICE (the "Referral Service"), which directs potential customers and clients to businesses that advertise in the JI Directory and the Master Guide.
In 1995 we began publishing an English-only version of the JI Directory on the world wide web. As an added benefit to advertisers in the JI Directory, text-only ads are carried on our web site without additional charge. Graphic ads may also be displayed by these advertisers for an additional fee. In February 1999 we introduced a "portal" web site at WWW.PORTY.COM (the "Portal") which allows users to link with web sites maintained by advertisers in the JI Directory or the Master Guide. The Portal also allows users to access other web sites containing programs, events and news of particular interest to the Jewish and Israeli communities as well as general content on the web.
GROWTH STRATEGY
We plan to expand operations by introducing an English-only, general interest yellow page directory, NEWYELLOW, in the New York metropolitan area. NEWYELLOW will compete directly with yellow page directories published by Bell Atlantic. Ads in NEWYELLOW will be priced significantly below prices currently charged by Bell Atlantic for its yellow page directories. We believe that our pricing policies will expand the market for yellow page advertising by making such ads a cost-effective way for smaller businesses to reach potential customers. We also believe our pricing policies will cause some advertisers in the Bell Atlantic publications to place ads in NEWYELLOW either in addition to or in substitution for their Bell Atlantic ads. Our experience in publishing yellow page directories and selling ads through an effective sales force, should, we believe, enable us to compete with Bell Atlantic. We plan to introduce the first NEWYELLOW directory in Manhattan by June 2000. If the Manhattan NEWYELLOW directory is successful, we plan to add additional NEWYELLOW directories covering other boroughs in New York City and other counties in the New York metropolitan area. We may also explore opportunities for offering yellow page directories and referral services in other cities with large Jewish and Israeli populations such as Miami, Florida and Los Angeles, California.
HISTORY
We were incorporated in New York in February 1999 to serve as the parent of Dapey Assaf-Dapey Zahav, Ltd., which was incorporated in New York in 1995, and of Dapey Assaf-Hamadrikh Leassakim Israelim Be New York, Ltd., which was incorporated in New York in 1989. We have entered into an Exchange Agreement with Dapey Assaf-Dapey Zahav and Dapey Assaf-Hamadrikh and their respective shareholders pursuant to which such shareholders will exchange all of their common shares in those entities for 1,726,190 of our Common Shares and Dapey Assaf-Dapey Zahav and Dapey Assaf-Hamadrikh will become our wholly owned subsidiaries. The transactions contemplated by this Exchange Agreement will be consummated immediately prior to the effective date of this Offering.
Our executive offices are located at 125-10 Queens Boulevard, Kew Gardens, New York 11415, and our telephone number is (718) 263-8454. Our address on the world wide web is WWW.PORTY.COM.
THE OFFERING
Common Shares Being Offered.................. 1,250,000 by us and 75,000 by our principal
shareholder
Offering Price............................... $6.50 per Common Share
Common Shares Outstanding:
Before the Offering........................ 1,726,190
After the Offering......................... 2,976,190
Use of Proceeds.............................. Printing, publishing and distribution costs
for NEWYELLOW; sales commission advances for
NEWYELLOW; marketing and promotional expenses
for NEWYELLOW and the Portal; and general
corporate purposes, including working
capital.
Risk Factors and Dilution.................... The purchase of the shares offered hereby
involves a high degree of risk and immediate
and substantial dilution.
Proposed Nasdaq SmallCap Market Symbol for
the Common Shares.......................... DAGM
|
Common Shares Outstanding excludes 124,000 Common Shares reserved for issuance pursuant to our 1999 Stock Option Plan. We have granted options covering 22,324 Common Shares under this plan as of the effective date of this Offering at the initial public offering price per Common Share. See "Management--Stock Option Plan" for a description of our 1999 Stock Option Plan and the options that will be granted under that plan as of the effective date of this Offering.
SUMMARY FINANCIAL DATA
The summary financial data contained in this section of the Prospectus should be read together with our audited Consolidated Financial Statements and the notes thereto and the "Management's Discussion and Analysis of Financial Condition and Results of Operations" section of this Prospectus.
- Our historical financial data include all of the operations of Dapey Assaf-Dapey Zahav and 50% of the net income of Dapey Assaf-Hamadrikh. See notes 1 and 2 to our Consolidated Financial Statements.
- Pro forma data give effect to the transactions contemplated by the Exchange Agreement. See "DAG Media-- History" in the "Summary" section of this Prospectus, notes 1, 2 and 8 to our Consolidated Financial Statements and "Management's Discussion and Analysis of Financial Condition and Results of Operation" for more information about the Exchange Agreement and its accounting treatment.
- Pro forma, as adjusted balance sheet data give effect to the transactions contemplated by the Exchange Agreement, the sale of the Common Shares offered by us pursuant to this Prospectus, after deducting $1,512,500, our share of the underwriting discounts and commissions and other estimated offering expenses, and the repayment of the principal shareholder's loan. See "Certain Transactions" for more information about the principal shareholder's loan.
STATEMENTS OF OPERATIONS DATA:
YEARS ENDED DECEMBER 31
----------------------------------------
1998
1997 1998 (PRO FORMA)
------------ ------------ ------------
Net advertising revenues................................................ $ 2,501,754 $ 2,759,092 $ 2,835,917
Publishing costs........................................................ 441,535 377,983 377,983
------------ ------------ ------------
Gross profit............................................................ 2,060,219 2,381,109 2,457,934
Operating costs and expenses:
Selling expenses...................................................... 922,124 946,315 957,227
Administrative and general expenses................................... 658,956 765,233 851,116
------------ ------------ ------------
Total operating costs and expenses.................................... 1,581,080 1,711,548 1,808,343
Earnings from operations before provision for income taxes and equity
income................................................................ 479,139 669,561 649,591
Provision for income taxes.............................................. 240,000 329,000 329,000
Equity in earnings of affiliate......................................... 16,012 17,035 --
------------ ------------ ------------
Net income.............................................................. $ 255,151 $ 357,596 $ 320,591
------------ ------------ ------------
------------ ------------ ------------
Basic and diluted net income per Common Share outstanding............... $ 0.20 $ 0.29 $ 0.19
------------ ------------ ------------
------------ ------------ ------------
Basic and diluted weighted average number of Common Shares
outstanding........................................................... 1,250,000 1,250,000 1,726,190
------------ ------------ ------------
------------ ------------ ------------
|
BALANCE SHEET DATA:
DECEMBER 31, 1998
-----------------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
------------ ------------ -------------
Cash.................................................................. $ 310,185 $ 385,325 $ 7,293,088
Working capital....................................................... 162,041 162,561 7,070,323
Total assets.......................................................... 2,970,190 4,363,046 10,975,546
Total liabilities..................................................... 2,445,451 2,445,451 2,445,451
Total shareholders' equity............................................ 524,739 1,917,595 8,530,095
|
RISK FACTORS
YOU SHOULD CAREFULLY CONSIDER THE RISK FACTORS DESCRIBED BELOW, AS WELL AS THE OTHER INFORMATION APPEARING IN THIS PROSPECTUS, BEFORE PURCHASING ANY OF OUR COMMON SHARES.
MANY COMPETITORS HAVE SIGNIFICANT ADVANTAGES. OUR BUSINESS IS NOT DEPENDENT ON ANY PROPRIETARY TECHNOLOGY AND THE BARRIERS TO ENTRY ARE RELATIVELY LOW.
Currently, we publish yellow page directories that are used primarily by the Jewish and Israeli communities in the New York metropolitan area. We plan to introduce NEWYELLOW, an English-only, general interest yellow page directory, which will compete directly with the Bell Atlantic Yellow Pages in Manhattan. Bell Atlantic publishes yellow page directories for each of the five boroughs in New York City, one or more yellow page directories for the counties of Nassau, Suffolk, Westchester and Rockland, and various yellow page directories for northern New Jersey. In addition, there are a number of independent companies that publish yellow page directories for distinct neighborhoods. Any company with access to a reasonable amount of capital, such as regional and local telephone companies and publishing companies, can publish yellow page directories that will compete with our existing directories and directories that we may publish in the future. There are no significant technological barriers to entry. In addition, the Internet is growing rapidly and is a current and potential source of even greater competition. There are already a number of online yellow page directories available on the Internet such as Bell Atlantic's Big Yellow. Finally, strategic alliances could give rise to new or stronger competitors.
Many competitors have significant operating and financial advantages. These advantages include greater financial, personnel, technical and marketing resources, superior systems, stronger relationships with advertisers, greater productive capacity, better-developed distribution channels, and greater name recognition. In addition, many of our competitors can subsidize competing services with revenues from their other services. As competition increases, we expect significant increases in general pricing pressures. For example, Bell Atlantic could reduce its advertising rates, making advertising in NEWYELLOW less attractive. In response to competitive pressures, we may have to increase our sales and marketing expenses or reduce our advertising rates. Since we may not capture a significant share of the markets where we operate, we cannot assure you that we can compete effectively. See "Business--Competition" for a further discussion of the competitive environment in which we operate.
WE ARE PLANNING TO INTRODUCE A NEW PRODUCT, THE SUCCESS OF WHICH WILL DEPEND ON MANY FACTORS.
We intend to use the majority of the net proceeds of this Offering to introduce NEWYELLOW. Since we have never published a general interest yellow page directory, we have no relevant operating history upon which you can evaluate whether we will be successful. Because we are entering into a different business, we cannot forecast the scope, magnitude or timing of our future revenues, if any. To date, we have not marketed or sold any ads for NEWYELLOW nor have we entered into any strategic alliances with respect to NEWYELLOW. We cannot assure you that we will be able to generate advertising revenue for, or enter into any strategic alliances with respect to, NEWYELLOW. Therefore, you should consider our prospects in light of the risks and uncertainties encountered by companies trying to establish a new line of business, particularly companies proposing to enter markets dominated by large and well-known companies.
To successfully introduce NEWYELLOW into the New York market and sustain and increase our profitability, we must do the following:
- convince advertisers that NEWYELLOW will be used by sufficient number of their potential customers to make it worthwhile and cost effective for them to advertise in NEWYELLOW;
- manage the production (which includes selling ads, graphic design, layout, editing and proofreading) of multiple directories addressing different markets in varying stages of development;
- attract, retain and motivate qualified personnel and expand the number of sales, operating and management personnel;
- provide high quality, easy to use and reliable directories;
- establish a brand identity for NEWYELLOW;
- develop new and maintain existing relationships with advertisers without diverting revenues from our existing directories;
- develop and upgrade our management, technical, information and accounting systems;
- respond to competitive developments promptly;
- introduce enhancements to our existing products and services to address new technologies and standards and evolving customer demands;
- control costs and expenses and manage higher levels of capital expenditures and operating expenses; and
- maintain effective quality control over all of our directories.
Our failure to achieve any of the above in an efficient manner and at a pace consistent with the growth of our business could adversely affect our business, financial condition, results of operations and the value of our securities. Our operating results will also depend on external factors such as the development of similar or superior services or products by competitors, general economic conditions and economic conditions specific to publishers of yellow page directories.
OUR SUCCESS DEPENDS ON OUR ABILITY TO HIRE AND RETAIN EFFECTIVE SALES REPRESENTATIVES. OUR EXPANSION STRATEGY REQUIRES US TO EXPAND OUR SALES FORCE SIGNIFICANTLY.
The success and growth of our business primarily depends on our ability to field a highly effective, well-trained sales force. Currently, we hire about one-half of our sales representatives directly. The remainder are hired by independent sales agencies with whom we have agreements. Due to the demands of the job, many sales representatives leave within one year. In addition, our agreements with the independent sales agencies provide that they are terminable upon 30 days notice by either party. Regularly replenishing our sales force involves significant time and expense for recruiting and training. Introduction of NEWYELLOW will require us to increase the size of the sales force significantly. We cannot assure you that we will be able to hire and retain qualified personnel to keep pace with our expansion strategy.
WE DO NOT HAVE ANY LONG-TERM COMMITMENTS FROM ADVERTISERS, UPON WHOM OUR SUCCESS DEPENDS.
Our revenues are generated by selling ads. We do not, however, have long-term contractual arrangements with advertisers. Thus, we must obtain new advertisers and renewals from existing advertisers, for each directory that we publish. There is no assurance that our current advertisers will continue to purchase ads in future editions of our directories or that we will be able to attract new advertisers. Any failure to achieve sufficient advertising revenues would have a material adverse effect on our business, results of operations and financial condition.
IF WE FAIL TO PUBLISH A DIRECTORY, WE WOULD BE REQUIRED TO GIVE REFUNDS TO OUR ADVERTISERS.
A significant portion of our revenues is collected prior to the publication and distribution of our directories and is used to pay our employees, contractors and suppliers. If we did not publish a directory, we would be obligated to refund advances to our advertisers. We may not have sufficient cash reserves to repay all these advances. In such event, we would have to generate cash by borrowing money, selling securities or selling assets. We do not know whether any of those alternatives will be possible. Further, any of these alternatives, particularly the sale of our assets, would inhibit our ability to conduct our business.
OUR ABILITY TO PRODUCE DIRECTORIES ON A COST EFFICIENT BASIS DEPENDS ON THE COST OF PAPER AND PRINTING.
Aside from sales commissions, our two largest expenses are the cost of paper and printing. We do not have any long-term contracts with paper suppliers or with printers. We buy paper on the open market at prevailing prices. Paper costs fluctuate according to supply and demand in the marketplace. In addition, paper costs can be affected by events outside of our control such as fluctuations in currency rates, political events, global economic conditions, environmental issues and acts of God. A substantial increase in paper costs may materially increase publication costs and will reduce our profitability.
The JI Directory and the Master Guide are printed in Israel by HaMakor Printing. To date, we have secured favorable rates and high quality service from HaMakor. However, we do not have any agreement with HaMakor and we cannot assure you that we will continue to obtain favorable pricing from them or that they will continue to provide us with high quality service. If we need to replace HaMakor quickly for any reason, our business, results of operations and financial condition may suffer.
WE DO NOT MEASURE THE EFFECTIVENESS OF ADVERTISEMENTS, BUT AS OUR BUSINESS GROWS, OUR CUSTOMERS MAY REQUIRE US TO DO SO.
Our advertisers do not require us to measure the effectiveness of their advertisements in the JI Directory or the Master Guide, and we believe our competitors do not provide their advertisers with such information. However, we may have to provide this type of information when we publish NEWYELLOW. The effectiveness of advertising is usually based upon demographic and other relevant statistical data. If we cannot provide our advertisers with this information or if they perceive the information that we provide to be unreliable, they may not advertise in NEWYELLOW or refuse to pay our standard advertising rates. Accordingly, we will have to either develop the ability to provide this information to our advertisers or contract with third parties to provide this information on our behalf. Either alternative will result in additional costs and may also cause interruptions in our business operations. The costs involved to develop this capability internally include personnel costs as well as capital costs.
WE REQUIRE SIGNIFICANT CAPITAL TO EXPAND OUR OPERATIONS.
The expansion of our operations to add NEWYELLOW and possibly other yellow page directories requires substantial amounts of additional capital. Accordingly, we need the proceeds of this Offering to launch NEWYELLOW. The publication, printing, distribution and marketing of yellow page directories involve significant expense which must be paid before generating advertising revenues at a level sufficient to cover these expenses. We expect that the net proceeds from this Offering, together with cash flow from operations, will be sufficient to launch NEWYELLOW and fund our operations and capital requirements for at least 12 months following the consummation of this Offering. We may be required to seek additional sources of capital sooner than we expect if our operating assumptions change or prove to be inaccurate or we accelerate our plans to launch directories in addition to the Manhattan NEWYELLOW. Our ability to obtain any such additional financing may be limited by our financial
condition, our operating results or the condition of the financial markets. We cannot assure you that we will be able to obtain additional financing or what will be the terms of such financing. See "Management's Discussion and Analysis of Capital Resources" for a further discussion of our current and expected future capital requirements and our belief regarding our ability to meet those requirements
OUR QUARTERLY OPERATING RESULTS ARE NOT ALWAYS INDICATIVE OF OUR RESULTS OF OPERATIONS FOR THE FULL YEAR OR OTHERWISE.
Our results of operations have been subject to quarterly fluctuations. Most of our revenue has been recognized in the first and the third quarters when the JI Directory is printed and distributed. Similarly, costs directly relating to publishing the directories are also expensed in the first and third quarters. All other costs are expensed as incurred. As a result, quarterly results have not been indicative of annual results. Future quarterly operating results may fluctuate as a result of these factors and the timing of publication of NEWYELLOW and associated start-up costs.
OUR GROWTH DEPENDS ON THE CONTINUED SERVICES OF ASSAF RAN.
We depend on the continued services of Assaf Ran, our founder, President and Chief Executive Officer. We intend to purchase a $3 million key man life person insurance policy on Mr. Ran before this Offering. Mr. Ran has not been approved for such a policy and we do not know whether such a policy will be available. If Mr. Ran's employment terminates, our business may be adversely affected. Mr. Ran has entered into an employment agreement, but that is no guarantee that his employment will not terminate before its expiration on June 30, 2002. In addition, we may need to hire additional management personnel as our business grows. See "Management" for a further discussion regarding Mr. Ran's employment contract and information concerning our current management.
AFTER THIS OFFERING, ONE SHAREHOLDER WILL CONTINUE TO CONTROL OUR AFFAIRS.
Upon completion of this Offering, Assaf Ran, our founder, President and Chief Executive Officer, will beneficially own approximately 47.5% (47% if the option we granted to the underwriters to purchase additional Common Shares from us is exercised in full) of the outstanding Common Shares. As a result, he will be able to control substantially all matters submitted to our shareholders for approval (including the election and removal of directors and any merger, consolidation or sale of all or substantially all of our assets) and to control our management and affairs. This concentration of ownership may have the effect of delaying, deferring or preventing a change in control of us, impeding a merger, consolidation, takeover or other business combination involving us or discouraging a potential acquirer from making a tender offer or otherwise attempting to obtain control of us, which in turn could adversely affect the market price of the Common Shares. See "Principal and Selling Shareholders" for further information concerning Mr. Ran's ownership of Common Shares.
COMPUTER PROGRAMS AND MICROPROCESSORS THAT HAVE TIME-SENSITIVE SOFTWARE MAY
RECOGNIZE A DATE USING "00" AS THE YEAR 1900 RATHER THAN THE YEAR 2000, OR NOT
RECOGNIZE THE DATE AT ALL, WHICH COULD RESULT IN MAJOR SYSTEM FAILURES OR
MISCALCULATIONS.
We have not investigated nor spent any significant amount of money to determine if our operating, management and financial systems, or those of our suppliers are "Y2K compliant." If these systems are not Y2K compliant, on January 1, 2000 they may either malfunction or shut down completely. In either case, historical data critical to our business, operations and financial condition may be temporarily or permanently lost, forcing us to discontinue operations for a significant amount of time until such data are retrieved or recreated, if possible. We may also have to expend significant amounts of capital to recreate such data and restore our computer systems to working order, which could force us to delay or discontinue our expansion plans. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations--Year 2000 Compliance" for a further discussion of Year 2000 compliance issues.
WE ARE SUBJECT TO FEDERAL AND STATE LAWS, RULES AND REGULATIONS WHICH COULD CHANGE AT ANY TIME IN AN UNPREDICTABLE MANNER.
We are subject to various laws, rules and regulations that address issues such as safety in the workplace and our relationships with employees such as OSHA, fair employment practices and minimum wage requirement. Our failure to comply with these laws, rules and regulations, which could change at any time in an unpredictable manner, could, among other things, limit or prohibit certain of our business activities, subject us to adverse publicity, increase the cost of regulatory compliance, or subject us to monetary fines or other penalties. Any of the foregoing could negatively impact our business, results of operations and financial condition. See "Business--Government Regulation" for a further discussion of the effect of government regulations on our operations.
WE DO NOT INTEND TO PAY DIVIDENDS.
We have never paid any dividends on our Common Shares, and we do not intend to pay any dividends in the foreseeable future. We intend to retain our cash for the continued expansion of our business.
WE WILL HAVE BROAD DISCRETION IN HOW WE APPLY PROCEEDS FROM THIS OFFERING.
We plan to apply a substantial portion of the estimated net proceeds from this Offering to the development of NEWYELLOW. We plan to use the balance for general corporate purposes, including working capital. The precise use of these funds and the timing of expenditures will be at the discretion of management. See "Use of Proceeds" for a further discussion of how we plan to apply the proceeds of this Offering.
THE NET TANGIBLE BOOK VALUE PER COMMON SHARE AFTER THIS OFFERING WILL BE SUBSTANTIALLY LESS THAN THE PRICE YOU PAID FOR THE SHARES.
This Offering will result in the immediate and substantial dilution of $4.09 per share, or 62.9% of the initial public offering price, representing the difference between our net tangible book value per Common Share after giving effect to this Offering and the assumed public offering price of $6.50 per share. See "Dilution" for a more detailed description of the dilution which investors in this Offering will experience.
THIS IS OUR INITIAL PUBLIC OFFERING. THE MARKET PRICE OF THE COMMON SHARES CAN FLUCTUATE SIGNIFICANTLY, SOMETIMES IN A MANNER UNRELATED TO OUR PERFORMANCE.
Prior to the Offering, there has been no public market for the Common Shares. We cannot predict the extent to which investor interest in the Company will lead to the development of a trading market or the liquidity of that market. The market price of our Common Shares could vary widely in response to various factors and events, including:
- the number of Common Shares being sold and purchased in the marketplace;
- variations in our operating results;
- press reports;
- regulation and industry trends;
- rumors of significant events which can circulate quickly in the marketplace, particularly over the Internet; and
- the difference between our actual results and the results expected by investors and analysts.
The initial public offering price for the Common Shares offered by this Prospectus was determined by negotiations between the Company and Paulson and may not be indicative of prices that will prevail in the trading market. The stock market has experienced significant price and volume fluctuations. You may not be able to resell your Common Shares at or above the initial public offering price. In the past, following periods of volatility in the market price of a company's securities, securities class action litigation has often been instituted against such a company. Such litigation could result in substantial costs and a diversion of management's attention and resources. See "Underwriting" for a further discussion of the factors that may influence the price of our Common Shares.
SALES OF SHARES AFTER THIS OFFERING COULD ADVERSELY AFFECT OUR SHARE PRICE.
After this Offering, there will be 2,976,190 Common Shares issued and outstanding (3,174,940 if the option granted by us to the underwriters to purchase additional Common Shares is exercised in full). In addition, we have reserved 124,000 Common Shares for issuance under our 1999 Stock Option Plan. We have granted options covering 22,324 Common Shares under this plan as of the effective date of this Offering. The Common Shares sold in this Offering will be freely tradeable except for any Common Shares purchased by our "affiliates" as defined in Rule 144 under the Securities Act of 1933. The remaining Common Shares will be "restricted securities" and will become eligible for sale no later than the first anniversary of the effective date of this Offering, subject to the volume limitations and other conditions of Rule 144. Sales of a large number of Common Shares could adversely affect the market price for the Common Shares. See "Management--1999 Stock Option Plan" and "Shares Eligible for Future Sale" for a further discussion of our Stock Option Plan and the effects of Rule 144.
CERTAIN PROVISIONS OF OUR CERTIFICATE OF INCORPORATION AND BYLAWS COULD HAVE EFFECTS THAT CONFLICT WITH THE INTERESTS OF OUR SHAREHOLDERS.
Certain provisions of our Certificate of Incorporation and Bylaws could make it more difficult for a third party to acquire control of us, even if such change in control would be beneficial to our shareholders. For example, our Certificate of Incorporation allows us to issue preferred stock without shareholder approval. Any such issuances of preferred stock could make it more difficult for a third party to acquire us. As another example, our Bylaws provide that only the Board of Directors may call a special meeting of shareholders and that shareholders must follow an advance notification procedure for certain shareholder nominations of candidates and for certain other shareholder business to be conducted at the annual meeting. This provision could delay or frustrate the removal of incumbent directors or a change in control. It also could discourage, impede or prevent a merger, tender offer or proxy contest, even if such event would be favorable to the interests of shareholders. See "Description of Capital Stock" for a more detailed discussion of the terms of our Certificate of Incorporation that could hinder a third party's attempts to acquire control.
OUR DIRECTORS HAVE LIMITED PERSONAL LIABILITY FOR THEIR ACTIONS.
Subject to limitations imposed by the New York Business Corporation Law, our Certificate of Incorporation provides that our directors will not be personally liable to us or to our shareholders for monetary damages if they breach their fiduciary duty of care as a director, including breaches which constitute gross negligence. Thus, under certain circumstances, neither we nor our shareholders will be able to recover damages even if directors take actions which are harmful to us. See "Management-- Limitation of Director Liability; Indemnification" for a further discussion of director liability.
THE EXERCISE OF OUTSTANDING OPTIONS AND WARRANTS WILL DILUTE THE PERCENTAGE OWNERSHIP OF OUR OTHER SHAREHOLDERS. THE SALE OF SUCH COMMON SHARES IN THE OPEN MARKET COULD ADVERSELY AFFECT THE MARKET PRICE OF OUR COMMON SHARES.
Simultaneously with this Offering, Paulson will receive five-year warrants covering 132,500 Common Shares. In addition, we have granted options covering 22,324 Common Shares under our 1999 Stock Option Plan as of the effective date of this Offering. More options may be granted in the future under our 1999 Stock Option Plan. All of the Common Shares underlying Paulson's warrants and the options granted under our 1999 Stock Option Plan will be registered for resale under the Securities Act. The exercise of any of these warrants and options will dilute the percentage ownership of our other shareholders. In addition, any sales in the public market of Common Shares issuable upon the exercise of any of these warrants or options or the perception that such sales could occur, may adversely affect the prevailing market price of our Common Shares. See "Shares Eligible For Future Sale" for a further discussion of the effect of the granting of stock options, "Management--1999 Stock Option Plan" for a further description of the stock options already granted and "Underwriting" for a description of the warrants granted to Paulson.
YOU SHOULD NOT RELY ON FORWARD-LOOKING STATEMENTS.
This Prospectus contains forward-looking statements that involve risks and uncertainties. We use words such as "anticipate," "believes," "expects," "future" and "intends" and similar expressions to identify forward-looking statements. You should not unduly rely on these forward-looking statements, which apply only as of the date of this Prospectus. Our actual results could differ materially from those anticipated in these forward-looking statements for many reasons, including the risks described above and elsewhere in this Prospectus.
USE OF PROCEEDS
The net proceeds to us from (1) the sale of the Common Shares offered by us pursuant to this Prospectus and (2) the repayment of Mr. Ran's loan are expected to be approximately $6.9 million. Net proceeds from the sale of Common Shares are computed by deducting our share of the underwriting discounts and commissions and estimated offering expenses from the total public offering price. We intend to use these net proceeds as follows:
AMOUNT PERCENTAGE
------------ -----------
Printing, publishing and distribution costs for NEWYELLOW............................... $ 2,600,000 37.68%
Sales commissions for NEWYELLOW......................................................... 2,400,000 34.78%
Marketing and promotional expenses for NEWYELLOW and the Portal......................... 1,500,000 21.74%
General corporate purposes, including working capital................................... 400,000 5.80%
------------ -----------
$ 6,900,000 100.00%
------------ -----------
------------ -----------
|
- Printing, publishing and distribution costs represent the actual cost of printing and distributing approximately 900,000 copies of Manhattan NEWYELLOW, assuming 1,500 pages per copy.
- Sales commissions reflect commissions that will be paid to our sales force prior to our actual receipt of advertising revenues.
- Marketing and promotional expenses include expenses related to the development of strategic alliances and distribution relationships.
- General corporate purposes include hiring additional administrative, management, financial, sales, marketing, technical and customer service personnel; acquiring and enhancing our operating, support and management systems; and capital expenditures for computers and other equipment.
Working capital may also be applied to acquisitions. We do not have current plans, agreements or commitments with respect to any acquisition nor are we currently engaged in any negotiations with respect to any such transaction. Any proceeds from the exercise of the option we granted to the underwriters to purchase additional Common Shares from us will be added to working capital.
We will retain broad discretion in the allocation of the net proceeds of this Offering within the categories listed above. The amounts actually expended for the purposes may vary significantly and will depend on a number of factors, including the amount of our future revenues and the other factors described under "Risk Factors." Pending such uses, the net proceeds of this Offering will be invested in short-term, interest-bearing, investment grade securities.
We expect that the net proceeds from this Offering, together with cash flow from operations, will be sufficient to fund our operations and capital requirements for at least 12 months following the consummation of this Offering. We may be required to seek additional sources of capital sooner if:
- operating assumptions change or prove to be inaccurate;
- we consummate any acquisitions of significant businesses or assets; or
- we further accelerate our expansion plans and enter new markets more rapidly.
See "Management's Discussion and Analysis of Financial Condition and Results of Operations-- Liquidity and Capital Resources" for a further discussion of our current and expected future capital requirements and our belief regarding our ability to meet those requirements.
DIVIDEND POLICY
We have never declared or paid any cash dividends on our capital stock and do not anticipate paying any cash dividends on our capital stock in the foreseeable future. We may incur indebtedness in the future which may prohibit or effectively restrict the payment of dividends, although we have no current plans to do so.
CAPITALIZATION
The following table sets forth our capitalization as of December 31, 1998
(1) on an actual basis, (2) pro forma giving effect to the consummation of the
transactions contemplated by the Exchange Agreement and (3) pro forma, as
adjusted to give effect to the consummation of the transactions contemplated by
the Exchange Agreement, the sale of the Common Shares offered by us pursuant to
this Prospectus after deducting $1,512,500, our share of the underwriting
discounts and commissions and other estimated offering expenses, and the
repayment of the principal shareholder's loan.
DECEMBER 31, 1998
--------------------------------------
PRO FORMA,
ACTUAL PRO FORMA AS ADJUSTED
---------- ------------ ------------
Shareholders' equity:
Preferred shares, $0.01 par value; 5,000,000 shares authorized; no
shares issued and outstanding actual, pro forma or pro forma, as
adjusted.............................................................. $ -- $ -- $ --
Common Shares, $0.001 par value; 25,000,000 shares authorized; 1,250,000
shares issued and outstanding actual; 1,726,190 shares issued and
outstanding pro forma; 2,976,190 shares issued and outstanding as
adjusted.............................................................. 1,250 1,726 2,976
Additional paid-in capital.............................................. 150 1,351,655 7,962,905
Retained earnings....................................................... 523,339 564,214 564,214
---------- ------------ ------------
Total shareholders' equity............................................ 524,739 $ 1,917,595 8,530,095
---------- ------------ ------------
Total capitalization...................................................... $ 524,739 $ 1,917,595 $ 8,530,095
---------- ------------ ------------
---------- ------------ ------------
|
Common Shares outstanding, actual and as adjusted, exclude 124,000 Common Shares reserved for issuance pursuant to our 1999 Stock Option Plan. We have granted options covering 22,324 Common Shares under this plan as of the effective date of this Offering at the initial public offering price per Common Share. See "Management--Stock Option Plan" for a description of our 1999 Stock Option Plan and the options that will be granted under that plan as of the effective date of this Offering.
DILUTION
Our pro forma net tangible book value as of December 31, 1998 was approximately $566,614, or $0.33 per Common Share. Pro forma net tangible book value per Common Share represents the amount of total tangible assets less total liabilities, divided by the pro forma Common Shares outstanding as of December 31, 1998 taking into account the transactions contemplated by the exchange agreement. See notes 1 and 8 to our Consolidated Financial Statements and the "Management's Discussion and Analysis of Financial Condition and Results of Operation" section of this Prospectus. Giving effect to the issuance and sale of the Common Shares offered by us pursuant to this Prospectus, after deducting $1,512,500, our share of the underwriting discounts and commissions and estimated offering expenses, our pro forma net tangible book value as of December 31, 1998 would have been $7,179,114, or $2.41 per Common Share. This represents an immediate increase in pro forma net tangible book value of $2.08 per Common Share to existing shareholders and an immediate dilution of $4.09 per Common Share to new investors. The following table illustrates this per share dilution.
Initial public offering price per Common Share.............................. $ 6.50
Net tangible book value per Common Share at December 31, 1998............... $ 0.33
Increase in pro forma net tangible book value per Common Share attributable
to new investors.......................................................... $ 2.08
Net tangible book value per Common Share after this Offering................ $ 2.41
-----
Dilution per Common Share to new investors.................................. $ 4.09
-----
-----
|
The following table summarizes, on a pro forma basis, as of December 31, 1998, the differences between the number of Common Shares we sold to, the total consideration and the average price per Common Share paid by existing shareholders and to be paid by new investors purchasing Common Shares from us in this Offering, assuming an initial public offering price of $6.50 per share and before deducting underwriting discounts and commissions and other offering expenses:
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE
--------------------- ----------------------- PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
---------- --------- ------------ --------- -----------
Existing shareholders................................ 1,726,190 58.00% $ 2,400 0.03% $ 0.00
New investors........................................ 1,250,000 42.00% $ 8,125,000 99.97% $ 6.50
---------- --------- ------------ ---------
Total.......................................... 2,976,190 100.00% $ 8,127,400 100.00%
---------- --------- ------------ ---------
---------- --------- ------------ ---------
|
SELECTED FINANCIAL DATA
The following selected financial data is qualified by reference to, and should be read together with, (1) our Consolidated Financial Statements for the years ended December 31, 1997 and 1998 and the notes thereto which have been audited by Arthur Andersen, LLP, independent public accountants, and (2) "Management's Discussion and Analysis of Financial Condition and Results of Operations" appearing elsewhere in this Prospectus.
INCOME STATEMENT DATA:
FOR THE YEARS ENDED
DECEMBER 31,
--------------------------
1997 1998
------------ ------------
Net advertising revenues.............................................................. $ 2,501,754 $ 2,759,092
Publishing costs...................................................................... 441,535 377,983
Gross profit.......................................................................... 2,060,219 2,381,109
Operating costs and expenses:
Selling expenses.................................................................... 922,124 946,315
Administrative and general expenses................................................. 658,956 765,233
------------ ------------
Total operating costs and expenses.................................................. 1,581,080 1,711,548
Earnings from operations before provision for income taxes and equity income.......... 479,139 669,561
Provision for income taxes............................................................ 240,000 329,000
------------ ------------
Equity in earnings of affiliate....................................................... 16,012 17,035
Net income............................................................................ $ 255,151 $ 357,596
------------ ------------
------------ ------------
Basic and diluted net income per Common Share......................................... $ 0.20 $ 0.29
------------ ------------
------------ ------------
Basic and diluted weighted average number of Common Shares outstanding................ 1,250,000 1,250,000
------------ ------------
------------ ------------
|
BALANCE SHEET DATA:
AS OF DECEMBER 31,
1998
----------------------
Cash...................................................................................... $ 310,185
Working capital........................................................................... 162,041
Total assets.............................................................................. 2,970,190
Total liabilities......................................................................... 2,445,451
Total shareholders' equity................................................................ 524,739
|
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
THIS SECTION OF THIS PROSPECTUS INCLUDES A NUMBER OF FORWARD-LOOKING STATEMENTS THAT REFLECT OUR CURRENT VIEWS WITH RESPECT TO FUTURE EVENTS AND FINANCIAL PERFORMANCE. WE USE WORDS SUCH AS "PLAN," "BELIEVES," "EXPECTS," "FUTURE" AND "INTENDS" AND SIMILAR EXPRESSIONS TO IDENTIFY FORWARD-LOOKING STATEMENTS. YOU SHOULD NOT UNDULY RELY ON THESE FORWARD-LOOKING STATEMENTS, WHICH APPLY ONLY AS OF THE DATE OF THIS PROSPECTUS. THESE FORWARD-LOOKING STATEMENTS ARE SUBJECT TO CERTAIN RISKS AND UNCERTAINTIES THAT COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM HISTORICAL RESULTS OR OUR PREDICTIONS. FOR A DESCRIPTION OF THESE RISKS, SEE "RISK FACTORS."
We believe that the yellow page directories which we publish for the New York metropolitan market have more advertisers than those of any publisher except Bell Atlantic. We currently publish and distribute two yellow page directories, the JI Directory and the Master Guide, in print and on the world wide web. The JI Directory, a bilingual Hebrew-English publication, was first published in February 1990 and it has been published in February and August of each year since 1991. The Master Guide, an English-only directory serving the Hasidic and ultra-Orthodox Jewish communities, was first published in September 1998. In addition to these directories, we also operate the Referral Service, which directs potential customers and clients to businesses that advertise in the JI Directory and the Master Guide. Finally, in February 1999 we launched the Portal, a web site that links to web sites maintained by advertisers in our directories, featuring programs, events and news of particular interest to the Jewish and Israeli communities and general content on the world wide web.
The JI Directory has grown from 118 pages in its initial edition in February 1990 to 1,696 pages in the 18(th) edition published in February 1999. Similarly, the number of ads has increased from 217 in the first edition to more than 3,200 in our most recent edition. Our advertising rates for new advertisers have increased approximately 20% to 30% a year since 1990. However, we believe it is unlikely that this trend will continue.
By June 2000, we plan to launch NEWYELLOW, an English-only, general interest yellow page directory that will compete directly with the Bell Atlantic Yellow Pages in the New York metropolitan market. Initially, our plan is to market and distribute NEWYELLOW in Manhattan. Once we have established ourselves in the Manhattan market we intend to expand into the remaining boroughs of New York City and the surrounding suburbs that make up the New York metropolitan area. We believe that NEWYELLOW will become a viable alternative to the Bell Atlantic Yellow Pages because of our low cost structure, low overhead and ability to hire, train and manage an effective sales force.
Our principal source of revenue derives from the sale of ads for our directories. Advertising rates for the 18(th) edition of the JI Directory range from $300 for a line listing to $4,206 for a full-page ad. These rates are for two color ads (black and/or red on yellow paper) and include all, graphics, design and production work, including creation of a Hebrew version of, or Hebrew text for, the ad. We charge premium rates for extra colors and special positions ranging from $6,250 to $22,000 for the front and back covers. Advertising rates for the 2(nd) edition of the Master Guide, expected to be published in June 1999, range from $300 for a line listing to $1,975 for a full page with premium rates for additional colors and special positioning. The principal operating costs incurred in connection with publishing the directories are commissions payable to sales representatives and costs for paper and printing. Administrative and general expenses include expenditures for marketing, insurance, rent, state and local franchise taxes, licensing fees, office overhead and wages and fees paid to employees and contract workers.
Advertising fees, whether collected in cash or evidenced by a receivable, generated in advance of publication dates is recorded as "Advanced billings for unpublished directories" on our balance sheet. Many of our advertisers choose to pay the fee over a period of time. In such case, the entire amount of the deferred payment is booked as a receivable. Revenues are recognized at the time the directory in
which the ad appears is published. Similarly, costs directly related to the publication of a directory in advance of publication are recorded as "Directories in progress" on our balance sheet and are recognized when the directory to which they relate is published. All other costs are expensed as incurred. Generally, advertising commissions are paid as advertising revenue is collected. However, we expect that for the initial edition of NEWYELLOW we will have to pay commissions to our sales representatives even before we collect the related advertising revenue. Accordingly, approximately $2.4 million of the net proceeds of this Offering is earmarked for commissions payable with respect to NEWYELLOW advertising.
Assaf Ran, our principal shareholder, owns 100% of Dapey Assaf-Dapey Zahav and 50% of Dapey Assaf-Hamadrikh. Accordingly, our historical financial data include all of the operations of Dapey Assaf-Dapey Zahav and 50% of the net income of Dapey Assaf-Hamadrikh. Upon consummation of the transactions contemplated by the Exchange Agreement, immediately prior to the effectiveness of this Offering, Dapey Assaf-Dapey Zahav and Dapey Assaf-Hamadrikh will become our wholly owned subsidiaries. The transactions contemplated by the Exchange Agreement will be accounted for under the purchase method of accounting. Accordingly, the value of the amount deemed to have been paid to the minority shareholders of Dapey Assaf-Hamadrikh will be allocated among our assets, including our trademarks, tradenames and other intellectual property, based on their relative fair market values and to the extent of their fair market values. The excess will be allocated to goodwill. The amounts allocated to our intellectual property and goodwill, estimated at $1.35 million, will be amortized on a straight-line basis over 25 years, or $54,000 per year, beginning with our 1999 fiscal year.
RESULTS OF OPERATIONS
The following table sets forth for the periods presented statement of operations data as a percentage of net advertising revenue. The trends suggested by this table may not be indicative of future operating results.
1997 1998
--------- ---------
Net advertising revenues................................................ 100.00% 100.00%
Publishing costs........................................................ 17.65% 13.70%
Gross profit............................................................ 82.35% 86.30%
Selling expenses........................................................ 36.86% 34.30%
Administrative and general expenses..................................... 26.34% 27.73%
Total operating costs and expenses...................................... 63.20% 62.03%
Earnings before provisions for income taxes and equity income........... 19.15% 24.27%
Provision for income taxes.............................................. 9.59% 11.92%
Equity in earnings of affilliate........................................ 0.64% 0.62%
Net income.............................................................. 10.20% 12.96%
|
YEARS ENDED DECEMBER 31, 1998 AND 1997
NET ADVERTISING REVENUES. Net advertising revenues for 1998 increased to $2,759,092 from $2,501,754 in the prior year, an increase of 10.29%. The increase reflected both increases in ad rates to new advertisers as well as an increase in the number of advertisers. The 16(th) and 17(th)editions published in February and August 1998, had 2,675 and 2,776 advertisers, respectively. The 14(th) and 15(th) editions published in February and August 1997, had 2,311 and 2,725 advertisers, respectively.
PUBLISHING COSTS. Publishing costs for 1998 decreased to $377,983 from $441,535 in 1997, or 14.39%. As a result of the increase in net advertising revenues and the decrease in publishing costs, gross profit for 1998 increased to $2,381,109 from $2,060,219, or 15.58%.
SELLING EXPENSES. Selling expenses increased 2.62% to $946,315 in 1998 from $922,124 in the prior year. However, as a percentage of net advertising revenues, selling expenses declined to 34.30% in 1998 from 36.86% in the prior year, reflecting lower commission rates and higher advertising rates.
ADMINISTRATIVE AND GENERAL EXPENSES. Administrative and general expenses in 1998 were $765,233 compared to $658,956 in 1997, an increase of 16.13%. This increase was attributable to the hiring of additional clerical personnel necessitated by the growth in the size of the JI Directory and the publication of the 1(st) edition of the Master Guide.
EARNINGS BEFORE PROVISION FOR INCOME TAXES AND EQUITY INCOME. Earnings before provision for income taxes and equity income in 1998 were $669,561 compared to $479,139 for the prior year, an increase of 39.74%. This increase is attributable to a 10.29% increase in net advertising revenues and only a 3.31% increase in total costs and expenses. More importantly, as a percentage of net advertising revenues, total costs and expenses decreased from 80.85% in 1997 to 75.73% in 1998.
EQUITY IN EARNINGS OF AFFILIATE. Equity in earnings of affiliate represents 50% of the net income of Dapey Assaf-Hamadrikh. For 1998 such amount was $17,035 compared to $16,012 for 1997, an increase of 6.39%. As a percentage of net advertising revenues, equity in earnings of affiliate was virtually the same in both years.
PROVISION FOR INCOME TAXES. Provision for income taxes in 1998 and 1997 was $329,000 and $240,000, respectively. As a percentage of net advertising revenues, provision for income taxes increased to 11.34% in 1998 from 9.59% in 1997.
NET INCOME. Net income for 1998 increased 40.15% to $357,596 from $255,151 in 1997. As a percentage of net advertising revenues, net income in 1998 increased 27.06% to 12.96% from 10.20% in 1997.
LIQUIDITY AND CAPITAL RESOURCES
To date, our only source of funds has been cash flow from operations which has funded both our working capital needs and capital expenditures. We have no debt or credit facilities. Generally, advertising fees, whether collected in cash or evidenced by a receivable, are generated before the publication of the related directory and before many of the costs directly associated with publishing the related directory are incurred.
At December 31, 1998 we had cash and cash equivalents of $310,185 and working capital of $162,041 compared to cash and cash equivalents of $132,741 and working capital of $47,638 at December 31, 1997. For the year ended December 31, 1998, net cash provided by operating activities was $433,731, compared to $133,253 for the prior year. Net cash used in investing activities in 1998 was $34,940 of which $17,035 represented 50% of the net income of Dapey Assaf-Hamadrikh and $17,905 was used to purchase new computer equipment. Net cash used in financing activities in 1998 was $221,347, the amount of the loan made to our principal shareholder, Assaf Ran.
At December 31, 1998, advance billings for unpublished directories and directories in progress were $1,832,341 and $623,335, respectively. In comparison, the corresponding amounts at December 31, 1997, were $1,226,343 and $379,390, respectively. At December 31, 1998, we had income taxes payable of $358,000 and deferred taxes payable of $171,000. Deferred taxes payable represents the timing difference between reporting income on an accrual basis for financial purposes and on a cash basis for tax purposes.
We expect our working capital requirements to increase significantly over the next 12 months as we implement our plan to launch NEWYELLOW and expand the Portal. Accordingly, we will depend primarily on the net proceeds of this Offering to expand our operations. The net proceeds of this Offering will be used to pay sales commissions to our sales representatives with respect to ad sales for NEWYELLOW, for marketing expenses for NEWYELLOW and the Portal, for the cost of printing and distributing NEWYELLOW and for other operating expenses that are expected to increase as we expand our business.
We expect that the net proceeds of this Offering, together with our cash flow from operations, will be sufficient to meet our working capital requirements for at least the next 12 months. See "Use of Proceeds" for a further discussion as to how we intend to use the net proceeds of this Offering.
YEAR 2000 COMPLIANCE
We are currently addressing the issue of whether or to what extent our systems will be vulnerable to potential errors and failures as a result of the "Year 2000" problem, which is the result of certain computer programs being written using two digits, rather than four digits, to define the applicable year. Computer programs and microprocessors that have time-sensitive software may recognize a date using "00" as the year 1900 rather than the year 2000, or not recognize the date at all, which could result in major system failures or miscalculations. If we or our suppliers or vendors experience Year 2000 problems, these problems could adversely impact our ability to service our customers or otherwise carry on our business, including causing interruptions in the operation of the Portal, customer billing, and invoicing and data interfaces to and from these systems. We are not currently aware of any material operational issues or costs associated with preparing our internal systems for the Year 2000 because substantially all of our existing systems have been purchased or replaced since 1996 or are currently under development. We are, however, working to identify and remedy potential Year 2000 problems in all of our new and existing mission-critical and business-critical systems and applications, including those supplied by third-party vendors. We may experience material unexpected costs caused by undetected errors or defects in the technology used in our systems or because of the failure of a material vendor to be Year 2000 compliant. We are also subject to external Year 2000-related failures or disruptions that might generally affect industry and commerce, such as financial, utility or transportation industry Year 2000 compliance failures and related service interruptions. All of these factors could materially adversely affect our business, results of operations and financial condition. We have not yet developed a contingency plan to address situations that may result if we are unable to achieve Year 2000 compliance. The cost of developing and implementing such a plan, if necessary, could be material.
RECENT ACCOUNTING PRONOUNCEMENTS
In October 1995, the Financial Accounting Standards Board issued SFAS No. 123, "Accounting for Stock-Based Compensation." This statement establishes the fair market value based method of accounting for an employee stock option but allows companies to continue to measure the compensation cost for those plans using the intrinsic value-based method of accounting prescribed by APB Opinion No. 25 "Accounting for Stock Issued to Employees." Companies electing to continue using the accounting provided for under APB Opinion No. 25 must, however, make pro forma disclosures of net income and earnings per share as if the fair value-based method of accounting defined in SFAS No. 123 had been applied. We have elected to account for stock-based compensation awards to employees and directors under the accounting prescribed by APB Opinion No. 25 and will provide the disclosures required by SFAS No. 123.
In February 1997, the Financial Accounting Standards Board issued SFAS No. 128, "Earnings per Share." This statement requires the presentation of both "basic earnings per share" and "diluted earnings per share" on the face of the statement of operations. Basic earnings per share is computed on the weighted average number of shares actually outstanding during the year and diluted earnings per share takes into account the effect of potential dilution from the exercise of outstanding dilutive stock options and warrants for common stock using the treasury stock method. We have adopted SFAS No. 128 for the current fiscal year.
In June 1997, the Financial Accounting Standards Board issued SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information." SFAS 131, applicable to public companies, established new standards for reporting information about operating segments in annual and periodic financial statements. SFAS No. 131 is effective beginning with the year ended December 31, 1998. We believe that we operate in only one segment.
BUSINESS
We believe that the yellow page directories which we publish for the New York metropolitan market have more advertisers than those of any publisher except Bell Atlantic. We currently publish and distribute two yellow page directories, the JI Directory and the Master Guide, in print and on the world wide web. The JI Directory, a bilingual Hebrew-English publication, was first published in February 1990 and it has been published in February and August of each year since 1991. The Master Guide, an English-only directory serving the Hasidic and ultra-Orthodox Jewish communities, was first published in September 1998. In addition to these directories, we also operate the Referral Service, which directs potential customers and clients to businesses that advertise in the JI Directory and the Master Guide. Finally, in February 1999 we launched the Portal, a web site that links to web sites maintained by businesses that advertise in our directories, featuring programs, events and news of particular interest to the Jewish and Israeli communities and general content on the world wide web.
The JI Directory has grown from 118 pages in its initial edition in February 1990 to 1,696 pages in the 18(th) edition published in February 1990. Similarly, the number of ads has increased from 217 in the first edition to approximately 3,200 in our most recent edition. Our advertising rates for new advertisers have increased approximately 20% to 30% a year since 1990, although we believe it is unlikely that this trend will continue.
By June 2000, we plan to launch NEWYELLOW, an English-only, general interest yellow page directory that will compete directly with the Bell Atlantic Yellow Pages in the New York metropolitan market. Initially, our plan is to market, and distribute NEWYELLOW in Manhattan. Once we have established ourselves in the Manhattan market, we intend to expand into the remaining boroughs of New York City and the surrounding suburbs that make up the New York metropolitan area. We believe that NEWYELLOW will become a viable alternative to the Bell Atlantic Yellow Pages because of our low cost structure, low overhead and ability to hire, train and manage an effective sales force.
INDUSTRY BACKGROUND(*)
In 1998, yellow page advertising revenues in the United States were estimated to be $12.07 billion, a 6.3% increase over 1997 yellow page advertising revenues of $11.36 billion. The eight largest publishers of yellow page directories in the United States--including the five regional bell operating companies (RBOCs), GTE, SNET and Sprint--account for the overwhelming majority of yellow page advertising revenues. Bell Atlantic and SBC Directory Operations are the two largest publishers of yellow page directories in the United States, each having annual yellow page advertising revenue in excess of $2 billion.
There are many independent publishers of yellow page directories in the United States. In 1997 United States publishers of yellow page directories not affiliated with local telephone companies increased their market share to 6.4% from 6.2% in 1996. Their yellow page advertising revenues were expected to grow by 15.4% in 1998.
Further, in 1997 the total aggregate yellow page advertising revenues of companies that publish yellow page directories on the Internet (excluding the RBOCS, GTE, SNET and Sprint) were approximately $21.8 million. Simba estimates that yellow page Internet advertising revenues will grow significantly, reaching $164.9 million by 2000.
PRODUCTS AND SERVICES
THE JI DIRECTORY. The JI Directory is a bilingual, yellow page directory that is distributed in the New York metropolitan area. All ads in the JI Directory are in English and Hebrew unless the
* Except as otherwise indicated, all industry data supplied by Simba Information, Inc., a media consulting firm.
advertiser specifically requests that the ad be English only. The JI Directory is organized according to the Hebrew alphabet, although it is indexed in both Hebrew and English. We believe that the JI Directory is used principally by persons whose native language is Hebrew although it is also used by members of the Jewish community whether or not they speak Hebrew.
The JI Directory is published semi-annually and distributed free through local commercial and retail establishments in the New York metropolitan area as well as through travel agencies in Israel. Currently, approximately 350,000 copies of the JI Directory are printed and distributed annually. The JI Directory has grown substantially since its initial edition. The 1(st)edition, published in February 1990, had 118 pages and approximately 217 advertisers. The 18(th) edition, published in February 1999, has 1,696 pages and more than 3,200 advertisers. We believe that, based on the number of pages and advertisers, the JI Directory is the largest yellow page directory in the New York metropolitan area not published by Bell Atlantic.
The tables below illustrate the growth in the number of pages and advertisers of the JI Directory. Data for the years 1991 through 1998 represent an average of the two directories published in each of those years.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
PAGES PER DIRECTORY PAGES 1990 118 1991 174 1992 215 1993 272 1994 321 1995 430 1996 792 1997 1239 1998 1408 1999 1696 YEAR |
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
AVERAGE ADVERTISERS PER DIRECTORY
ADVERTISERS
1990 217
1991 505
1992 574
1993 646
1994 806
1995 1115
1996 1592
1997 2518
1998 2725
1999 3244
YEAR
|
Advertisers in the JI Directory include large, well-known airlines, telecommunications, insurance and travel companies, as well as local and neighborhood businesses such as restaurants, car dealerships, retail establishments, professionals (E.G., doctors, accountants and lawyers) and travel agencies. Typically, the advertisers provide us with the copy of their ad and our trained bilingual staff produces Hebrew text for the ad. Our editors also design ads for our advertisers. The size of an ad can range from a single line listing to a full page. Approximately 1% of the ads are line listings; the balance are at lease one-sixth of a page. Prices range from $300 for a line listing to $4,206 for a full page. Special rates apply for full color ads and premium positioning. Full color ads are $6,250 and premium positioning ranges from $8,250 to $22,000. Except for line listings, prices include all copy, graphic and design work. Basic ads are printed in black and red while premium ads are printed in four colors. Historically, our advertising rates for new advertisers have increased at the rate of 20 to 30% annually. However, we believe that this rate of increase cannot continue in the future.
All production, including layout, design, edit and most proofreading functions, for the JI Directory are performed at the Company's headquarters in Queens, New York by the Company's bilingual staff. The final version of the JI Directory is shipped to Israel to be printed by HaMakor Printing. The printed directories are shipped to the Company's main office in New York for distribution. The Company believes that the cost of printing the JI Directory in Israel, even after taking into account shipping costs, is less than the cost of printing a JI Directory of comparable quality locally.
THE MASTER GUIDE. In October 1998 we published the first edition of the Master Guide, a yellow page directory designed to meet the special needs of the Hasidic and ultra-Orthodox Jewish communities in the New York metropolitan area. The first edition of the Master Guide had 124 pages and 80 advertisers. A second edition is scheduled for publication in June 1999. We produce the Master Guide generally in the same manner as we do the JI Directory, including printing it in Israel. The Master Guide differs from the JI Directory in that the Master Guide is published in English only, does not advertise products or services that might offend the Hasidic and ultra-Orthodox Jewish communities and is only published once a year. Generally, advertising rates for the Master Guide are lower than those for the JI Directory. The development of the Master Guide reflects our strategy to expand by identifying and pursuing niche markets for yellow page directories.
THE REFERRAL SERVICE. The Referral Service provides added value to advertisers in our directories by referring to them potential customers, clients and other users of their products and services. We have recently established a program whereby certain of our advertisers have agreed to give discounts to customers who produce the Jewish Referral Service Yellow Card. The Yellow Card is distributed to customers with the JI Directory or the Master Guide or can be ordered directly from the Company.
THE PORTAL. Our first web site, established in 1995, contained an English-only version of the JI Directory. In 1999 we expanded our online presence by launching Portal. Portal functions as a "portal" to the world wide web, with links to a variety of sites on the web, particularly those that carry information and news that may be of particular interest to the Israeli and Jewish communities. It also provides a link to the JI Directory as well as the web sites of advertisers in the JI Directory. We also develop web sites for our advertisers for a fee. We plan to enhance the Portal by providing links to NEWYELLOW and community-focused yellow page directories, by including news and information and by creating strategic alliances with other Internet portals. While we have not yet derived any revenue from the Portal, we plan to explore ways in which the Portal can generate additional advertising revenue.
GROWTH STRATEGY
We plan to expand our operations by introducing NEWYELLOW, English-only, general interest yellow page directories, in the New York metropolitan area. We plan to introduce the first NEWYELLOW directory in Manhattan by June 2000. If the Manhattan NEWYELLOW directory is successful, we plan to add
additional NEWYELLOW directories covering the other boroughs in New York City, the other counties in the New York metropolitan area and northern New Jersey.
NEWYELLOW will compete directly with yellow page directories published by Bell Atlantic. We believe that our expertise in publishing yellow page directories, particularly our ability to hire, train and manage an effective sales force, our low advertising rates and low overhead, will enable us to compete effectively with Bell Atlantic. We expect that advertising rates for NEWYELLOW will be significantly lower than those for the Bell Atlantic Yellow Pages. We believe that our pricing policies will expand the market for yellow page directory advertising. NEWYELLOW will be positioned as a low-cost alternative to the Bell Atlantic Yellow Pages, appealing to smaller businesses that cannot afford to advertise in the Bell Atlantic Yellow Pages. Furthermore, we also believe our pricing policies will result in some advertisers switching from the Bell Atlantic Yellow Pages to NEWYELLOW or supplementing their Bell Atlantic Yellow Page advertising with NEWYELLOW advertising.
We may also explore opportunities for adding JI Directories and Master Guides in other cities with large Jewish and Israeli populations such as Miami, Florida and Los Angeles, California.
SALES
Advertisements for the JI Directory and the Master Guide are sold through our network of trained sales representatives, all of which are independent contractors and are paid solely on a commission basis. Of the approximately 65 sales representatives in our network, 32 are hired directly by us and 33 are hired by two independent sales agencies with which we have sales agency agreements. The sales representatives hired by us work out of our offices in Queens, New York and Fairlawn, New Jersey. Our two independent sales agencies are located in Brooklyn and Manhattan, New York. Our selling force is based in these locations because of the high concentration of Jewish and Israeli consumers in these areas. We expect to open two new company-owned sales offices in 1999, one in Long Island that will be dedicated to the JI Directory and the Master Guide, and one in Manhattan dedicated to NEWYELLOW.
Pursuant to our agreements with the independent sales agencies, the agencies may not sell advertising for any yellow page directories other than those we publish. Generally, each sales agency is responsible for all fixed costs relating to its operations. We pay sales commissions to the agencies, which, in turn, pays commissions to the individual sales representatives who sell the ads. The commissions payable to the individual sales representatives are prescribed in our agreements with the agencies and are consistent with the commissions we pay to the sales representatives that we hire directly.
We are responsible for training each sales representative, whether hired directly by us or by one of our sales agencies. Generally, training consists of one-day orientation, during which one of our sales managers educates the sales representative about our business and operations, and a two-week period during which the sales representative receives extensive supervision and support from a sales manager or another experienced sales representative.
MARKETING STRATEGY
The JI Directory and Master Guide are marketed to the Jewish and Israeli communities living in the New York metropolitan area. According to the American Jewish Congress, there are approximately two million Jews living in this market, representing approximately 10.6% of the total population. Furthermore, we believe that the Jewish population has higher than average disposable income, is well educated and possesses a strong sense of community. In addition, while there is no precise data as to the number of Israeli immigrants living in the New York metropolitan area, we believe the number is substantial. Moreover, a significant number of Israeli tourists visit the area annually. Accordingly, we believe that advertisers are attracted to the JI Directory as a way to advertise directly to this market.
Furthermore, we believe that the Jewish population in the New York metropolitan area is likely use to the JI Directory because of the impression that businesses that advertise in the JI Directory support or are affiliated with the Jewish community. In the case of the Master Guide, users can be comfortable that none of its advertisers will offend their religious beliefs. We also believe that our advertising rates are attractive, particulalrly to small businesses who cannot afford to advertise in the Bell Atlantic Yellow Pages. Generally, advertising rates for the JI Directory and the Master Guide are approximately 33% of the rates for the Bell Atlantic Yellow Pages.
NEWYELLOW will initially compete directly with the Bell Atlantic Yellow Pages in Manhattan. Thereafter, it may also compete with the Bell Atlantic Yellow Pages in the other boroughs of New York City and in the surrounding suburbs. Initially, we will dedicate up to 10 sales representatives from our existing network, spread out over the four sales offices, to selling ads for NEWYELLOW. Before the end of 1999, we expect to open a new company-owned sales office, which will be staffed by sales representatives that we will hire directly and which will be dedicated to selling ads exclusively for NEWYELLOW. Because NEWYELLOW is a new publication, which may make it more difficult to sell, and because it will compete directly with Bell Atlantic, the commission structure for NEWYELLOW sales representatives may have to be higher than it is for our other directories.
We believe that advertisers will be attracted to NEWYELLOW for several reasons. First, NEWYELLOW is likely to be smaller and less dense than the Bell Atlantic Yellow Pages, so that each advertisement in NEWYELLOW will stand out more prominently than it would in the Bell Atlantic Yellow Pages. Second, advertising rates for NEWYELLOW will be significantly lower than the comparable rates for advertising in the Bell Atlantic Yellow Pages. Accordingly, we believe that NEWYELLOW will attract advertisers who do not currently advertise in the Bell Atlantic Yellow Pages as well as existing Bell Atlantic Yellow Page advertisers. The table below compares the proposed advertising rates for the first edition of NEWYELLOW and the advertising rates generally offered by Bell Atlantic for the 1999 edition of its Yellow Pages. All rates assume single color ads (black print on yellow paper).
BELL
ATLANTIC
YELLOW
NEWYELLOW PAGES
---------- -----------
Full Page........................................................... $ 21,120 $ 74,496
Half Page........................................................... $ 12,684 $ 37,248
Quarter Page........................................................ $ 6,802 $ 18,624
Sixth Page.......................................................... $ 4,864 $ 12,416
Eighth Page......................................................... $ 3,686 $ 9,312
Sixteenth Page...................................................... $ 1,824 $ 4,656
Inside Front Cover.................................................. $ 75,000 $ 300,000
Inside Back Cover................................................... $ 75,000 $ 300,000
Back Cover.......................................................... $ 150,000 $ 500,000
Page One............................................................ $ 75,000 ***
|
The Company plans to advertise NEWYELLOW primarily in local media outlets where advertising rates are relatively low. In addition to marketing NEWYELLOW independently, we will also seek to enter joint marketing agreements with local and long distance telecommunications companies. We intend to spend approximately $1.5 million from the net proceeds of this Offering on the marketing campaign for NEWYELLOW. See "Use of Proceeds" for a more detailed discussion regarding how we intend to use the net proceeds of this Offering.
GOVERNMENT REGULATION
We are subject to laws and regulations relating to business corporations generally, such as OSHA, Fair Employment Practices and minimum wage standards. We believe that we are in material compliance with all laws and regulations affecting our business and we do not have any material
liabilities under such laws and regulations. In addition, compliance with all such laws and regulations does not have a material adverse effect on our capital expenditures, earnings, or competitive position.
COMPETITION
In New York, the market for yellow page advertising is dominated by Bell Atlantic. In addition, there are a number of independent publishers of yellow page directories, including bilingual directories for certain ethnic communities. There are also independent publishers of yellow page directories that publish community or neighborhood directories. However, we are not aware of any other Hebrew-English yellow page directory or a yellow page directory that is published specifically for the Hasidic and ultra-Orthodox Jewish communities in the New York metropolitan area. By focusing on the special needs of the Hebrew speaking and the Hasidic and ultra-Orthodox Jewish communities, we believe that we have identified niche markets that allows us to compete effectively with our larger rivals.
Unlike the JI Directory and the Master Guide, NEWYELLOW will compete directly with the Bell Atlantic Yellow Pages and other smaller, English-only, general interest yellow page directories published by companies other than Bell Atlantic. In addition, since there are virtually no barriers to entry in this market, any company with a reasonable amount of capital, such as the RBOCs or publishers, are potential competitors. In addition, the Internet is growing rapidly and is a current and potential source of even greater competition. There are a number of online yellow page directories, including Big Yellow, owned by Bell Atlantic. Finally, strategic alliances could give rise to new or stronger competitors.
Many competitors have significant operating and financial advantages. These advantages include greater financial, personnel, technical and marketing resources, superior systems, stronger relationships with advertisers, greater productive capacity, better developed distribution channels, and greater name recognition. In addition, many of our competitors can subsidize competing services with revenues from their other services. As competition increases, we expect significant increases in general pricing pressures. For example, Bell Atlantic could lower its advertising rates, reducing the attractiveness of advertising in NEWYELLOW. In response to competitive pressures, we may have to increase our sales and marketing expenses or reduce our advertising rates. Since we may not capture a significant share of the markets where we operate, we cannot assure you that we can compete effectively.
INTELLECTUAL PROPERTY
To protect our rights to our intellectual property, we rely on a combination of federal, state and common law trademarks, service marks and trade names, copyrights and trade secret protection. We have registered certain of our trademarks and service marks on the supplemental register of the United States and certain of our trade names in Queens, New York and New Jersey. In addition, every directory we publish has been registered with the United States copyright office. The protective steps we have taken may be inadequate to deter misappropriation of our proprietary information. We may be unable to detect the unauthorized use of, or take steps to enforce, our intellectual property rights. In addition, although we believe that our proprietary rights do not infringe on the intellectual property rights of others, other parties may assert infringement claims against us or claims that we have violated a trademark, trade name, service mark or copyright belonging to them. These claims, even if not meritorious, could result in the expenditure of significant financial and managerial resources on our part.
EMPLOYEES
As of March 1, 1999, we employed three people (two full-time and one part-time), all of whom were employed in executive, managerial or administrative positions capacities. In addition, we retained the services of 10 administrative, accounting and production personnel, all of whom are independent
contractors. Finally, we had a network of 65 sales representatives, 32 hired by us directly and 33 hired by the independent sales agencies that sell ads for our directories. We believe that our relationship with our employees and contractors is good. None of our employees is represented by a labor union.
FACILITIES
Our executive and principal operating office is located in Queens, New York in 3,000 square feet. This space is occupied under a lease expiring October 30, 1999. The monthly rent is $4,552. Our New Jersey sales office is located in an approximately 1,000 square foot facility in Fair Lawn, New Jersey. The space is leased on a month-to-month basis for $1,100 per month.
LEGAL PROCEEDINGS
The Company is not a party to any material legal proceedings.
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
Our executive officers and directors and their ages, as of March 1, 1999, are as follows:
NAME AGE POSITION
--------------------------------------- --- ----------------------------------------------
Assaf Ran.............................. 33 Chief Executive Officer, President and
Director
Dvir Langer(1)(2)...................... 30 Vice President--Sales and Corporate
Development and Director
Eyal Huberfeld......................... 24 Vice President--Sales and Director
Hanan Goldenthal....................... 48 Chief Financial and Accounting Officer,
Treasurer and Secretary
Yoram Evan............................. 32 Director
Phillip Michals(2)..................... 29 Director
Eran Goldshmid(2)...................... 32 Director
|
(1) Mr. Langer will take office upon the closing of this Offering.
(2) Messrs. Langer, Michals and Goldshmid will become directors upon the closing of this Offering.
All directors hold office until the next annual meeting of shareholders and until their successors are duly elected and qualified. Officers are elected to serve subject to the discretion of the Board of Directors.
Set forth below is a brief description of the background and business experience of the executive officers and directors of the Company:
ASSAF RAN, our founder, has been our Chief Executive Officer and President since our inception in 1989. In 1987 Mr. Ran founded Dapey Assaf Maagarei Mechirim, Ltd., a publishing company in Israel and is a member of its Board of Directors.
DVIR LANGER will become our Vice President--Sales and Corporate Development and join our Board of Directors upon the closing of this Offering. Since August 1996, Mr. Langer has been employed by Prudential Securities as a Financial Advisor. He has also been an employee of Cosmo Management Corporation, a real estate management firm, since May 1994. Mr. Langer received a BA degree in Philosophy from the University of British Columbia in June 1993 and a JD from Brooklyn Law School in June 1996. He has been a member of the New York State Bar since February 1997.
EYAL HUBERFELD has been our Vice President--Sales since June 1998 and a Member of the Board of Directors since February 1999. From September 1997 through June 1998, he was an independent sales representative of the Company. From August 1996 to January 1997, Mr. Huberfeld worked for Yedeot Aharonot, an Israeli daily newspaper, as a marketing manager and consultant. Between March 1993 and March 1996, Mr. Huberfeld served in the Israeli Defense Force, in the Bomb Disposal Unit.
HANAN GOLDENTHAL has been our Chief Financial Officer, Treasurer and Secretary since February 1999. For more than five years prior thereto, he was engaged in the practice of public accounting. Until December 1998, he was a principal of Goldenthal & Pankowski, CPAs, and since January 1999, he has been a principal of Goldenthal & Suss, CPAs, PC. From September 1995 to December 1998, he was also a principal of GP Business Solutions, Inc., a management consulting firm. Mr. Goldenthal has been our accountant since our inception. Mr. Goldenthal is a part-time employee and continues to practice accounting with Goldenthal & Suss, CPAs, PC. Mr. Goldenthal is a certified public accountant and received a BBA from Baruch College in June 1976.
YORAM EVAN has been one of our Directors since October 1998. Since January 1999, he has been Vice President of Operations and Finance and, since July 1997, a member of the Board of Directors of Netgrocer, an internet grocery company. From December 1997 to December 1998, he was the Chief Financial Officer of American Value Brands, Inc., a food marketing company. From April 1996 to September 1997, Mr. Evan has acted as the Managing Partner of two investment funds in Israel, which he founded. From March 1992 to April 1996, Mr. Evan served in the Budget Department of the Israeli Ministry of Finance. Mr. Evan received a BA in Economics in July 1991 and an MBA in February 1997 from the University of Tel Aviv in Israel.
PHILLIP MICHALS will join our Board of Directors upon the closing of this Offering. He is the founder and, since August 1996, the President of Up-Tick Trading, a consulting company to investment banking firms. Since July 1994, he has also been a principal and a Vice President of Michals and Stockmen Consulting Inc., a management consulting firm. Mr. Michals received a BS degree in Human Resources from the University of Delaware in May 1992.
ERAN GOLDSHMID will join our Board of Directors upon the closing of this Offering. Since December 1998 he has been the general manager of the Carmiel Shopping Center in Carmiel, Israel. From April 1995 through December 1998, he was head of marketing at Environmental Engineering & Design Company, Ltd., Tel Aviv, Israel. From February 1993 through April 1995, he was head of a sales office for Yedioth Aharonath, an Israeli daily newspaper. Mr. Goldshmid received certification as a financial consultant in February 1993 from the School for Investment Consultants, Tel Aviv, Israel, and a BA in Business Administration from the University of Humberside, England in December 1998.
COMMITTEES OF THE BOARD OF DIRECTORS
Our Board of Directors has established Compensation and Audit Committees. Messrs. Evan, Michals and Goldshmid will be members of both committees, and Mr. Ran will be a member of the Audit Committee. The Compensation Committee reviews and recommends to the Board of Directors the compensation and benefits of our all our officers, reviews general policy matters relating to compensation and benefits of our employees and administers the issuance of stock options under our 1999 Stock Option Plan and discretionary cash bonuses to our officers, employees, directors and consultants. The Audit Committee will meet with management and our independent public accountants to determine the adequacy of internal controls and other financial reporting matters.
EXECUTIVE COMPENSATION
The following table sets forth certain information regarding compensation paid during the year ended December 31, 1998 to our Chief Executive Officer. No other employee received compensation in excess of $100,000 for such year.
OTHER ANNUAL ALL OTHER
NAME SALARY BONUS COMPENSATION COMPENSATION
---------------------------------------------------------------- --------- ----------- ----------------- -----------------
Assaf Ran, Chief Executive Officer(1)........................... $ 25,000 -- -- --
|
(1) In addition, we advanced $295,262, net of repayments, to Mr. Ran in 1998. See "Certain Transactions" for the repayment terms of this loan.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Until after the consummation of this Offering, we will not have a Compensation Committee or other Board committee performing equivalent functions. Employment contracts with Messrs. Ran and Langer have been approved by the entire Board of Directors, consisting of Messrs. Ran, Huberfeld and Evan.
EMPLOYMENT CONTRACTS
In March 1999, we entered into an employment agreement with Assaf Ran providing for his employment as President and Chief Executive Officer until June 30, 2002 at an annual base salary of $75,000 and annual bonuses to be determined by the Compensation Committee in its sole and absolute discretion. Under the agreement, Mr. Ran is entitled to participate in all executive benefit plans and has agreed to a one-year non-competition period following the termination of the agreement except if his employment is terminated without cause or for good reason as defined in the agreement. The agreement renews automatically for successive one-year terms until either party gives 180 days notice of its or his intention to terminate the agreement.
In March 1999, we entered into a one-year employment agreement with Dvir Langer commencing simultaneously with the date of this Offering, providing for his employment, as Vice President--Sales and Corporate Development. His compensation consists of commissions based on advertising revenue generated by him or other sales representatives whom he supervises. Mr. Langer is guaranteed a minimum base salary of $60,000. Under the agreement, Mr. Langer has agreed to a two-year non-competition period following the termination of the agreement. The agreement renews automatically for successive one-year terms until either party gives 14 days notice of its or his intention to terminate the agreement.
1999 STOCK OPTION PLAN
To attract and retain persons necessary for our success, in March 1999 the Board of Directors approved the adoption of the DAG Media, Inc. 1999 Stock Option Plan covering 124,000 Common Shares. Pursuant to our Stock Option Plan, officers, directors and key employees and consultants are eligible to receive incentive and/or non-qualified stock options. The Stock Option Plan, which has a term of 10 years from the date of its adoption, will be administered by the Compensation Committee. The selection of participants, allotment of shares, determination of price and other conditions relating to the purchase of options will be determined by the Compensation Committee in its sole discretion. Incentive stock options granted under the Stock Option Plan are exercisable for a period of up to 10 years from the date of grant at an exercise price which is not less than the fair market value of the Common Shares on the date of the grant, except that the term of an incentive stock option granted under the Stock Option Plan to a shareholder owning more than 10% of the outstanding Common Shares may not exceed five years and its exercise price may not be less than 110% of the fair market value of the Common Shares on the date of the grant. We have granted options covering 22,324 Common Shares under our Stock Option Plan as of the effective date of this Offering. Options covering 14,884 Common Shares were granted to two of our employees. These options have an exercise price of $6.50 per share and a term of five years. The options granted to one employee will be exercisable immediately and the options granted to the other will be exercisable one year from the date of this Offering. Options covering the remaining 7,440 Common Shares were granted to a person who is expected to become an employee before this Offering, subject to her becoming an employee. They will have an exercise price equal to the fair market value on the date her employment commences or $6.50 if her employment commences before the effective date of this Offering. Such options have a term of five years and are exercisable one year from the date of this Offering. No other options have been granted under our Stock Option Plan.
COMPENSATION OF DIRECTORS
Each director, other than employee directors, upon first taking office after the consummation of this Offering will receive a one-time grant under the Stock Option Plan of options to purchase 7,000 Common Shares at a price equal to the fair market value on the date of grant. Such options will vest immediately upon grant. In addition, each non-employee director will receive a $200 stipend for each
Board meeting he or she attends in person and reimbursement for travel expenses for attendance at meetings.
LIMITATION OF DIRECTORS' LIABILITY AND INDEMNIFICATION
Our Certificate of Incorporation limits the liability to the Company of individual directors for certain breaches of their fiduciary duty to the Company. The effect of this provision is to eliminate the liability of directors for monetary damages arising out of their failure, through negligent or grossly negligent conduct, to satisfy their duty of care, which requires them to exercise informed business judgment. The liability of directors under the federal securities laws is not affected. A director may be liable for monetary damages only if a claimant can show a breach of the individual director's duty of loyalty to the Company, a failure to act in good faith, intentional misconduct, a knowing violation of the law, an improper personal benefit or an illegal dividend or stock purchase.
There is no pending litigation or proceeding involving any of our directors, officers, employees or agents in which we are required or permitted to provide indemnification. We are not aware of any threatened litigation or proceeding that may result in a claim for such indemnification.
Our Certificate of Incorporation also provides that we will indemnify and hold harmless each of our directors or officers to the fullest extent authorized by the New York Business Corporation Law, against all expense, liability and loss (including attorneys fees, judgments, fines, Employee Retirement Income Security Act excise taxes or penalties and amounts paid or to be paid in settlement) reasonably incurred or suffered by such person in connection therewith.
Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers or controlling persons pursuant to the foregoing provisions, we have been informed that in the opinion of the Commission such indemnification is against public policy as expressed in the Securities Act and is therefore unenforceable.
CERTAIN TRANSACTIONS
During the year ended December 31, 1998, we advanced $295,262, net of repayments, to Assaf Ran, our principal shareholder. This amount is evidenced by a five-year promissory note bearing interest at 4.74% per annum and repayable in quarterly installments with interest only payable during the first two years and interest and principal payments payable over the last three years of the note. Mr. Ran is selling 75,000 of his Common Shares in this Offering, the net proceeds of which will be used to repay this loan upon completion of this Offering.
We have adopted a policy that, in the future, all transactions between the Company and any officer, director or 5% shareholder must be approved by a majority of our disinterested directors.
PRINCIPAL AND SELLING SHAREHOLDERS
The following table sets forth certain information regarding the beneficial ownership of Common Shares as of the date of this Prospectus and as adjusted to reflect the sale of the Common Shares offered by this Prospectus by (1) each shareholder who we know owns beneficially more than 5% of our outstanding Common Shares, (2) each of our directors, (3) our Chief Executive Officer and (4) all of our directors and executive officers as a group. Each person listed below has sole investment and voting power with respect to the Common Shares that he owns.
BEFORE OFFERING AFTER OFFERING
------------------------------------ ------------------------------------
NUMBER OF COMMON SHARES NUMBER OF
COMMON SHARES PERCENTAGE OF OFFERED BY COMMON SHARES PERCENTAGE OF
BENEFICIALLY COMMON SHARES SELLING BENEFICIALLY COMMON SHARES
NAME OF BENEFICIAL OWNER(1) OWNED (2) BENEFICIALLY OWNED SHAREHOLDER OWNED (2) BENEFICIALLY OWNED
------------------------------ --------------- ------------------- --------------- --------------- -------------------
Assaf Ran..................... 1,488,095 86.21% 75,000 1,413,095 47.48%
Dvir Langer................... 148,809 8.62% -- 148,809 5.00%
Eyal Huberfeld................ 29,762 1.72% -- 29,762 1.00%
Hanan Goldenthal(3)........... -- -- -- 7,444 *
Yoram Evan(3)................. -- -- -- 7,000 *
Phillip Michals(3)............ -- -- -- 7,000 *
Eran Goldshmid(3)............. -- -- -- 7,000 *
All officers and directors as
a group(4)(5)............... 1,666,666 96.55% 75,000 1,620,110 53.92%
|
* Less than 1%
(1) All addresses are c/o DAG Media, Inc., 125-10 Queens Boulevard, Kew Gardens, New York 11415.
(2) Pursuant to the rules and regulations of the Securities and Exchange Commission, Common Shares that a person has a right to acquire within 60 days of the date of this Prospectus are deemed to be outstanding for the purpose of computing the percentage ownership of such person but are not deemed outstanding for the purpose of computing the percentage ownership of any other person.
(3) Number of Common Shares beneficially owned after this Offering represents Common Shares issuable upon exercise of options that vest immediately upon the completion of this Offering.
(4) Includes five persons before this Offering and seven persons after this Offering.
(5) Includes 28,444 Common Shares issuable upon exercise of options that vest immediately upon the completion of this Offering.
All of the Common Shares set forth in the above table are subject to agreements prohibiting the sale, assignment or transfer for a period of one year from the date of this Prospectus without the prior written consent of Paulson. See "Underwriting" for more information about these lock-up agreements.
DESCRIPTION OF CAPITAL STOCK
Our authorized capital stock consists of 25,000,000 Common Shares, par value $.001 per share and 5,000,000 Preferred Shares, par value of $.01 per share. Upon completion of the Offering, there will be 2,976,190 Common Shares issued and outstanding (3,174,940 if the option we granted to the underwriters to purchase additional Common Shares from us in this Offering is exercised in full) and no Preferred Shares outstanding. As of the date of this Prospectus (not taking into account Common Shares issued in this Offering), there were 1,726,190 Common Shares outstanding held of record by five shareholders and no Preferred Shares outstanding.
COMMON SHARES
Subject to preferences that may apply to Preferred Shares outstanding at the time, the holders of outstanding Common Shares are entitled to receive dividends out of assets legally available therefor at such times and in such amounts as the Board of Directors may from time to time determine. Each shareholder is entitled to one vote for each Common Share held on all matters submitted to a vote of shareholders. The holders of a majority of the Common Shares voted can elect all of the directors then standing for election. The Common Shares are not entitled to preemptive rights and are not subject to conversion or redemption. If we are liquidated or dissolved or our business is otherwise wound up, the holders of Common Shares would be entitled to share ratably in the distribution of all of our assets remaining available for distribution after satisfaction of all our liabilities and the payment of the liquidation preference of any outstanding Preferred Shares. Each outstanding Common Share is, and all Common Shares to be outstanding upon completion of this Offering will be, fully paid and nonassessable.
PREFERRED SHARES
The Board of Directors has the authority, within the limitations and restrictions stated in our Certificate of Incorporation, to provide by resolution for the issuance of Preferred Shares, in one or more classes or series, and to fix the rights, preferences, privileges and restrictions thereof, including dividend rights, conversion rights, voting rights, terms of redemption, liquidation preferences and the number of shares constituting any series or the designation of such series. The issuance of Preferred Shares could have the effect of decreasing the market price of the Common Shares and could adversely affect the voting and other rights of the holders of Common Shares.
OPTIONS
We have reserved 124,000 Common Shares for issuance under our 1999 Stock Option Plan. We have granted options covering 22,324 Common Shares at an exercise price of $6.50 per share as of the effective date of this Offering. See "Management--1999 Stock Option Plan" for a further description of our 1999 Stock Option Plan and the terms of the options that we have granted.
AUTHORIZED BUT UNISSUED SHARES
The authorized but unissued Common Shares and Preferred Shares are available for future issuance without shareholder approval. These additional shares may be utilized for a variety of corporate purposes, including future public offerings to raise additional capital, corporate acquisitions and employee benefit plans. The existence of authorized but unissued Common Shares and Preferred Shares could render more difficult or discourage an attempt to obtain control of us by means of a proxy contest, tender offer, merger or otherwise.
The New York Business Corporation Law provides generally that the affirmative vote of a majority of the shares entitled to vote on any matter is required to amend a corporation's certificate of incorporation or bylaws, unless the corporation's certificate of incorporation or bylaws, as the case may be, requires a greater percentage. Our Certificate of Incorporation does not impose any supermajority vote requirements.
LISTING ON NASDAQ SMALLCAP MARKET
We will apply to list the Common Shares on the Nasdaq SmallCap Market under the symbol "DAGM."
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Common Shares will be American Stock Transfer & Trust Company, 40 Wall Street, New York, New York 10005.
SHARES ELIGIBLE FOR FUTURE SALE
Prior to this Offering, there has been no public market for the Common Shares. We cannot predict the effect, if any, that sales of Common Shares or the availability of such shares for sale will have on the market price of the Common Shares prevailing from time to time. Future sales of substantial amounts of Common Shares in the public market, including shares issued upon the exercise of options to be granted pursuant to our 1999 Stock Option Plan, could adversely affect the prevailing market price of the Common Shares.
Upon completion of this Offering, we will have 2,976,190 Common Shares outstanding (3,174,940 if the option we granted to the underwriters to purchase additional Common Shares from us in this Offering is exercised in full), of which 1,325,000 Common Shares (1,523,750 if the option we granted to the underwriters to purchase additional Common Shares from us in this Offering is exercised in full) will be freely transferable without restriction under the Securities Act of 1933, except for any shares held by an "affiliate" of the Company (as that term is defined by the rules and regulations issued under the Securities Act), which will be subject to the resale limitations of Rule 144 promulgated under the Securities Act. The remaining 1,651,190 Common Shares held by existing shareholders are "restricted securities" as that term is defined in Rule 144. Restricted securities may be sold in the public market only if registered or if they qualify for an exemption from registration under Rule 144 summarized below.
As a result of the contractual restrictions described below and the
provisions of Rule 144, the restricted securities will be available for sale in
the public market subject to the volume limitations and other conditions of Rule
144. The shares could be available for resale immediately upon the expiration of
the one-year lock-up period imposed by the Lock-Up Agreements described below.
LOCK-UP AGREEMENTS
All of our officers, directors and shareholders will sign Lock-Up Agreements under which they will agree not to transfer or dispose of, directly or indirectly, any Common Shares or any securities convertible into or exercisable or exchangeable for Common Shares, for a period of one year after the date of this Prospectus. Transfers or dispositions can be made sooner with the prior written consent Paulson. See "Underwriting" for a further discussion of the terms of the Lock-Up Agreements.
RULE 144
In general, under Rule 144 as currently in effect, beginning 90 days after this Offering, a person (or persons whose shares are aggregated) who has beneficially owned Common 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 one percent of the then outstanding Common Shares or the average weekly trading volume of the Common Shares on the Nasdaq SmallCap Market during the four calendar weeks preceding the date on which notice of the sale is filed with the Securities and Exchange Commission. Sales under Rule 144 are also subject to certain manner of sale provisions, notice requirements and the availability of current public information about us. Under Rule 144(k) any person (or persons whose shares are aggregated) who is not deemed to have been one of our affiliates at any time during the 90 days preceding a sale, and who has beneficially owned the shares proposed to be sold for at least two years, is entitled to sell such shares without regard to the volume limitations, manner-of-sale provisions, public information requirements or notice requirements of Rule 144.
STOCK OPTIONS
Following the completion of this Offering, we intend to file a registration statement on Form S-8 under the Securities Act covering 124,000 Common Shares reserved for issuance under our 1999 Stock Option Plan. The registration statement will become effective automatically upon filing. Under this plan, we have granted options covering 22,364 Common Shares as of the effective date of this Offering. See "Management--1999 Stock Option Plan" for a further description of our 1999 Stock Option Plan and the terms of the options that we have granted.
UNDERWRITING
The underwriters named below, for whom Paulson Investment Company, Inc. is acting as representative, have severally agreed, subject to the terms and conditions contained in an Underwriting Agreement with us, to purchase 1,250,000 Common Shares from us and 75,000 Common Shares from Assaf Ran, at the price set forth on the cover page of this Prospectus, in accordance with the following table.
NUMBER OF
UNDERWRITER COMMON SHARES
------------------------------------------------------------------------------------------------- ---------------
Paulson Investment Company, Inc..................................................................
Total........................................................................................ 1,325,000
---------------
---------------
|
The Underwriting Agreement provides that the obligations of the named underwriters to purchase Common Shares are subject to certain conditions. The underwriters are committed to purchase all the Common Shares offered by this Prospectus if any Common Shares are purchased, other than the 198,750 Common Shares subject to the option granted by us to the underwriters to purchase additional Common Shares in this Offering.
Paulson has advised us that it proposes to offer the Common Shares offered by this Prospectus to the public at the initial public offering price set forth on the cover page of this Prospectus, and to selected dealers at such price less a concession within the discretion of Paulson and that the named underwriters and such dealers may reallow a concession to other dealers, including the named underwriters, within the discretion of Paulson. After the commencement of this Offering, the public offering price, the concessions to selected dealers and the reallowance to their dealers may be changed by Paulson.
We have granted Paulson an option, expiring at the close of business 45 days after the date of this Prospectus, to purchase up to an aggregate of 198,750 additional Common Shares from us on the same terms as set forth in this Prospectus. Paulson may exercise the option (in whole or in part) only to cover over-allotments, if any, incurred in the sale of the Common Shares offered by this Prospectus.
Paulson has informed us that it does not expect to confirm sales of Common Shares offered by this Prospectus on a discretionary basis.
Until the distribution of the Common Shares offered by this Prospectus is completed, rules of the Securities and Exchange Commission may limit the ability of the underwriters and certain selling group members to bid for and purchase Common Shares. As an exception to these rules, the underwriters are permitted to engage in certain transactions that stabilize the price of the Common Shares. Such transactions consist of bids or purchases for the purpose of pegging, fixing or maintaining the price of the Common Shares. If the underwriters create a short position in connection with the Offering, I.E., if they sell more Common Shares than are set forth on the cover page of this Prospectus, Paulson may reduce that short position by purchasing Common Shares in the open market. Paulson may also elect to reduce any short position by exercising all or part of the option granted by us to purchase additional Common Shares described above.
Paulson may also impose a penalty bid on certain underwriters and selling group members. This means that if Paulson purchases Common Shares in the open market to reduce the underwriters' short position or to stabilize the price of the Common Shares they may reclaim the amount of the selling concession from the underwriters and selling group members who sold those securities as part of this Offering.
In general, the purchase of a security to stabilize or to reduce a short position could cause the price of the security to be higher than it might be in the absence of such purchases. The imposition of
a penalty bid might also have an effect on the price of a security to the extent that it were to discourage resales of the security. Neither we nor the named underwriters make any representation of predictions as to the direction or magnitude of any effect that the transactions described above may have on the price of the Common Shares. In addition, neither we nor the named underwriters represent that the named underwriters will engage in such transactions or that such transactions, once commenced, will not be discontinued without notice.
The Underwriting Agreement provides for indemnification between us and the named underwriters against certain liabilities, including liabilities under the Securities Act and for contribution by us and the named underwriters to payments that may be required to be made in respect thereof. Insofar as indemnification for liabilities under the Securities Act maybe permitted to our directors, officers and controlling persons pursuant to the agreement between us and the named underwriters, or otherwise, we have been advised that in the opinion of the Commission such indemnification is against public policy as expressed in the Securities Act and is therefore unenforceable.
We have agreed to pay Paulson a nonaccountable expense allowance equal to three percent of the gross proceeds from the sale of the Common Shares offered by this Prospectus, of which $35,000 has already been paid. If this Offering is not consummated, any nonaccountable portion of the advanced payment will be promptly returned to us.
We have agreed to issue warrants to Paulson to purchase from the Company up to 132,500 Common Shares at an exercise price per share equal to $7.80 per share. These warrants are not transferable for one year from the date of issuance, except to individuals who are either a partner or an officer of a named underwriter, by will or by the laws of descent and distribution and are not redeemable. We have agreed to maintain an effective registration statement with respect to the issuance of the Common Shares underlying these warrants, if necessary, to allow their public resale without restriction, at all times during the period in which they are exercisable, commencing one year after the date of this Prospectus. These Common Shares are being registered on the Registration Statement of which this Prospectus is a part.
We have agreed that, for a period of one year following the closing of this Offering, we will not, subject to certain exceptions, offer, sell, contract to sell, grant any option for the sale or otherwise dispose of any of our securities without the consent of Paulson, other than with respect to option grants under our 1999 Stock Option Plan. Our officers, directors and the shareholders also have agreed that, for a period of one year following this Offering, they will not offer, sell, contract to sell, grant any option for the sale or otherwise dispose of any Common Shares (other than intra-family transfers or transfers to trusts for estate planning purposes) without the consent of Paulson, which consent will not be unreasonably withheld. They have also agreed that for the five-year period beginning on the date of this Prospectus that they will notify Paulson before they sell Common Shares under Rule 144.
Prior to this Offering, there has been no public market for the Common Shares. Accordingly, the initial public offering price of the Common Shares offered by this Prospectus was determined by negotiations between us and Paulson. Among the factors considered in determining the initial public offering price of the Common Shares offered by this Prospectus were our history and our prospects, the industry in which we operate, the status and development prospects for our proposed products and services, our past and present operating results and the trends of such results, the previous experience of our executive officers and the general condition of the securities markets at the time of this Offering. The offering price set forth on the cover page of this Prospectus should not be considered an indication of the actual value of the Common Shares. Such a price is subject to change as a result of market conditions and other factors, and we cannot assure you that the Common Shares can be resold at or above the initial public offering price.
The foregoing is a summary of the principal terms of the agreements described above and is not complete. Reference is made to copies of each such agreements, which are filed as exhibits to the registration statement filed in connection with this Offering.
LEGAL MATTERS
The validity of the Common Shares offered by this Prospectus will be passed upon for us and for Mr. Ran by Morse, Zelnick, Rose & Lander, LLP, New York, New York. Weiss, Jensen, Ellis & Howard, Portland, Oregon, has acted as counsel to the underwriters named in this Prospectus in connection with this Offering.
EXPERTS
Our Consolidated Financial Statements included in this Prospectus and elsewhere in the Registration Statement have been audited by Arthur Andersen LLP, independent public accountants, as indicated in their report with respect thereto, and are included herein in reliance upon the authority of said firm as experts in giving said report.
WHERE YOU CAN FIND MORE INFORMATION
We have filed a Registration Statement on Form SB-2 under the Securities Act with respect to the Shares with the Securities and Exchange Commission. This Prospectus does not contain all of the information included in the Registration Statement and the accompanying exhibits and schedules. For further information with respect to us and the Shares, you should refer to the Registration Statement and the accompanying exhibits and schedules. Statements contained in this Prospectus regarding the contents of any contract or any other document to which reference is made are not necessarily complete, and in each instance you should refer to the copy of such contract or other document filed as an exhibit to the Registration Statement, each such statement being qualified in all respects by such reference. You may inspect a copy of the Registration Statement and the accompanying exhibits and schedules without charge at the public reference facilities maintained by the Commission in Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549, and at the Securities and Exchange Commission's regional offices located at the Northwestern Atrium Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661 and Seven World Trade Center, 13(th) Floor, New York, New York 10048, and you may obtain copies of all or any part of the Registration Statement from such offices upon the payment of the fees prescribed by the Securities and Exchange Commission. You may obtain information on the operation of the Public Reference Room may be obtained by calling the Commission at 1-800-SEC-0330. The Securities and Exchange Commission maintains a web site that contains reports, proxy and information statements and other information regarding registrants that file electronically with the Securities and Exchange Commission. The address of the site is HTTP://WWW.SEC.GOV.
We intend to furnish our shareholders with annual reports containing financial statements audited by its independent certified public accountants.
DAG MEDIA, INC. AND SUBSIDIARY
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
PAGE
-----
Report of Independent Public Accountants................................................................... F-2
Consolidated Balance Sheet at December 31, 1998............................................................ F-3
Consolidated Statements of Operations for the years ended December 31, 1998 and 1997....................... F-4
Consolidated Statements of Shareholders' Equity for the years ended December 31, 1998 and 1997............. F-5
Consolidated Statements of Cash Flows for the years ended December 31, 1998 and 1997....................... F-6
Notes to Consolidated Financial Statements................................................................. F-7
|
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
After the consummation of the exchange discussed in notes 1 and 8 to the consolidated financial statements, the undersigned would be able to render the following audit report.
Arthur Andersen, LLP
New York, New York
March 10, 1999
To the Shareholders of DAG Media, Inc.:
We have audited the accompanying consolidated balance sheet of DAG Media, Inc. (a New York corporation) and subsidiary as of December 31, 1998, and the related consolidated statements of operations, shareholders' equity and cash flows for the years ended December 31, 1998 and 1997. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of DAG Media, Inc. and subsidiary as of December 31, 1998, and the results of their operations and their cash flows for the years ended December 31, 1998 and 1997, in conformity with generally accepted accounting principles.
DAG MEDIA, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1998
ASSETS
Current assets:
Cash and cash equivalents..................................................... $ 310,185
Trade accounts receivable (less allowance of $451,378 for doubtful
accounts)................................................................... 1,652,972
Directories in progress....................................................... 623,335
Deferred tax asset............................................................ 21,000
---------
Total current assets........................................................ 2,607,492
---------
Fixed assets, net of accumulated depreciation of $18,041........................ 90,383
---------
Other noncurrent assets:
Shareholder loan receivable................................................... 221,347
Investment in affiliate....................................................... 41,875
Deposits...................................................................... 9,093
---------
Total assets................................................................ $2,970,190
---------
---------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses......................................... $ 84,110
Advance billings for unpublished directories.................................. 1,832,341
Income taxes payable.......................................................... 358,000
Deferred taxes payable........................................................ 171,000
---------
Total current liabilities................................................... 2,445,451
---------
Shareholders' equity:
Common shares, $.001 par value; 1,250,000 shares issued and outstanding....... 1,250
Additional paid-in capital.................................................... 150
Retained earnings............................................................. 523,339
---------
Total shareholders' equity.................................................. 524,739
---------
Total liabilities and shareholders' equity.................................. $2,970,190
---------
---------
|
The accompanying notes are an integral part of this consolidated balance sheet.
DAG MEDIA, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
1997 1998
------------ ------------
Net advertising revenues.............................................................. $ 2,501,754 $ 2,759,092
Publishing costs...................................................................... 441,535 377,983
------------ ------------
Gross profit.................................................................... 2,060,219 2,381,109
Operating costs and expenses:
Selling expenses.................................................................... 922,124 946,315
Administrative and general expenses................................................. 658,956 765,233
------------ ------------
Total operating costs and expenses.............................................. 1,581,080 1,711,548
Earnings from operations before provision for income taxes and equity income.... 479,139 669,561
Provision for income taxes............................................................ 240,000 329,000
Equity in earnings of affiliate....................................................... 16,012 17,035
------------ ------------
Net income...................................................................... $ 255,151 $ 357,596
------------ ------------
------------ ------------
Basic and diluted net income per common share outstanding........................... $ .20 $ .29
------------ ------------
------------ ------------
Basic and diluted weighted average number of common shares outstanding.............. 1,250,000 1,250,000
------------ ------------
------------ ------------
|
The accompanying notes are an integral part of these consolidated financial statements.
DAG MEDIA, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
ADDITIONAL RETAINED
COMMON PAID-IN EARNINGS
SHARES CAPITAL (DEFICIT) TOTAL
----------- ------------- ---------- ----------
Balance, December 31, 1996......................................... $ 1,250 $ 150 $ (89,408) $ (88,008)
Net income for the year ended December 31, 1997.................. -- -- 255,151 255,151
----------- ----- ---------- ----------
Balance, December 31, 1997......................................... 1,250 150 165,743 167,143
Net income for the year ended December 31, 1998.................. -- -- 357,596 357,596
----------- ----- ---------- ----------
Balance, December 31, 1998......................................... $ 1,250 $ 150 $ 523,339 $ 524,739
----------- ----- ---------- ----------
----------- ----- ---------- ----------
|
The accompanying notes are an integral part of these consolidated financial statements.
DAG MEDIA, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
1997 1998
---------- ----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income.............................................................................. $ 255,151 $ 357,596
Adjustments to reconcile net income to net cash provided by operating activities--
Depreciation and amortization....................................................... 3,917 13,094
Provision for bad debts............................................................. 136,155 208,909
Changes in operating assets and liabilities--
Accounts receivable............................................................... (779,747) (837,513)
Directories in progress........................................................... (531) (243,945)
Deferred tax asset................................................................ 40,000 --
Other current and noncurrent assets............................................... (1,002) --
Accounts payable and accrued expenses............................................. (41,124) 592
Advance billing for unpublished directories....................................... 320,434 605,998
Income and deferred taxes payable................................................. 200,000 329,000
---------- ----------
Net cash provided by operating activities................................. 133,253 433,731
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Investment in affiliate, net............................................................ (16,012) (17,035)
Purchase of fixed assets................................................................ (80,219) (17,905)
---------- ----------
Net cash used in investing activities..................................... (96,231) (34,940)
---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Loans to shareholder, net............................................................... (11,819) (221,347)
---------- ----------
Net cash used in financing activities..................................... (11,819) (221,347)
---------- ----------
Net increase in cash...................................................... 25,203 177,444
Cash and cash equivalents, beginning of year.............................................. 107,538 132,741
---------- ----------
Cash and cash equivalents, end of year.................................................... $ 132,741 $ 310,185
---------- ----------
---------- ----------
|
The accompanying notes are an integral part of these consolidated financial statements.
DAG MEDIA, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
1. COMPANY BACKGROUND AND SUMMARY
EXCHANGE
DAG Media, Inc. (the "Company" or "DAG") was incorporated in the State of New York in February 1999. Immediately prior to the initial public offering ("IPO") (see note 8), Assaf Ran, the sole shareholder of Dapey Assaf-Dapey Zahav, Ltd. ("DAZ"), will exchange all of his shares in DAZ for 1,250,000 Common Shares of the Company and all of his shares in Dapey Assaf-Hamadrikh Leassakim Israelim Be New York, Ltd. ("DAH"), an entity in which he has a 50% interest, for 238,095 Common Shares of the Company. In addition, the minority shareholders of DAH who own the remaining 50% of DAH will exchange all of their shares in DAH for 238,095 Common Shares of the Company. As a result, DAZ and DAH will become wholly owned subsidiaries of the Company. DAH is reflected in the accompanying consolidated financial statements as an investment in affiliate. (See notes 2 and 8.)
NATURE OF BUSINESS
The Company publishes and distributes yellow page directories in print and online. DAG's primary product is a bilingual (English--Hebrew) yellow page directory called The Jewish Israeli Yellow Pages (the "JI Directory"). It was first published in February 1990 and has been published in February and August of each year since February 1991 and covers the New York metropolitan area. In May 1998, the Company published the initial edition of a smaller, English-only yellow page directory called The Jewish Master Guide (the "Master Guide"), which is distributed to certain orthodox Jewish communities in the New York metropolitan area. The JI Directory and the Master Guide are published on DAG's web site at the address WWW.PORTY.COM (the "Portal"). The Company also provides its customers and users with a referral service.
2. SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements of DAG include the accounts of DAG and DAZ. Significant intercompany accounts and transactions have been eliminated in consolidation. The Company's 50% investment in DAH, the operating and financial policies of which the Company is able to influence significantly, is accounted for using the equity method of accounting. Accordingly, the Company's share of the net earnings in DAH is included in consolidated net income.
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 amounts could differ from those estimates.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments purchased with an original maturity of three months or less to be cash equivalents.
DAG MEDIA, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998 AND 1997
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) DIRECTORIES IN PROGRESS/ADVANCE BILLINGS FOR UNPUBLISHED DIRECTORIES
Directories in progress include direct costs applicable to unpublished directories. Advance billings for unpublished directories arise from prepayments on advertising contracts. Upon publication, revenue and the related expense are recognized.
FIXED ASSETS
Fixed assets are recorded at cost. Depreciation is provided on a straight-line basis to distribute costs evenly over the useful economic lives of the assets involved.
INCOME TAXES
The Company uses the asset and liability method of accounting for income taxes. Under the asset and liability method, deferred income taxes are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred taxes of a change in tax rates is recognized in income in the period that includes the enactment date.
REVENUE RECOGNITION
Advertising revenues are recognized under the point-of-publication method, which is the method generally followed by publishing companies. Under this method, revenues and expenses are recognized when the related directories are published.
EARNINGS PER SHARE
Basic and diluted earnings per share are calculated in accordance with Financial Accounting Standard Board ("FASB") Statement of Financial Accounting Standards ("SFAS") No. 128, "Earnings Per Share." Under this standard, basic earnings per share is computed by dividing income available to common shareholders by the weighted-average number of common shares outstanding for the period. diluted earnings per share includes the potential dilution from the exercise of outstanding dilutive stock options and warrrants for common shares using the treasury stock method. As of December 31, 1998, the stock option plan (see note 7) was not in effect. Accordingly there is no difference between basic and fully diluted earnings per share.
STOCK-BASED COMPENSATION
In October 1995, the FASB issued SFAS No. 123, "Accounting for Stock-Based Compensation." This statement establishes a fair market value based method of accounting for an employee stock option but allows companies to continue to measure compensation cost for those plans using the intrinsic value based method prescribed by APB Opinion No. 25 "Accounting for Stock Issued to Employees." Companies electing to continue using the accounting under APB Opinion No. 25 must, however, make pro forma disclosure of net income and earnings per share as if the fair value based method of accounting in SFAS No. 123 had been applied. The Company has elected to account for its
DAG MEDIA, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998 AND 1997
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) stock-based compensation awards to employees and directors under the accounting prescribed by APB Opinion No. 25, under which no compensation cost has been recognized. The Company will be required to make pro forma disclosures at December 31, 1999.
SEGMENT DISCLOSURE
In June 1997, the FASB issued SFAS No. 131, "Disclosure about Segments of an Enterprise and Related Information." SFAS 131, applicable to public companies, established new standards for reporting information about operating segments in annual financial statements. The disclosure prescribed by SFAS 131 is effective beginning with the year ended December 31, 1998. The Company does not believe that it operates in more than one segment.
3. FIXED ASSETS
DECEMBER 31, 1998
-----------------
Office equipment........................................................... $ 26,620
Automobile................................................................. 64,598
Leasehold improvement...................................................... 17,206
--------
Total fixed assets....................................................... 108,424
Less: accumulated depreciation............................................. (18,041)
--------
Fixed assets, net of accumulated depreciation............................ $ 90,383
--------
--------
|
4. SHAREHOLDER LOAN
During the year ended December 31, 1998, the Company advanced $221,347 to Assaf Ran, its principal shareholder. In addition, Mr. Ran owes $73,915 to DAH. The aggregate amount owed by Mr. Ran, $295,262, is evidenced by a five-year promissory note bearing interest at 4.74% per annum and repayable in quarterly installments with interest only payable during the first two years and interest and principal payments payable over the last three years of the note.
DAG MEDIA, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998 AND 1997
5. INCOME TAXES
The provision for income taxes consists of the following:
FOR THE YEARS ENDED
DECEMBER 31,
----------------------
1997 1998
---------- ----------
Current taxes:
Federal............................................................. $ (13,000) $ 218,000
State............................................................... (8,000) 140,000
---------- ----------
Total current taxes............................................... (21,000) 358,000
---------- ----------
Deferred taxes:
Federal............................................................. 159,000 (18,000)
State............................................................... 102,000 (11,000)
---------- ----------
Total deferred taxes.............................................. 261,000 (29,000)
---------- ----------
Provision for income taxes........................................ $ 240,000 $ 329,000
---------- ----------
---------- ----------
|
Deferred tax assets (liabilities) are comprised of the following:
FOR THE YEARS ENDED
DECEMBER 31,
--------------------------
1997 1998
----------- -------------
Accounts receivable............................................... $ (469,000) $ (675,000)
Prepaid expenses.................................................. (174,000) (285,000)
Other deferred tax liabilities, net............................... -- (50,000)
----------- -------------
Gross deferred tax liability.................................. (643,000) (1,010,000)
----------- -------------
Advance billings for unpublished directories...................... 564,000 839,000
Other deferred tax asset, net..................................... 4,000 --
----------- -------------
Gross deferred tax asset...................................... 568,000 839,000
----------- -------------
Net deferred tax liability.................................... $ (75,000) $ (171,000)
----------- -------------
----------- -------------
|
The Company is on the cash method of accounting for tax purposes. The deferred tax items indicated above are primarily a result of recognizing items of income or expense under the cash method in a different period from when those items are recognized for accrual basis financial purposes.
DAG MEDIA, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998 AND 1997
5. INCOME TAXES (CONTINUED) The provision for income taxes on income differs from the amount computed by applying the U.S. federal income tax rate (34%) because of the effect of the following items:
FOR THE YEARS ENDED
DECEMBER 31,
----------------------
1997 1998
---------- ----------
Tax at U.S. federal income tax rate................................... $ 163,000 $ 228,000
State income taxes, net of U.S. federal income tax benefit............ 62,000 85,000
Other................................................................. 15,000 16,000
---------- ----------
Provision for income taxes........................................ $ 240,000 $ 329,000
---------- ----------
---------- ----------
|
6. COMMITMENTS AND CONTINGENCIES
In March 1999 the Company entered into employment agreements with its two principal officers. One agreement was entered into with Assaf Ran providing for his employment as President and Chief Executive Officer through June 30, 2002. The agreement renews automatically for successive one-year periods until either party gives 180 days written notice of its intention to terminate the agreement. Under the agreement, Mr. Ran will receive an annual base salary of $75,000, annual bonuses as is determined by the Compensation Committee in its sole and absolute discretion and participation in all executive benefit plans. Under the agreement Mr. Ran has also agreed to a one-year non-competition period following the termination of the agreement so long as the Company is not in breach of the agreement. The other agreement is with Dvir Langer providing for his employment as Vice President-Sales and Corporate Development. The employment term is for one year commencing upon the closing of the IPO. This agreement is renewable for additional one-year terms until either party gives 14 days written notice of its intention to terminate the agreement. Under the agreement, Mr. Langer will receive a minimum base salary of $60,000. Under the agreement, Mr. Langer has agreed to a two-year non-competition period following the termination of his agreement.
LITIGATION
From time to time in the normal course of business, the Company is party to various claims and/or litigation. Management believes that the settlement of all such claims and/or litigation, considered in the aggregate, will not have a material adverse effect on the Company's financial position and results of operations.
7. STOCK OPTION PLAN
To attract and retain persons necessary for the success of the Company, in March 1999, the Board of Directors approved the adoption of DAG Media, Inc. 1999 Stock Option Plan ("the Stock Option Plan") covering 124,000 Common Shares. Pursuant to this Stock Option Plan, officers, directors and key employees and consultants are eligible to receive incentive and/or non-qualified stock options. The Stock Option Plan, which has a term of ten years from the date of its adoption, will be administered by the Compensation Committee. The selection of participants, allotment of shares, determination of price and other conditions relating to the purchase of options will be determined by the Compensation Committee, in its sole discretion. Incentive stock options granted under the Stock Option Plan are
DAG MEDIA, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998 AND 1997
7. STOCK OPTION PLAN (CONTINUED) exercisable for a period of up to ten years from the date of grant at an exercise price which is not less than the fair market value of the Common Shares on the date of grant, except that the term of an incentive stock option granted under the Stock Option Plan to a shareholder owning more than 10% of the outstanding Common Shares may not exceed five years and its exercise price may not be less than 110% of the fair market value of the Common Shares on the date of grant. The Company will grant options covering 22,324 Common Shares as of the effective date of the IPO. These options will have an exercise price equal to the initial public offering price per Common Share in the IPO (see note 8) and will have a five-year term. The Options granted to the employees are intended to qualify as incentive stock options. Options granted to one employee will vest immediately and the options granted to the other two persons will vest one year from the date of the IPO.
8. SUBSEQUENT EVENTS: INITIAL PUBLIC OFFERING
On March 10, 1999, the Company filed a registration statement with the Securities and Exchange Commission to register 1,325,000 Common Shares at an expected IPO price of $6.50 per share. Of the 1,325,000 Common Shares offered, 1,250,000 are being offered by the Company and 75,000 are being offered by the Assaf Ran, the Company's principal shareholder. Mr. Ran will use the net proceeds from the sale of his shares to repay his loan from the Company. (See note 4.) The Company expects to realize proceeds of approximately $6,900,000 from the sale of its Common Shares, net of commissions and offering expenses, and the repayment of Mr. Ran's loan.
In connection with the IPO, the Company entered into an Exchange Agreement with Dapey Assaf-Dapey Zahav Ltd. ("DAZ"), Dapey Assaf-Hamadrikh Le Assakim Be New York Ltd. ("DAH") and the shareholders of DAZ and DAH. Pursuant to the Exchange Agreement, the shareholders of DAZ and DAH will transfer all of their common shares in DAZ and DAH, as the case may be, for Common Shares of the Company and DAZ and DAH will become wholly owned subsidiaries of the Company. The exchange will be accounted for under the purchase method of accounting, resulting in a "step up" in the basis of the Company's assets to the extent of the interests of the minority shareholders. The value of the minority interest is estimated to be $1,393,000 (assuming a 10% discount from the anticipated IPO price) and is allocated among the assets of the Company based on their relative fair market values. Of this amount, approximately $42,000 will be allocated to the Company's tangible assets, $350,000 will be allocated to the Company's trademarks, trade names and other intellectual property and $1.0 million will be allocated to goodwill. The amounts allocated to the Company's intellectual property and goodwill will be amortized on a straight-line basis over 25 years, or approximately $54,000 per year, after the IPO.
YOU MAY RELY ONLY ON THE INFORMATION CONTAINED IN THIS PROSPECTUS. WE HAVE NOT AUTHORIZED ANYONE TO PROVIDE INFORMATION THAT IS DIFFERENT. THIS DOCUMENT MAY ONLY BE USED WHERE IT IS LEGAL TO SELL THESE SECURITIES. THE INFORMATION IN THIS PROSPECTUS MAY ONLY BE ACCURATE ON ITS DATE.
TABLE OF CONTENTS
PAGE
---------
Prospectus Summary.............................. 3
Risk Factors.................................... 6
Use of Proceeds................................. 13
Dividend Policy................................. 14
Capitalization.................................. 14
Dilution........................................ 15
Selected Financial Data......................... 16
Management's Discussion and Analysis of
Financial Condition and Results of
Operations.................................... 17
Business........................................ 21
Management...................................... 28
Certain Transactions............................ 31
Principal and Selling Shareholders.............. 32
Description of Capital Stock.................... 33
Shares Eligible for Future Sale................. 35
Underwriting.................................... 36
Legal Matters................................... 38
Experts......................................... 38
Where You Can Find Additional Information....... 38
Index to Financial Statements................... F-1
|
THROUGH AND INCLUDING , 1999 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL BROKER-DEALERS THAT BUY, SELL OR TRADE THESE COMMON SHARES, WHETHER OR NOT PARTICIPATING IN THIS OFFERING, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS IN ADDITION TO THEIR OBLIGATION TO DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
1,325,000 COMMON SHARES
[LOGO]
DAG MEDIA, INC.
PROSPECTUS
PAULSON INVESTMENT COMPANY, INC.
, 1999
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Sections 722 and 723 of the New York Business Corporation Law grant to the Company the power to indemnify the officers and directors of the Company as follows:
(a) A corporation may indemnify any person made, or threatened to be made, a party to an action or proceeding other than one by or in the right of the corporation to procure a judgment in its favor, whether civil or criminal, including an action by or in the right of any other corporation of any type or kind, domestic or foreign, or any partnership, joint venture, trust, employee benefit plan or other enterprise, which any director or officer of the corporation served in any capacity at the request of the corporation, by reason of the fact that he, his testator or intestate, was a director or officer of the corporation, or served such other corporation, partnership, joint venture, trust, employee benefit plan or other enterprise in any capacity, against judgments, fines, amounts paid in settlement and reasonable expenses, including attorney's fees actually and necessarily incurred as a result of such action or proceeding, or any appeal therein, if such director or officer acted, in good faith, for a purpose which he reasonably believed to be in, or, in the case of service for any other corporation or any partnership, joint venture, trust, employee benefit plan or other enterprise, not opposed to, the best interests of the corporation and, in criminal actions or proceedings, in addition, had no reasonable cause to believe that his conduct was unlawful.
(b) The termination of any such civil or criminal action or proceeding by judgment, settlement, conviction or upon a plea of nolo contendere, or its equivalent, shall not in itself create a presumption that any such director or officer did not act, in good faith, for a purpose which he reasonably believed to be in, or, in the case of service for any other corporation or any partnership, joint venture, trust, employee benefit plan or other enterprise, not opposed to, the best interests of the corporation or that he had reasonable cause to believe that his conduct was unlawful.
(c) A corporation may indemnify any person made, or threatened to be made, a party to an action by or in the right of the corporation to procure a judgment in its favor by reason of the fact that he, his testator or intestate, 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 any other corporation of any type or kind, domestic or foreign, or any partnership, joint venture, trust, employee benefit plan or other enterprise, against amounts paid in settlement and reasonable expenses, including attorneys' fees, actually and necessarily incurred by him in connection with the defense or settlement of such action, or in connection with an appeal therein if such director or officer acted, in good faith, for a purpose which he reasonably believed to be in, or, in the case of service for any other corporation or any partnership, joint venture, trust, employee benefit plan or other enterprise, not opposed to, the best interest of the corporation, except that no indemnification under this paragraph shall be made in respect of (1) a threatened action, or a pending action which is settled or otherwise disposed of, or (2) any claim, issue or matter as to which such person shall have been adjudged to be liable to the corporation, unless and only to the extent that the court on which the action was brought, or, if no action was brought, any court of competent jurisdiction, determines upon application that, in view of all the circumstances of the case, the person is fairly and reasonably entitled to indemnity for such portion of the settlement amount and expenses as the court deems proper.
(d) For the purpose of this section, a corporation shall be deemed to have requested a person to serve an employee benefit plan where the performance by such person of his duties to the corporation also imposes duties on, or otherwise involves services by, such person to the plan or participants or beneficiaries of the plan; excise taxes assessed on a person with respect to an employee benefit plan pursuant to applicable law shall be considered fines; and action taken or omitted by a person with
II-1
respect to an employee benefit plan in the performance of such person's duties for a purpose reasonably believed by such person to be in the interest of the participants and beneficiaries of the plan shall be deemed to be for a purpose which is not opposed to the best interests of the corporation.
Payment of indemnification other than by court award is as follows:
(a) A person who has been successful, on the merits or otherwise, in the defense of a civil or criminal action or proceeding of the character described in section 722 shall be entitled to indemnification as authorized in such section.
(b) Except as provided in paragraph (a), any indemnification under section 722 or otherwise permitted by section 721, unless ordered by a court under section 724 (Indemnification of directors and officers by a court), shall be made by the corporation, only if authorized in the specific case:
(1) By the board acting by a quorum consisting of directors who are not parties to such action or proceeding upon a finding that the director or officer has met the standard of conduct set forth in section 722 or established pursuant to section 721, as the case may be, or,
(2) If a quorum under subparagraph (1) is not obtainable or, even if obtainable, a quorum of disinterested directors so directs:
(A) By the board upon the opinion in writing of independent legal counsel that indemnification is proper in the circumstances because the applicable standard of conduct set forth in such sections has been met by such director or officer, or
(B) By the shareholders upon a finding that the director or officer has met the applicable standard of conduct set forth in such sections.
(C) Expenses incurred in defending a civil or criminal action or proceeding may be paid by the corporation in advance of the final disposition of such action or proceeding upon receipt of an undertaking by or on behalf of such director or officer to repay such amounts as, and to the extent, required by paragraph (a) of section 725.
The Company's Certificate of Incorporation provides as follows:
"TENTH: (a) RIGHT TO INDEMNIFICATION. Each person who was or is made a party or is threatened to be made a party to or is involved in any action, suit or proceeding, whether civil, criminal, administrative or investigation (hereinafter a "proceeding"), by reason of the fact that he or she, or a person of whom he or she is the legal representative, is or was a director or officer, of the Corporation or is or was serving at the request of the Corporation as a director, officer, employee or agent of another corporation or of a partnership, joint venture, trust or other enterprise, including service with respect to employee benefit plans, whether the basis of such proceeding is alleged action in an official capacity as a director, officer, employee or agent or in any other capacity while serving as a director, officer, employee or agent, shall be indemnified and held harmless by the Corporation to the fullest extent authorized by the Business 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 that said 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 or to be paid in settlement) reasonably incurred or suffered by such person in connection therewith and such indemnification shall continue as to a person who has ceased to be a director, officer, employee or agent and shall incur to the benefit of his or her heirs, executors and administrators; provided, however, that, except as provided in paragraph (b) hereof, the Corporation shall indemnify any such person seeking indemnification in connection with a proceeding (or part thereof) initiated by such person 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
II-2
by the Corporation the expenses incurred in defending any such proceeding in advance of its final disposition; provided, however, that if the Business Corporation Law requires, the payment of such expenses incurred by a director or officer (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 person while a director or officer, including, without limitation, service to an employee benefit plan) in advance of the final disposition of a proceeding, shall be made only upon delivery to the Corporation of an undertaking, by or on behalf of such director or officer, to repay all amounts so advanced if it shall ultimately be determined that such director or officer is not entitled to be indemnified under this Section or otherwise. The Corporation may, by action of its Board of Directors, provide indemnification to employees and agents of the Corporation with the same scope and effect as the foregoing indemnification of directors and officers.
"(b) RIGHT OF CLAIMANT TO BRING SUIT. If a claim under paragraph (a) of this
Section is not paid in full by the Corporation within thirty days after a
written claim has been received by the Corporation, the claimant may at any time
thereafter bring suit against the Corporation to recover the unpaid amount of
the claim and, if successful in whole or in part, the claimant shall be entitled
to be paid also the expense of prosecuting such claim. It shall be a defense to
any such action (other than an action brought to enforce a claim for expenses
incurred in defending any proceeding in advance of its final disposition where
the required undertaking, if any is required, has been tendered to the
Corporation) that the claimant has not met the standards of conduct which make
it permissible under the Business Corporation Law for the corporation to
indemnify the claimant for the amount claimed, but the burden of proving such
defense shall be on the Corporation. 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
action that indemnification of the claimant is proper in the circumstances
because he or she has met the applicable standard of conduct set forth in the
Business Corporation Law, nor an actual determination by the Corporation
(including its Board of Directors, independent legal counsel, or its
stockholders) that the claimant has not met such applicable standard or conduct,
shall be a defense to the action or create a presumption that the claimant has
not met the applicable standard of conduct.
"(c) NON-EXCLUSIVITY OF RIGHTS. The right to indemnification and the payment of expenses incurred in defending a proceeding in advance of its final disposition conferred in this Section 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, by-law, agreement, vote of stockholders or disinterested directors or otherwise.
"(d) INSURANCE. The Company may maintain insurance, at its expense, to protect itself and any director, officer, employee or agent of the Company or another corporation, partnership, joint venture, trust or other enterprise against any such expense, liability or loss, whether or not the Company would have the power to indemnify such person against such expense, liability or loss under the Business Corporation Law.
"ELEVENTH: A director of the Corporation shall not be personally liable to the Corporation or its shareholders for damages for any breach of duty in such capacity, except for the liability of any director if a judgment or other final adjudication adverse to him establishes that his acts or omissions were in bad faith or involved intentional misconduct or a knowing violation of law or that he personally gained in fact a financial profit or other advantage to which he was not legally entitled or that his acts violated Section 719 of the New York Business Corporation Law."
The Underwriting Agreement provides for reciprocal indemnification between the Company and its controlling persons, on the one hand, and the Underwriters and their respective controlling persons, on the other hand, against certain liabilities in connection with this Offering, including liabilities under the Securities Act of 1933, as amended.
II-3
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following are the expenses of the issuance and distribution of the securities being registered, other than underwriting commissions and expenses, all of which will be paid by the Company. Other than the SEC registration fee and the NASD filing fees all of such expenses are estimated.
Registration fee............................................................... $ 3,217.67
NASD fee....................................................................... $ 1,593.79
Nasdaq SmallCap Market listing fee............................................. $ 6,523.75*
Printing expenses.............................................................. $62,500.00*
Accounting fees and expenses................................................... $180,000.00*
Legal fees and expenses........................................................ $165,000.00*
State securities law fees and expenses......................................... $30,000.00*
Transfer agent and registrar fees and expenses................................. $ 3,500.00*
Underwriter's nonaccountable expenses.......................................... $258,375.00
Miscellaneous.................................................................. $ 3,914.79*
----------
Total...................................................................... $714,625.00
----------
----------
|
* Estimated.
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES
Neither the Company nor Dapey Assaf-Dapey Zahav, Ltd. and Dapey Assaf-Hamadrikh Leaasakim Israelim Be, New York, Ltd. have issued any unregistered securities in the last three years. Immediately prior to the effective date of this Registration Statement, pursuant to the Exchange Agreement, the existing shareholders of Dapey Assaf-Dapey Zahav, Ltd and Dapey Assaf-Hamadrikh Leaasakim Israelim Be, New York, Ltd will exchange all of their shares in those two companies for 1,726,190 Common Shares of the Company. Consequently, Dapey Assaf-Dapey Zahav, Ltd and Dapey Assaf-Hamadrikh Leaasakim Israelim Be, New York, Ltd. will become wholly owned subsidiaries of the Company. Those shares are being acquired without a view toward distribution in a transaction exempt from registration under Section 4(2) of the Securities Act. Each certificate will bear an appropriate restrictive legend.
II-4
ITEM 27. EXHIBITS
(A) EXHIBITS:
EXHIBIT
NO. DESCRIPTION
----------- ---------------------------------------------------------------------------------------------------------
1.1 Form of Underwriting Agreement
2.1 Form of Exchange Agreement
3.1 Certificate of Incorporation of the Company
3.2 Bylaws of the Company
4.1 Specimen Stock Certificate*
4.2 Form of Representative's Warrant
5.1 Opinion of Morse, Zelnick, Rose & Lander, LLP
10.1 Form of DAG Media, Inc. 1999 Stock Option Plan
10.2 Form of Employment Agreement between the Company and Assaf Ran
10.3 Form of Employment Agreement between the Company and Dvir Langer
10.4 Form of Agreement between the Company and B.I.Y., Inc.*
10.5 Form of Agreement between the Company and M.I.Y., Inc.*
10.6 Form of Promissory Note of Assaf Ran
23.1 Consent of Arthur Andersen LLP
23.2 Consent of Morse, Zelnick, Rose & Lander, LLP (included in Exhibit 5.1)
24 Power of Attorney (included in signature page)
27 Financial data schedule
99.1 Officer and Director Nominee Consent (Dvir Langer)
99.2 Director Nominee Consent (Phillip Michals)
99.3 Director Nominee Consent (Eran Goldshmid)
|
* To be filed by amendment.
ITEM 28. CERTAIN UNDERTAKINGS
A. The undersigned Registrant hereby undertakes:
(1) to file, during any period in which offers or sales are being made, a post-effective amendment to this Registration Statement:
(i) to include any prospectus required by Section 10(a)(3) of the Securities Act;
(ii) to reflect in the prospectus any facts or events arising after the effective date of the Registration Statement (or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in the Registration Statement; and
II-5
(iii) to include any material information with respect to the plan of distribution not previously disclosed in the Registration Statement or any material change to such information in the Registration Statement.
(2) That, for the purpose of determining any liability under the Securities Act, each such post-effective amendment shall be deemed to be a new Registration Statement relating to the Securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment any of the Securities being registered which remain unsold at the termination of the Offering.
(4) To provide to the Underwriter at the closing specified in the underwriting agreement certificates in such denominations and registered in such names as required by the Underwriter to permit prompt delivery to each purchaser.
(5) For purposes of determining any liability under the Securities Act, the information omitted from the form of prospectus filed as part of a registration statement in reliance upon Rule 430A and contained in the 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 the registration statement as of the time it was declared effective.
(6) For the purpose of determining any liability under the Securities Act, each post-effective amendment that contains a form of prospectus shall be deemed to be a new registration statement relating to the Securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.
B. Insofar as indemnification for liabilities arising under the 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 Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Registrant of expenses incurred or paid by a director, officer or controlling person of the Registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the Registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue.
II-6
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, as amended, the Registrant certifies that it has reasonable grounds to believe that it meets all of the requirements for filing on Form SB-2 and authorized this Registration Statement to be signed on its behalf by the undersigned, in the City of New York, State of New York on March 10, 1999.
DAG MEDIA, INC.
BY: /S/ ASSAF RAN
-----------------------------------------
ASSAF RAN, PRESIDENT
|
ALL MEN BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Assaf Ran and Stephen A. Zelnick, or any one of them, his true and lawful attorney-in-fact and agent, with full power of substitution and resubstitution, for him and in his name, place and stead, in any and all capacities, to sign any and all pre- or post-effective amendments to this Registration Statement, and to file the same with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite or necessary to be done in and about the premises, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, or any one of them, or their or his substitutes, may lawfully do or cause to be done by virtue hereof.
In accordance with the requirements of the Securities Act of 1933, as amended, this Registration Statement has been signed below by the following persons in the capacities indicated on March 10, 1999.
SIGNATURE TITLE
------------------------------ ---------------------------
/s/ ASSAF RAN President, Chief Executive
------------------------------ Officer and Director
Assaf Ran
/s/ HANAN GOLDENTHAL Chief Financial and
------------------------------ Accounting Officer
Hanan Goldenthal
/s/ EYAL HUBERFELD Director
------------------------------
Eyal Huberfeld
/s/ YORAM EVAN Director
------------------------------
Yoram Evan
II-7
|
EXHIBIT
NO. DESCRIPTION
----------- ---------------------------------------------------------------------------------------------------------
1.1 Form of Underwriting Agreement
2.1 Form of Exchange Agreement
3.1 Certificate of Incorporation of the Company
3.2 Bylaws of the Company
4.1 Specimen Stock Certificate*
4.2 Form of Representative's Warrant
5.1 Opinion of Morse, Zelnick, Rose & Lander, LLP
10.1 Form of DAG Media, Inc. 1999 Stock Option Plan
10.2 Form of Employment Agreement between the Company and Assaf Ran
10.3 Form of Employment Agreement between the Company and Dvir Langer
10.4 Form of Agreement between the Company and B.I.Y., Inc.*
10.5 Form of Agreement between the Company and M.I.Y., Inc.*
10.6 Form of Promissory Note of Assaf Ran
23.1 Consent of Arthur Andersen LLP
23.2 Consent of Morse, Zelnick, Rose & Lander, LLP (included in Exhibit 5.1).
24 Power of Attorney (included in signature page).
27 Financial data schedule
99.1 Officer and Director Nominee Consent (Dvir Langer)
99.2 Director Nominee Consent (Phillip Michals)
99.3 Director Nominee Consent (Eran Goldshmid)
|
* To be filed by amendment.
1,325,000 SHARES OF COMMON STOCK
DAG MEDIA, INC.
UNDERWRITING AGREEMENT
__________, 1999
Paulson Investment Company, Inc.
As Representative of the
Several Underwriters
c/o Paulson Investment Company, Inc.
811 SW Naito Parkway
Portland, Oregon 97204
Gentlemen:
DAG Media, Inc., a New York corporation (the "Company"), proposes to sell to the several underwriters (the "Underwriters") named in Schedule I hereto for whom you are acting as Representative (the "Representative") an aggregate of 1,250,000 shares ("Shares") of the Company's Common Stock, $.001 par value ("Common Stock") and Assaf Ran (the "Selling Stockholder") proposes to sell to the Underwriters an aggregate of 75,000 shares of common stock. The respective amounts of the shares to be so purchased by the several Underwriters ("Firm Shares") are set forth opposite their names in Schedule I hereto. The Company also proposes to grant to the Underwriters an option to purchase in the aggregate up to 198,750 additional Shares (the "Option Shares"), as set forth below. The offer and sale of the Firm Shares and the Option Shares pursuant to this Agreement is referred to as the "Offering."
As the Representative, you have advised the Company (a) that you are authorized to enter into this Agreement for yourself as Representative and on behalf of the several Underwriters, and (b) that the several Underwriters are willing, acting severally and not jointly, to purchase the numbers of Firm Shares set forth opposite their respective names in Schedule I. The Firm Shares and the Option Shares (to the extent the aforementioned option is exercised) are herein collectively called the "Shares."
In consideration of the mutual agreements contained herein and of the interests of the parties in the transactions contemplated hereby, the parties hereto agree as follows:
1. REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE SELLING STOCKHOLDER.
(a) The Company represents and warrants to each of the Underwriters as follows:
(i) A registration statement on Form SB-2 (File No. 333-______) with respect to the Shares has been carefully prepared by the Company in conformity with the requirements of the Securities Act of 1933, as amended (the "Act"), and the Rules and Regulations (the "Rules and Regulations") of the Securities and Exchange Commission (the "Commission") thereunder and has been filed with the Commission. Copies of such registration statement, including any amendments thereto, the preliminary prospectuses (meeting the requirements of the Rules and Regulations) contained therein and the exhibits, financial statements and schedules, as finally amended and revised, have heretofore been delivered by the Company to you. Such registration statement, together with any registration statement filed by the Company pursuant to Rule 462(b) of the Act, herein referred to as the "Registration Statement," which shall be deemed to include all information omitted therefrom in reliance upon Rule 430A and contained in the Prospectus referred to below, has become effective under the Act and no post-effective amendment to the Registration Statement has been filed as of the date of this Agreement. "Prospectus" means (a) the form of prospectus first filed with the Commission pursuant to Rule 424(b) or (b) the last preliminary prospectus included in the Registration Statement filed prior to the time it becomes effective or filed pursuant to Rule 424(a) under the Act that is delivered by the Company to the Underwriters for delivery to purchasers of the Shares, together with the term sheet or abbreviated term sheet filed with the Commission pursuant to Rule 424(b)(7) under the Act. Each preliminary prospectus included in the Registration Statement prior to the time it becomes effective is herein referred to as a "Preliminary Prospectus."
(ii) The Company has been duly organized and is validly existing as a corporation in good standing under the laws of the state of New York, with corporate power and authority to own or lease its properties and conduct its business as described in the Registration Statement. Except as described in the Prospectus, the Company does not own and never has owned a controlling interest in any corporation or other business entity that has or ever has had any material assets, liabilities or operations. The Company is duly qualified to transact business in all jurisdictions in which the conduct of its business requires such qualification.
(iii) The outstanding shares of Common Stock of the Company, including all Firm Shares to be sold by the Selling Stockholder, have been duly authorized and validly issued and are fully paid and non-assessable and have been issued and sold by the Company in compliance in all material respects with applicable securities laws; the Common Stock has been duly authorized and when issued and paid for as contemplated herein will be validly issued, fully paid and non-assessable; and no preemptive rights of stockholders exist with respect to any security of the Company or the issue and sale thereof. Neither the filing of the Registration Statement nor the offering or sale of the Shares as contemplated by this Agreement gives rise to any rights, other than those which have been waived or satisfied, for or relating to the registration of any shares of Common Stock or other securities of the Company.
(iv) The information set forth under the caption "Capitalization" in the Prospectus is true and correct. The Common Stock conforms to the description thereof contained in the Registration Statement. The form of certificates for the Common Stock conforms to the corporate law of the jurisdiction of the Company's incorporation.
(v) The Commission has not issued an order preventing or suspending the use of any Prospectus relating to the proposed offering of the Shares and has not instituted proceedings for that purpose. The Registration Statement contains, and the Prospectus and any amendments or supplements thereto will contain, all statements which are required to be stated therein by, and will conform, to the requirements of the Act and the Rules and Regulations. The Registration Statement and any amendment thereto do not contain, and will not contain, any untrue statement of a material fact and do not omit, and will not omit, to state any material fact required to be stated therein or necessary to make the statements therein not misleading. The Prospectus and any amendments and supplements thereto do not contain, and will not contain, any untrue statement of material fact; and do not omit, and will not omit, to state any material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading; provided, however, that the Company makes no representations or warranties as to information contained in or omitted from the Registration Statement or the Prospectus, or any such amendment or supplement, in reliance upon, and in conformity with, written information furnished to the Company by or on behalf of any Underwriter through the Representative, specifically for use in the preparation thereof.
(vi) The financial statements of the Company, together with related notes and schedules as set forth in the Registration Statement, present fairly the financial position and the results of operations and cash flows of the Company at the indicated dates and for the indicated periods. Such financial statements and related schedules have been prepared in accordance with generally accepted principles of accounting, consistently applied throughout the periods involved, except as disclosed herein, and all adjustments necessary for a fair presentation of results for such periods have been made. The summary financial and statistical data of the Company included in the Registration Statement present fairly the information shown therein and such data have been compiled on a basis consistent with the financial statements presented therein and the books and records of the Company.
(vii) Arthur Andersen LLP, who have audited certain of the financial statements filed with the Commission as part of the Registration Statement, are independent public accountants as required by the Act and the Rules and Regulations.
(viii) There is no action, suit, claim or proceeding pending or, to the knowledge of the Company, threatened against the Company before any court or administrative agency or otherwise which if determined adversely to the Company might result in any material adverse change in the earnings, business, management, properties, assets, rights, operations, condition (financial or otherwise) or prospects of the Company or to prevent the consummation of the transactions contemplated hereby, except as set forth in the Registration Statement.
(ix) The Company has good and marketable title to all of the properties and assets reflected in the financial statements (or as described in the Registration Statement) hereinabove described, subject to no lien, mortgage, pledge, charge or encumbrance of any kind except those reflected in such financial statements (or as described in the Registration Statement) or which are not material in amount. The Company occupies its leased properties under valid
and binding leases conforming in all material respects to the description thereof set forth in the Registration Statement.
(x) The Company has filed all federal, state, local and foreign income tax returns which have been required to be filed and has paid all taxes indicated by said returns and all assessments received by it to the extent that such taxes have become due and are not being contested in good faith. All tax liabilities have been adequately provided for in the financial statements of the Company.
(xi) Since the respective dates as of which information is given in the Registration Statement, as it may be amended or supplemented, there has not been any material adverse change or any development involving a prospective material adverse change in or affecting the earnings, business, management, properties, assets, rights, operations, condition (financial or otherwise), or prospects of the Company, whether or not occurring in the ordinary course of business, and there has not been any material transaction entered into or any material transaction that is probable of being entered into by the Company, other than transactions in the ordinary course of business and changes and transactions described in the Registration Statement, as it may be amended or supplemented. The Company has no material contingent obligations which are not disclosed in the Company's financial statements included in the Registration Statement or elsewhere in the Prospectus.
(xii) The Company is not, nor, with the giving of notice or lapse of time or both, will it be, in violation of or in default under its articles of incorporation or bylaws or under any agreement, lease, contract, indenture or other instrument or obligation to which it is a party or by which it, or any of its properties, is bound and which default is of material significance in respect of the condition, financial or otherwise of the Company or the business, management, properties, assets, rights, operations, condition (financial or otherwise) or prospects of the Company. The execution and delivery of this Agreement and the consummation of the transactions herein contemplated and the fulfillment of the terms hereof will not conflict with or result in a breach of any of the terms or provisions of, or constitute a default under, any indenture, mortgage, deed of trust or other agreement or instrument to which the Company is a party, or of the articles of incorporation or bylaws of the Company or any order, rule or regulation applicable to the Company of any court or of any regulatory body or administrative agency or other governmental body having jurisdiction.
(xiii) Each approval, consent, order, authorization, designation, declaration or filing by or with any regulatory, administrative or other governmental body necessary in connection with the execution and delivery by the Company of this Agreement and the consummation of the transactions herein contemplated (except such additional steps as may be required by the Commission, the National Association of Securities Dealers, Inc. (the "NASD") or such additional steps as may be necessary to qualify the Shares for public offering by the Underwriters under state securities or Blue Sky laws) has been obtained or made and is in full force and effect.
(xiv) The Company holds all material patents, patent rights trademarks, trade names, copyrights, trade secrets and licenses of any of the foregoing (collectively, "Intellectual
Property Rights") that are necessary to the conduct of its business; there is no claim pending or, to the best knowledge of the Company, threatened against the Company alleging any infringement of Intellectual Property Rights, or any violation of the terms of any license relating to Intellectual Property Rights, nor does the Company know of any basis for any such claim. The Company knows of no material infringement by others of Intellectual Property Rights owned by or licensed to the Company. The Company has obtained, is in compliance in all material respects with and maintains in full force and effect all material licenses, certificates, permits, orders or other, similar authorizations granted or issued by any governmental agency (collectively, "Government Permits") required to conduct its business as it is presently conducted. All applications for additional Government Permits described in the Prospectus as having been made by the Company have been properly and effectively made in accordance with the applicable laws and regulations with respect thereto and such applications constitute, in the best judgment of the Company's management, those reasonably required to have been made in order to carry out the Company's business plan as described in the Prospectus. No proceeding to revoke, limit or otherwise materially change any Government Permit has been commenced or, to the Company's best knowledge, is threatened against the Company or any supplier to the Company with respect to materials supplied to the Company, and the Company has no reason to anticipate that any such proceeding will be commenced against the Company or any such supplier. Except as disclosed or contemplated in the Prospectus, the Company has no reason to believe that any pending application for a Government Permit will be denied or limited in a manner inconsistent with the Company's business plan as described in the Prospectus.
(xv) The Company is in all material respects in compliance with all applicable Environmental Laws. The Company has no knowledge of any past, present or, as anticipated by the Company, future events, conditions, activities, investigation, studies, plans or proposals that (i) would interfere with or prevent compliance with any Environmental Law by the Company or (ii) could reasonably be expected to give rise to any common law or other liability, or otherwise form the basis of a claim, action, suit, proceeding, hearing or investigation, involving the Company and related in any way to Hazardous Substances or Environmental Laws. Except for the prudent and safe use and management of Hazardous Substances in the ordinary course of the Company's business, (i) no Hazardous Substance is or has been used, treated, stored, generated, manufactured or otherwise handled on or at any Facility and (ii) to the Company's best knowledge, no Hazardous Substance has otherwise come to be located in, on or under any Facility. No Hazardous Substances are stored at any Facility except in quantities necessary to satisfy the reasonably anticipated use or consumption by the Company. No litigation, claim, proceeding or governmental investigation is pending regarding any environmental matter for which the Company has been served or otherwise notified or, to the knowledge of the Company threatened or asserted against the Company, or the officers or directors of the Company in their capacities as such, or any Facility or the Company's business. There are no orders, judgments or decrees of any court or of any governmental agency or instrumentality under any Environmental Law which specifically apply to the Company, any Facility or any of the Company's operations. The Company has not received from a governmental authority or other person (1) any notice that it is a potentially responsible person for any Contaminated site or (2) any request for information about a site alleged to be Contaminated or regarding the disposal of Hazardous Substances. There is no litigation or proceeding against any other person by the Company regarding any environmental matter. The
Company has disclosed in the Prospectus or made available to the Underwriters and their counsel true, complete and correct copies of any reports, studies, investigations, audits, analysis, tests or monitoring in the possession of or initiated by the Company pertaining to any environmental matter relating to the Company, its past or present operations or any Facility.
For the purposes of the foregoing paragraph, "Environmental Laws" means any applicable federal, state or local statute, regulation, code, rule, ordinance, order, judgment, decree, injunction or common law pertaining in any way to the protection of human health or the environment, including without limitation, the Resource Conservation and Recovery Act, the Comprehensive Environmental Response, Compensation and Liability Act, the Toxic Substances Control Act, the Clean Air Act, the Federal Water Pollution Control Act and any similar or comparable state or local law; "Hazardous Substance" means any hazardous, toxic, radioactive or infectious substance, material or waste as defined, listed or regulated under any Environmental Law; "Contaminated" means the actual existence on or under any real property of Hazardous Substances, if the existence of such Hazardous Substances triggers a requirement to perform any investigatory, remedial, removal or other response action under any Environmental Laws or if such response action legally could be required by any governmental authority; "Facility" means any property currently owned, leased or occupied by the Company.
(xvi) Neither the Company, nor to the Company's best knowledge, any of its affiliates, has taken or intends to take, directly or indirectly, any action designed to cause or result in, or which has constituted or which might reasonably be expected to constitute, the stabilization or manipulation of the price of the shares of Common Stock to facilitate the sale or resale of the Shares.
(xvii) The Company is not an "investment company" within the meaning of such term under the Investment Company Act of 1940, as amended (the "1940 Act"), and the rules and regulations of the Commission thereunder.
(xviii) The Company maintains a system of internal accounting controls sufficient to provide reasonable assurances that (i) transactions are executed in accordance with management's general or specific authorization; (ii) transactions are recorded as necessary to permit preparation of financial statements in conformity with generally accepted accounting principles and to maintain accountability for assets; (iii) access to assets is permitted only in accordance with management's general or specific authorization; and (iv) the recorded accountability for assets is compared with existing assets at reasonable intervals and appropriate action is taken with respect to any differences.
(xix) The Company carries, or is covered by, insurance in such amounts and covering such risks as is adequate for the conduct of its business and the value of its properties and as is customary for companies engaged in similar industries.
(xx) The Company is in compliance in all material respects with all presently applicable provisions of the Employee Retirement Income Security Act of 1974, as amended, including the regulations and published interpretations thereunder ("ERISA"); no "reportable event" (as defined in ERISA) has occurred with respect to any "pension plan" (as defined in
ERISA) for which the Company would have any liability; the Company has not
incurred and does not expect to incur liability under (i) Title IV of ERISA
with respect to termination of, or withdrawal from, any "pension plan" or
(ii) Section 412 or 4971 of the Internal Revenue Code of 1986, as amended,
including the regulations and published interpretations thereunder (the
"Code"); and each "pension plan" for which the Company would have any
liability that is intended to be qualified under Section 401(a) of the Code
is so qualified in all material respects and nothing has occurred, whether by
action or by failure to act, which would cause the loss of such qualification.
(xxi) The Company confirms as of the date hereof that it is in compliance with all provisions of Section 1 of Laws of Florida, Chapter 92-198, AN ACT RELATING TO DISCLOSURE OF DOING BUSINESS WITH CUBA, and the Company further agrees that if it commences engaging in business with the government of Cuba or with any person or affiliate located in Cuba after the date the Registration Statement becomes or has become effective with the Commission or with the Florida Department of Banking and Finance (the "Department"), whichever date is later, or if the information reported or incorporated by reference in the Prospectus, if any, concerning the Company's business with Cuba or with any person or affiliate located in Cuba changes in any material way, the Company will provide the Department notice of such business or change, as appropriate, in a form acceptable to the Department.
(xxii) The Company is in material compliance with all laws, rules, regulations, orders of any court or administrative agency, operating licenses or other requirements imposed by any governmental body applicable to it, including, without limitation, all applicable laws, rules, regulations, licenses or other governmental standards applicable to the industry in which the Company operates; and the conduct of the business of the Company, as described in the Prospectus, will not cause the Company to be in violation of any such requirements.
(xxiii) The Representative's Warrants (as defined in Paragraph
(d) of Section 2 hereof) have been authorized for issuance to the Representative
and will, when issued, possess rights, privileges, and characteristics as
represented in the most recent form of Representative's Warrants filed as an
exhibit to the Registration Statement; the securities to be issued upon exercise
of the Representative's Warrants, when issued and delivered against payment
therefor in accordance with the terms of the Representative's Warrants, will be
duly and validly issued, fully paid, nonassessable and free of preemptive
rights, and all corporate action required to be taken for the authorization and
issuance of the Representative's Warrants, and the securities to be issued upon
their exercise, have been validly and sufficiently taken.
(xxiv) Except as disclosed in the Prospectus, neither the Company nor any of its officers, directors or affiliates have caused any person, other than the Underwriters, to be entitled to reimbursement of any kind, including, without limitation, any compensation that would be includable as underwriter compensation under the NASD's Corporate Financing Rule with respect to the offering of the Shares, as a result of the consummation of such offering based on any activity of such person as a finder, agent, broker, investment adviser or other financial service provider.
(b) The Selling Stockholder represents and warrants to each of the Underwriters as follows:
(i) The Selling Stockholder now has and at the Closing Date will have good and marketable title to the Firm Shares to be sold by the Selling Stockholder, free and clear of any liens, encumbrances, equities and claims, and full right, power and authority to effect the sale and delivery of such Firm Shares; and upon the delivery of, against payment for, such Firms Shares pursuant to this Agreement, the Underwriters will acquire good and marketable title thereto, free and clear of any liens, encumbrances, equities and claims.
(ii) The Selling Stockholder has full right, power and authority to execute and deliver this Agreement and the Custody Agreement (as defined in Section 1(b)(v) and to perform its obligations under such agreements. The execution and delivery of this Agreement and consummation by the Selling Stockholder of the transactions herein contemplated and the fulfillment by the Selling Stockholder of the terms hereof will note require any consent, approval, authorization, or other order of any court, regulatory body, administrative agency of other governmental body (except as may be required under the Act, state securities laws or Blue Sky laws) and will not result in a breach of any of the terms and provisions of, or constitute a default under, any indenture, mortgage, deed of trust or other agreement or instrument to which the Selling Stockholder is a party, or of any order, rule or regulation applicable to the Selling Stockholder of any court or of any regulatory body or administrative agency or other governmental body having jurisdiction.
(iii) The Selling Stockholder has not taken, directly or indirectly, any action designed to, or which has constituted, or which might reasonably be expected to cause or result in the stabilization or manipulation of the price of the Common Stock of the Company and, other than as permitted by the Act, the Selling Stockholder will not distribute any prospectus or other offering material in connection with the offering of the Shares.
(iv) Without having undertaken to determine independently the accuracy or completeness of either the representations and warranties of the Company contained herein or the information contained in the Registration Statement, the Selling Stockholder has no reason to believe that the representations and warranties of the Company contained in this Section 1 are not true, correct and compete, is familiar with the Registration Statement and has no knowledge of any material fact, condition or information not disclosed in the Registration Statement which has adversely affected, or may adversely affect, the business of the Company and the sale of the Firm Shares by the Selling Stockholder pursuant hereto is not prompted by any information concerning the Company or any of its subsidiaries which is not set forth in the Registration Statement. The information pertaining to the Selling Stockholder in the Prospectus is true, correct and complete.
(v) Certificates in negotiable form for the Firms Shares to be sold hereunder by the Selling Stockholder have been placed in custody with _______________, as custodian ("Custodian") pursuant to a custody agreement executed by the Selling Stockholder for delivery of all Shares to be sold hereunder by the Selling Stockholder (the "Custody Agreement"). The Selling Stockholder specifically agrees that the Shares represented by the
certificates held in custody for the Selling Stockholder under the Custody Agreement are subject to the interests of the Representative, that the arrangements made by the Selling Stockholder for such custody are irrevocable, and that the obligations of the Selling Stockholder hereunder shall not be terminable by any act or deed of the Selling Stockholder (or by any other person, firm or corporation including the Company, the Custodian or the Representative) or by operation of law (including the death of the Selling Stockholder) or by the occurrence of any other event or events, except as set forth in the Custody Agreement. If any such event should occur prior to the delivery to the Representative of the Firm Shares to be sold by the Selling Stockholder hereunder, certificates for such Firm Shares shall be delivered by the Custodian in accordance with the terms and conditions of this Agreement as if such event had not occurred, regardless of whether or not the Custodian shall have received notice of such death, incapacity or other event. The Custodian is authorized to receive and acknowledge receipt of the proceeds of sale of such Firm Shares held by it against delivery of such Firm Shares.
(vi) No consent, approval, authorization or order of any court or governmental agency or body is required for the consummation by the Selling Stockholder of the transactions contemplated herein, except such as may have been obtained under the Act and such as may be required under the Blue Sky Laws of any jurisdiction in connection with the purchase and distribution of the Firm Shares by the Underwriters and such other approvals as have been obtained.
(vii) Neither the sale of the Firm Shares being sold by the Selling Stockholder nor the consummation of any other of the transactions contemplated herein by the Selling Stockholder or the fulfillment of the terms hereof by the Selling Stockholder will conflict with, result in breach of, or constitute a default under, the terms of any indenture or other agreement or instrument to which the Selling Stockholder is a party or bound, or any order or regulation applicable to the Selling Stockholder of any court, regulatory body, administrative agency, governmental body or arbitrator having jurisdiction over the Selling Stockholder.
(viii) In respect of any statements in or omissions from the Registration Statement or the Prospectus or any amendment or supplement thereto made in reliance upon and in conformity with information furnished in writing to the Company by the Selling Stockholder specifically for use in connection with the preparation thereof, the Selling Stockholder hereby makes the same representations and warranties to each Underwriter as the Company makes such Underwriter under paragraph (a)(vi) of this Section.
2. PURCHASE, SALE AND DELIVERY OF THE SHARES.
(a) On the basis of the representations, warranties and
covenants herein contained, and subject to the conditions herein set forth, the
Company and the Selling Stockholder agrees to sell to the Underwriters and each
Underwriter agrees, severally and not jointly, to purchase, at a price of
$______ per Unit, the number of Firm Shares set forth opposite the name of each
Underwriter in Schedule I hereof, subject to adjustments in accordance with
Section 9 hereof.
(b) Payment for the Firm Shares to be sold hereunder is to be made in New York Clearing House funds and, at the option of the Representative, by certified or bank cashier's checks drawn to the order of the Company or bank wire to an account specified by the Company against either uncertificated delivery of Firm Shares or of certificates therefor (which delivery, if certificated, shall take place in such location in New York, New York as may be specified by the Representative) to the Representative for the several accounts of the Underwriters. Such payment is to be made at the offices of the Representative at the address set forth on the first page of this Agreement, or at such other place as you and the Company shall designate, at 7:00 a.m., Pacific time, on the third business day after the date of this Agreement or at such other time and date not later than five business days after as you and the Company shall agree upon, such time and date being herein referred to as the "Closing Date." (As used herein, "business day" means a day on which the New York Stock Exchange is open for trading and on which banks in New York are open for business and not permitted by law or executive order to be closed.) Except to the extent uncertificated Firm Shares are delivered at closing, the certificates for the Firm Shares will be delivered in such denominations and in such registrations as the Representative requests in writing not later than the second full business day prior to the Closing Date, and will be made available for inspection by the Representative at least one business day prior to the Closing Date.
(c) In addition, on the basis of the representations and
warranties herein contained and subject to the terms and conditions herein set
forth, the Company hereby grants an option to the Representative to purchase the
Option Shares at the price per Unit as set forth in the first paragraph of this
Section 2. The option granted hereby may be exercised in whole or in part by
giving written notice (i) at any time before the Closing Date and (ii) only once
thereafter within 45 days after the date of this Agreement, by the
Representative to the Company setting forth the number of Option Shares as to
which the Representative is exercising the option, the names and denominations
in which the Option Shares are to be registered and the time and date at which
certificate representing such Shares are to be delivered. The time and date at
which certificates for Option Shares are to be delivered shall be determined by
the Representative but shall not be earlier than three nor later than 10 full
business days after the exercise of such option, nor in any event prior to the
Closing Date (such time and date being herein referred to as the "Option Closing
Date"). If the date of exercise of the option is three or more days before the
Closing Date, the notice of exercise shall set the Closing Date as the Option
Closing Date. The option with respect to the Option Shares granted hereunder may
be exercised only to cover over-allotments in the sale of the Firm Shares by the
Underwriters. The Representative may cancel such option at any time prior to its
expiration by giving written notice of such cancellation to the Company. To the
extent, if any, that the option is exercised, payment for the Option Shares
shall be made on the Option Closing Date in New York Clearing House funds and,
at the option of the Representative, by certified or bank cashier's check drawn
to the order of the Company for the Option Shares to be sold by the Company or
bank wire to an account specified by the Company against delivery of
certificates therefor at the offices of Paulson Investment Company, Inc. set
forth on the first page of this Agreement.
(d) In addition to the sums payable to the Representative as provided elsewhere herein, the Representative shall be entitled to receive at the Closing, for itself alone
and not as Representative of the Underwriters, as additional compensation for their services, a purchase warrant (the "Representative's Warrant") for the purchase of up to 132,500 Shares at a price of $_____ per Share, upon the terms and subject to adjustment and conversion as described in the form of Representative's Warrant filed as an exhibit to the Registration Statement.
(e) If on the Closing Date the Selling Stockholder fails to sell the Firm Shares which the Selling Stockholder has agreed to sell on such a date, the Company agrees that it will sell or arrange for the sale of that number of shares of Common Stock to the Representative which represents the Firm Shares which the Selling Stockholder has failed to so sell.
(f) The Selling Stockholder will pay all applicable state transfer taxes, if any, involved in the transfer to the several Underwriters of the Firm Shares to be purchased by them from the Selling Stockholder, and the respective Underwriters will pay any additional stock transfer taxes involved in further transfers.
3. OFFERING BY THE UNDERWRITERS.
It is understood that the several Underwriters are to make a public offering of the Firm Shares as soon as the Representative deems it advisable to do so. The Firm Shares are to be initially offered to the public at the initial public offering price set forth in the Prospectus. The Representative may from time to time thereafter change the public offering price and other selling terms. To the extent, if at all, that any Option Shares are purchased pursuant to Section 2 hereof, the Representative will offer them to the public on the foregoing terms.
It is further understood that you will act as the Representative for the Underwriters in the offering and sale of the Shares in accordance with an Agreement Among Underwriters entered into by you and the several other Underwriters.
4. COVENANTS OF THE COMPANY AND THE SELLING STOCKHOLDER.
(a) The Company covenants and agrees with the several Underwriters that:
(i) The Company will (1) use its best efforts to cause the Registration Statement to become effective or, if the procedure in Rule 430A of the Rules and Regulations is followed, to prepare and timely file with the Commission under Rule 424(b) of the Rules and Regulations a Prospectus in a form approved by the Representative containing information previously omitted at the time of effectiveness of the Registration Statement in reliance on Rule 430A of the Rules and Regulations, and (2) not file any amendment to the Registration Statement or supplement to the Prospectus of which the Representative shall not previously have been advised and furnished with a copy or to which the Representative shall have reasonably objected in writing or which is not in compliance with the Rules and Regulations.
(ii) The Company will advise the Representative promptly (1) when the Registration Statement or any post-effective amendment thereto shall have become effective,
(2) of receipt of any comments from the Commission, (3) of any request of the Commission for amendment of the Registration Statement or for supplement to the Prospectus or for any additional information, and (4) of the issuance by the Commission of any stop order suspending the effectiveness of the Registration Statement or the use of the Prospectus or of the institution of any proceedings for that purpose. The Company will use its best efforts to prevent the issuance of any such stop order preventing or suspending the use of the Prospectus and to obtain as soon as possible the lifting thereof, if issued.
(iii) The Company will cooperate with the Representative in endeavoring to qualify the Shares for sale under the securities laws of such jurisdictions as the Representative may reasonably have designated in writing and will make such applications, file such documents, and furnish such information as may be reasonably required for that purpose, provided the Company shall not be required to qualify as a foreign corporation or to file a general consent to service of process in any jurisdiction where it is not now so qualified or required to file such a consent. The Company will, from time to time, prepare and file such statements, reports, and other documents, as are or may be required to continue such qualifications in effect for so long a period as the Representative may reasonably request for distribution of the Shares.
(iv) The Company will deliver to, or upon the order of, the Representative, from time to time, as many copies of any Preliminary Prospectus as the Representative may reasonably request. The Company will deliver to, or upon the order of, the Representative during the period when delivery of a Prospectus is required under the Act, as many copies of the Prospectus in final form, or as thereafter amended or supplemented, as the Representative may reasonably request. The Company will deliver to the Representative at or before the Closing Date, four signed copies of the Registration Statement and all amendments thereto including all exhibits filed therewith, and will deliver to the Representative such number of copies of the Registration Statement (including such number of copies of the exhibits filed therewith that may reasonably be requested), and of all amendments thereto, as the Representative may reasonably request.
(v) The Company will comply with the Act and the Rules and Regulations, and the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and the rules and regulations of the Commission thereunder, so as to permit the completion of the distribution of the Shares as contemplated in this Agreement and the Prospectus. If during the period in which a prospectus is required by law to be delivered by an Underwriter or dealer, any event shall occur as a result of which, in the judgment of the Company or in the reasonable opinion of the Underwriters, it becomes necessary to amend or supplement the Prospectus in order to make the statements therein, in the light of the circumstances existing at the time the Prospectus is delivered to a purchaser, not misleading, or, if it is necessary at any time to amend or supplement the Prospectus to comply with any law, the Company promptly will prepare and file with the Commission an appropriate amendment to the Registration Statement or supplement to the Prospectus so that the Prospectus as so amended or supplemented will not, in the light of the circumstances when it is so delivered, be misleading, or so that the Prospectus will comply with the law.
(vi) The Company will make generally available to its security holders, as soon as it is practicable to do so, but in any event not later than 15 months after the effective date of the Registration Statement, an earnings statement (which need not be audited) in reasonable detail, covering a period of at least 12 consecutive months beginning after the effective date of the Registration Statement, which earnings statement shall satisfy the requirements of Section 11(a) of the Act and Rule 158 of the Rules and Regulations and will advise you in writing when such statement has been so made available.
(vii) The Company will, for a period of five years from the Closing Date, deliver to the Representative copies of annual reports and copies of all other documents, reports and information furnished by the Company to its stockholders or filed with any securities exchange pursuant to the requirements of such exchange or with the Commission pursuant to the Act or the Exchange Act. The Company will deliver to the Representative similar reports with respect to significant subsidiaries, as that term is defined in the Rules and Regulations, which are not consolidated in the Company's financial statements.
(viii) No offering, sale, short sale or other disposition of any shares of Common Stock of the Company or other securities convertible into or exchangeable or exercisable for shares of Common Stock or derivative of Common Stock (or agreement for such) will be made for a period of one year after the date of this Agreement, directly or indirectly, by the Company otherwise than hereunder or with the prior written consent of the Representative, which consent will not be unreasonably withheld.
(ix) The Company will use its best efforts to list the Common Stock and the Warrants, subject to notice of their issuance, on The Nasdaq Stock Market.
(x) The Company has caused each officer and director and each person who owns, beneficially or of record, 5% or more of the Common Stock outstanding immediately prior to this offering (the "Insiders") to furnish to you, on or prior to the date of this Agreement, a letter or letters, in form and substance satisfactory to the Underwriters, pursuant to which, except as permitted in the agreement, without prior written consent they will not sell or otherwise dispose of equity securities of the Company for a period of one year following the Effective Date and for a period of two years from the Effective Dates, they will provide us with prior notice of any sales of equity securities of the Company pursuant to Rule 144 or other similar rule.
(xi) The Company shall apply the net proceeds of its sale of the Shares as set forth in the Prospectus and shall file such reports with the Commission with respect to the sale of the Shares and the application of the proceeds therefrom as may be required in accordance with Rule 463 under the Act.
(xii) The Company shall not invest, or otherwise use the proceeds received by the Company from its sale of the Shares in such a manner as would require the Company or any of the subsidiaries to register as an investment company under the 1940 Act.
(xiii) The Company will maintain a transfer agent and, if necessary under the jurisdiction of incorporation of the Company, a registrar for the Common Stock.
(xiv) The Company will not take, directly or indirectly, any action designed to cause or result in, or that has constituted or might reasonably be expected to constitute, the stabilization or manipulation of the price of any securities of the Company.
(b) The Selling Stockholder covenants and agrees with the several Underwriters that:
(i) In order to document the Underwriters' compliance with the reporting and withholding provisions of the Tax Equity and Fiscal Responsibility Act of 1983 with respect to the transactions herein contemplated, the Selling Stockholder agrees to deliver to you prior to or at the Closing Date a properly completed and executed United States Treasury Department Form W-9 (or other applicable form or statement specified by Treasury Department regulations in lieu thereof).
(ii) The Selling Stockholder shall not take, directly or indirectly, any action designed to cause or result in, or that has constituted or might reasonably be expected to constitute, the stabilization or manipulation of the price of any securities of the Company.
(iii) On the Closing Date, the Selling Stockholder shall apply the net proceeds of the sale of his shares to satisfy any and all loans or other indebtedness owed by him to the Company as of the Closing Date, including any principal and accrued interest.
5. COSTS AND EXPENSES.
(a) The Representative shall be entitled to receive from the
Company, for themselves alone and not as the Representative of the Underwriters,
a nonaccountable expense allowance equal to 3% of the aggregate public offering
price of Shares sold to the Underwriters in connection with the Offering. The
Representative shall be entitled to withhold this allowance on the Closing Date
(less the $35,000 advance against such amount that has been paid by the Company)
with respect to Shares delivered on the Closing Date and to require the Company
to make payment of this allowance on the Option Closing Date with respect to
Shares delivered on the Option Closing Date.
(b) In addition to the payment described in Paragraph (a) of this Section 5, the Company will pay all costs, expenses and fees incident to the performance of the obligations of the Company and Selling Stockholder under this Agreement, including, without limiting the generality of the foregoing, the following: accounting fees of the Company; the fees and disbursements of counsel for the Company; the cost of printing and delivering to, or as requested by, the Underwriters copies of the Registration Statement, Preliminary Prospectuses, the Prospectus, this Agreement, the Underwriters' Selling Memorandum, the Underwriters' Invitation Letter, the Listing Application, the Blue Sky Survey and any supplements or amendments thereto; the filing fees of the Commission; the filing fees incident to securing any required review by the NASD of the terms of the sale of the Shares; the Listing Fee of The
Nasdaq Stock Market; reasonable costs of a due diligence investigation of the principals of the Company by a firm acceptable to the Representative; and the expenses, including the fees and disbursements of counsel for the Underwriters, incurred in connection with the qualification of the Shares under state securities or Blue Sky laws. Any transfer taxes imposed on the sale of the Shares to the several Underwriters will be paid by the Company, but the Selling Stockholder shall be responsible for transfer taxes arising from his pro-rata shares being sold under this Agreement. Additionally, the Selling Stockholder shall be responsible for the registration fee of the Securities and Exchange Commission and for the Blue Sky filing fees attributable to the shares being sold by him as well as for his pro rata share of the underwriting discount and expense allowance. To the extent, if at all, that the Selling Stockholder engages special legal counsel to represent him in connection with this offer, the fees and expenses of such counsel shall be borne by such Selling Stockholder. If the Offering is not consummated for any reason except knowing, material misrepresentation by the Company or the Company or Selling Stockholder or if the Company chooses, for whatever reason, not to proceed with the Offering within the stated price range, then the Company is obligated to cover the Representative's additional actual, out of pocket expenses, only up to the $35,000 previously paid. If the Offering is not consummated due to any knowing, material misrepresentation by the Company or the Company chooses, for whatever reason, not to proceed with the Offering within the stated price range, the Representative will be entitled, upon presentation of a written accounting therefor in reasonable detail (but without the need to include the underlying statements or evidence of payment), to prompt reimbursement of up to $75,000 (including the $35,000 previously paid) of actual, out of pocket expenses related to the Offering, including but not limited to fees and expenses of the Representative's legal counsel, travel expenses and the fees and expenses of outside experts, if any, retained to assist the Representative with due diligence.
6. CONDITIONS OF OBLIGATIONS OF THE UNDERWRITERS.
The several obligations of the Underwriters to purchase the Firm Shares on the Closing Date and the Option Shares, if any, on the Option Closing Date are subject to the accuracy, as of the Closing Date or the Option Closing Date, as the case may be, of the representations and warranties of the Company and Selling Stockholder contained herein, and to the performance by the Company and Selling Stockholder of their covenants and obligations hereunder and to the following additional conditions:
(a) The Registration Statement and all post-effective amendments thereto shall have become effective and any and all filings required by Rule 424 and Rule 430A of the Rules and Regulations shall have been made, and any request of the Commission for additional information (to be included in the Registration Statement or otherwise) shall have been disclosed to the Representative and complied with to their reasonable satisfaction. No stop order suspending the effectiveness of the Registration Statement, as amended from time to time, shall have been issued and no proceedings for that purpose shall have been taken or, to the knowledge of the Company, shall be contemplated by the Commission and no injunction, restraining order, or order of any nature by a federal or state court of competent jurisdiction shall have been issued as of the Closing Date which would prevent the issuance of the Shares.
(b) The Representative shall have received on the Closing Date or the Option Closing Date, as the case may be, the opinion of Morse, Zelnick, Rose & Lander, LLP, counsel for the Company and Selling Stockholder, dated the Closing Date or the Option Closing Date, as the case may be, addressed to the Underwriters (and stating that it may be relied upon by counsel to the Underwriters) to the effect that:
(i) The Company has been duly organized and is validly existing as a corporation in good standing under the laws of the state of New York, with corporate power and authority to own or lease its properties and conduct its business as described in the Registration Statement; the Company is duly qualified to transact business in all jurisdictions in which the conduct of its business requires such qualification, or in which the failure to qualify would have a materially adverse effect upon the business of the Company.
(ii) The Company has authorized and outstanding capital stock as set forth under the caption "Capitalization" in the Prospectus; the authorized shares of the Company's Common Stock have been duly authorized; the outstanding shares of the Company's Common Stock have been duly authorized and validly issued and are fully paid and non-assessable; all of the securities of the Company conform to the description thereof contained in the Prospectus; the certificates for the Common Stock, assuming they are in the form filed with the Commission, are in due and proper form; the shares of Common Stock to be sold by the Company and Selling Stockholder pursuant to this Agreement, including shares of Common Stock to be sold as a part of the Option Shares have been duly authorized and, upon issuance and delivery thereof as contemplated in this Agreement and the Registration Statement, will be validly issued, fully paid and non-assessable; no preemptive rights of stockholders exist with respect to any of the Common Stock of the Company or the issuance or sale thereof pursuant to any applicable statute or the provisions of the Company's articles of incorporation or bylaws or, pursuant to any contractual obligation. The Representative's Warrants have been authorized for issuance to the Representative and will, when issued, possess rights, privileges, and characteristics as represented in the most recent form of the Representative's Warrants filed as an exhibit to the Registration Statement; the securities to be issued upon exercise of the Representative's Warrants, when issued and delivered against payment therefor in accordance with the terms of the Representative's Warrants, will be duly and validly issued, fully paid, nonassessable and free of preemptive rights, and all corporate action required to be taken for the authorization and issuance of the Representative's Warrants and the securities to be issued upon their exercise has been validly and sufficiently taken.
(iii) Except as described in or contemplated by the Prospectus, there are no outstanding securities of the Company convertible or exchangeable into or evidencing the right to purchase or subscribe for any shares of capital stock of the Company and there are no outstanding or authorized options, warrants or rights of any character obligating the Company to issue any shares of its capital stock or any securities convertible or exchangeable into or evidencing the right to purchase or subscribe for any shares of such stock; and except as described in the Prospectus, no holder of any securities of the Company or any other person has the right, contractual or otherwise, which has not been satisfied or effectively waived, to cause the Company to sell or otherwise issue to them, or to permit them to underwrite the sale of, any of the Shares or the right to have any Common Stock or other securities of the Company
included in the Registration Statement or the right, as a result of the filing of the Registration Statement, to require registration under the Act of any shares of Common Stock or other securities of the Company.
(iv) The Registration Statement has become effective under the Act and no stop order proceedings with respect thereto have been instituted or are pending or threatened under the Act.
(v) The Registration Statement, the Prospectus and each amendment or supplement thereto comply as to form in all material respects with the requirements of the Act and the applicable rules and regulations thereunder (except that such counsel need express no opinion as to the financial statements and related schedules therein).
(vi) The statements under the captions "Shares Eligible for Future Sale" and "Description of Capital Stock" in the Prospectus and in Item ___ of the Registration Statement, insofar as such statements constitute a summary of documents referred to therein or matters of law, fairly summarize in all material respects the information called for with respect to such documents and matters.
(vii) No contracts or documents required to be filed as exhibits to the Registration Statement or described in the Registration Statement or the Prospectus which are not so filed or described as required, and such contracts and documents as are summarized in the Registration Statement or the Prospectus are fairly summarized in all material respects.
(viii) There are no material legal or governmental proceedings pending or threatened against the Company.
(ix) The execution and delivery of this Agreement and the consummation of the transactions herein contemplated do not and will not conflict with or result in a breach of any of the terms or provisions of, or constitute a default under, the articles of incorporation or bylaws of the Company, or any agreement or instrument known to such counsel to which the Company is a party or by which the Company may be bound.
(x) This Agreement has been duly authorized, executed and delivered by the Company and the Selling Stockholder.
(xi) No approval, consent, order, authorization, designation, declaration or filing by or with any regulatory, administrative or other governmental body is necessary in connection with the execution and delivery of this Agreement by the Company or the Selling Stockholder and the consummation of the transactions herein contemplated (other than as may be required by the NASD or as required by state securities and Blue Sky laws as to which such counsel need express no opinion) except such as have been obtained or made, specifying the same.
(xii) The Company is not, and will not become, as a result of the consummation of the transactions contemplated by this Agreement, and application of the net
proceeds therefrom as described in the Prospectus, required to register as an investment company under the 1940 Act.
(xiii) The Custody Agreement executed and delivered by the Selling Stockholder is valid and binding and enforceable against such Stockholder in accordance with its terms.
(xiv) The Underwriters (assuming that they are bona fide purchasers within the meaning of the Uniform Commercial Code) have acquired good and marketable title to the Firm Shares being sold by the Selling Stockholder on the Closing Date free and clear of all liens, encumbrances, equities and claims.
(xv) On the effective date thereof as described in the Prospectus, the Exchange (as described in the Prospectus) was consummated in accordance with the applicable provisions of the New York Business Corporation Law, and each of the parties thereto had all requisite authority (including all necessary shareholder and board of director approvals to enter into and consummate the Exchange.
In rendering such opinion, such counsel may rely as to matters governed by the laws of states other than New York or federal laws on local counsel in such jurisdictions, provided that in each case such counsel shall state that they believe that they and the Underwriters are justified in relying on such other counsel. In addition to the matters set forth above, the opinion of Morse, Zelnick, Rose & Lander, LLP, shall also include a statement to the effect that nothing has come to the attention of such counsel that has caused them to believe that (i) the Registration Statement, at the time it became effective under the Act (but after giving effect to any modifications incorporated therein pursuant to Rule 430A under the Act) and as of the Closing Date or the Option Closing Date, as the case may be, contained an untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading, and (ii) the Prospectus, or any supplement thereto, on the date it was filed pursuant to the Rules and Regulations and as of the Closing Date or the Option Closing Date, as the case may be, contained an untrue statement of a material fact or omitted to state a material fact necessary in order to make the statements, in the light of the circumstances under which they are made, not misleading (except that such counsel need express no view as to financial statements, schedules and statistical information therein).
(c) The Representative shall have received from Weiss, Jensen, Ellis & Howard, counsel for the Underwriters, an opinion dated the Closing Date or the Option Closing Date, as the case may be, substantially to the effect specified in subparagraphs (i), (iv) and (v) of Paragraph (b) of this Section 6. In rendering such opinion Weiss, Jensen, Ellis & Howard may rely as to all matters governed other than by the laws of the state of Oregon or federal laws on the opinion of counsel referred to in Paragraph (b) of this Section 6. In addition to the matters set forth above, such opinion shall also include a statement to the effect that nothing has come to the attention of such counsel that has caused them to believe that (i) the Registration Statement, or any amendment thereto, as of the time it became effective under the Act (but after giving effect to any modifications incorporated therein pursuant to Rule 430A under the Act) and as of
the Closing Date or the Option Closing Date, as the case may be, contained an untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading, and (ii) the Prospectus, or any supplement thereto, on the date it was filed pursuant to the Rules and Regulations and as of the Closing Date or the Option Closing Date, as the case may be, contained an untrue statement of a material fact or omitted to state a material fact, necessary in order to make the statements, in the light of the circumstances under which they are made, not misleading (except that such counsel need express no view as to financial statements, schedules and statistical information therein). With respect to such statement, Weiss, Jensen, Ellis & Howard may state that their belief is based upon the procedures set forth therein, but is without independent check and verification.
(d) The Representative shall have received at or prior to the Closing Date from Weiss, Jensen, Ellis & Howard a memorandum or summary, in form and substance satisfactory to the Representative, with respect to the qualification for offering and sale by the Underwriters of the Shares under the state securities or Blue Sky laws of such jurisdictions as the Representative may reasonably have designated to the Company.
(e) The Representative, on behalf of the several Underwriters, shall have received, on each of the dates hereof, the Closing Date and the Option Closing Date, as the case may be, a letter dated the date hereof, the Closing Date or the Option Closing Date, as the case may be, in form and substance satisfactory to the Representative, of Arthur Andersen LLP confirming that they are independent public accountants within the meaning of the Act and the applicable published Rules and Regulations thereunder and stating that in their opinion the financial statements and schedules examined by them and included in the Registration Statement comply in form in all material respects with the applicable accounting requirements of the Act and the related published Rules and Regulations and containing such other statements and information as are ordinarily included in accountants' "comfort letters" to Underwriters with respect to the financial statements and certain financial and statistical information contained in the Registration Statement and Prospectus.
(f) The Representative shall have received on the Closing Date or the Option Closing Date, as the case may be, a certificate or certificates of the Chief Executive Officer and the Chief Financial Officer of the Company to the effect that, as of the Closing Date or the Option Closing Date, as the case may be, each of them severally represents as follows:
(i) The Registration Statement has become effective under the Act and no stop order suspending the effectiveness of the Registration Statement has been issued, and no proceedings for such purpose have been taken or are, to his or her knowledge, contemplated by the Commission;
(ii) The representations and warranties of the Company contained in Section 1 hereof are true and correct as of the Closing Date or the Option Closing Date, as the case may be;
(iii) All filings required to have been made pursuant to Rule 424 or Rule 430A under the Act have been made;
(iv) He or she has carefully examined the Registration Statement and the Prospectus and, in his or her opinion, as of the effective date of the Registration Statement, the statements contained in the Registration Statement were true and correct, and such Registration Statement and Prospectus did not omit to state a material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading, and since the effective date of the Registration Statement, no event has occurred which should have been set forth in a supplement to or an amendment of the Prospectus which has not been so set forth in such supplement or amendment; and
(v) Since the respective dates as of which information is given in the Registration Statement and Prospectus, there has not been any material adverse change or any development involving a prospective material adverse change in or affecting the condition, financial or otherwise, of the Company or the earnings, business, management, properties, assets, rights, operations, condition (financial or otherwise) or prospects of the Company, whether or not arising in the ordinary course of business.
(g) The Company and the Selling Stockholder shall have furnished to the Representative such further certificates and documents confirming the representations and warranties, covenants and conditions contained herein and related matters as the Representative may reasonably have requested.
(h) The Common Stock has been approved for designation on The Nasdaq Stock Market upon notice of issuance.
The opinions and certificates mentioned in this Agreement shall be deemed to be in compliance with the provisions hereof only if they are in all material respects satisfactory to the Representative and to Weiss, Jensen, Ellis & Howard, counsel for the Underwriters.
If any of the conditions hereinabove provided for in this
Section 6 shall not have been fulfilled when and as required by this Agreement
to be fulfilled, the obligations of the Underwriters hereunder may be terminated
by the Representative by notifying the Company and the Selling Stockholder of
such termination in writing or by telegram at or prior to the Closing Date or
the Option Closing Date, as the case may be.
In such event, the Company, the Selling Stockholder and the Underwriters shall not be under any obligation to each other (except to the extent provided in Sections 5 and 8 hereof).
7. CONDITIONS OF OBLIGATIONS OF THE COMPANY.
The obligations of the Company to sell and deliver the portion of the Shares required to be delivered as and when specified in this Agreement are subject to the conditions that at the Closing Date or the Option Closing Date, as the case may be, no stop order suspending the effectiveness of the Registration Statement shall have been issued and in effect or proceedings therefor initiated or threatened.
8. INDEMNIFICATION.
(a) The Company and the Selling Stockholder jointly and severally agree to indemnify and hold harmless each Underwriter and each person, if any, who controls any Underwriter within the meaning of the Act, against any losses, claims, damages or liabilities to which such Underwriter or any such controlling person may become subject under the Act or otherwise, insofar as such losses, claims, damages or liabilities (or actions or proceedings in respect thereof) arise out of or are based upon:
(i) any untrue statement or alleged untrue statement of any material fact contained in the Registration Statement, any Preliminary Prospectus, the Prospectus or any amendment or supplement thereto, or
(ii) the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading; and will reimburse each Underwriter and each such controlling person upon demand for any legal or other expenses reasonably incurred by such Underwriter or such controlling person in connection with investigating or defending any such loss, claim, damage or liability, action or proceeding or in responding to a subpoena or governmental inquiry related to the offering of the Shares, whether or not such Underwriter or controlling person is a party to any action or proceeding; provided, however, that the Company and the Selling Stockholder will not be liable in any such case to the extent that any such loss, claim, damage or liability arises out of or is based upon an untrue statement or alleged untrue statement, or omission or alleged omission made in the Registration Statement, any Preliminary Prospectus, the Prospectus, or such amendment or supplement, in reliance upon and in conformity with written information furnished to the Company by or through the Representative specifically for use in the preparation thereof. This indemnity agreement will be in addition to any liability which the Company may otherwise have.
(b) Each Underwriter severally and not jointly will indemnify and hold harmless the Company, each of its directors, each of its officers who have signed the Registration Statement, the Selling Stockholder and each person, if any, who controls the Company within the meaning of the Act, against any losses, claims, damages or liabilities to which the Company, the Selling Stockholder or any such director, officer or controlling person may become subject under the Act or otherwise, insofar as such losses, claims, damages or liabilities (or actions or proceedings in respect thereof) arise out of or are based upon (i) any untrue statement or alleged untrue statement of any material fact contained in the Registration Statement, any Preliminary Prospectus, the Prospectus or any amendment or supplement thereto, or (ii) the omission or the alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading in the light of the
circumstances under which they were made; and will reimburse any legal or other expenses reasonably incurred by the Company or any such director, the Selling Stockholder, officer or controlling person in connection with investigating or defending any such loss, claim, damage, liability, action or proceeding; provided, however, that each Underwriter will be liable in each case to the extent, but only to the extent, that such untrue statement or alleged untrue statement or omission or alleged omission has been made in the Registration Statement, any Preliminary Prospectus, the Prospectus or such amendment or supplement, in reliance upon and in conformity with written information furnished to the Company by or through the Representative specifically for use in the preparation thereof. This indemnity agreement will be in addition to any liability which such Underwriter may otherwise have.
(c) In case any proceeding (including any governmental investigation) shall be instituted involving any person in respect of which indemnity may be sought pursuant to this Section 8, such person (the "indemnified party") shall promptly notify the person against whom such indemnity may be sought (the "indemnifying party") in writing. No indemnification provided for in Section 8(a) or (b) shall be available to any party who shall fail to give notice as provided in this Section 8(c) if the party to whom notice was not given was unaware of the proceeding to which such notice would have related and was materially prejudiced by the failure to give such notice, but the failure to give such notice shall not relieve the indemnifying party or parties from any liability which it or they may have to the indemnified party for contribution or otherwise than on account of the provisions of Section 8(a) or (b). In case any such proceeding shall be brought against any indemnified party and it shall notify the indemnifying party of the commencement thereof, the indemnifying party shall be entitled to participate therein and, to the extent that it shall wish, jointly with any other indemnifying party similarly notified, to assume the defense thereof, with counsel satisfactory to such indemnified party and shall pay as incurred the fees and disbursements of such counsel related to such proceeding. In any such proceeding, any indemnified party shall have the right to retain its own counsel at its own expense. Notwithstanding the foregoing, the indemnifying party shall pay as incurred (or within 30 days of presentation) the fees and expenses of the counsel retained by the indemnified party in the event:
(i) he indemnifying party and the indemnified party shall have mutually agreed to the retention of such counsel;
(ii) the named parties to any such proceeding (including any impleaded parties) include both the indemnifying party and the indemnified party and representation of both parties by the same counsel would be inappropriate due to actual or potential differing interests between them or;
(iii) the indemnifying party shall have failed to assume the defense and employ counsel acceptable to the indemnified party within a reasonable period of time after notice of commencement of the action.
It is understood that the indemnifying party shall not, in connection with any proceeding or related proceedings in the same jurisdiction, be liable for the reasonable fees and expenses of more than one separate firm for all such indemnified parties. Such firm shall be
designated in writing by you in the case of parties indemnified pursuant to
Section 8(a) and by the Company in the case of parties indemnified pursuant to
Section 8(b). The indemnifying party shall not be liable for any settlement of
any proceeding effected without its written consent but if settled with such
consent or if there be a final judgment for the plaintiff, the indemnifying
party agrees to indemnify the indemnified party from and against any loss or
liability by reason of such settlement or judgment. In addition, the
indemnifying party will not, without the prior written consent of the
indemnified party, settle or compromise or consent to the entry of any judgment
in any pending or threatened claim, action or proceeding of which
indemnification may be sought hereunder (whether or not any indemnified party is
an actual or potential party to such claim, action or proceeding) unless such
settlement, compromise or consent includes an unconditional release of each
indemnified party from all liability arising out of such claim, action or
proceeding.
(d) If the indemnification provided for in this Section 8 is
unavailable to or insufficient to hold harmless an indemnified party under
Section 8(a) or (b) above in respect of any losses, claims, damages or
liabilities (or actions or proceedings in respect thereof) referred to therein,
then each indemnifying party shall contribute to the amount paid or payable by
such indemnified party as a result of such losses, claims, damages or
liabilities (or actions or proceedings in respect thereof) in such proportion as
is appropriate to reflect the relative benefits received by the Company and the
Selling Stockholder on the one hand and the Underwriters on the other from the
offering of the Shares. If, however, the allocation provided by the immediately
preceding sentence is not permitted by applicable law then each indemnifying
party shall contribute to such amount paid or payable by such indemnified party
in such proportion as is appropriate to reflect not only such relative benefits
but also the relative fault of the Company on the one hand and the Underwriters
on the other in connection with the statements or omissions which resulted in
such losses, claims, damages or liabilities, (or actions or proceedings in
respect thereof), as well as any other relevant equitable considerations. The
relative benefits received by the Company and the Selling Stockholder on the one
hand and the Underwriters on the other shall be deemed to be in the same
proportion as the total net proceeds from the offering (before deducting
expenses) received by the Company and the Selling Stockholder bears to the total
underwriting discounts and commissions received by the Underwriters, in each
case as set forth in the table on the cover page of the Prospectus. The relative
fault shall be determined by reference to, among other things, whether the
untrue or alleged untrue statement of a material fact or the omission or alleged
omission to state a material fact relates to information supplied by the Company
or the Selling Stockholder on the one hand or the Underwriters on the other and
the parties' relative intent, knowledge, access to information and opportunity
to correct or prevent such statement or omission.
The Company, the Selling Stockholder and the Underwriters
agree that it would not be just and equitable if contributions pursuant to this
Section 8(d) were determined by pro rata allocation (even if the Underwriters
were treated as one entity for such purpose) or by any other method of
allocation which does not take account of the equitable considerations referred
to above in this Section 8(d). The amount paid or payable by an indemnified
party as a result of the losses, claims, damages or liabilities (or actions or
proceedings in respect thereof) referred to above in this Section 8(d) shall be
deemed to include any legal or other expenses reasonably incurred by such
indemnified party in connection with investigating or defending any such action
or claim. Notwithstanding the provisions of this subsection (d), (i) no Underwriter shall be required to contribute any amount in excess of the underwriting discounts and commissions applicable to the Shares purchased by such Underwriter, and (ii) no person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. The Underwriters' obligations in this Section 8(d) to contribute are several in proportion to their respective underwriting obligations and not joint.
(e) In any proceeding relating to the Registration Statement, any Preliminary Prospectus, the Prospectus or any supplement or amendment thereto, each party against whom contribution may be sought under this Section 8 hereby consents to the jurisdiction of any court having jurisdiction over any other contributing party, agrees that process issuing from such court may be served upon him or it by any other contributing party and consents to the service of such process and agrees that any other contributing party may join him or it as an additional defendant in any such proceeding in which such other contributing party is a party.
(f) Any losses, claims, damages, liabilities or expenses for which an indemnified party is entitled to indemnification or contribution under this Section 8 shall be paid by the indemnifying party to the indemnified party as such losses, claims, damages, liabilities or expenses are incurred. The indemnity and contribution agreements contained in this Section 8 and the representations and warranties of the Company set forth in this Agreement shall remain operative and in full force and effect, regardless of:
(i) any investigation made by or on behalf of any Underwriter or any person controlling any Underwriter, the Company, the Selling Stockholder, its directors or officers or any persons controlling the Company;
(ii) acceptance of any Shares and payment therefor hereunder, and;
(iii) any termination of this Agreement. A successor to any Underwriter, or to the Company, its directors or officers, or any person controlling the Company, shall be entitled to the benefits of the indemnity, contribution and reimbursement agreements contained in this Section 8.
9. DEFAULT BY UNDERWRITERS.
If on the Closing Date or the Option Closing Date, as the case may be, any Underwriter shall fail to purchase and pay for the portion of the Shares which such Underwriter has agreed to purchase and pay for on such date (otherwise than by reason of any default on the part of the Company or the Selling Stockholder), you, as Representative of the Underwriters, shall use your reasonable efforts to procure within 36 hours thereafter one or more of the other Underwriters, or any others, to purchase from the Company and the Selling Stockholder such amounts as may be agreed upon and upon the terms set forth herein, the Firm Shares or Option Shares, as the case
may be, which the defaulting Underwriter or Underwriters failed to purchase. If
during such 36 hours you, as such Representative, shall not have procured such
other Underwriters, or any others, to purchase the Firm Shares or Option Shares,
as the case may be, agreed to be purchased by the defaulting Underwriter or
Underwriters, then (a) if the aggregate number of Shares with respect to which
such default shall occur does not exceed 10% of the Firm Shares or Option
Shares, as the case may be, covered hereby, the other Underwriters shall be
obligated, severally, in proportion to the respective numbers of Firm Shares or
Option Shares, as the case may be, which they are obligated to purchase
hereunder, to purchase the Firm Shares or Option Shares, as the case may be,
which such defaulting Underwriter or Underwriters failed to purchase, or (b) if
the aggregate number of Firm Shares or Option Shares, as the case may be, with
respect to which such default shall occur equals or exceeds 10% of the Firm
Shares or Option Shares, as the case may be, covered hereby, the Company or you
as the Representative of the Underwriters will have the right, by written notice
given within the next 36-hour period to the parties to this Agreement, to
terminate this Agreement without liability on the part of the non-defaulting
Underwriters or of the Company or of the Selling Stockholder except to the
extent provided in Section 8 hereof. In the event of a default by any
Underwriter or Underwriters, as set forth in this Section 9, the Closing Date or
Option Closing Date, as the case may be, may be postponed for such period, not
exceeding seven days, as you, as Representative, may determine in order that the
required changes in the Registration Statement or in the Prospectus or in any
other documents or arrangements may be effected. The term "Underwriter" includes
any person substituted for a defaulting Underwriter. Any action taken under this
Section 9 shall not relieve any defaulting Underwriter from liability in respect
of any default of such Underwriter under this Agreement.
10. NOTICES.
All communications hereunder shall be in writing and, except
as otherwise provided herein, will be mailed, delivered, telecopied or
telegraphed and confirmed as follows: if to the Underwriters, to Paulson
Investment Company, Inc., 811 SW Naito Boulevard, Portland, Oregon 97204,
Attention: Chester L.F. Paulson; with a copy to Weiss, Jensen, Ellis & Howard,
2300 U.S. Bancorp Tower, 111 Fifth Avenue, Portland, Oregon 97204, Attention:
Mark A. von Bergen; if to the Company or the Selling Stockholder, to DAG Media,
Inc., 125-10 Queens Boulevard, Kew Gardens, NY 11415; with a copy to Morse
Zelnick, Rose & Lander, LLP, 450 Park Ave., New York, NY 10022, Attention:
Stephen A. Zelnick, Esq.
11. TERMINATION.
This Agreement may be terminated by you by notice to the Company as follows:
(a) at any time prior to the earlier of (i) the time the
Shares are released by you for sale by notice to the Underwriters, or (ii) 11:30
a.m. on the first business day following the date of this Agreement;
(b) at any time prior to the Closing Date if any of the following has occurred: (i) since the respective dates as of which information is given in the Registration Statement and the Prospectus, any material adverse change or any development involving a prospective material adverse change in or affecting the condition, financial or otherwise, of the Company and its subsidiaries taken as a whole or the earnings, business, management, properties, assets, rights, operations, condition (financial or otherwise) or prospects of the
Company and its subsidiaries taken as a whole, whether or not arising in the
ordinary course of business, (ii) any outbreak or escalation of hostilities or
declaration of war or national emergency or other national or international
calamity or crisis or change in economic or political conditions if the effect
of such outbreak, escalation, declaration, emergency, calamity, crisis or change
on the financial markets of the United States would, in your reasonable
judgment, make it impracticable to market the Shares or to enforce contracts for
the sale of the Shares, (iii) the Dow Jones Industrial Average shall have fallen
by 15 percent or more from its closing price on the day immediately preceding
the date that the Registration Statement is declared effective by the
Commission, (iv) suspension of trading in securities generally on the New York
Stock Exchange or the American Stock Exchange or limitation on prices (other
than limitations on hours or numbers of days of trading) for securities on
either such Exchange, (v) the enactment, publication, decree or other
promulgation of any statute, regulation, rule or order of any court or other
governmental authority which in your opinion materially and adversely affects or
may materially and adversely affect the business or operations of the Company,
(vi) declaration of a banking moratorium by United States or New York State
authorities, (vii) any downgrading in the rating of the Company's debt
securities by any "nationally recognized statistical rating organization" (as
defined for purposes of Rule 436(g) under the Exchange Act); (viii) the
suspension of trading of the Common Stock by the Commission on The Nasdaq Stock
Market or (ix) the taking of any action by any governmental body or agency in
respect of its monetary or fiscal affairs which in your reasonable opinion has a
material adverse effect on the securities markets in the United States; or
(c) as provided in Sections 6 and 9 of this Agreement.
12. SUCCESSORS.
This Agreement has been and is made solely for the benefit of the Underwriters, the Company, the Selling Stockholder and their respective successors, executors, administrators, heirs and assigns, and the officers, directors and controlling persons referred to herein, and no other person will have any right or obligation hereunder. No purchaser of any of the Shares from any Underwriter shall be deemed a successor or assign merely because of such purchase.
13. INFORMATION PROVIDED BY UNDERWRITERS.
The Company, the Selling Stockholder and the Underwriters acknowledge and agree that the only information furnished or to be furnished by any Underwriter to the Company for inclusion in any Prospectus or the Registration Statement consists of the information set forth in the last paragraph on the front cover page (insofar as such information relates to the Underwriters), legends required by Item 502(d) of Regulation S-B under the Act and the information under the caption "Underwriting" in the Prospectus.
14. MISCELLANEOUS.
The reimbursement, indemnification and contribution agreements contained in this Agreement and the representations, warranties and covenants in this Agreement shall remain in full force and effect regardless of (a) any termination of this Agreement, (b) any investigation
made by or on behalf of any Underwriter or controlling person thereof, or by or on behalf of the Company or its directors or officers and (c) delivery of and payment for the Shares under this Agreement.
This Agreement may be executed in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument.
This Agreement shall be governed by, and construed in accordance with, the laws of the state of Oregon. All disputes relating to this Underwriting Agreement shall be adjudicated before a court located in Multnomah County, Oregon to the exclusion of all other courts that might have jurisdiction.
If the foregoing letter is in accordance with your understanding of our agreement, please sign and return to us the enclosed duplicates hereof, whereupon it will become a binding agreement among the Company, the Selling Stockholder and the several Underwriters in accordance with its terms.
Very truly yours,
DAG MEDIA, INC.
The foregoing Underwriting Agreement
is hereby confirmed and accepted
as of the date first above written.
PAULSON INVESTMENT COMPANY, INC.
As Representative of the several
Underwriters listed on Schedule I
SCHEDULE I
SCHEDULE OF UNDERWRITERS
NUMBER OF
FIRM SHARES
UNDERWRITER TO BE PURCHASED
--------------------------------------------------------------------------- -------------------------
Paulson Investment Company, Inc.
TOTAL: 1,325,0000
-------------------------
-------------------------
|
Exhibit 2.1
EXCHANGE AGREEMENT
EXCHANGE AGREEMENT, made as of the 1st day of March, 1999 among DAG Media, Inc., a New York corporation ("DAG"), Dapey Assaf-Dapey Zahav, Ltd. ("DAZ"), Dapey Assaf-Hamadrikh Leassakim Israelim Be New York, Ltd. ("DAH"), Assaf Ran ("Ran"), Dvir Langer ("Langer"), Eyal Huberfeld ("Huberfeld"), Avi Shefi ("Shefi") and Daniel Frank ("Frank").
W I T N E S S E T H:
WHEREAS, Ran owns 100% of the issued and outstanding common shares, no par value, of DAZ; and
WHEREAS, Ran, Langer, Huberfeld, Shefi and Frank own 100% of the issued and outstanding common shares, no par value, of DAH; and
WHEREAS, DAG intends to file, pursuant to the Securities Act of 1933, as amended, a registration statement on Form SB-2 (the "Registration Statement") with the Securities and Exchange Commission covering the public sale of 1,250,000 of its common shares, par value $.001 per share (the "Common Shares"); and
NOW, THEREFORE, in consideration of the foregoing premises, the mutual covenants and agreements contained herein and other good and valuable consideration, the sufficiency of which is hereby acknowledged, the parties hereto agree as follows:
1. Immediately prior to the effective date of the Registration Statement, (a) Ran will convey, transfer, contribute and assign to DAG all of his common shares in DAZ in exchange for 1,250,000 DAG Common Shares and (b) each of Ran, Langer, Huberfeld, Shefi and Frank will convey, transfer, contribute and assign to DAG all of his common shares in DAH in exchange for such number of DAG Common Shares as is set forth opposite their names below:
------------------------------- ------------------------ Ran 238,095 ------------------------------- ------------------------ Langer 148,809 ------------------------------- ------------------------ Huberfeld 29,762 ------------------------------- ------------------------ Shefi 29,762 ------------------------------- ------------------------ Frank 29,762 ------------------------------- ------------------------ |
2. Each of Ran, Langer, Huberfeld, Shefi and Frank represent and warrant to the other shareholders and to DAG that he owns his common shares of DAZ and DAH, as the case may be, free and clear of all liens, pledges, mortgages and other security interests.
3. Each of the parties hereto will report the transfers described in Paragraph 1 hereof, together with the sale of the DAG Common Shares pursuant to the Registration Statement as a single transaction pursuant to section 351 of the Internal revenue Code of 1986, as amended and any corresponding provisions under state and local laws, and shall take such action
and shall file such forms, returns and statements as may be required under such section and the income tax regulations promulgated thereunder.
IN WITNESS WHEREOF, the parties hereto have executed this Exchange Agreement as of the date, month and year first above written.
DAG MEDIA, INC.
DAPEY ASSAF-DAPEY ZAHAV, LTD.
DAPEY ASSAF-HAMADRIKH LEASSAKIM
ISRAELIM BE NEW YORK, LTD.
Exhibit 3.1
CERTIFICATE OF INCORPORATION
OF
Under Section 402 of the Business Corporation
The undersigned, being a natural person of at least eighteen (18) years of age and acting as the incorporator of the corporation hereby being formed under the Business Corporation Law, certifies that:
FIRST: The name of the corporation is DAG MEDIA, INC.
SECOND: The corporation is formed for the following purpose or
purposes:
To engage in any lawful act or activity for which corporations
|
may be organized under the Business Corporation Law, provided that the corporation is not formed to engage in any act or activity requiring the consent or approval of any state official, department, board, agency or other body without such consent or approval first being obtained.
To have, in furtherance of the corporate purposes, all of the powers conferred upon corporations organized under the Business Corporation Law subject to any limitations thereof contained in this certificate of incorporation or in the laws of the State of New York.
THIRD: The office of the corporation is to be located in the County of Queens, State of New York.
FOURTH: The aggregate number of shares which the corporation shall have authority to issue is 30,000,000 of which 25,000,000 shall be common shares, par value $.001 per share (the "Common Shares") and 5,000,000 shall be preferred shares, par value $.01 per share (the "Preferred Shares"). The Preferred Shares may be issued, from time to time, in one or more series with such designations, preferences and relative participating optional or other special rights and qualifications, limitations or restrictions thereof including but not limited to preemptive rights (notwithstanding anything contained to the contrary in Article TENTH hereof), as shall be stated in the resolutions adopted by the Board of Directors providing for the issuance of such Preferred Shares or series thereof; and the Board of Directors is hereby expressly vested with authority to fix such designations, preferences and relative participating optional or other special rights or qualifications, limitations or restrictions for each series,
including, but not by way of limitation, the power to affix the redemption and liquidation preferences, the rate of dividends payable and the time for and the priority of payment thereof and to determine whether such dividends shall be cumulative or not and to provide for and affix the terms of conversion of such Preferred Share or any series thereof into Common Shares of the Corporation and fix the voting power, if any, of Preferred Shares or any series thereof and to provide for preemptive rights (notwithstanding anything contained to the contrary in Article TENTH hereof).
FIFTH: The Secretary of State is designated as the agent of the
corporation upon whom process against the corporation may be served. The post
office address within the State of New York to which the Secretary of State
shall mail a copy of any process against the corporation served upon him is:
Morse, Zelnick, Rose & Lander, LLP, 450 Park Avenue, New York, New York 10022,
Attn: Joel J. Goldschmidt, Esq.
SIXTH: The duration of the corporation is perpetual.
SEVENTH: Any action required or permitted to be taken by the Board of Directors of the corporation or of any committee thereof may be taken without a meeting if all members of the Board of Directors or of any committee thereof consent in writing to the adoption of a resolution authorizing the action.
Any one or more members of the Board of Directors or of any committee thereof may participate in a meeting of said Board or of any such committee by means of a conference telephone or similar communications equipment allowing all persons participating in the meeting to hear each other at the same time, and participation by such means shall constitute presence in person at the meeting.
EIGHTH: Whenever under the Business Corporation Law shareholders are required or permitted to take any action by vote, such action may be taken without a meeting on written consent, setting forth the action so taken, 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.
NINTH: No holder of any of the shares of any class of the corporation shall be entitled as of right to subscribe for, purchase, or otherwise acquire any shares of any class of the corporation which the corporation proposes to issue or any rights or options which the corporation proposes to grant for the purchase of any shares, bonds, securities, or obligations of the corporation which are convertible into or exchangeable for, or which carry any rights to subscribe for, purchase, or otherwise acquire shares of any class of the corporation; and any and all of such shares, bonds, securities or obligations of the corporation, whether now or hereafter authorized or created, may be issued, or may be reissued or transferred if the same have been reacquired and have treasury status, and any and all of such rights and options may be granted by the Board of Directors to such persons, firms, corporations and associations, and for such lawful consideration, and on such terms, as the Board of Directors in its
discretion may determine, without first offering the same, or any thereof, to any said holder. Without limiting the generality of the foregoing stated denial of any and all preemptive rights, no holder of shares of any class of the corporation shall have any preemptive rights in respect of the matters, proceedings, or transaction specified in subparagraphs (1) to (6), inclusive, of paragraph (e) of Section 622 of the Business Corporation Law.
TENTH: (a) RIGHT TO INDEMNIFICATION. Each person who was or is made a party or is threatened to be made a party to or is involved in any action, suit or proceeding, whether civil, criminal, administrative or investigation (hereinafter a "proceeding"), by reason of the fact that he or she, or a person of whom he or she is the legal representative, is or was a director or officer, of the Corporation or is or was serving at the request of the Corporation as a director, officer, employee or agent of another corporation or of a partnership, joint venture, trust or other enterprise, including service with respect to employee benefit plans, whether the basis of such proceeding is alleged action in an official capacity as a director, officer, employee or agent or in any other capacity while serving as a director, officer, employee or agent, shall be indemnified and held harmless by the Corporation to the fullest extent authorized by the Business 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 that said 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 or to be paid in settlement) reasonably incurred or suffered by such person in connection therewith and such indemnification shall continue as to a person who has ceased to be a director, officer, employee or agent and shall incur to the benefit of his or her heirs, executors and administrators; provided, however, that, except as provided in paragraph (b) hereof, the Corporation shall indemnify any such person seeking indemnification in connection with a proceeding (or part thereof) initiated by such person 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; provided, however, that if the Business Corporation Law requires, the payment of such expenses incurred by a director or officer (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 person while a director or officer, including, without limitation, service to an employee benefit plan) in advance of the final disposition of a proceeding, shall be made only upon delivery to the Corporation of an undertaking, by or on behalf of such director or officer, to repay all amounts so advanced if it shall ultimately be determined that such director or officer is not entitled to be indemnified under this Section or otherwise. The Corporation may, by action of its Board of Directors, provided indemnification to employees and agents of the Corporation with the same scope and effect as the foregoing indemnification of directors and officers.
(b) RIGHT OF CLAIMANT TO BRING SUIT. If a claim under paragraph (a) of this Section is not paid in full by the Corporation within thirty days after a written claim has been received by the Corporation, the claimant may at any time thereafter bring suit against the
Corporation to recover the unpaid amount of the claim and, if successful in whole or in part, the claimant shall be entitled to be paid also the expense of prosecuting such claim. It shall be a defense to any such action (other than an action brought to enforce a claim for expenses incurred in defending any proceeding in advance of its final disposition where the required undertaking, if any is required, has been tendered to the Corporation) that the claimant has not met the standards of conduct which make it permissible under the Business Corporation Law for the corporation to indemnify the claimant for the amount claimed, but the burden of proving such defense shall be on the Corporation. 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 action that indemnification of the claimant is proper in the circumstances because he or she has met the applicable standard of conduct set forth in the Business Corporation Law, nor an actual determination by the Corporation (including its Board of Directors, independent legal counsel, or its stockholders) that the claimant has not met such applicable standard or conduct, shall be a defense to the action or create a presumption that the claimant has not met the applicable standard of conduct.
(c) NON-EXCLUSIVITY OF RIGHTS. The right to indemnification and the payment of expenses incurred in defending a proceeding in advance of its final disposition conferred in this Section 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, by-law, agreement, vote of stockholders or disinterested directors or otherwise.
(d) INSURANCE. The Company may maintain insurance, at its expense, to protect itself and any director, officer, employee or agent of the Company or another corporation, partnership, joint venture, trust or other enterprise against any such expense, liability or loss, whether or not the Company would have the power to indemnify such person against such expense, liability or loss under the Business Corporation Law.
ELEVENTH: A director of the Corporation shall not be personally liable to the Corporation or its shareholders for damages for any breach of duty in such capacity, except for the liability of any director if a judgment or other final adjudication adverse to him establishes that his acts or omissions were in bad faith or involved intentional misconduct or a knowing violation of law or that he personally gained in fact a financial profit or other
advantage to which he was not legally entitled or that his acts violated Section 719 of the New York Business Corporation Law.
Subscribed and affirmed by me as true under the penalties of perjury on February 22, 1999.
/s/ Joel J. Goldschmidt ---------------------------------- Joel J. Goldschmidt, Esq. Morse, Zelnick, Rose & Lander, LLP 450 Park Avenue New York, N.Y. 10022 |
Exhibit 3.2
B Y L A W S
OF
DAG MEDIA, INC.
ARTICLE I
OFFICES
Section 1. PRINCIPAL OFFICE - The principal office of the Corporation shall be as set forth in its Certificate of Incorporation.
Section 2. ADDITIONAL OFFICES - The Corporation may have such additional offices at such other place within or without the State of New York as the Board of Directors may from time to time determine or as the business of the Corporation may require.
ARTICLE II
SHAREHOLDERS' MEETING
Section 1. ANNUAL MEETING - An annual meeting of shareholders shall be held on the second Thursday in June in each year (or if said day shall be a legal holiday, then the next succeeding business day) at the time and place (either within or without the State of New York) as shall be fixed by the Board of Directors and specified in the notice of meeting for the purpose of electing directors and transacting such other business as may properly be brought before the meeting.
Section 2. SPECIAL MEETING - A special meeting of shareholders may be called at any time by the President and shall be called by the President at the request in writing of a majority of the Board of Directors then in office or at the request in writing filed with the Secretary by the holders of a majority of the issued and outstanding shares of the capital stock of the Corporation entitled to vote at such meeting. Any such request shall state the purpose or purposes of the proposed meeting. Special meetings shall be held at such time and place (either within or without the State of New York) as shall be specified in the notice thereof. Business transacted at any special meeting of shareholders shall be confined to the purposes set forth in the notice thereof.
Section 3. NOTICE OF MEETINGS - Written notice of the time, and place and purpose of every meeting of shareholders (and, if other than an annual meeting, indicating the person or persons at whose discretion the meeting is being convoked), shall be given by the President, a Vice-President or by the Secretary to each shareholder of record entitled to vote at such meeting and to each shareholder who, by reason of any action proposed at such meeting, would be entitled to have his stock appraised if such action were taken, not less than ten nor more than fifty days prior to the date set for the meeting, either personally or by mailing said notice by first class mail to each shareholder at his address appearing on the stock book of the Corporation or at such other address supplied by him in writing to the Secretary of the Corporation for the purpose of receiving notice. Notice by mail shall be deemed to be given when deposited, postage prepaid, in a post office or official depository under the exclusive care and custody of the United States Post Office Department. The record date for determining the shareholders entitled to such notice shall be determined by the Board of Directors in accordance with Section 6 of ARTICLE SIXTH of these Bylaws.
If the directors shall adopt, amend or repeal a by-law regulating an impending election of directors, the notice of the next meeting of shareholders for the election of directors shall set forth the by-law so adopted, amended or repealed together with a concise statement of the
changes made as required by Section 601(b) of the Business Corporation Law. If any action is proposed to be taken which would, if taken, entitle shareholders to receive payment for their shares, the notice of meeting shall include a statement to such effect.
A written waiver of notice setting forth the purposes of the meeting for which notice is waived, signed by the person or persons entitled to such notice, whether before or after the time of the meeting stated therein, shall be deemed equivalent to the giving of such notice. The attendance by a shareholder at a meeting either in person or by proxy without protesting the lack of notice thereof shall constitute a waiver of notice of such shareholder.
All notice given with respect to an original meeting shall extend to any and all adjournments thereof and such business as might have been transacted at the original meeting may be transacted at any adjournment thereof; no notice of any adjourned meeting need be given if an announcement of the time and place of the adjourned meeting is made at the original meeting.
Section 4. QUORUM - The holders of a majority of the shares of stock issued and outstanding and entitled to vote thereat, present in person or represented by proxy, shall be requisite and shall constitute a quorum at all meetings of shareholders for the transaction of business except as otherwise provided by statute or the Certificate of Incorporation. If, however, a quorum shall not be present or represented at any meeting of shareholders, the shareholders 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, 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 notified. When a quorum is once present to organize a meeting, such quorum is not deemed broken by the subsequent withdrawal of any shareholders.
Section 5. VOTING - Every shareholder entitled to vote at any meeting shall be entitled to one vote for each share of stock entitled to vote and held by him of record on the date fixed as the record date for said meeting and may so vote in person or by proxy. At all elections of directors when a quorum is present, a plurality of the votes cast by the holders of shares entitled to vote shall elect and any other corporate action, when a quorum is present, shall be authorized by a majority of the votes cast by the holders of shares entitled to vote thereon except as may otherwise be provided by statute or the Certificate of Incorporation.
Section 6. PROXIES - Every proxy must be signed by the shareholder entitled to vote or by his duly authorized attorney-in-fact and shall be valid only if filed with the Secretary of the Corporation or with the Secretary of the meeting prior to the commencement of voting on the matter in regard to which said proxy is to be voted. No proxy shall be valid after the expiration of eleven months from the date of its execution unless otherwise expressly provided in the proxy. Every proxy shall be revocable at the pleasure of the person executing it except as otherwise provided by Section 609 of the Business Corporation Law. Unless the proxy by its terms provides for a specific revocation date and except as otherwise provided by statute, revocation of a proxy shall not be effective unless and until such revocation is executed in writing by the shareholder who executed such proxy and the revocation is filed with the Secretary of the Corporation or with the Secretary of the Meeting prior to the voting of the proxy.
Section 7. SHAREHOLDERS' LIST - A list of shareholders as of the record date, certified by the Secretary of the Corporation or by a transfer agent appointed by the Board of Directors shall be prepared for every meeting of shareholders and shall be produced by the Secretary or some other officer of the Corporation thereat.
Section 8. INSPECTORS AT MEETINGS - In advance of any shareholders' meeting, the Board of Directors may appoint one or more inspectors to act at the meeting or at any adjournment thereof and if not so appointed the person presiding at any such meeting may, and at the request of any shareholder entitled to vote thereat shall, appoint one or more inspectors. Each inspector, before entering upon the discharge of his duties as set forth in Section 611 of the Business Corporation Law, shall take and sign an oath faithfully to execute the duties of inspector at such meeting with strict impartiality and according to the best of his ability.
Section 9. CONDUCT OF MEETING - All meetings of shareholders shall be presided over by the President, or if he is not present, by a Vice-President, or if neither the President nor any Vice-President is present, by a chairman thereby chosen by the shareholders at the meeting. The Secretary of the Corporation, or in his absence, an Assistant Secretary, shall act as secretary of every meeting but if neither the Secretary nor the Assistant Secretary is present, the chairman of the meeting shall appoint any person present to act as secretary of the meeting.
ARTICLE III
BOARD OF DIRECTORS
Section 1. FUNCTION AND DEFINITION - The business and property of the Corporation shall be managed by its Board of Directors who may exercise all the powers of the Corporation and do all such lawful acts and things as are not by statute or by the Certificate of Incorporation or by these Bylaws directed or required to be exercised or done by the shareholders.
Section 2. NUMBER AND QUALIFICATION - The number of directors constituting the entire Board shall be not less than one nor more than nine, as may be fixed by resolution of the Board of Directors or by the shareholders entitled to vote for the election of directors, provided that any such action of the Board shall require the vote of a majority of the entire Board and, provided further, that the number of directors constituting the entire Board shall not be less than three unless all the shares of capital stock of the Corporation are owned beneficially and of record by less than three shareholders, in which event the number of directors may be less than three but not less than the number of such shareholders. The phrase "entire Board" as used herein means the total number of directors which the Corporation would have if there were no vacancies. Unless and until a different number shall be so fixed within the limits above specified, the Board shall consist of three directors. The term of any incumbent director shall not be shortened by any such action by the Board of Directors or by the shareholders.
Each director shall be at least twenty-one years of age. A director need not be a shareholder, a citizen of the United States or a resident of the State of New York.
Section 3. ELECTION TERM AND VACANCIES - Except as otherwise provided in this Section, all directors shall be elected at the annual meeting of shareholders and all directors who are so elected or who are elected in the interim to fill vacancies and newly created directorships, shall hold office until the next annual meeting of shareholders and until their respective successors have been elected and qualified.
In the interim between annual meetings of shareholders, newly-created directorships resulting from an increase in the number of directors or from vacancies occurring in the Board, but not, except as hereinafter provided, in the case of a vacancy occurring by reason of removal of a director by the shareholders, may be filled by the vote of a majority of the directors, then remaining in office, although less than a quorum may exist.
In the case of a vacancy occurring in the Board of Directors by reason of the removal of one or more directors by action of the shareholders, such vacancy may be filled by the shareholders at a special meeting duly called for such purpose.
In the event a vacancy is not filled by such election by shareholders, whether or not the vacancy resulted from the removal of a director with or without cause, a majority of the directors then remaining in office, although less than a quorum, may fill any such vacancy.
Section 4. REMOVAL - The Board of Directors may, at any time, with cause, remove any director.
The shareholders entitled to vote for the election of directors may, at any time, remove any or all of the directors with cause.
Section 5. MEETINGS - The annual meeting of the Board of Directors for the election of officers and the transaction of such other business as may come before the meeting, shall be held, without notice, immediately following the annual meeting of shareholders, at the same place at which such shareholders' meeting is held.
Regular meetings of the Board of Directors shall be held at such time and place, within or outside the State of New York, as may be fixed by resolution of the Board, and when so fixed, no further notice thereof need be given. Regular meetings not fixed by resolution of the Board may be held on notice at such time and place as shall be determined by the Board.
Special meetings of the Board of Directors may be called on notice at any time by the President, and shall be called by the President at the written request of a majority of the directors then in office.
Section 6. NOTICE OF MEETINGS - No notice shall be required for regular meetings for which the time and place have been fixed. Written, oral, or any other mode of notice of the time and place shall be given for special meetings in sufficient time for the convenient assembly of the directors thereat. Notice need not be given to any director or to any member of a committee of directors who submits a written waiver of notice signed by him before or after the time stated therein. Attendance of any such person at a meeting shall constitute a waiver of notice of such meeting, except when he attends a 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. Neither the business to be transacted at, nor the purpose of, any regular or special meeting of the directors need be specified in any written waiver of notice.
Section 7. CONDUCT OF MEETINGS - The President, if present, shall preside at all meetings of directors. At all meetings at which the President is not present any other director chosen by the Board shall preside.
Section 8. QUORUM, ADJOURNMENT, VOTING - Except as otherwise provided by the Certificate of Incorporation, a majority of the entire Board shall be requisite and shall constitute a quorum at all meetings of the Board of Directors for the transaction of business. Where a vacancy or vacancies prevents such majority, a majority of the directors then in office shall constitute a quorum.
A majority of the directors present at any meeting, whether or not a quorum is present, may adjourn the meeting to another time and place without further notice other than an announcement at the meeting.
Except as otherwise provided by the Certificate of Incorporation, when a quorum is present at any meeting, a majority of the directors present shall decide any questions brought before such meeting and the act of such majority shall be the act of the Board.
Section 9. ACTION WITHOUT MEETING - Any action required or permitted to be taken by the Board of Directors or of any committee thereof may be taken without a meeting if all members of the Board of Directors or of any committee thereof consent in writing to the adoption of a resolution authorizing the action.
Any one or more members of the Board of Directors or of any committee thereof may participate in a meeting of said Board or of any such committee by means of a conference telephone or similar communications equipment allowing all persons participating in the meeting to hear each other at the same time, and participation by such means shall constitute presence in person at the meeting.
Section 10. COMPENSATION OF DIRECTORS - Directors, as such, shall not receive any stated salary for their services, but, by resolution of the Board, a fixed sum and expenses of attendance, if any, may be allowed for attendance at any meeting of the Board of Directors or of any committee thereof. Nothing herein contained shall be construed to preclude any director from serving the Corporation in any other capacity and receiving reasonable compensation therefor.
Section 11. COMMITTEES - The Board of Directors, by resolution of a majority of the entire Board, may designate from among its members one or more committees, each consisting of three or more directors, and each of which, to the extent provided in such resolution, shall have all the authority of the Board except that no such committee shall have authority as to any of the following matters:
(a) the submission to stockholders of any action as to which stockholders' authorization or approval is required by statute, the Certificate of Incorporation or by these Bylaws;
(b) the filing of vacancies in the Board of Directors or in any committee thereof;
(c) the fixing of compensation of the directors for serving on the Board or on any committee thereof;
(d) the amendment or repeal of these Bylaws or the adoption of new Bylaws; and
(e) the amendment or repeal of any resolution of the Board of Directors which by its terms shall not be so amendable or repealable.
The Board may designate one or more directors as alternate members of any such committee who may replace any absent member or members at any meeting of such committee.
Each such committee shall serve at the pleasure of the Board. The Board of Directors shall have the power at any time to fill vacancies in, to change the membership of, or to discharge any such committee. Committees shall keep minutes of their proceedings and shall report the same to the Board of Directors at the meeting of the Board next succeeding, and any action by the committee shall be subject to revision and alteration by the Board of Directors, provided that no rights of a third party shall be affected in any such revision or alteration.
ARTICLE IV
OFFICES
Section 1. EXECUTIVE OFFICERS - The Officers of the Corporation shall be a President, one or more Vice-Presidents, a Treasurer and a Secretary and such Assistant Treasurers and Assistant Secretaries and other officers as the Board of Directors may determine. Any two or more offices may be held by the same person, except the offices of President and Secretary, unless all of the issued and outstanding shares of capital stock of the Corporation are owned by one person, in which event such person may hold all or any combination of offices.
Section 2. ELECTION - The President, one or more Vice-Presidents, the Treasurer and Secretary shall be elected by the Board of Directors to hold office until the meeting of the Board held immediately following the next annual meeting of shareholders and shall hold office for the term for which elected and until their successors have been elected and qualified. The Board of Directors may from time to time appoint all such other officers as it may determine and such officers shall hold office from the time of their appointment and qualifications until the time at which their successors are appointed and qualified. A vacancy in any office arising from any cause may be filled for the unexpired portion of the term by the Board of Directors.
Section 3. REMOVAL - Any officer may be removed from office by the Board at any time with or without cause.
Section 4. DELEGATION OF POWERS - The Board of Directors may from time to time delegate the power or duties of any officer of the Corporation, in the event of his absence or failure to act otherwise, to any other officer or director or person whom they may select.
Section 5. COMPENSATION - The compensation of each officer shall be such as the Board of Directors may from time to time determine.
Section 6. CHIEF EXECUTIVE OFFICER - The Board of Directors shall designate the President as the chief executive officer of the Corporation who shall have general charge of the business and affairs of the Corporation, subject, however, to the right of the Board of Directors to confer specified powers on officers and subject generally to the direction of the Board.
Unless otherwise ordered by the Board of Directors, the Chief Executive Officer, or in the event of his inability to act, any other officer designated by the Board, shall have full power and authority on behalf of the Corporation to attend and to act and to vote at any meetings of security holders of corporations in which the Corporation may hold securities, and at such meetings shall possess and may exercise any and all rights and powers incident to the ownership of such securities, and which, as the owner thereof, the Corporation might have possessed and exercised, if present. The Board of Directors by resolution from time to time may confer like powers upon any other person or persons.
Section 7. PRESIDENT The President, if not designated as Chief Executive Officer, shall have such duties as the Board may prescribe.
Section 8. VICE-PRESIDENT - The Vice-President shall have such powers and perform such duties as the Board of Directors may from time to time prescribe. In the absence or inability of the Chief Executive Officer to perform his duties or exercise his powers, the Vice-President or, if there be more than one, a Vice-President designated by the Board, shall exercise the powers and perform the duties of the President subject to the direction of the Board of Directors.
Section 9. SECRETARY - The Secretary shall keep the minutes of all meetings and record all votes of shareholders, the Board of Directors and committees in a book to be kept for that
purpose. He shall give or cause to be given any required notice of meetings of shareholders, the Board of Directors or any committee, and shall be responsible for preparing or obtaining from a transfer agent appointed by the Board, the list of shareholders required by Article II, Section 7 thereof. He shall be the custodian of the seal of the Corporation and shall affix or cause to be affixed the seal to any instrument requiring it and attest the same and exercise the powers and perform the duties incident to the office of Secretary subject to the direction of the Board of Directors.
Section 10. TREASURER - Subject to the direction of the Board of Directors, the Treasurer shall have charge of the general supervision of the funds and securities of the Corporation and the books of account of the Corporation and shall exercise the powers and perform the duties incident to the office of the Treasurer. If required by the Board of Directors, he shall give to the Corporation a bond in such sum and with such sureties as may be satisfactory to the Board of Directors for the faithful discharge of his duties.
Section 11. OTHER OFFICERS - All other officers, if any, shall have such authority and shall perform such duties as may be specified from time to time by the Board of Directors.
ARTICLE V
RESIGNATIONS
Any director or officer of the Corporation or any member of any committee of the Board of Directors of the Corporation, may resign at any time by giving written notice to the Board of Directors, the President or the Secretary. Any such resignation shall take effect at the time specified therein or, if the time is not specified therein, upon the receipt thereof, irrespective of whether any such resignation shall have been accepted.
ARTICLE VI
CERTIFICATES REPRESENTING SHARES
Section 1. FORM OF CERTIFICATES - Each shareholder shall be entitled to a certificate or certificates in such form as prescribed by the Business Corporation Law and by any other applicable statutes, which Certificate shall represent and certify the number, kind and class of shares owned by him in the Corporation. The Certificates shall be numbered and registered in the order in which they are issued and upon issuance the name in which each Certificate has been issued together with the number of shares represented thereby and the date of issuance shall be entered in the stock book of the Corporation by the Secretary or by the transfer agent of the Corporation. Each certificate shall be signed by the President or a Vice-President and countersigned by the Secretary or Assistant Secretary and shall be sealed with the Corporate Seal or a facsimile thereof. The signature of the officers upon a certificate may also be facsimiles if the certificate is countersigned by a transfer agent or registered by a registrar other than the Corporation itself or an employee of the Corporation. In case any officer who has signed or whose facsimile signature has been placed upon a certificate shall have ceased to be such officer before the certificate is issued, such certificate may be issued by the Corporation with the same effect as if the officer had not ceased to be such at the time of its issue.
Section 2. CONSIDERATION - A certificate representing shares shall not be issued until the full amount of consideration therefor has been paid to the Corporation, except if otherwise permitted by Section 504 of the Business Corporation Law.
Section 3. LOST CERTIFICATES - The Board of Directors may direct a new certificate or certificates to be issued in place of any certificate or certificates theretofore issued by the Corporation, alleged to have been lost, mutilated, stolen or destroyed, upon the making of an affidavit of that fact by the person so claiming and upon delivery to the Corporation, if the Board of Directors shall so require, of a bond in such form and with such surety or sureties as
the Board may direct, sufficient in amount to indemnify the Corporation and its transfer agent against any claim which may be made against it or them on account of the alleged loss, destruction, theft or mutilation of any such certificate or the issuance of any such new certificate.
Section 4. FRACTIONAL SHARE INTERESTS - The Corporation may issue certificates for fractions of a share where necessary to effect transactions authorized by the Business Corporation Law; or it may pay in cash the fair market value of fractions of a share as of the time when those entitled to receive such fractions are determined; or it may issue scrip in registered or bearer form over the manual or facsimile signature of an officer of the Corporation or of its agent, exchangeable as therein provided for full shares, but such scrip shall not entitle the holder to any rights of a shareholder except as therein provided.
Section 5. SHARE TRANSFERS - Upon compliance with provisions restricting the transferability of shares, if any, transfers of shares of the Corporation shall be made only on the share record of the Corporation by the registered holder thereof, or by his duly authorized attorney, upon the surrender of the certificate or certificates for such shares properly endorsed with payment of all taxes thereon.
Section 6. RECORD DATE FOR SHAREHOLDERS - For the purpose of determining the shareholders entitled to notice of or to vote at any meeting of shareholders or any adjournment thereof or to express consent or dissent from any proposal without a meeting, or for the purpose of determining the shareholders entitled to receive payment of any dividend or the allotment of any rights, or for the purpose of any other action, the Board of Directors may fix, in advance, a date as the record date for any such determination of shareholders. Such date shall not be more than fifty nor less than ten days before the date of any meeting nor more than fifty days prior to any action taken without a meeting, the payment of any dividend or the allotment of any rights, or any other action. When a determination of shareholders of record entitled to notice of or to vote at any meeting of shareholders has been made as provided in this Section, such determination shall apply to any adjournment thereof, unless the Board fixes a new record date under this Section for the adjourned meeting.
Section 7. SHAREHOLDERS OF RECORD - The Corporation shall be entitled to treat the holder of record of any share or shares of stock as the holder in fact thereof and, accordingly, shall not be bound to recognize any equitable or other claim to or interest in such share on the part of any other person whether or not it shall have express or other notice thereof, except as otherwise provided by the laws of the State of New York.
ARTICLE VII
STATUTORY NOTICES
The Board of Directors may appoint the Treasurer or any other officer of the Corporation to cause to be prepared and furnished to shareholders entitled thereto any special financial notice and/or statement which may be required by Sections 510, 511, 515, 516, 517, 519 and 520 of the Business Corporation Law or by any other applicable statute.
ARTICLE VIII
FISCAL YEAR
The fiscal year of the Corporation shall be fixed, and shall be subject to change from time to time, by the Board of Directors.
ARTICLE IX
CORPORATE SEAL
The Corporate seal shall have inscribed thereon the name of the Corporation, the year of its incorporation and the words "Corporate Seal" and "New York" and shall be in such form and contain such other words and/or figures as the Board of Directors shall determine. The Corporate seal may be used by printing, engraving, lithographing, stamping or otherwise making, placing or affixing, or causing to be printed, engraved, lithographed, stamped or otherwise made, placed or affixed, upon any paper or document, by any process whatsoever, an impression, facsimile or other reproduction of said Corporate seal.
ARTICLE X
BOOKS AND RECORDS
There shall be maintained at the principal office of the Corporation books of account of all the Corporation's business and transactions.
There shall be maintained at the principal office of the corporation or at the office of the Corporation's transfer agent a record containing the names and addresses of all shareholders, the number and class of shares held by such and the dates when they respectively became the owners of record thereof.
ARTICLE XI
INDEMNIFICATION OF DIRECTORS, OFFICERS,
EMPLOYEES AND AGENTS
Any person made or threatened to be made a party to an action or proceeding, whether civil or criminal, by reason of the fact that he, his testator or intestate, then is or was a director, officer, employee or agent of the Corporation, or then serves or has served any other corporation in any capacity at the request of the Corporation, shall be indemnified by the Corporation against reasonable expenses, judgments, fines and amounts actually and necessarily incurred in connection with the defense of such action or proceeding or in connection with an appeal therein, to the fullest extent permissible by the laws of the State of New York. Such right of indemnification shall not be deemed exclusive of any other rights to which such person may be entitled.
ARTICLE XII
AMENDMENTS
The shareholders entitled at the time to vote in the election of directors and the Board of Directors by vote of a majority of the entire Board, shall have the power to amend or repeal these By-Laws and to adopt new By-Laws, provided, however, that any by-law adopted, amended or repealed by the Board of Directors may be amended or repealed by the shareholders entitled to vote thereon as herein provided.
Exhibit 4.2
THIS WARRANT HAS NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933
AND IS NOT TRANSFERABLE
EXCEPT AS PROVIDED HEREIN
DAG MEDIA, INC.
PURCHASE WARRANT
Issued to:
PAULSON INVESTMENT COMPANY, INC.
EXERCISABLE TO PURCHASE
132,500 SHARES
OF
DAG MEDIA, INC.
Void after ______, 2004
This is to certify that, for value received and subject to the terms and conditions set forth below, the Warrantholder (hereinafter defined) is entitled to purchase, and the Company promises and agrees to sell and issue to the Warrantholder, at any time on or after ____, 1999 and on or before _____,__, 2004 up to 132,500 Shares (hereinafter defined) at the Exercise Price (hereinafter defined).
This Warrant Certificate is issued subject to the following terms and conditions:
1. DEFINITIONS OF CERTAIN TERMS. Except as may be otherwise clearly required by the context, the following terms have the following meanings:
(a) "Act" means the Securities Act of 1933, as amended.
(b) "Closing Date" means the date on which the Offering is closed.
(c) "Commission" means the Securities and Exchange Commission.
(d) "Common Stock" means the common stock, $.001 par value, of the
Company.
(e) "Company" means DAG Media, Inc., a New York Corporation.
(f) "Company's Expenses" means any and all expenses payable by the
Company or the Warrantholder in connection with an offering described in Section
6 hereof, except Warrantholder's Expenses.
(g) "Effective Date" means the date on which the Registration Statement
is declared effective by the Commission.
(h) "Exercise Price" means the price at which the Warrantholder may
purchase one Share upon exercise of Warrants as determined from time to time
pursuant to the provisions hereof. The initial Exercise Price is $_____ per
Share.
(i) "Offering" means the public offering of Shares made pursuant to the
Registration Statement.
(j) "Participating Underwriter" means any underwriter participating in
the sale of the Securities pursuant to a registration under Section 6 of this
Warrant Certificate.
(k) "Registration Statement" means the Company's registration statement
(File No. 333-_________) as amended on the Closing Date.
(l) "Rules and Regulations" means the rules and regulations of the
Commission adopted under the Act.
(m) "Securities" means the securities obtained or obtainable upon
exercise of the Warrant or securities obtained or obtainable upon exercise,
exchange, or conversion of such securities.
(n) "Share" means a share of Common Stock (collectively known as
"Shares").
(o) "Warrant Certificate" means a certificate evidencing the Warrant.
(p) "Warrantholder" means a record holder of the Warrant or Securities.
The initial Warrantholder is Paulson Investment, Inc.
(q) "Warrantholder's Expenses" means the sum of (i) the aggregate
amount of cash payments made to an underwriter, underwriting syndicate, or agent
in connection with an offering described in Section 6 hereof multiplied by a
fraction the numerator of which is the aggregate sales price of the Securities
sold by such underwriter, underwriting syndicate, or agent in such offering and
the denominator of which is the aggregate sales price of all of the securities
sold by such underwriter, underwriting syndicate, or agent in such offering and
(ii) all out-of-pocket expenses of the Warrantholder, except for the fees and
disbursements of one firm retained as legal counsel for the Warrantholder that
will be paid by the Company.
(r) "Warrant" means the warrant evidenced by this certificate, any
similar certificate issued in connection with the Offering, or any certificate
obtained upon transfer or partial exercise of the Warrant evidenced by any such
certificate.
2. EXERCISE OF WARRANTS. All or any part of the Warrant may be exercised
commencing on the first anniversary of the Effective Date and ending at 5:00
p.m. Pacific Time on the fifth anniversary of the Effective Date by surrendering
this Warrant Certificate, together with appropriate instructions, duly executed
by the Warrantholder or by its duly authorized attorney, at the office of the
Company, 125-10 Queens Boulevard, Kew Gardens, NY 11415, or at such other office
or agency as the Company may designate. Upon receipt of notice of exercise, the
Company shall immediately instruct its transfer agent to prepare certificates
for the Securities to be received by the Warrantholder upon completion of the
Warrant exercise. When such certificates are prepared, the Company shall notify
the Warrantholder and deliver such certificates to the Warrantholder or as per
the Warrantholder's instructions immediately upon payment in full by the
Warrantholder, in lawful money of the United States, of the Exercise Price
payable with respect to the Securities being purchased. If the Warrantholder
shall represent and warrant that all applicable registration and prospectus
delivery requirements for their sale have been complied with upon sale of the
Securities received upon exercise of the Warrant, such certificates shall not
bear a legend with respect to the Securities Act of 1933.
If fewer than all the Securities purchasable under the Warrant are purchased, the Company will, upon such partial exercise, execute and deliver to the Warrantholder a new Warrant Certificate (dated the date hereof), in form and tenor similar to this Warrant Certificate, evidencing that portion of the Warrant not exercised. The Securities to be obtained on exercise of the Warrant will be deemed to have been issued, and any person exercising the
Warrants will be deemed to have become a holder of record of those Securities, as of the date of the payment of the Exercise Price.
3. ADJUSTMENTS IN CERTAIN EVENTS. The number, class, and price of Securities for which this Warrant Certificate may be exercised are subject to adjustment from time to time upon the happening of certain events as follows:
(a) If the outstanding shares of the Company's Common Stock are divided into a greater number of shares or a dividend in stock is paid on the Common Stock, the number of shares of Common Stock for which the Warrant is then exercisable will be proportionately increased and the Exercise Price will be proportionately reduced; and, conversely, if the outstanding shares of Common Stock are combined into a smaller number of shares of Common Stock, the number of shares of Common Stock for which the Warrant is then exercisable will be proportionately reduced and the Exercise Price will be proportionately increased. The increases and reductions provided for in this subsection 3(a) will be made with the intent and, as nearly as practicable, the effect that neither the percentage of the total equity of the Company obtainable on exercise of the Warrants nor the price payable for such percentage upon such exercise will be affected by any event described in this subsection 3(a).
(b) In case of any change in the Common Stock through merger, consolidation, reclassification, reorganization, partial or complete liquidation, purchase of substantially all the assets of the Company, or other change in the capital structure of the Company, then, as a condition of such change, lawful and adequate provision will be made so that the holder of this Warrant Certificate will have the right thereafter to receive upon the exercise of the Warrant the kind and amount of shares of stock or other securities or property to which he would have been entitled if, immediately prior to such event, he had held the number of shares of Common Stock obtainable upon the exercise of the Warrant. In any such case, appropriate adjustment will be made in the application of the provisions set forth herein with respect to the rights and interest thereafter of the Warrantholder, to the end that the provisions set forth herein will thereafter be applicable, as nearly as reasonably may be, in relation to any shares of stock or other property thereafter deliverable upon the exercise of the Warrant. The Company will not permit any change in its capital structure to occur unless the issuer of the shares of stock or other securities to be received by the holder of this Warrant Certificate, if not the Company, agrees to be bound by and comply with the provisions of this Warrant Certificate.
(c) When any adjustment is required to be made in the number of shares of Common Stock, other securities, or the property purchasable upon exercise of the Warrant, the Company will promptly determine the new number of such shares or other securities or property purchasable upon exercise of the Warrant and (i) prepare and retain on file a statement describing in reasonable detail the method used in arriving at the new number of such shares or other securities or property purchasable upon exercise of the Warrant and (ii) cause a copy of such statement to be mailed to the Warrantholder within thirty (30) days after the date of the event giving rise to the adjustment.
(d) No fractional shares of Common Stock or other securities will be issued in connection with the exercise of the Warrant, but the Company will pay, in lieu of fractional shares, a cash payment therefor on the basis of the mean between the bid and asked prices of the Common Stock in the over-the-counter market or the closing price on a national securities exchange on the day immediately prior to exercise.
(e) If securities of the Company or securities of any subsidiary of the Company are distributed pro rata to holders of Common Stock, such number of securities will be distributed to the Warrantholder or his assignee upon exercise of his rights hereunder as such Warrantholder or assignee would have been entitled to if this Warrant Certificate had been exercised prior to the record date for such distribution. The provisions with respect to adjustment of the Common Stock provided in this Section 3 will also apply to the securities to which the Warrantholder or his assignee is entitled under this subsection 3(e).
(f) Notwithstanding anything herein to the contrary, there will be no adjustment made hereunder on account of the sale of the Common Stock or other Securities purchasable upon exercise of the Warrant.
4. RESERVATION OF SECURITIES. The Company agrees that the number of shares of Common Stock or other Securities sufficient to provide for the exercise of the Warrant upon the basis set forth above will at all times during the term of the Warrant be reserved for exercise.
5. VALIDITY OF SECURITIES. All Securities delivered upon the exercise of the Warrant will be duly and validly issued in accordance with their terms, and the Company will pay all documentary and transfer taxes, if any, in respect of the original issuance thereof upon exercise of the Warrant.
6. REGISTRATION OF SECURITIES ISSUABLE ON EXERCISE OF WARRANT CERTIFICATE.
(a) The Company will register the Securities with the Commission
pursuant to the Act so as to allow the unrestricted sale of the Securities to
the public from time to time commencing on the first anniversary of the
Effective Date and ending at 5:00 p.m. Pacific Time on the fifth anniversary of
the Effective Date (the "Registration Period"). The Company will also file such
applications and other documents necessary to permit the sale of the Securities
to the public during the Registration Period in those states in which the Shares
were qualified for sale in the Offering or such other states as the Company and
the Warrantholder agree to. In order to comply with the provisions of this
Section 6(a), the Company is not required to file more than one registration
statement. No registration right of any kind, "piggyback" or otherwise, will
last longer than five years from the Closing Date.
(b) The Company will pay all of the Company's Expenses and each Warrantholder will pay its pro rata share of the Warrantholder's Expenses relating to the registration, offer, and sale of the Securities.
(c) Except as specifically provided herein, the manner and conduct of the registration, including the contents of the registration, will be entirely in the control and at the discretion of the Company. The Company will file such post-effective amendments and supplements as may be necessary to maintain the currency of the registration statement during the period of its use. In addition, if the Warrantholder participating in the registration is advised by counsel that the registration statement, in their opinion, is deficient in any material respect, the Company will use its best efforts to cause the registration statement to be amended to eliminate the concerns raised.
(d) The Company will furnish to the Warrantholder the number of copies of a prospectus, including a preliminary prospectus, in conformity with the requirements of the Act, and such other documents as it may reasonably request in order to facilitate the disposition of Securities owned by it.
(e) The Company will, at the request of Warrantholders holding at least 50 percent of the then outstanding Warrants, (i) furnish an opinion of the counsel representing the Company for the purposes of the registration pursuant to this Section 6, addressed to the Warrantholders and any Participating Underwriter, (ii) furnish an appropriate letter from the independent public accountants of the Company, addressed to the Warrantholders and any Participating Underwriter, and (iii) make representations and warranties to the Warrantholders and any Participating Underwriter. A request pursuant to this subsection (e) may be made on three occasions. The documents required to be delivered pursuant to this subsection (e) will be dated within ten days of the request and will be, in form and substance, equivalent to similar documents furnished to the underwriters in connection with the Offering, with such changes as may be appropriate in light of changed circumstances.
7. INDEMNIFICATION IN CONNECTION WITH REGISTRATION.
(a) If any of the Securities are registered, the Company will indemnify and hold harmless each selling Warrantholder, any person who controls any selling Warrantholder within the meaning of the Act, and any Participating Underwriter against any losses, claims, damages, or liabilities, joint or several, to which any Warrantholder, controlling person, or Participating Underwriter may be subject under the Act or otherwise; and it will reimburse each Warrantholder, each controlling person, and each Participating Underwriter for any legal or other expenses reasonably incurred by the Warrantholder, controlling person, or Participating Underwriter in connection with investigating or defending any such loss, claim, damage, liability, or action, insofar as such losses, claims, damages, or liabilities, joint or several (or actions in respect thereof), arise out of or are based upon any untrue statement or alleged untrue statement of any material fact contained, on the effective date thereof, in any such registration statement or any preliminary prospectus or final prospectus, or any amendment or supplement thereto, or arise out of or are based upon the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading; provided, however, that the Company will not be liable in any case to the extent that any loss, claim, damage, or liability arises out of or is based upon any untrue statement or alleged untrue statement or omission or alleged omission made in any
registration statement, preliminary prospectus, final prospectus, or any amendment or supplement thereto, in reliance upon and in conformity with written information furnished by a Warrantholder for use in the preparation thereof. The indemnity agreement contained in this subparagraph (a) will not apply to amounts paid to any claimant in settlement of any suit or claim unless such payment is first approved by the Company, such approval not to be unreasonably withheld.
(b) Each selling Warrantholder, as a condition of the Company's
registration obligation, will indemnify and hold harmless the Company, each of
its directors, each of its officers who have signed any registration statement
or other filing or any amendment or supplement thereto, and any person who
controls the Company within the meaning of the Act, against any losses, claims,
damages, or liabilities to which the Company or any such director, officer, or
controlling person may become subject under the Act or otherwise, and will
reimburse any legal or other expenses reasonably incurred by the Company or any
such director, officer, or controlling person in connection with investigating
or defending any such loss, claim, damage, liability, or action, insofar as such
losses, claims, damages, or liabilities (or actions in respect thereof) arise
out of or are based upon any untrue or alleged untrue statement of any material
fact contained in said registration statement, any preliminary or final
prospectus, or other filing, or any amendment or supplement thereto, or arise
out of or are based upon the omission or the alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading, but only to the extent that such untrue statement or
alleged untrue statement or omission or alleged omission was made in said
registration statement, preliminary or final prospectus, or other filing, or
amendment or supplement, in reliance upon and in conformity with written
information furnished by such Warrantholder for use in the preparation thereof;
provided, however, that the indemnity agreement contained in this subparagraph
(b) will not apply to amounts paid to any claimant in settlement of any suit or
claim unless such payment is first approved by the Warrantholder, such approval
not to be unreasonably withheld.
(c) Promptly after receipt by an indemnified party under subparagraphs
(a) or (b) above of notice of the commencement of any action, such indemnified
party will, if a claim in respect thereof is to be made against an indemnifying
party, notify the indemnifying party of the commencement thereof; but the
omission to notify the indemnifying party will not relieve it from any liability
that it may have to any indemnified party otherwise than under subparagraphs (a)
and (b).
(d) If any such action is brought against any indemnified party and it notifies an indemnifying party of the commencement thereof, the indemnifying party will be entitled to participate in, and, to the extent that it may wish, jointly with any other indemnifying party similarly notified, to assume the defense thereof, with counsel satisfactory to such indemnified party; and after notice from the indemnifying party to such indemnified party of its election to assume the defense thereof, the indemnifying party will not be liable to such indemnified party for any legal or other expenses subsequently incurred by such indemnified party in connection with the defense thereof other than reasonable costs of investigation.
8. RESTRICTIONS ON TRANSFER. This Warrant Certificate and the Warrant may not be sold, transferred, assigned or hypothecated for a one-year period after the Effective Date except to underwriters of the Offering or to individuals who are either a partner or an officer of such an underwriter or by will or by operation of law. The Warrant may be divided or combined, upon request to the Company by the Warrantholder, into a certificate or certificates evidencing the same aggregate number of Warrants.
9. NO RIGHTS AS A SHAREHOLDER. Except as otherwise provided herein, the Warrantholder will not, by virtue of ownership of the Warrant, be entitled to any rights of a shareholder of the Company but will, upon written request to the Company, be entitled to receive such quarterly or annual reports as the Company distributes to its shareholders.
10. NOTICE. Any notices required or permitted to be given hereunder will be in writing and may be served personally or by mail; and if served will be addressed as follows:
If to the Company:
DAG Media, Inc.
125-10 Queens Boulevard
Kew Gardens, NY 11415
Attention: Chief Executive Officer
If to the Warrantholder:
At the address furnished by the Warrantholder to the
Company for the purpose of notice.
Any notice so given by mail will be deemed effectively given 48 hours after mailing when deposited in the United States mail, registered or certified mail, return receipt requested, postage prepaid and addressed as specified above. Any party may by written notice to the other specify a different address for notice purposes.
11. APPLICABLE LAW. This Warrant Certificate will be governed by and construed in accordance with the laws of the state of Oregon, without reference to conflict of laws principles thereunder. All disputes relating to this Warrant Certificate shall be tried before the courts of Oregon located in Multnomah County, Oregon to the exclusion of all other courts that might have jurisdiction.
Dated as of _______ ___, 1999
DAG MEDIA, INC.
Assaf Ran
President and Chief Executive Officer
Agreed and accepted as of , 1999.
------- ---
PAULSON INVESTMENT COMPANY, INC.
By:
--------------------------------------------
Authorized Officer
|
Exhibit 5.1
MORSE, ZELNICK, ROSE & LANDER, LLP
450 PARK AVENUE
NEW YORK, NY 10022
March 10, 1999
DAG Media, Inc.
125-10 Queens Boulevard
Kew Gardens, NY 11415
and
Mr. Assaf Ran
c/o DAG Media, Inc.
125-10 Queens Boulevard
Kew Gardens, NY 11415
Dear Sirs:
We have acted as counsel to DAG Media, Inc., a New York corporation (the "Company") and Assaf Ran ("Ran") in connection with the preparation of a registration statement on Form S-1 (the "Registration Statement") filed with the Securities and Exchange Commission under the Securities Act of 1933, as amended (the "Act"), to register (a) the offering by the Company of 1,250,000 common shares, par value $.001 per share (the "Common Shares") and the offering of an additional 198,750 shares if the over-allotment option is exercised in full, (b) the offering by Ran of 75,000 Common Shares and (c) any additional shares of Common Stock issued pursuant to Rule 462(b) of the Act.
In this regard, we have reviewed the Certificate of Incorporation of the Company, as amended, resolutions adopted by the Company's Board of Directors, the Registration Statement, the other exhibits to the Registration Statement and such other records, documents, statutes and decisions as we have deemed relevant in rendering this opinion. Based upon the foregoing, we are of the opinion that each Common Share being offered has been duly and validly authorized for issuance and when issued as contemplated by the Registration Statement will be legally issued, fully paid and non-assessable.
We hereby consent to the use of this opinion as Exhibit 5.1 to the
Registration Statement. In giving such opinion, we do not thereby admit that we
are acting within the category of persons whose consent is required under
Section 7 of the Act or the rules or regulations of the Securities and Exchange
Commission thereunder.
Very truly yours,
/s/ Morse, Zelnick, Rose & Lander, LLP MORSE, ZELNICK, ROSE & LANDER, LLP |
Exhibit 10.1
DAG MEDIA, INC.
1999 STOCK OPTION PLAN
1. PURPOSE; TYPES OF AWARDS; CONSTRUCTION.
The purpose of the DAG Media, Inc. 1999 Stock Option Plan (the "Plan")
is to align the interests of officers, other key employees, consultants and
non-employee directors of DAG Media, Inc. (the "Company") and its subsidiaries
with those of the shareholders of the Company, to afford an incentive to such
officers, employees, consultants and directors to continue as such, to increase
their efforts on behalf of the Company and to promote the success of the
Company's business. To further such purposes, the Committee may grant options to
purchase Common Shares. The provisions of the Plan are intended to satisfy the
requirements of Section 16(b) of the Securities Exchange Act of 1934 and of
Section 162(m) of the Internal Revenue Code of 1986, as amended, and shall be
interpreted in a manner consistent with the requirements thereof, as now or
hereafter construed, interpreted and applied by regulations, rulings and cases.
2. DEFINITIONS.
As used in this Plan, the following words and phrases shall have the meanings indicated below:
(a) "Agreement" shall mean a written agreement entered into between the Company and an Optionee in connection with an award under the Plan.
(b) "Board" shall mean the Board of Directors of the Company.
(c) "Cause" when used in connection with the termination of an Optionee's employment by the Company or the cessation of an Optionee's service as a consultant or a member of the Board, shall mean (i) the conviction of the Optionee for the commission of a felony, (ii) the willful and continued failure by the Optionee substantially to perform his duties and obligations to the Company or a Subsidiary (other than any such failure resulting from his incapacity due to physical or mental illness), or (iii) the willful engaging by the Optionee in misconduct that is demonstrably injurious to the Company or a Subsidiary. For purposes of this Section 2(c), no act, or failure to act, on an Optionee's part shall be considered "willful" unless done, or omitted to be done, by the Optionee in bad faith and without reasonable belief that his action or omission was in the best interest of the Company. The Committee shall determine whether a termination of employment is for Cause for purposes of the Plan.
(d) "Change in Control" shall mean the occurrence of the event set forth in any of the following paragraphs:
(i) any Person (as defined below) is or becomes the beneficial owner (as defined in Rule 13d-3 under the Securities Exchange Act of 1934, as amended), directly or indirectly, of securities of the Company (not including in the securities beneficially owned by such Person any securities acquired directly from the Company or its subsidiaries) representing 50% or more of the combined voting power of the Company's then outstanding securities; or
(ii) the following individuals cease for any reason to constitute a majority of the number of directors then serving: individuals who, on the date hereof, constitute the Board and any new director (other than a director whose initial assumption of office is in connection with an actual or threatened election contest, including but not limited to a consent solicitation, relating to the election of directors of the Company) whose appointment or election by the Board or nomination for election by the Company's shareholders was approved or recommended by a vote of at least two-thirds (2/3) of the directors then still in office who either were directors on the date hereof or whose appointment, election or nomination for election was previously so approved or recommended; or
(iii) there is consummated a merger or consolidation of the Company or a direct or indirect subsidiary thereof with any other corporation, other than (A) a merger or consolidation which would result in the voting securities of the Company outstanding immediately prior to such merger or consolidation continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity or any parent thereof), in combination with the ownership of any trustee or other fiduciary holding securities under an employee benefit plan of the Company, at least 50% of the combined voting power of the securities of the Company or such surviving entity or any parent thereof outstanding immediately after such merger or consolidation, or (B) a merger or consolidation effected to implement a recapitalization of the Company (or similar transaction) in which no Person is or becomes the beneficial owner, directly or indirectly, of securities of the Company (not including in the securities beneficially owned by such Person any securities acquired directly from the Company or its subsidiaries) representing 50% or more of the combined voting power of the Company's then outstanding securities; or
(iv) the shareholders of the Company approve a plan of complete liquidation or dissolution of the Company or there is consummated an agreement for the sale or disposition by the Company of all or substantially all of the Company's assets, other than a sale or disposition by the Company of all or substantially all of the Company's assets to an entity, at least 50% of the combined voting power of the voting securities of which are owned by Persons in substantially the same proportions as their ownership of the Company immediately prior to such sale.
For purposes of this Section 2(d), "Person" shall have the meaning given in Section 3(a)(9) of the Exchange Act, as modified and used in Sections 13(d) and 14(d) thereof, except that such term shall not include (i) the Company or any of its subsidiaries, (ii) a trustee or other fiduciary holding securities under an employee benefit plan of the Company or any of its subsidiaries, (iii) an underwriter temporarily holding securities pursuant to an offering of such securities, or (iv) a corporation owned, directly or indirectly, by the shareholders of the Company in substantially the same proportions as their ownership of stock of the Company.
(e) "Code" shall mean the Internal Revenue Code of 1986, as amended from time to time.
(f) "Committee" shall mean a committee established by the Board to administer the Plan.
(g) "Common Shares" shall mean the common shares, par value $0.001 per share, of the Company.
(h) "Company" shall mean DAG Media, Inc., a corporation organized under the laws of the State of Delaware, or any successor corporation.
(i) "Disability" shall mean an Optionee's inability to perform his duties with the Company or on the Board by reason of any medically determinable physical or mental impairment, as determined by a physician selected by the Optionee and acceptable to the Company.
(j) "Exchange Act" shall mean the Securities Exchange Act of 1934, as amended from time to time, and as now or hereafter construed, interpreted and applied by regulations, rulings and cases.
(k) "Fair Market Value" per share as of a particular date shall mean (i) if the Common Shares are then listed on a national securities exchange, the closing sales price per Common Shares on the national securities exchange on which the Common Shares are principally traded for the last preceding date on which there was a sale of such Common Shares on such exchange, or (ii) if the Common Shares are then traded in an over-the-counter market, the closing bid price for the Common Shares in such over-the-counter market for the last preceding date on which there was a sale of such Common Shares in such market, or (iii) if the Common Shares are not then listed on a national securities exchange or traded in an over-the-counter market, such value as the Committee, in its sole discretion, shall determine.
(l) "Incentive Stock Option" shall mean any option
intended to be and designated as an incentive stock option within the meaning of
Section 422 of the Code.
(m) "Non-employee Director" shall mean a member of the Board who is not an employee of the Company.
(n) "Nonqualified Option" shall mean an Option that is not an Incentive Stock Option.
(o) "Option" shall mean the right, granted hereunder, to purchase Common Shares. Options granted by the Committee pursuant to the Plan may constitute either Incentive Stock Options or Nonqualified Stock Options.
(p) "Optionee" shall mean a person who receives a grant of an Option.
(q) "Option Price" shall mean the exercise price of the Common Shares covered by an Option.
(r) "Parent" shall mean any company (other than the Company) in an unbroken chain of companies ending with the Company if, at the time of granting an Option, each of the companies other than the Company owns stock possessing fifty percent (50%) or more of the total combined voting power of all classes of stock in one of the other companies in such chain.
(s) "Plan" shall mean this DAG Media, Inc. 1999 Stock Option Plan.
(t) "Retirement" shall mean the retirement of an Optionee in accordance with the terms of any tax-qualified retirement plan maintained by the Company or a Subsidiary in which the Optionee participates. If the Optionee is not a participant in such a plan, such term shall mean the termination of the Optionee's employment or cessation of the Optionee's service as a member of the Board, other than by reason of death, Disability or Cause on or after attainment of the age of 65.
(u) "Rule 16b-3" shall mean Rule 16b-3, as from time
to time in effect, promulgated by the Securities and Exchange Commission under
Section 16 of the Exchange Act, including any successor to such Rule.
(v) "Subsidiary" shall mean any company (other than the Company) in an unbroken chain of companies beginning with the Company if, at the time of granting an Option, each of the companies other than the last company in the unbroken chain owns stock possessing fifty percent (50%) or more of the total combined voting power of all classes of stock in one of the other companies in such chain.
(w) "Ten Percent Stockholder" shall mean an Optionee who, at the time an Incentive Stock Option is granted, owns (or is deemed to own pursuant to the attribution rules of Section 424(d) of the Code) stock possessing more than ten percent (10%) of the total combined voting power of all classes of stock of the Company or any Parent or Subsidiary.
3. ADMINISTRATION.
The Plan shall be administered by the Committee, the members of which shall, except as may otherwise be determined by the Board, be "non-employee directors" under Rule 16b-3 and "outside directors" under Section 162(m) of the Code.
The Committee shall have the authority in its discretion, subject to and not inconsistent with the express provisions of the Plan, to administer the Plan and to exercise all the powers and authorities either specifically granted to it under the Plan or necessary or advisable in the administration of the Plan, including, without limitation, the authority to grant Options; to determine which Options shall constitute Incentive Stock Options and which Options shall constitute Nonqualified Stock Options; to determine the purchase price of the Common Shares covered by each Option; to determine the persons to whom, and the time or times at which awards shall be granted; to determine the number of shares to be covered by each award; to interpret the Plan; to prescribe, amend and rescind rules and regulations relating to the Plan; to determine the terms and provisions of the Agreements (which need not be identical) and to cancel or suspend awards, as necessary; and to make all other determinations deemed necessary or advisable for the administration of the Plan.
The Committee may delegate to one or more of its members or to one or more agents such administrative duties as it may deem advisable, including delegating to one or more of the Company's management employees the authority to grant Options to employees who are not "insiders" for purposes of Section 16 of the Exchange Act and who are not "covered employees" for purposes of Section 162(m) of the Code, and the Committee or any person to whom it has delegated duties as aforesaid may employ one or more persons to render advice with respect to any responsibility the Committee or such person may have under the Plan. The Board shall have sole authority, unless expressly delegated to the Committee, to grant Options to Non-employee Directors. All decisions, determination and interpretations of the Committee shall be final and binding on all Optionees of any awards under this Plan.
The Board shall have the authority to fill all vacancies, however caused, in the Committee. The Board may from time to time appoint additional members to the Committee, and may at any time remove one or more Committee members. One member of the Committee shall be selected by the Board as chairman. The Committee shall hold its meetings at such times and places as it shall deem advisable. All determinations of the Committee shall be made by a majority of its members either present in person or participating by conference telephone at a meeting or by written consent. The Committee may appoint a secretary and make such rules and regulations for the conduct of its business as it shall deem advisable, and shall keep minutes of its meetings.
No member of the Board or Committee shall be liable for any action taken or determination made in good faith with respect to the Plan or any award granted hereunder.
4. ELIGIBILITY.
Awards may be granted to officers and other key employees of and consultants to the Company, and its Subsidiaries, including officers and directors who are employees, and to Non-employee Directors. In determining the persons to whom awards shall be granted and the number of shares to be covered by each award, the Committee shall take into account the duties of the respective persons, their present and potential contributions to the success of the Company and such other factors as the Committee shall deem relevant in connection with accomplishing the purpose of the Plan.
5. STOCK.
The maximum number of Common Shares reserved for the grant of awards under the Plan shall be 124,000, subject to adjustment as provided in Section 9 hereof. Such shares may, in whole or in part, be authorized but unissued shares or shares that shall have been or may be required by the Company.
If any outstanding award under the Plan should for any reason expire, be canceled or be forfeited without having been exercised in full, the Common Shares allocable to the unexercised, canceled or terminated portion of such award shall (unless the Plan shall have been terminated) become available for subsequent grants of awards under the Plan.
6. TERMS AND CONDITIONS OF OPTIONS.
Each Option granted pursuant to the Plan shall be evidenced by an Agreement, in such form and containing such terms and conditions as the Committee shall from time to time approve, which Agreement shall comply with and be subject to the following terms and conditions, unless otherwise specifically provided in such Option Agreement:
(a) NUMBER OF SHARES. Each Option Agreement shall state the number of Common Shares to which the Option relates.
(b) TYPE OF OPTION. Each Option Agreement shall specifically state that the Option constitutes an Incentive Stock Option or a Nonqualified Stock Option.
(c) OPTION PRICE. Each Option Agreement shall state the Option
Price, which shall not be less than one hundred percent (100%) of the Fair
Market Value of the Common Shares covered by the Option on the date of grant
unless, with respect to Nonqualified Stock Options, otherwise determined by the
Committee. The Option Price shall be subject to adjustment as provided in
Section 9 hereof. The date as of which the Committee adopts a resolution
expressly granting an Option shall be considered the day on which such Option is
granted, unless such resolution specifies a different date.
(d) MEDIUM AND TIME OF PAYMENT. The Option Price shall be paid in full, at the time of exercise, in cash or in Common Shares then owned by the Optionee having a Fair Market Value equal to such Option Price or in a combination of cash and Common Shares
or, unless the Committee shall determine otherwise, by a cashless exercise procedure through a broker-dealer.
(e) EXERCISE SCHEDULE AND PERIOD OF OPTIONS. Each Option
Agreement shall provide the exercise schedule for the Option as determined by
the Committee; PROVIDED, HOWEVER, that, the Committee shall have the authority
to accelerate the exercisability of any outstanding Option at such time and
under such circumstances as it, in its sole discretion, deems appropriate. The
exercise period shall be ten (10) years from the date of the grant of the Option
unless otherwise determined by the Committee; PROVIDED, HOWEVER, that, in the
case of an Incentive Stock Option, such exercise period shall not exceed ten
(10) years from the date of grant of such Option. The exercise period shall be
subject to earlier termination as provided in Sections 6(f) and 6(g) hereof. An
Option may be exercised, as to any or all full Common Shares as to which the
Option has become exercisable, by written notice delivered in person or by mail
to the Secretary of the Company, specifying the number of shares of Common
Shares with respect to which the Option is being exercised. Notwithstanding any
other provision of this Plan, no Option granted hereunder may be exercised prior
to the consummation of an underwritten public offering of the Company's
securities where the gross proceeds from such offering are in excess of $5
million.
(f) TERMINATION. Except as provided in this Section 6(f) and
in Section 6(g) hereof, an Option may not be exercised unless (i) with respect
to an Optionee who is an employee of the Company, the Optionee is then in the
employ of the Company or a Subsidiary (or a company or a Parent or Subsidiary
company of such company issuing or assuming the Option in a transaction to which
Section 424(a) of the Code applies), and unless the Optionee has remained
continuously so employed since the date of grant of the Option and (ii) with
respect to an Optionee who is a Non-employee Director, the Optionee is then
serving as a member of the Board or as a member of a board of directors of a
company or a Parent or Subsidiary company of such company issuing or assuming
the Option. In the event that the employment of an Optionee shall terminate or
the service of an Optionee as a member of the Board shall cease (other than by
reason of death, Disability, Retirement or Cause), all Options of such Optionee
that are exercisable at the time of such termination may, unless earlier
terminated in accordance with their terms, be exercised within ninety (90) days
after the date of such termination or service (or such different period as the
Committee shall prescribe).
(g) DEATH, DISABILITY OR RETIREMENT OF OPTIONEE. If an Optionee shall die while employed by the Company or a Subsidiary or serving as a member of the Board, or within ninety (90) days after the date of termination of such Optionee's employment or cessation of such Optionee's service (or within such different period as the Committee may have provided pursuant to Section 6(f) hereof), or if the Optionee's employment shall terminate or service shall cease by reason of Disability or Retirement, all Options theretofore granted to such Optionee (to the extent otherwise exercisable) may, unless earlier terminated in accordance with their terms, be exercised by the Optionee or by his beneficiary, at any time within one year after the death, Disability or Retirement of the Optionee (or such different period as the Committee shall prescribe). In the event that an Option granted hereunder shall be exercised by the legal representatives of a deceased or former Optionee, written notice of
such exercise shall be accompanied by a certified copy of letters testamentary or equivalent proof of the right of such legal representative to exercise such Option. Unless otherwise determined by the Committee, Options not otherwise exercisable on the date of termination of employment shall be forfeited as of such date.
(h) OTHER PROVISIONS. The Option Agreements evidencing awards under the Plan shall contain such other terms and conditions not inconsistent with the Plan as the Committee may determine, including penalties for the commission of competitive acts and a provision providing that no option may be exercised prior to the consummation of an underwritten initial public offering of the Company's securities pursuant to a registration statement filed pursuant to the Securities Act of 1933, as amended.
7. NON DISCRETIONARY GRANTS.
Each director of the Company, other than a director who is an officer, employee or beneficial owner of 10% or more of the Company's Common Shares (or an officer, director, employee or affiliate thereof), upon first taking office shall be granted options for 7,000 Common Shares.
8. NONQUALIFIED STOCK OPTIONS.
Options granted pursuant to Section 7 hereof are intended to constitute Nonqualified Stock Options and shall be subject only to the general terms and conditions specified in Section 6 hereof.
9. INCENTIVE STOCK OPTIONS.
Options granted pursuant to this Section 9 are intended to constitute Incentive Stock Options and shall be subject to the following special terms and conditions, in addition to the general terms and conditions specified in Section 6 hereof. An Incentive Stock Option may not be granted to a Non-employee Director or a consultant to the Company.
(a) VALUE OF SHARES. The aggregate Fair Market Value (determined as of the date the Incentive Stock Option is granted) of the Common Shares with respect to which Incentive Stock Options granted under this Plan and all other option plans of any subsidiary become exercisable for the first time by each Optionee during any calendar year shall not exceed $100,000.
(b) TEN PERCENT STOCKHOLDER. In the case of an Incentive Stock Option granted to a Ten Percent Stockholder, (i) the Option Price shall not be less than one hundred ten percent (110%) of the Fair Market Value of the Common Shares on the date of grant of such Incentive Stock Option, and (ii) the exercise period shall not exceed five (5) years from the date of grant of such Incentive Stock Option.
10. EFFECT OF CERTAIN CHANGES.
(a) In the event of any extraordinary dividend, stock dividend, recapitalization, merger, consolidation, stock split, warrant or rights issuance, or combination or exchange of such shares, or other similar transactions, each of the number of Common Shares available for awards, the number of such shares covered by outstanding awards, and the price per share of Options, as appropriate, shall be equitably adjusted by the Committee to reflect such event and preserve the value of such awards; provided, however, that any fractional shares resulting from such adjustment shall be eliminated.
(b) Upon the occurrence of a Change in Control, each Option granted under the Plan and then outstanding but not yet exercisable shall thereupon become fully exercisable.
11. SURRENDER AND EXCHANGE OF AWARDS.
The Committee may permit the voluntary surrender of all or a portion of any Option granted under the Plan or any option granted under any other plan, program or arrangement of the Company or any Subsidiary ("Surrendered Option"), to be conditioned upon the granting to the Optionee of a new Option for the same number of Common Shares as the Surrendered Option, or may require such voluntary surrender as a condition precedent to a grant of a new Option to such Optionee. Subject to the provisions of the Plan, such new Option may be an Incentive Stock Option or a Nonqualified Stock Option, and shall be exercisable at the price, during such period and on such other terms and conditions as are specified by the Committee at the time the new Option is granted.
12. PERIOD DURING WHICH AWARDS MAY BE GRANTED.
Awards may be granted pursuant to the Plan from time to time within a period of ten (10) years from the date the Plan is adopted by the Board, or the date the Plan is approved by the shareholders of the Company, whichever is earlier, unless the Board shall terminate the Plan at an earlier date.
13. NONTRANSFERABILITY OF AWARDS.
Except as otherwise determined by the Committee, awards granted under the Plan shall not be transferable otherwise than by will or by the laws of descent and distribution, and awards may be exercised or otherwise realized, during the lifetime of the Optionee, only by the Optionee or by his guardian or legal representative.
14. APPROVAL OF SHAREHOLDERS.
The Plan shall take effect upon its adoption by the Board and shall terminate on the tenth anniversary of such date, but the Plan (and any grants of awards made prior to the shareholder approval mentioned herein) shall be subject to the approval of Company's shareholders, which approval must occur within twelve months of the date the Plan is adopted by the Board.
15. AGREEMENT BY OPTIONEE REGARDING WITHHOLDING TAXES.
If the Committee shall so require, as a condition of exercise of a
Nonqualified Stock Option (a "Tax Event"), each Optionee who is not a
Non-employee Director shall agree that no later than the date of the Tax Event,
such Optionee will pay to the Company or make arrangements satisfactory to the
Committee regarding payment of any federal, state or local taxes of any kind
required by law to be withheld upon the Tax Event. Alternatively, the Committee
may provide that such an Optionee may elect, to the extent permitted or required
by law, to have the Company deduct federal, state and local taxes of any kind
required by law to be withheld upon the Tax Event from any payment of any kind
due the Optionee. The withholding obligation may be satisfied by the withholding
or delivery of Common Shares. Any decision made by the Committee under this
Section 15 shall be made in its sole discretion.
16. AMENDMENT AND TERMINATION OF THE PLAN.
The Board at any time and from time to time may suspend, terminate,
modify or amend the Plan; PROVIDED, HOWEVER, that, unless otherwise determined
by the Board, an amendment that requires stockholder approval in order for the
Plan to continue to comply with Rule 16b-3, Section 162(m) of the Code or any
other law, regulation or stock exchange requirement shall not be effective
unless approved by the requisite vote of shareholders. Except as provided in
Section 10 (a) hereof, no suspension, termination, modification or amendment of
the Plan may adversely affect any award previously granted, unless the written
consent of the Optionee is obtained.
17. RIGHTS AS A SHAREHOLDER.
An Optionee or a transferee of an award shall have no rights as a
shareholder with respect to any shares covered by the award until the date of
the issuance of a stock certificate to him for such shares. No adjustment shall
be made for dividends (ordinary or extraordinary, whether in cash, securities or
other property) or distribution of other rights for which the record date is
prior to the date such stock certificate is issued, except as provided in
Section 10(a) hereof.
18. NO RIGHTS TO EMPLOYMENT OR SERVICE AS A DIRECTOR.
Nothing in the Plan or in any award granted or Agreement entered into pursuant hereto shall confer upon any Optionee the right to continue in the employ of the Company or any Subsidiary or as a member of the Board or to be entitled to any remuneration or benefits not set forth in the Plan or such Agreement or to interfere with or limit in any way the right of the Company or any such Subsidiary to terminate such Optionee's employment or service. Awards granted under the Plan shall not be affected by any change in duties or position of an employee Optionee as long as such Optionee continues to be employed by the Company or any Subsidiary.
19. BENEFICIARY.
An Optionee may file with the Committee a written designation of a beneficiary on such form as may be prescribed by the Committee and may, from time to time, amend or revoke such designation. If no designated beneficiary survives the Optionee, the executor or administrator of the Optionee's estate shall be deemed to be the Optionee's beneficiary.
20. GOVERNING LAW.
The Plan and all determinations made and actions taken pursuant hereto shall be governed by the laws of the State of New York.
Exhibit 10.2
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (the "Agreement") is made as of the __ day of March, 1999, between DAG, Media, Inc, a New York corporation (the "Company"), having its principal place of business at 125-10 Queens Boulevard, Kew Gardens, New York, 11419, and Assaf Ran (the "Executive"), residing at 111-31 77th Avenue, Forest Hills, New York 11375.
WITNESSETH:
WHEREAS, the Company believes that it would benefit from the application of the Executive's particular and unique skill, experience and background to the management and operation of the Company, and wishes to employ the Executive as President and Chief Executive Officer ("CEO") of the Company; and
WHEREAS, the parties desire by this Agreement to set forth the terms and conditions of the employment relationship between the Company and the Executive.
NOW, THEREFORE, in consideration of the foregoing and the mutual covenants in this Agreement, the Company and the Executive agree as follows:
1. EMPLOYMENT AND DUTIES. The Company hereby employs the Executive as President and CEO on the terms and conditions provided in this Agreement and Executive agrees to accept such employment subject to the terms and conditions of this Agreement. The Executive shall be the senior executive officer of the Company, shall perform the duties and responsibilities as are customary for the officer of a corporation in such positions, and shall perform such other duties and responsibilities as are reasonably determined from time to time by the Board of Directors of the Company (the "Board"). The Executive shall report to and be supervised by the Board. The Executive shall be based at the Company's offices in Kew Gardens, New York or such other place
that shall constitute the Company's headquarters and, except for business travel incident to his employment under this Agreement, the Company agrees the Executive shall not be required to relocate.
2. TERM. The term of this Agreement shall be deemed to have commenced on February 22, 1999 (the "Commencement Date"), and shall terminate on June 30, 2002, unless extended or earlier terminated in accordance with the terms of this Agreement (the "Termination Date"). Such term of employment is herein sometimes referred to as the "Employment Term". The Employment Term shall be extended for successive one year periods unless either party notifies the other in writing at least 180 days before the Termination Date or any anniversary of the Termination Date, as the case may be, that he or it chooses not to extend the Employment Term.
3. COMPENSATION. As compensation for performing the services required by this Agreement, and during the term of this Agreement, the Executive shall be compensated as follows:
(a) BASE COMPENSATION. The Company shall pay to the Executive an annual salary ("Base Compensation") of $75,000, payable in equal installments pursuant to the Company's customary payroll procedures in effect for its executive personnel at the time of payment, but in no event less frequently than monthly, subject to withholding for applicable federal, state, and local taxes. The Executive may be entitled to such increases in Base Compensation with respect to each calendar year during the term of this Agreement, as shall be determined by the Board, in its sole and absolute discretion, based on periodic reviews of the Executive's performance .
(b) INCENTIVE COMPENSATION. In addition to Base Compensation, the Executive may be entitled to receive such additional compensation ("Incentive Compensation") as shall be determined by the Board in its sole discretion. For purposes of this Agreement, the Executive's "Pro Rata Share" of Incentive Compensation for any calendar of the Company shall be a fraction whose
numerator shall be equal to the number of months (or parts of months) during which the Executive was actually employed by the Company during any such calendar year and whose denominator shall be the total number of months in such calendar year.
4. EMPLOYEE BENEFITS. During the Employment Term and subject to the limitations set forth in this Section 4, the Executive and his eligible dependents shall have the right to participate in any retirement plans (qualified and non-qualified), pension, insurance, health, disability or other benefit plan or program that has been or is hereafter adopted by the Company (or in which the Company participates), according to the terms of such plan or program, on terms no less favorable than the most favorable terms granted to senior executives of the Company.
5. VACATION AND LEAVES OF ABSENCE. The Executive shall be entitled to the normal and customary amount of paid vacation provided to senior executive officers of the Company, but in no event less than 25 days during each 12 month period, beginning on the Effective Date of this Agreement. Any vacation days that are not taken in a given 12 month period shall not accrue or carry-over from year to year. Upon any termination of this Agreement for any reason whatsoever, accrued and unused vacation for the year in which this Agreement terminates will be paid to the Executive within 10 days of such termination based on his annual rate of Base Compensation in effect on the date of such termination. In addition, the Executive may be granted leaves of absence with or without pay for such valid and legitimate reasons as the Board in its sole and absolute discretion may determine, and is entitled to the same sick leave and holidays provided to other senior Executive Officers of the Company.
6. EXPENSES.
(a) BUSINESS EXPENSES. The Executive shall be promptly reimbursed against presentation of vouchers or receipts for all reasonable and necessary expenses incurred by him in connection with the performance of business-related duties.
(b) AUTOMOBILE EXPENSE. During the Employment Term, in order to facilitate the performance of the Executive's duties hereunder, and otherwise for the convenience of the Company, the Company shall provide the Executive with an automobile, or shall reimburse the Executive for the cost of leasing an automobile (provided that the lease payments with respect to such automobile shall not exceed $1,500 per month) and shall pay or reimburse Executive (upon presentation of vouchers or receipts) for the reasonable cost of all maintenance, insurance, repairs, gas and other expenses related to such automobile.
7. INDEMNIFICATION. The Company shall (and is hereby obligated to) indemnify (including advance payment of expenses, which such expenses shall include, without limitation, attorneys' fees) the Executive for all actions taken by Executive as an officer of the Company or the failure of Executive to take any action in each and every situation where the Company is obligated to make such indemnification pursuant to applicable law and the relevant portions of the Company's Certificate of Incorporation and By-laws.
8. TERMINATION AND TERMINATION BENEFITS.
(a) TERMINATION BY THE COMPANY.
(i) FOR CAUSE. Notwithstanding any provision contained herein, the Company may terminate this Agreement at any time during the Employment Term for "cause". For purposes of this subsection 8(a)(i), "cause" shall mean (1) the continuing willful failure by the Executive to substantially perform his duties hereunder for any reason other than total or partial
incapacity due to physical or mental illness, (2) gross negligence or gross
malfeasance on the part of the Executive in the performance of his duties
hereunder that causes material harm to the Company, and (3) the conviction of
the Executive, by a court of competent jurisdiction, of a felony or other
serious crime involving moral turpitude. Termination pursuant to this subsection
8(a)(i) shall be effective immediately upon giving the Executive written notice
thereof stating the reason or reasons therefor with respect to clauses (2) and
(3) above, and 15 days after written notice thereof from the Company to the
Executive specifying the acts or omissions constituting the failure and
requesting that they be remedied with respect to clause (1) above, but only if
the Executive has not cured such failure within such 15 day period. In the event
of a termination pursuant to this subsection 8(a)(i), the Executive shall be
entitled to payment of his Base Compensation and the benefits pursuant to
Section 4 hereof up to the effective date of such termination and it is also the
intention and agreement of the Company that Executive shall not be deprived by
reason of termination for cause of any payments, options or benefits which have
been vested or have been earned or to which Executive is entitled as of the
effective date of such termination.
(ii) DISABILITY. If due to illness, physical or mental disability, or other incapacity, the Executive shall fail, for a total of any six consecutive months ("Disability"), to substantially perform the principal duties required by this Agreement, the Company may terminate this Agreement upon 30 days' written notice to the Executive. In such event, the Executive shall be (1) paid his Base Compensation until the Termination Date and his Pro Rata Share of any Incentive Compensation to which he would have been entitled for the year in which such termination occurs, and (2) provided with employee benefits pursuant to Section 4, to the extent available, for the remainder of the Employment Term; PROVIDED, HOWEVER, that any compensation to be paid to the Executive pursuant to this subsection 8(a)(ii) shall be offset against any payments received by the
Executive pursuant to any policy of disability insurance the premiums of which are paid for by the Company.
(b) TERMINATION BY THE EXECUTIVE. The Executive may terminate this Agreement at any time during the Employment Term for "good reason" upon 60 days' written notice to the Company (during which period the Executive shall, if requested in writing by the Company, continue to perform his duties as specified under this Agreement). "Good reason" shall mean: (1) if the Executive's employment is terminated by the Company without "cause" (as such term is defined in subsection 8(a)(i) above); (2) the Company's failure to make any of the payments or provide any of the benefits to the Executive under this Agreement; (3) the Company's material breach of any provision of this Agreement; (4) a material reduction in the Executive's responsibilities (provided, however, "good reason" shall not include a reduction in Executive's responsibilities if such reduction is a result of Executive's failure to perform his duties in a manner reasonably satisfactory to the Company); or (5) a material reduction in the Executive's Base Compensation (other than a pro rata reduction in Base Compensation applicable to all senior executives of the Company); provided, however, that the Company has not cured, or commenced to cure, such failure or breach within the aforementioned 60 day period.
(c) TERMINATION COMPENSATION. In the event of a termination of
this Agreement by the Executive for "good reason" pursuant to subsection 8(b)
above, the Executive shall be paid (1) his Base Compensation up to the
effective date of such termination; (2) his full share of any Incentive
Compensation payable to him for the year in which the termination occurs; and
(3) a lump sum payment (hereinafter "Termination Compensation") to the
Executive equal to 100% of the average cash compensation (including Base
Compensation and Incentive Compensation) paid to, or accrued for, the
Executive in the two calendar years immediately preceding the calendar year
in
which the termination occurs. Payment of Termination Compensation to the Executive shall occur no later than 14 days following the effective date of the Executive's termination. For purposes of this subsection 8(c), the date of termination of the Executive's employment shall be date on which the Executive ceases to perform services for the Company.
(d) STOCK OPTIONS AND OTHER BENEFITS. In the event that the Executive is terminated for reasons other than for "cause" or in the event the Executive terminates this Agreement for "good reason", any stock options then held by the Executive and/or any other benefits subject to specified vesting criteria, shall immediately vest in the Executive; provided, however, all stock options then held by the Executive and/or any other benefits subject to specified vesting criteria shall expire and/or terminate 90 days after the date this Agreement is terminated pursuant to subsections 8(a)(i) or 8(b). The Company agrees to take such steps and to execute such documents as shall be necessary to effectuate the foregoing.
(e) DEATH BENEFIT. Notwithstanding any other provision of this Agreement, this Agreement shall terminate on the date of the Executive's death. In such event the Company shall continue to pay Executive's Base Salary to his wife, if she survives him, or, if she does not survive him, in equal shares to his children who survive him, through the end of the third month following the month in which such death occurs. In addition, the Company shall pay to Executive's wife, if she survives him, or, if she does not survive him, in equal shares to his children who survive him, the Pro Rata Share of any Incentive Compensation which Executive would have been entitled to for the year in which such death occurs.
(f) NO MITIGATION. The Executive shall not be required to mitigate the amount of any payments provided for by this Agreement by seeking employment or otherwise, nor shall the
amount of any payment or benefit provided in this Agreement be reduced by any compensation or benefit earned by the Executive after termination of his employment.
9. COMPANY PROPERTY. All advertising, promotional, sales, suppliers, manufacturers and other materials or articles or information, including without limitation data processing reports, customer lists, customer sales analyses, invoices, product lists, price lists or information, samples, or any other materials or data of any kind furnished to the Executive by the Company or developed by the Executive on behalf of the Company or at the Company's direction or for the Company's use or otherwise in connection with the Executive's employment hereunder, are and shall remain the sole and confidential property of the Company; if the Company requests the return of such materials at any time during or at or after the termination of the Executive's employment, the Executive shall immediately deliver the same to the Company.
10. COVENANT NOT TO COMPETE.
(a) NO SOLICITATION OR COMPETITION. Except as otherwise provided
herein, during the term of this Agreement and for a period of one year after
termination of the Executive's employment with the Company for any reason,
the Executive shall not, directly or indirectly, solicit, induce, encourage
or attempt to influence any client, customer, employee, consultant,
independent contractor, salesman or supplier of the Company to cease to do
business or terminate his employment with the Company, and shall not engage
in (as a principal, partner, director, officer, agent, employee, consultant
or otherwise) or be financially interested in any business competing with the
Company anywhere in the United States where it is doing business. The first
sentence of this Section 10(a) shall not apply if the Executive's employment
is terminated by the Company without "cause" (as defined in Section 8(a)(i))
or the Executive terminates his employment for "good reason" (as defined in
Section 8(b)). Nothing contained in this Section 10 shall prevent the
Executive from holding for investment not more than five percent (5%) of any class of equity securities of a company whose securities are publicly traded or from engaging in any activities that are not in competition with the business activities of the Company.
(b) CONFIDENTIALITY OF COMPANY PROPERTY. During the
effectiveness of this Agreement and at all times thereafter, the Executive
shall not use for his personal benefit, or disclose, communicate or divulge
to, or use for the direct or indirect benefit of any person, firm,
association or company other than the Company, any material referred to in
Section 9 above unless such material has become otherwise publicly available.
(c) SAVING CLAUSE. If the period of time or the area specified in subsection (a) above should be adjudged unreasonable in any proceeding, then the period of time shall be reduced by such number of months or the area shall be reduced by the elimination of such portion thereof or both so that such restrictions may be enforced in such area and for such time as is adjudged to be reasonable. If the Executive violates any of the restrictions contained in the foregoing subsection (a), the restrictive period shall not run in favor of the Executive from the time of the commencement of any such violation until such time as such violation shall be cured by the Executive to the satisfaction of Company.
11. EXECUTIVE'S REPRESENTATION AND WARRANTIES. Executive represents and warrants that he has the full right and authority to enter into this Agreement and fully perform his obligations hereunder, that he is not subject to any non-competition agreement other than with the Company, and that his past, present and anticipated future activities have not and will not infringe on the proprietary rights of others. Executive further represents and warrants that he is not obligated under any contract (including, but not limited to, licenses, covenants or commitments of any nature) or other agreement or subject to any judgment, decree or order of any court or administrative agency
which would conflict with his obligation to use his best efforts to perform his duties hereunder or which would conflict with the Company's business and operations as presently conducted or proposed to be conducted. Neither the execution nor delivery of this Agreement, nor the carrying on of the Company's business as officer and employee by Executive will conflict with or result in a breach of the terms, conditions or provisions of or constitute a default under any contract, covenant or instrument to which Executive is currently a party.
12. MISCELLANEOUS.
(a) INTEGRATION; AMENDMENT. This Agreement constitutes the entire agreement between the parties hereto with respect to the matters set forth herein and supersedes and renders of no force and effect all prior understandings and agreements between the parties with respect to the matters set forth herein. No amendments or additions to this Agreement shall be binding unless in writing and signed by both parties.
(b) SEVERABILITY. If any part of this Agreement is contrary to, prohibited by, or deemed invalid under applicable law or regulations, such provision shall be inapplicable and deemed omitted to the extent so contrary, prohibited, or invalid, but the remainder of this Agreement shall not be invalid and shall be given full force and effect so far as possible.
(c) WAIVERS. The failure or delay of any party at any time to require performance by the other party of any provision of this Agreement, even if known, shall not affect the right of such party to require performance of that provision or to exercise any right, power, or remedy hereunder, and any waiver by any party of any breach of any provision of this Agreement shall not be construed as a waiver of any continuing or succeeding breach of such provision, a waiver of the provision itself, or a waiver of any right, power, or remedy under this Agreement. No notice to or
demand on any party in any case shall, of itself, entitle such party to other or further notice or demand in similar or other circumstances.
(d) POWER AND AUTHORITY. The Company represents and warrants to the Executive that it has the requisite corporate power to enter into this Agreement and perform the terms hereof; that the execution, delivery and performance of this Agreement by it has been duly authorized by all appropriate corporate action; and that this Agreement represents the valid and legally binding obligation of the Company and is enforceable against it in accordance with its terms.
(e) BURDEN AND BENEFIT; SURVIVAL. This Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective heirs, executors, personal and legal representatives, successors and assigns. In addition to, and not in limitation of anything contained in this Agreement, it is expressly understood and agreed that the Company's obligation to pay Termination Compensation as set forth herein shall survive any termination of this Agreement.
(f) GOVERNING LAW; HEADINGS. This Agreement and its construction, performance, and enforceability shall be governed by, and construed in accordance with, the laws of the State of New Jersey. Headings and titles herein are included solely for convenience and shall not affect, or be used in connection with, the interpretation of this Agreement.
(g) NOTICES. All notices called for under this Agreement shall be in writing and shall be deemed given upon receipt if delivered personally or by confirmed facsimile transmission and followed promptly by mail, or mailed by registered or certified mail (return receipt requested), postage prepaid, to the parties at their respective addresses (or at such other address for a party as shall be specified by like notice; provided that notices of a change of address shall be effective only upon receipt thereof) as set forth in the preamble to this Agreement or to any other address or
addressee as any party entitled to receive notice under this Agreement shall designate, from time to time, to others in the manner provided in this subsection 11(g) for the service of Notices.
Any notice delivered to the party hereto to whom it is addressed shall be deemed to have been given and received on the day it was received; PROVIDED, HOWEVER, that if such day is not a business day then the notice shall be deemed to have been given and received on the business day next following such day. Any notice sent by facsimile transmission shall be deemed to have been given and received on the business day next following the day of transmission.
(h) NUMBER OF DAYS. In computing the number of days for purposes of this Agreement, all days shall be counted, including Saturdays, Sundays and holidays; PROVIDED, HOWEVER, that if the final day of any time period falls on a Saturday, Sunday or holiday on which federal banks are or may elect to be closed, then the final day shall be deemed to be the next day which is not a Saturday, Sunday or such holiday.
THIS AGREEEMENT CONTAINS VERY IMPORTANT TERMS GOVERNING YOUR EMPLOYMENT. IN PARTICULAR, PARAGRAPH 10 AFFECTS YOUR ABILITY TO TAKE CERTAIN ACTIONS FOLLOWING THE TERMINATION OF THIS AGREEMENT. YOU SHOULD SEEK ADVICE FROM YOUR ATTORNEY REGARDING ANY MATTER RELATING TO THIS AGREEMENT. BY EXECUTING THIS AGREEMENT, YOU ARE AFFIRMING THAT YOU HAVE HAD THE OPPORTUNITY TO REVIEW THIS AGREEMENT AND TO CONSULT WITH YOUR ATTORNEY IF YOU SO DESIRED, THAT YOU UNDERSTAND THE MEANING AND SIGNIFICANCE OF ALL OF ITS PROVISIONS, THAT NO REPRESENTATIONS OR PROMISES HAVE BEEN MADE TO YOU REGARDING YOUR EMPLOYMENT WHICH ARE NOT SET FORTH IN THIS
AGREEMENT, AND THAT YOU ARE FREELY SIGNING THIS AGREEMENT TO OBTAIN EMPLOYMENT WITH THE COMPANY.
IN WITNESS WHEREOF, the parties have duly executed this Agreement as of the date first above written.
DAG MEDIA, INC.,
A NEW YORK CORPORATION
Exhibit 10.3
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (the "Agreement") is made as of the __ day of March, 1999, between DAG, Media, Inc, a New York corporation (the "Company"), having its principal place of business at 125-10 Queens Boulevard, Kew Gardens, New York, 11419, and Dvir Langer (the "Executive"), residing at 66 Overlook Terrace, Apt. 3A, New York, NY 10040.
WITNESSETH:
WHEREAS, the Company believes that it would benefit from the application of the Executive's particular and unique skill, experience and background to the management and operation of the Company, and wishes to employ the Executive as Vice President-Sales and Corporate Development; and
WHEREAS, the parties desire by this Agreement to set forth the terms and conditions of the employment relationship between the Company and the Executive.
NOW, THEREFORE, in consideration of the foregoing and the mutual covenants in this Agreement, the Company and the Executive agree as follows:
1. EMPLOYMENT AND DUTIES. The Company hereby employs the Executive as
Vice President-Sales and Corporate Development on the terms and conditions
provided in this Agreement and Executive agrees to accept such employment
subject to the terms and conditions of this Agreement. Executive agrees that (i)
on or before the Commencement Date (as defined in Section 2 below) he will
terminate all of his existing employment relationships which he may have and
(ii) he will not accept or enter into any other employment relationships during
the Employment Term (as defined in Section 2). Executive shall use his best
efforts to promote the Company's
directories, to increase the volume of the Company's advertising sales and,
generally, advance the interests of the Company. Until such time as Executive is
promoted to sales manager, Executive shall be employed as a salesperson working
out of the Company's offices in Kew Gardens, New York and shall be supervised by
the sales manager of that office. Executive shall be required to participate in
such training programs and to perform the duties and responsibilities required
of the Company's sales staff. Executive shall be required to work from Monday
through and including Friday, from 9:00 a.m. until 7:00 p.m.; provided, however,
in the event Executive shall be required to keep appointments made after 7:00
p.m. In the sole discretion of the President of the Company, Executive may be
promoted to Sales Manager in which case Executive shall be based in such office
as shall be determined by the Company's President. As Sales Manager, executive
shall be required to hire, train and supervise a sales force in accordance with
the Company's policies and procedures and to perform the duties and
responsibilities required of the Company's sales staff. Executive shall be
required to work from Monday through and including Friday, from 9:00 a.m. until
8:00 p.m.; provided, however, in the event Executive shall be required to keep
appointments made for him after 8:00 p.m. In addition, Executive shall be
required to work on Sundays at the Company's offices in Kew Gardens, New York.
2. TERM. The term of this Agreement shall commence on the closing date of the Company's initial public offering (the "Commencement Date"), and shall terminate on the first anniversary thereof (the "Termination Date"), unless extended or earlier terminated in accordance with the terms of this Agreement. Such term of employment is herein sometimes referred to as the "Employment Term". The Employment Term shall be extended for successive one year periods unless either party notifies the other in writing at least 14 days before the Termination
Date or any anniversary of the Termination Date, as the case may be, that he or it chooses to terminate this Agreement.
3. COMPENSATION. As compensation for performing the services required by this Agreement, and during the term of this Agreement, the Executive shall be compensated as follows:
(a) COMMISSION. Until such time as Executive is promoted to Sales Manager, the Company shall pay Executive a commission equal to 12% of the Total Weekly Sales (as defined below) generated by Executive from sales of ads for the Company's directories. At such time as Executive is promoted to Sales Manager, the Company shall pay Executive commissions based on the Total Weekly Sales of the sales staff supervised by Executive in accordance with the following table:
---------------------------------------------------------------- -----------------------------------------------------
TOTAL WEEKLY SALES COMMISSION
---------------------------------------------------------------- -----------------------------------------------------
$100,000 or less 4% of Total Weekly Sales
---------------------------------------------------------------- -----------------------------------------------------
More than $100,000 but not more than $200,000 5% of Total Weekly Sales
---------------------------------------------------------------- -----------------------------------------------------
More than $200,000 6% of Total Weekly Sales
---------------------------------------------------------------- -----------------------------------------------------
|
Total Weekly Sales means the total sum of all collected checks and post-dated checks received during the Current Week (as defined below) plus the amount charged during the Current Week by any customer's chargeable credit cards which were approved by the Company less the sum of any bounced checks from previous weeks. Current week shall mean a week that begins on Sunday and ends on Saturday.
(b) MINIMUM SALARY. Notwithstanding anything contained herein to the contrary, in no event shall the commissions payable to Executive during the Employment Term be less than $5,000.00 per month before deductions for income and employment taxes.
(c) TAXES AND WITHHOLDING. All amounts payable to Executive pursuant to this Section 3 shall be payable pursuant to the Company's customary payroll procedures in effect for its personnel at the time of payment, but in no event less frequently than monthly, subject to withholding for applicable federal, state, and local taxes.
4. EMPLOYEE BENEFITS. During the Employment Term and subject to the limitations set forth in this Section 4, Executive and his eligible dependents shall have the right to participate in any health and major medical insurance plan or program maintained by the Company in accordance with the terms of such plan or program and on terms that are no less favorable than the terms granted to other employees of the Company.
5. VACATION AND LEAVES OF ABSENCE. Executive shall be entitled to vacation on such terms and conditions as are applicable to other employees of the Company in comparable positions.
6. EXPENSES.
(a) BUSINESS EXPENSES. Executive shall be promptly reimbursed against presentation of vouchers or receipts for all reasonable and necessary expenses incurred by him in connection with the performance of business-related duties.
(b) AUTOMOBILE EXPENSE. During the Employment Term, in order to facilitate the performance of Executive's duties hereunder, and otherwise for the convenience of the Company, the Company shall provide the Executive with an automobile, or shall reimburse the Executive for the cost of leasing an automobile (provided that the lease payments with respect to such automobile shall not exceed $300 per month).
(c) MOBILE PHONE. In order to facilitate the performance of the Executive's duties hereunder, and otherwise for the convenience of the Company, the Company shall provide the Executive with a mobile phone.
7. TERMINATION AND TERMINATION BENEFITS. The Company may terminate this Agreement at any time upon 14 days prior written notice to Executive. In the event of a termination pursuant to this subsection 7, Executive shall be entitled to payment of his Commissions pursuant to Section 4 hereof up to the effective date of such termination and health and major medical insurance coverage for Executive and his dependents for up to six months following the effective date of such termination.
8. COMPANY PROPERTY. Upon termination of this Agreement, Executive shall immediately deliver to the Company all of the Company's property then in the possession of Executive including, but not limited to, automobiles, computers, telephones, all advertising, promotional, sales, suppliers, manufacturers and other materials or articles or information, including without limitation data processing reports, customer lists, customer sales analyses, invoices, product lists, price lists or information, samples, or any other materials or data of any kind furnished to Executive by the Company or developed by Executive on behalf of the Company or at the Company's direction or for the Company's use.
9. COVENANT NOT TO COMPETE.
(a) CONFIDENTIALITY AND NONCOMPETITION.
(i) Executive understands that the Company has made a substantial investment in developing its know-how, customers, distribution points, sales methods and any other knowledge related to the business of the Company, as well as training Executive for his
position. It is therefore proper for the Company to be protected against the disclosure of its confidential matters and against unfair competition.
(ii) Executive agrees that during the term of his employment and for a period of twenty-four (24) months immediately following termination, he will not:
(A) Make known to any firm, person, or corporation, the names or addresses of any of the Company's customers, the Company's financial information, distribution points or any other information which is pertaining to any of them.
(B) Call on, solicit or take away or attempt to call on, solicit or take away any of the customers of the Company.
(C) Call on, solicit or take away or attempt to call on, solicit or take away any customer who's address or place of business is in a radius of 50 miles from any of the Company's offices.
(iii) Executive agrees that upon employment's termination for any reason, for a period of twenty four (24) months immediately afterwards, he will not become employed by, directly or indirectly, whether as an employee, or as independent contractor, nor associated with nor own any part of any firm, person or corporation which:
(A) Sells or services any directory, newspaper or magazine; or
(B) Is competitive with the Company; or
(C) Which distributes or markets products or services which are similar to the products or services of the Company or to which Executive sold during the term of his employment with the Company.
(b) EXECUTIVE'S ACKNOWLEDGMENTS. Executive hereby acknowledges that:
(i) He is fully familiar with the restrictions, restraints and limitations imposed upon him in Section 9(a) of this Agreement (hereinafter the "Restraints").
(ii) The Company would not continue to employ the employee without the imposition of the Restraints and Executive agreement to abide by such Restraints.
(iii) The imposition upon Executive of the Restraints is necessary for the reasonable and adequate protection of the business of the Company.
(iv) Each and every Restraint is reasonable with respect to its subject matter, geographic area, and length of time.
(v) The monetary damages alone will not adequately compensate the Company in the event of a breach by him of the Restraints, therefor, in addition to all remedies available to the Company at law or in equity, the Company shall be entitled to interim restraints and permanent injunctive relief for the enforcement thereof, and to an accounting and payment of all receipts realized by Executive as a result of such breach.
(vi) In the event that Executive shall be in violation of any Restraints, then the time limitation thereof shall be extended for a period of time equal to the period of time during which such breach or breaches occurred.
(vii) In the event the Company shall be required to seek relief in any court or other tribunal, then the Restraints shall be extended for a period of time equal to the pendency of such proceedings, including appeals, and excluding any periods during which the court or other tribunal has ordered Executive to honor the Restraints and Executive has complied with such order.
(c) CONFIDENTIALITY OF COMPANY PROPERTY. During the effectiveness of this Agreement and at all times thereafter, Executive shall not use for his personal benefit, or disclose, communicate or divulge to, or use for the direct or indirect benefit of any person, firm, association or company other than the Company, any material referred to in Section 9 above unless such material has become otherwise publicly available.
(d) SAVING CLAUSE. If the period of time or the area specified in subsection (a) above should be adjudged unreasonable in any proceeding, then the period of time shall be reduced by such number of months or the area shall be reduced by the elimination of such portion thereof or both so that such restrictions may be enforced in such area and for such time as is adjudged to be reasonable. If Executive violates any of the restrictions contained in the foregoing subsection (a), the restrictive period shall not run in favor of Executive from the time of the commencement of any such violation until such time as such violation shall be cured by Executive to the satisfaction of Company.
10. EXECUTIVE'S REPRESENTATION AND WARRANTIES. Executive represents and warrants that he has the full right and authority to enter into this Agreement and fully perform his obligations hereunder, that he is not subject to any non-competition agreement other than with the Company, and that his past, present and anticipated future activities have not and will not infringe on the proprietary rights of others. Executive further represents and warrants that he is not obligated under any contract (including, but not limited to, licenses, covenants or commitments of any nature) or other agreement or subject to any judgment, decree or order of any court or administrative agency which would conflict with his obligation to use his best efforts to perform his duties hereunder or which would conflict with the Company's business and operations as presently conducted or proposed to be conducted. Neither the execution nor delivery of this
Agreement, nor the carrying on of the Company's business as officer and employee by Executive will conflict with or result in a breach of the terms, conditions or provisions of or constitute a default under any contract, covenant or instrument to which Executive is currently a party.
11. MISCELLANEOUS.
(a) INTEGRATION; AMENDMENT. This Agreement constitutes the entire agreement between the parties hereto with respect to the matters set forth herein and supersedes and renders of no force and effect all prior understandings and agreements between the parties with respect to the matters set forth herein. No amendments or additions to this Agreement shall be binding unless in writing and signed by both parties.
(b) SEVERABILITY. If any part of this Agreement is contrary to, prohibited by, or deemed invalid under applicable law or regulations, such provision shall be inapplicable and deemed omitted to the extent so contrary, prohibited, or invalid, but the remainder of this Agreement shall not be invalid and shall be given full force and effect so far as possible.
(c) WAIVERS. The failure or delay of any party at any time to require performance by the other party of any provision of this Agreement, even if known, shall not affect the right of such party to require performance of that provision or to exercise any right, power, or remedy hereunder, and any waiver by any party of any breach of any provision of this Agreement shall not be construed as a waiver of any continuing or succeeding breach of such provision, a waiver of the provision itself, or a waiver of any right, power, or remedy under this Agreement. No notice to or demand on any party in any case shall, of itself, entitle such party to other or further notice or demand in similar or other circumstances.
(d) POWER AND AUTHORITY. The Company represents and warrants to the Executive that it has the requisite corporate power to enter into this Agreement and perform the
terms hereof; that the execution, delivery and performance of this Agreement by it has been duly authorized by all appropriate corporate action; and that this Agreement represents the valid and legally binding obligation of the Company and is enforceable against it in accordance with its terms.
(e) BURDEN AND BENEFIT; SURVIVAL. This Agreement shall be
binding upon and inure to the benefit of the parties hereto and their respective
heirs, executors, personal and legal representatives, successors and assigns. In
addition to, and not in limitation of anything contained in this Agreement, it
is expressly understood and agreed that the Company's obligation to pay
Termination Compensation as set forth herein shall survive any termination of
this Agreement.
(f) GOVERNING LAW; HEADINGS. This Agreement and its
construction, performance, and enforceability shall be governed by, and
construed in accordance with, the laws of the State of New Jersey. Headings and
titles herein are included solely for convenience and shall not affect, or be
used in connection with, the interpretation of this Agreement.
(g) NOTICES. All notices called for under this Agreement shall be in writing and shall be deemed given upon receipt if delivered personally or by confirmed facsimile transmission and followed promptly by mail, or mailed by registered or certified mail (return receipt requested), postage prepaid, to the parties at their respective addresses (or at such other address for a party as shall be specified by like notice; provided that notices of a change of address shall be effective only upon receipt thereof) as set forth in the preamble to this Agreement or to any other address or addressee as any party entitled to receive notice under this Agreement shall designate, from time to time, to others in the manner provided in this subsection 10(g) for the service of Notices.
Any notice delivered to the party hereto to whom it is addressed shall be deemed to have been given and received on the day it was received; PROVIDED, HOWEVER, that if such day
is not a business day then the notice shall be deemed to have been given and received on the business day next following such day. Any notice sent by facsimile transmission shall be deemed to have been given and received on the business day next following the day of transmission.
(h) NUMBER OF DAYS. In computing the number of days for purposes of this Agreement, all days shall be counted, including Saturdays, Sundays and holidays; PROVIDED, HOWEVER, that if the final day of any time period falls on a Saturday, Sunday or holiday on which federal banks are or may elect to be closed, then the final day shall be deemed to be the next day which is not a Saturday, Sunday or such holiday.
THIS AGREEMENT CONTAINS VERY IMPORTANT TERMS GOVERNING YOUR EMPLOYMENT. IN PARTICULAR, PARAGRAPH 9 AFFECTS YOUR ABILITY TO TAKE CERTAIN ACTIONS FOLLOWING THE TERMINATION OF THIS AGREEMENT. YOU SHOULD SEEK ADVICE FROM YOUR ATTORNEY REGARDING ANY MATTER RELATING TO THIS AGREEMENT. BY EXECUTING THIS AGREEMENT, YOU ARE AFFIRMING THAT YOU HAVE HAD THE OPPORTUNITY TO REVIEW THIS AGREEMENT AND TO CONSULT WITH YOUR ATTORNEY IF YOU SO DESIRED, THAT YOU UNDERSTAND THE MEANING AND SIGNIFICANCE OF ALL OF ITS PROVISIONS, THAT NO REPRESENTATIONS OR PROMISES HAVE BEEN MADE TO YOU REGARDING YOUR EMPLOYMENT WHICH ARE NOT SET FORTH IN THIS AGREEMENT, AND THAT YOU ARE FREELY SIGNING THIS AGREEMENT TO OBTAIN EMPLOYMENT WITH THE COMPANY.
IN WITNESS WHEREOF, the parties have duly executed this Agreement as of the date first above written.
DAG MEDIA, INC.,
A NEW YORK CORPORATION
Exhibit 10.6
PROMISSORY NOTE
THIS NOTE IS NON-NEGOTIABLE
$295,262.00 Queens, New York March 1, 1999
ASSAF RAN ("Ran"), residing at 111-31 77th Avenue, Forest Hills, new York 11375, FOR VALUE RECEIVED, hereby promises to pay to DAG MEDIA INC., a New York corporation ("Noteholder"), at the offices of the Noteholder at 599 125-10 Queens Boulevard, Kew Gardens, New York 11415 (or such other address as is designated in writing by the Noteholder) on March 1, 2004 (or such sooner time as provided below) the principal amount of Two Hundred Ninety Five Thousand Two Hundred Sixty Two and 00/100 ($295,262.00) Dollars, together with all accrued but unpaid interest thereon, in lawful money of the United States of America.
The unpaid principal balance of this Promissory Note shall bear interest at the rate of 4.74% per annum, compounded quarterly, until paid in full. Interest and principal on this Note shall be payable as follows:
(i) $7,039.17 on July 1, 1999 (representing interest only from January 1, 1999 through June 30, 1999);
(ii) $3,498.85 on each of October 1, 1999, January 1, 2000, April 1, 2000, July 1, 2000, October 1, 2000 and January 1, 2001 (representing interest only); and
(iii) $34,781.22 on each of April 1, July 1 and October 1, 2001, January 1, April 1, July 1 and October 1, 2002, January 1, April 1, July 1 and October 1, 2003 and January 1, 2004 (each payment representing interest and principal).
All payments shall be made at the offices of the Noteholder as set forth above by check or money order payable directly to Noteholder. In the event of an Event of Default (as defined below) the rate of interest from and after the date of such Event of Default shall be 10% per annum until such Event of Default shall no longer be continuing.
If this Promissory Note, or any payment hereunder, falls due on a Saturday, Sunday or a State of New Jersey public holiday, this Promissory Note shall fall due or such payment shall be made on the next succeeding business day.
This Promissory Note may be prepaid in whole or in part at any time.
Ran waives presentment for payment, demand, notice of nonpayment, notice of protest and protest of this Promissory Note, and all of the notices not expressly provided for herein in connection with the delivery, acceptance, performance, default or enforcement of the payment of this Promissory Note.
This Promissory Note is not subject to setoff.
Upon the occurrence of any of the following specified Events of Default (each an "Event of Default"):
1. The failure to make any payment of interest or principal on the due date therefor or within five (5) business days of receipt of written notice of such nonpayment;
2. Ran, pursuant to or within the meaning of Title 11, U.S. Code or any similar federal or state law for the relief of debtors (a "Bankruptcy Law"):
A. commences a voluntary case or proceeding;
B. consents to the entry of an order for relief against it in an involuntary case proceeding;
C. consents to the appointment of a custodian, receiver or other similar official for it or for all or substantially all of its property; or
D. makes a general assignment for the benefit of its creditors;
THEN, AND IN ANY SUCH EVENT, AND AT ANY TIME THEREAFTER IF ANY EVENT OF DEFAULT SHALL THEN BE CONTINUING, THE NOTEHOLDER BY WRITTEN NOTICE TO RAN MAY DECLARE THE ENTIRE PRINCIPAL BALANCE OF THIS NOTE AND ALL ACCRUED BUT UNPAID INTEREST THEREON TO BE DUE, WHEREUPON THE SAME SHALL FORTHWITH BECOME DUE AND PAYABLE. If an Event of Default occurs, Ran shall pay all of the Noteholder's costs and expenses relating to the enforcement of this Promissory Note, including, but not limited to, reasonable attorneys' fees.
In the event that Ran's employment by DAG Media, Inc. is terminated, voluntarily or involuntarily and with or without cause, the entire unpaid principal amount of this Note may be declared due and payable by the Noteholder upon one-hundred eighty (180) days notice to Ran.
All notices provided for herein shall be deemed given if sent by certified mail, return receipt requested, to the address of the party set forth above, or to such other address as designated in writing to the other party.
Exhibit 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our report dated March 10, 1999 included in this registration statement Form SB-2 and to all references to our firm included in this registration statement.
ARTHUR ANDERSEN LLP
New York, New York
March 10, 1999
| ARTICLE 5 |
| CIK: 0001080340 |
| NAME: DAG MEDIA INC. |
| MULTIPLIER: 1 |
| PERIOD TYPE | 12 MOS |
| FISCAL YEAR END | DEC 31 1998 |
| PERIOD START | JAN 01 1998 |
| PERIOD END | DEC 31 1998 |
| CASH | 310,185 |
| SECURITIES | 0 |
| RECEIVABLES | 2,104,350 |
| ALLOWANCES | 451,378 |
| INVENTORY | 623,335 |
| CURRENT ASSETS | 2,607,492 |
| PP&E | 108,424 |
| DEPRECIATION | 18,041 |
| TOTAL ASSETS | 2,970,190 |
| CURRENT LIABILITIES | 2,445,451 |
| BONDS | 0 |
| PREFERRED MANDATORY | 0 |
| PREFERRED | 0 |
| COMMON | 1,250 |
| OTHER SE | 523,489 |
| TOTAL LIABILITY AND EQUITY | 2,970,190 |
| SALES | 2,759,092 |
| TOTAL REVENUES | 2,759,092 |
| CGS | 377,983 |
| TOTAL COSTS | 2,089,531 |
| OTHER EXPENSES | 0 |
| LOSS PROVISION | 0 |
| INTEREST EXPENSE | 0 |
| INCOME PRETAX | 686,596 |
| INCOME TAX | 329,000 |
| INCOME CONTINUING | 357,596 |
| DISCONTINUED | 0 |
| EXTRAORDINARY | 0 |
| CHANGES | 0 |
| NET INCOME | 357,596 |
| EPS PRIMARY | 0.29 |
| EPS DILUTED | 0.29 |
Exhibit 99.1
Officer and Director Nominee Consent
The undersigned, being advised that he has been appointed as Vice President-Corporate Development and nominated as a Director of DAG Media, Inc., a New York corporation (the " Company"), and is take office upon completion of the offering of Common Shares of the Company, hereby consents to the use of his name as an officer and a Director-Nominee of the Company in the registration statement pursuant to which such Common Shares will be offered and any registration statement filed pursuant to Rule 462(b) under the Securities Act as amended.
/s/ Dvir Langer
-----------------------
Dvir Langer
Dated: March 9, 1999
|
Exhibit 99.2
Director Nominee Consent
The undersigned, being advised that he has been nominated as a Director of DAG Media, Inc., a New York corporation (the " Company"), and is take office upon completion of the offering of Common Shares of the Company, hereby consents to the use of his name as a Director Nominee of the Company in the registration statement pursuant to which such Common Shares will be offered and any registration statement filed pursuant to Rule 462(b) under the Securities Act as amended.
/s/ Phillip Michals
-----------------------
Phillip Michals
Dated: March 9, 1999
|
Exhibit 99.3
Director Nominee Consent
The undersigned, being advised that he has been nominated as a Director of DAG Media, Inc., a New York corporation (the " Company"), and is take office upon completion of the offering of Common Shares of the Company, hereby consents to the use of his name as a Director Nominee of the Company in the registration statement pursuant to which such Common Shares will be offered and any registration statement filed pursuant to Rule 462(b) under the Securities Act as amended.
/s/ Eran Goldshmid
-----------------------
Eran Goldshmid
Dated: March 9, 1999
|