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U. S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-KSB
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from December 1, 1998 to December 31, 1999
Commission File Number 0-27944
DME INTERACTIVE HOLDINGS, INC.
(Exact name of registrant as specified in its charter)
Delaware 98-0157860
(State or other jurisdiction of (Employer I.D. No.)
incorporation or organization)
39 Broadway, New York, NY 10006
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (212) 422-6600
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.001 par value
Redeemable Common Stock Purchase Warrant
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(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-KSB is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or any amendment to
this Form 10-K. { }
The aggregate market value of the Common Stock, par value $.001 per
share, held by non-affiliates based upon the average of the high and low sale
prices as reported by the OTC Bulletin Board on February 25, 2000 was
$65,805,663. As of February 25, 2000 there were 25,964,666 shares of Common
Stock, par value $.001 per share, outstanding.
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PART I
ITEM 1. BUSINESS
This Form 10-KSB contains, in addition to historical information,
forward-looking statements that involve risks and uncertainties. All statements,
other than statements of historical fact, regarding our financial position,
potential, business strategy, plans and objectives for future operations are
"forward looking statements" These statements are commonly identified by the use
of such terms and phrases as "intends", "expects", "anticipates", "estimates",
"seeks" and "believes". You are urged to note the description of our plans and
objectives for future operations, assumptions underlying these plans and
objectives and other forward-looking statements included in "Business" and
"Management's Discussion And Analysis" of this Form 10-KSB. These descriptions
and statements are based on management's current expectations. Our actual
results may differ significantly from the results discussed in these
forward-looking statements as a result of certain factors, including those set
forth in the "Risk Factors" section attached hereto as an Exhibit and elsewhere
in this Form 10-KSB.
OVERVIEW
We are an advanced technology company that provides corporate Internet
strategy and development services and advertising services, which we refer to as
digital communication solutions, primarily to clients seeking to reach the urban
African-American and Latino markets. We are in the process of developing our own
web sites which will include content, developed by us and others, of interest to
our target urban minority market. These web sites are known as online resource
communities. We recently entered into an agreement with America Online, Inc. and
CompuServe Interactive Services, Inc. for the development of an urban branded
Internet service provider that will feature our PLACES OF COLOR online resource
community. We believe that the integration of our digital communication
solutions with our targeted online resource communities provides us competitive
business and consumer advantages.
Our digital communication solution services include:
- Internet strategy
- Advertising solutions
- E-commerce
- Internet program tracking and analysis
- Information architecture and navigation
- User interface design
- Brand development and management
- Promotional strategies
Since our inception in 1996, we have provided services to more than 30
clients, including Otis Elevator, Def Jam Records, MSBET, HBO HomeVideo,
Cybersites, Stress Magazine, W-Trade, UrbanMall.com, Motown Records, NY Knicks,
and Flavor Unit Entertainment. We use leading technologies to provide our
clients with highly specific digital communication solutions that can be
integrally linked to their business functions. We seek to combine the brand
promotion skills of a traditional full service advertising firm with the
innovation and technological skills of the new,
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young web site design companies.
Although Internet use in the urban minority market lags behind America
as a whole, it is growing. We are actively trying to promote the growth of
Internet use among businesses and consumers in the urban minority market. We
believe that we will be able to position ourselves as one of the leading
minority digital communication solutions companies as such use develops.
Additionally, we believe that our digital communication solutions often are
attractive and entertaining to people of all backgrounds.
We are in the process of expanding our business by developing online
resource communities which are designed to provide a variety of content of
interest to our target market of African-Americans and Latinos. Currently, we
are developing two on-line resource communities, PLACES OF COLOR and Fan4Life.
In February 2000, we formed a strategic partnership with America
Online, Inc. and its wholly owned subsidiary CompuServe Interactive Services,
Inc. This alliance will enable the official launch of an urban branded Internet
service provider hosted by AOL/CompuServe and featuring the PLACES OF COLOR
online resource community. AOL, through CompuServe, will provide all interactive
services, including email, instant messaging, chat rooms and news briefs as well
as "back end" services for PLACES OF COLOR, including customer service, billing,
dial up access numbers, and web site hosting and other technical infrastructure.
We will provide relevant content and be responsible for all marketing and
advertising for PLACES OF COLOR. We will receive a portion of the subscriber fee
from AOL and derive revenue from the advertising and affiliate relationships
with content providers and e-commerce partners.
We believe PLACES OF COLOR will be attractive to businesses as an
advertising and commerce medium because it will provide a means for reaching the
urban minority markets that we believe traditional marketing and distribution
have been unable to access in an effective manner, if at all. We are actively
seeking to establish relationships with content providers and other companies to
whom the urban minority market may be attractive. PLACES OF COLOR is presently
in prototype testing. We expect it to be completed in April 2000.
Fan4Life is an online resource community aimed at fans of celebrities
who represent, and have popularized, the urban culture, as well as personalities
from sports and entertainment. In conjunction with the celebrity, we develop
personal histories, current news, an e-commerce souvenir gift shop, horoscopes
and chat rooms about or related to the celebrity. Fan4Life is almost fully
operational and presently we are negotiating with additional celebrities to be
added to the site.
As a company majority owned and managed by African Americans, we have a
social mission to hasten and promote computer and Internet usage by minorities.
We believe this social mission supports and integrates with our business goals
of growing revenue, achieving significant profitability and maximizing
shareholder value by becoming a leader in digital communications for
African-Americans and Latinos.
In fulfilling our mission, we seek to assist non-profit and
governmental organizations in promoting the use of the Internet in minority
communities and actively encourage other businesses to assist us in this goal.
We believe that the strategic relationship with AOL and the launch of "Places of
Color, Powered by CompuServe" are important steps in starting to bridge the
digital divide. We are seeking to enter into other strategic relationships so
we, along with other parties,
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can promote computer ownership, computer literacy and technology training in the
urban minority market. We believe that increased Internet usage in those
communities will increase the potential base of customers for our clients and
prospective clients, which, in turn, will increase the number of clients seeking
our services.
OUR DIGITAL COMMUNICATION SOLUTIONS BUSINESS
Industry Background
The Internet has rapidly emerged as a significant interactive medium
for worldwide communication, instant access to information and e-commerce.
International Data Corporation estimates that the number of Internet users
worldwide will increase from approximately 196 million at the end of 1999 to
more than 502 million by the end of 2003. We believe this rapid growth is
primarily attributable to the increasing number of personal computers in homes
and offices, technological advances that provide easier, faster and cheaper
access to the Internet, and the proliferation of products, content and services
available on the Internet at competitive prices.
We believe increasing numbers of customers will engage in e-commerce as
online retailers take advantage of the recent technological improvements
associated with the Internet that allow the integration of one-click buying,
intelligent product recommendations and near real-time customer service.
International Data Corporation estimates that the number of customers making
purchases on the Internet will grow from approximately 48 million in 1999 to
approximately 183 million in 2003. In addition, International Data Corporation
predicts the total value of goods and services purchased annually over the
Internet will increase from approximately $111.4 billion in 1999 to
approximately $1.3 trillion in 2003.
Presently, the digital communication solutions are largely Internet
based. As the Internet has developed, companies have begun to use it to
strengthen customer relationships, improve operational efficiency and spur
product innovation. Initially, companies developed "read only" brochures like
Web sites that lowered marketing and service costs and increased customer
awareness. Companies later added transaction and commerce functionality to their
online resources to enable two way sharing of data and information among
businesses and their constituents, including end customers, suppliers, business
partners and employees. These transaction and commerce capabilities have changed
the business environment by introducing new marketing and distribution channels,
and prompting new customer needs.
Perhaps most importantly, the Internet enables consumers and business
partners to transact on an interactive basis with companies at any time and from
any location. This presents businesses with a greater opportunity and incentive
to recognize the tastes and trends in their target markets. By using digital
communication solutions to satisfy these tastes and trends, we believe that
businesses can build a long lasting, ongoing relationship that fosters greater
customer loyalty, increases margins and enables new markets. E-commerce provides
merchants the ability to reach a global audience, reduce overhead, and achieve
greater economies of scale, while providing consumers with a broad selection,
increased pricing power and unparalleled convenience. As a result, the volume of
business transacted on the Internet is growing significantly. These merchants
may also be able to reach customers that, due to geography or other factors,
they were not able to reach before.
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As the Internet developed and became more competitive, companies
required a broader range of information technology services, including strategy,
architecture design, application development and systems integration. Therefore,
companies seeking to do business on the Internet are increasingly engaging
Internet professional services firms to provide integrated strategy, creative
and technology services. Forrester Research, Inc. (Forrester) projects that the
size of the worldwide Internet professional services market will grow from $2.4
billion in 1997 to $32.8 billion in 2002, a compound annual growth rate of
68.7%. Internet-based solutions include intranets, extranets and Web sites. An
intranet is an internal company network that utilizes various Internet Protocols
to allow employees access to corporate information and internal business
applications. An extranet is a secure Internet Protocol network environment that
links the company with customers and suppliers and effectively integrates the
stages involved in the delivery of the company's products or services. Web sites
present an opportunity for electronic commerce, Internet branding and the
delivery of information and entertainment services.
The growing demand for creative digital communication solutions has led
to a significant market opportunity for firms, such as DME INTERACTIVE, that
combine creative and strategic skills aimed at a significant and growing market
with an integrated technology service offering.
The Urban Minority Internet Market
To date, the urban minority market has lagged behind the rest of the
United States in computer and Internet use. While the ownership of personal
computers has grown significantly for minority groups since 1994, African
Americans and Latinos still lag far behind the national average. According to
the 1999 U.S. Department of Commerce National Telecommunications and Information
Administration report, Falling Through the Net: Defining the Digital Divide,
46.6% of White households own a computer, more than twice the rate of African
American (23.2%) or Latinos (25.5%) households. A gap persists even at incomes
greater than $75,000, where 76% of white households own personal computers as
compared to 64% for African-Americans. According to the same study conducted by
the Department of Commerce similar disparities exist in regard to Internet
access.
The purchasing power of the urban minority market is growing. The Selig
Center for Economic Growth projects that the nation's African American buying
power has risen from $308 billion in 1990 to $533 billion in 1999, up by 72.9%
in nine years, a compound annual rate of growth of 6.3% This rate of growth
outpaces the United States as a whole, which experienced an aggregate growth of
56.7%. The Selig Center predicts that African American buying power will grow
more than two-and-one-half times as fast as inflation. In 1999, the national
share of total buying contributed by African Americans is expected to be 8.2%,
up from 7.4% in 1990. We believe that substantially above-average growth in
African American buying power creates tremendous opportunities for businesses
that concentrate on such markets. Furthermore, according to the National Council
of La Raza, the buying power of the total Latino population was estimated at
$350 billion in 1997, an increase of 66.0% since 1990. The Latino share of total
national buying power is predicted to increase to 5.9% of the nation's total for
1999 from 5.0% in 1990, according to projections by the Selig Center for
Economic Growth. Furthermore, the number of Latino-owned businesses is rising
dramatically.
A large part of the urban minority market is young and rapidly growing.
The number of African Americans aged 14-17 and 18-24 is projected to increase
16% and 15%, respectively between 1996 and 2000. According to the US Census
Bureau, Latino youth aged 16-24 will grow over three times as fast as the
overall population in that age group between 2000 and 2005. Latino
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teens currently make up 13.6% (4.3 million) of all teens and will become the
largest minority teen group by 2000, comprising 16% of all teens. American
Demographics (May 1999) cites the nation"s nearly 30 million teens spending over
$140 billion in 1998, with Latinos contributing $20 billion (14%) of the
expenditure outlay. Because advertisers often deem young people to be more
receptive to advertising, these statistics suggest that companies should be
willing to increase spending on advertising to the urban minority market.
Statistics prove that minorities contribute significantly as consumers
to the general market economy. However, we believe that many businesses have yet
to utilize digital interactive solutions to target the urban minority market.
Furthermore, few Interactive service firms have targeted this as a principal
area of business development. We believe that there are significant
opportunities for a company such as DME Interactive that is providing digital
communication solutions to businesses trying to reach the urban minority market.
Our Digital Communication Solutions
We provide creative, technology and strategic services that will enable
our clients to gain a competitive advantage in their efforts to form
relationships with African-American and Latinos customers. Our business strategy
includes the following key elements:
Market Focus and Experience
We generally provide services to clients who are targeting the urban
minority market. The clients are not necessarily minority owned, but are
entities ranging from small businesses to divisions of Fortune 500 companies
that are seeking to take advantage of the growing, increasingly prosperous,
urban minority market. Our familiarity with this market allows us to create
digital communication solutions that are relevant, interesting and engaging to
these communities. We have experience developing Internet marketing campaigns
and e-commerce Web sites that are targeted at the urban minority market.
The professional and personal experiences of our designers, production,
sales, business development, marketing and client services team members allow us
to identify with the consumers in the urban minority market. Therefore, we are
familiar and comfortable with the products, businesses, celebrities and styles
that appeal to this market. The diversity of our staff strongly reflects the
broad scope of multi-cultural perspectives and concerns that have become
increasingly popular and inclusive among the general market.
Although we design digital interactive solutions for the urban minority
market, we expect our products and service capacity to have a broader appeal.
The urban minority market has become the trend-setting market for Generation X
and Y (or, as they are sometimes called, Generation E). Young people of all
demographic backgrounds are seeking to adopt or create trendy forms of urban
expression from music to fashion. Therefore, we believe our market focus will
help us gain clients who aspire to be among the leading edge contributors to
these trends, as well as products targeted exclusively at this market segment.
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Interactive Service Focus and Experience
Since our founding in 1996, we have focused primarily on Internet and
other digital technologies and their implications for businesses. We
continuously refine our services by staying at the forefront of the rapid
evolutions in digital communications. We believe this experience and
technological skill provide a competitive advantage over less experienced
competitors in developing digital communication solutions for our clients. If a
company simply tries to translate an existing marketing campaign to the
Internet, it is unlikely to take full advantage of the Internet"s interactive
capabilities and e-business opportunities. We seek to create highly specific new
media solutions that can be integrally linked to our clients" business
functions.
Integrated Full Service Offering
We provide integrated strategy, creative and technology services in a
seamless package. We deliver interactive strategies starting from the initial
assessment of a client's positioning and needs through post implementation
analysis and development. We believe that our comprehensive integrated service
offering results in time and cost savings for our clients and also increases the
likelihood that their projects will be completed successfully. Furthermore, we
believe that our interactive services result in digital communication solutions
that are more effective for our clients than those developed by internet service
providers who focus exclusively on Web site design and related technology
issues.
Relationships with Clients
We seek to develop long-term partnerships with our clients. We become
familiar with their businesses and work closely with senior management to
understand, predict and address our clients' evolving strategic business needs.
When we are engaged, we assign a dedicated multi-disciplinary team of
professionals to work with our client during each phase of the initial project
and on future projects. We share our experience and knowledge with our clients
to enhance their familiarity with the Internet and its capabilities.
In planning, designing and deploying Internet solutions, We base our
work on the needs of our clients' customers. We focus on our clients' customers
because these individuals ultimately determine the success of our clients'
Internet businesses. Our approach enables us to establish a solid and effective
base from which our clients may develop their interactive relationships. We work
with our clients to assess their customers' needs and create digital
communication solutions that increase the productivity of these relationships.
This analysis includes usability and immersibility studies as well as
prototyping.
Growth Strategy
We intend to increase revenue in our digital communication solution
business by employing the following strategies:
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Development of DME Interactive brand name
We are building a distinctive brand in the Interactive/Internet
professional services market targeted at the urban minority market. Our internal
marketing and corporate communications teams promote our brand through our
efforts to promote the use of the Internet in minority communities. We receive
additional promotion from media coverage and from the awards that we have
received for our work. Our brand enables us to more effectively attract clients
and employees. We seek to be among the most dependable full-service consultancy
agencies among Internet service professions in both general and urban minority
markets. We strive to be the agency of choice for businesses choosing a digital
communication services provider to aid them in reaching the urban minority
market.
The most important component in building the DME Interactive brand name
in connection with digital interactive services is to continue to assist our
clients in the creation of impressive, successful Internet marketing campaigns
and e-businesses. We commit to each client to provide high-quality products that
enhance the sales, productivity and competitiveness of their business
enterprise.
Continue to Build Long-Term Relationship with our Clients and Other
Leading Global Companies
We believe that strong, long-term relationships with clients yield
significant benefits both to our clients and to our business. The depth and
breadth of our client relationships are demonstrated by our integral involvement
in developing Interactive strategies, including the planning and budgeting
process, for a number of our clients. In addition, we have retainer-based
relationships with a number of these clients and plan to increase the number of
clients whom we work with in that capacity. We believe that our record of client
satisfaction has contributed to an increase in the magnitude, scope and
complexity of services requested by many of our clients.
Further Enhance our Multi-Disciplinary Team Approach
Because our work requires familiarity with multiple disciplines, we
believe that digital interactive solutions are most effective when delivered
through integrated, multi-disciplinary client teams. We provide all our services
through client-centered "think tanks" that include strategy, designing,
technology, project management, sales, marketing and client services
professionals. Our client teams, and the culture of teamwork that they engender,
shape the overall structure and operation of our company. We will continue to
invest in and nurture our team-based organization in order to best fulfill our
clients' needs.
Attract and Retain the Highest Quality Professionals and Facilitate
Employee Development through Training, Culture and Support
We believe that attracting and retaining high quality professionals is
critical to our success. Our culture is an integral part of our ability to
attract and retain quality professionals. We provide a stimulating and nurturing
work environment which has worked to increase employee satisfaction. We will
continue to invest in training and staff development resources for our
employees. In addition, we offer a competitive compensation package, including
broad-based equity ownership through the stock-option plan that we are in the
process of establishing.
Additionally, we seek to hire professionals who are familiar with the
markets in which we
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specialize. By hiring people from urban minority communities, we are best able
to create digital communication solutions that are attractive and meaningful to
those communities.
In September, 1999, we hired five new employees who had been part of a
New York based interactive strategies and production firm. We are utilizing the
contacts of those employees to expand our customer base and their experience to
broaden our range of services.
Develop New High-Value Services to Benefit our Clients
We seek to build leadership positions in high value-added services such
as Internet advisory, consulting and planning services, Internet commerce
services, as well as online branding and marketing services. We believe that
these services provide opportunities for high margins and strong growth, and
help differentiate us from our competitors. We have developed, and will continue
to develop, new digital communication solutions as our clients' needs evolve and
as new technologies emerge. We are currently working with many emerging
technologies and stay current with industry developments through our dedicated
team of technical specialists who continually evaluate new technologies and
develop innovative solutions. In the near future we look to incorporate
technologies such as wireless and broadband network devices.
Our Digital Communication Services
We offer a comprehensive range of services to deliver digital
interactive solutions designed to improve clients' business processes. In each
consulting engagement, the client can contract for the specific DME Interactive
services that it requires, depending on the nature of the engagement and the
resources of our client. We work with our client to determine its strategic
market position, business requirements and capabilities and then determine the
ways in which digital communication solutions can most improve our client's
business processes. We then deliver recommendations, which define the strategic
basis for a specific digital communication solution that takes into account the
client's budget, timeline and available resources. To date, the majority of our
engagements have been the development of Internet web sites targeted
predominantly at the urban minority market.
After we and the client have determined the parameters of the Internet
project, our digital communication solution development and deployment
methodology consists of five phases. Client needs and budgets vary and not all
five phases are necessarily performed by DME Interactive in each engagement.
Those five phases consist of:
Analysis and Design. Once the strategic groundwork has been
established, we translate our client's strategic requirements into a system or
process design architecture and a blueprint that defines the roles the system
will perform to meet those requirements. Our objective is to design, build and
deploy a solution that is logically planned, scales well over time, is
sufficiently secure, and is easy to use, administer and manage.
Technology Development. In the development phase, we build a testable
version of the web site. We design, code, integrate and test all necessary
programs and components using a broad range of expertise, including object-based
and relational database systems; electronic commerce systems; implementation of
third-party applications and security technologies; and integration of hardware,
software and Internet access products. Our experienced graphic designers also
work to create a compelling user interface for the solution to enable it to
attract and hold the attention of our client's target audience while conforming
to our client's brand image and marketing campaigns. In
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performing these functions, our professionals benefit from access to an
extensive library of re-usable software and content objects.
Implementation and Integration. In the implementation phase, we test
the web site created in the development phase and ready it to be deployed into a
full production system. We deliver the system to our client, install it, convert
and initialize all necessary data, perform acceptance testing and put the system
into operation. We maintain third-party vendor relationships that offer our
clients secure, state-of-the-art, high-availability Intranet, Extranet and Web
site hosting and integrated services for relational databases, workgroup
collaboration, streaming audio and video, management and monitoring, e-mail and
secure electronic commerce.
Audience Development, Sale of Advertising. We work with our client to
develop a strategy for achieving its online marketing objectives by increasing
Web site traffic, strengthening brand awareness and generating sales leads.
Additionally, we assist our clients in finding businesses who want to
advertise on their web sites. Our knowledge of the urban minority market and
contacts with companies targeting that market enable us to assist our clients in
identifying potential. We also help educate these businesses in the benefits of
advertising via the Internet to the urban minority market.
Maintenance. We can provide our client with ongoing support services
for its Web site, from content maintenance to site administration, for as long
as the client wishes. Our technical staff can also assist clients on a
case-by-case basis to resolve technical problems, provide assistance with the
hosting environment, and deliver support for Internet solution software.
Marketing and Sales
Our marketing program focuses on extending our brand, generating
incremental revenue and increasing our visibility. We supplement our marketing
efforts with our marketing and technology alliances. Marketing and technology
alliances provide mutually beneficial demand-generation initiatives, staff
cross-training opportunities and business development opportunities to enhance
the services we provide to our clients and to increase our technical awareness
and internal capabilities.
Clients
Our clients range from small minority owned businesses to divisions of
Fortune 500 companies. We generally provide services to the general market as
well as to clients who are targeting the urban minority market. The clients are
not necessarily minority owned, but are entities ranging from small businesses
to divisions of Fortune 500 companies that are seeking to take advantage of the
growing, increasingly prosperous, urban minority market. Our familiarity with
this market allows us to create digital communication solutions that are
relevant, interesting and engaging to these communities. We have experience
developing Internet marketing campaigns and e-commerce Web sites that are
targeted at the urban minority market.
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Competition
The information technology services market has grown dramatically in
recent years as a result of the increasing use of digital technology by
businesses for communication, marketing and information dissemination to their
employees, customers, vendors and suppliers. Different information technology
service providers focus on different types of services, including technology
consulting and marketing services. For example, Internet content providers,
consulting and advertising agencies and telecommunications companies offer very
different services that may be tied to the Internet, such as the creation of
intranets and extranets, consulting and training, web site design and
development and advertising. This factor, along with the rapid pace of
technological change and low barriers to entry, makes the information technology
services market an intensely competitive and rapidly evolving market. We expect
competition to persist and intensify in the future.
Our competitors include:
o. Internet service firms focused on the urban market, such as Hookt.com,
Interactive 8, SBI Technologies, NetMedia, Kioken, Imhotech, and Urban Box
Office;
o. Internet service firms focused on the general market such as AGENCY.COM,
iXL, Rare Medium, Pixelpark, Concrete Media, Proxicom, Razorfish and
USWeb/CKS;
o. in-house information technology, marketing and design service departments
of our potential clients.
Many of our competitors have: longer operating histories; larger
installed client bases; longer relationships with clients; greater brand or name
recognition; and significantly greater financial, technical, marketing and
public relations resources than DME Interactive. Many of these competitors offer
a broader range of technology-based solutions. Furthermore, greater resources
may enable a competitor to respond more quickly to new or emerging technologies
and changes in customer requirements and to devote greater resources to the
development, promotion and sale of its products and services than DME
Interactive. In addition, the lack of any significant barriers to entry into
this market permits new market entrants that further intensify competition.
Strategic Relationships
In addition to our own array of Internet and software development
services, we are attempting to strategically align ourself with key players in
the world of advertising, music, entertainment, fashion and other sectors
touching upon urban consumer demand. We believe that establishment of such a
contractual agreement would position DME Interactive in a superior advantage
point to reach this large concentrated market. We believe that we have
strengthened our foothold as a conduit to and trusted marketing arm within the
urban consumer and business marketplace, due to our aggressive approach to
promoting and marketing other companies' products and services on the Internet.
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OUR ONLINE RESOURCE COMMUNITIES
Industry Background
An important factor in the widespread adoption of the Internet has been
the emergence of a network of servers and information available called the World
Wide Web. Portals, such as America Online, Excite, the Go Network, Lycos, MSN,
Yahoo! and others have established themselves as leading pathways and search
engines to a broad variety of information and entertainment. These companies are
augmenting their portals with subject specific linked destinations, which are
becoming one of the fastest growing segments of the Internet. These vertical
portals are using brand awareness driven by high quality topical content and
significant market resources to establish themselves as destinations for highly
concentrated groups of users.
In addition, online communities have emerged, allowing users with
similar interests to engage in interactive activities. These online communities
have grown in importance as the growth of the Internet and the proliferation of
Web sites have made it difficult for Internet users, content providers and
businesses with a common interest to reach and interact with one another. Until
recently, use of the Internet consisted mainly of users seeking one way, static
information on topics of interest to them. Technologies have recently been
developed which allow users greater flexibility to create and personalize
content, communicate with users having similar interests and engage in other
"interactivities." Online communities allow users with a particular interest or
background to find news and information as well as links to other web sites
pertaining to many of their interests through one central web site. We believe
that online communities are particularly relevant to the urban minority market
because web sites devoted to some of the interests of this community are
underrepresented among the many web pages available through a common search
engine.
We believe that few content providers have made any effort to develop
Web sites and portals targeted to minorities, and that even fewer understand the
cultural demands and interests of the urban market. We are not aware of any
Internet service provider that has created a "portal strategy" that is a
successful point of entry to cyberspace for minority online users. We believe
that a market for such a portal strategy, particularly if combined with an
online resource community devoted to similar interests, exists.
Although it currently represents only a small portion of advertising
spending, businesses are turning to the Internet as an effective means of
targeting and marketing to consumers. We believe that advertisers have
recognized that Internet-based advertising allows advertisers to present
messages to specific, targeted audiences, and to enable users to interact with
advertising information being presented to them. Internet advertising allows
advertisers to measure the exact number of users that have viewed the page; and
which information can be verified by independent auditing companies. Advertisers
can also measure the effectiveness of advertising in generating click-throughs,
which is the number of times the user requests additional information via a link
included in the advertisement. We believe that software and processes are being
developed that will allow for greater measurement of the effectiveness of web
based advertising, which we further believe will increase the amount of
advertising on web sites targeting specific demographic groups.
Our OnLine Resource CommunitiesOur OnLine Resource Communities
We are in the process of developing an OnLine Resources Community
called PLACES OF COLOR and a series of related web sites operating under the
name Fan4Life.
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PLACES OF COLOR
PLACES OF COLOR will be an online resource community that will serve as
a convergence community or platform for Internet users from the urban minority
market and other people of color. PLACES OF COLOR will bring together a wide
array of content and services of interest to the urban minority market. Through
links, PLACES OF COLOR will allow its users to find and connect with existing
ethnic sites and will also feature content produced exclusively for PLACES OF
COLOR by DME Interactive or our strategic partners. Content and services will
include education, banking and stock trading, e-commerce, career resources,
e-mail, community services, entertainment, travel, religion and music, all
tailored to the tastes, trends and interests of the urban minority market.
PLACES OF COLOR will also provide e-mail and homepage services to its business
and individual customers. We intend to market PLACES OF COLOR so that it will
become a hip place for members of the urban minority to maintain their web sites
and e-mail addresses.
PLACES OF COLOR will be available through the "Places of Color, Powered
by CompuServe" online service. Under our agreement with CompuServe, we are also
required to make all aspects of PLACES OF COLOR available to other members of
America Online or CompuServe online services. PLACES OF COLOR will also be
available to Internet users who use other access providers. However, we are
currently considering charging such users a membership fee for access to some or
all of the PLACES OF COLOR features. Alternatively, we may require a password,
but would provide a password to any Internet user who filled out our
questionnaire. This would allow us to generate the additional user traffic of a
free web site yet also keep track of demographic and other information for our
advertisers and strategic partners. Additionally, we are seeking strategic
partners who will make PLACES OF COLOR available to broadband and wireless
communication networks.
PLACES OF COLOR is presently in prototype testing. We expect PLACES OF
COLOR and "Places of Color, Powered by CompuServe" to be operating by April
2000.
Fan4Life
Fan4Life.com is an online community hub where the user can meet a
diverse network of people from all over the world who share an interest in
supporting celebrities who represent the urban culture and make it popular.
Fan4Life will feature Web sites of entertainment personalities from sports,
music, film, television, fashion, comedy, and technology. The content within
Fan4Life is exclusive to Fan4Life and is developed in conjunction with the
celebrity to be the "official" web site of that celebrity. As a direct link to
celebrities, Fan4Life provides an exclusive niche community for news,
information, exclusive features and live events that help promote their careers.
The site includes engaging activities and multi-media features that will compel
users and celebrities to become more active members of this community. Fan4Life
provides a new and interactive way in which fans and celebrities communicate by
keeping them "in touch" via the two-way capabilities of the Internet.
Fan4life currently features six celebrities, primarily recording
artists, with web sites devoted to five more celebrities currently in
production. We are actively seeking to add more celebrities to Fan4life. We are
also in the process of adding chat rooms and other features to Fan4life.
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Content Strategy
We are in the process of formulating our strategy related to our online
resource communities. Presently, we anticipate employing the following
strategies to develop and promote our PLACES OF COLOR and Fan4Life.
Provide an Attractive Advertising Site.
We believe our ability to target specific users, the interactive nature
of our Web site and the demographic characteristics of our users will be
attractive to those consumer brand firms that advertise on the Internet. By
identifying users interested in a particular topic or who have a common
background, and employing software and strategies that will allow us to collect
demographic information, we believe we can deliver advertising in a highly
targeted manner, thereby commanding higher advertising rates.
Enable High Value E-commerce Offerings.
We intend to enable e-commerce transactions offered by third parties.
Our strategy involves permitting merchants, manufacturers and service providers
access to a highly targeted community of consumers through our Web site and
within our channels through our portal affiliates. Although we do not intend to
provide products or services, we will provide links to the Web sites of third
parties that provide these products or services. Some of these third parties may
enter into preferred provider arrangements with us and pay us either a
transaction fee for sales attributable to users from our Web site or an anchor
tenant rental fee. Anchor tenant fees are annual fees paid by online merchants
in exchange for a prominent link to their on-line stores. We believe that
contextual merchandising of e-commerce transactions will attract users to our
Web site and promote user loyalty.
Create an Attractive, Entertaining Web Site.
We intend to create attractive, entertaining web sites that appeal to
our target markets. We believe that our in-house expertise, developed through
providing digital communication solutions to other businesses targeting the
urban minority market, will enable us to create web sites that are relevant,
interesting and engaging to that market. We believe that new software-based
authoring tools, our in-house creative and technical staffs, and the wide array
of information already available on the World Wide Web (which can be linked to
our site) will allow us to accumulate, store and distribute a wide array of
information to users of PLACES OF COLOR in a more cost efficient manner than
traditional media sources.
Provide a Sense of Community
We intend to develop a sense of community and interaction through the
PLACES OF COLOR web platform whose model aggregates relevant online resource and
destinations for audiences of color. The integrity of the content will initially
appeal to the target segments of African Americans and Latinos. We believe this
will lead to a sense of loyalty that will increase the use of our site as well
as the products and services offered or promoted through this platform. We
predict that much like Hip-Hop, the web culture created by PLACES OF COLOR will,
become a significant community interest for general market segments as well.
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Marketing and Sales
We intend to promote our Web sites through the Internet and traditional
media outlets. We believe that we can advertise efficiently by targeting media
outlets popular among the urban minority markets. Furthermore, we believe that
we will be able to obtain a significant amount of advertising through barter
arrangements and strategic relationships. For example, we may obtain advertising
space in a magazine targeting African-Americans in exchange for including an
advertisement for that magazine on the PLACES OF COLOR web site. We also hope
that some of the businesses for whom we provide digital communication solutions
will allow us to provide advertisements and links for Place of Color and
Fan4Life as part of the fee arrangement.
OTHER
Strategic Relationships
We have entered into a strategic relationship with the CompuServe
Interactive Services, Inc. subsidiary of America Online, Inc., and we intend to
continue entering into strategic relationships with a limited number of leading
Internet hardware, software and content companies. We believe these
relationships, which are generally non-exclusive and will require us to share
our revenue with certain partners, will enable us to build premier web sites
while limiting our expenditures for infrastructure and content. Additionally, we
believe that certain strategic relationships that provide us access to leading
edge-technology may enhance our digital communication solutions business by
enabling us to deliver clients more effective solutions with greater efficiency.
Presently, we are seeking to enter into strategic relationships to
assist in the development and operation of our on-line resource communities. We
believe these business alliances can mutually increase traffic and memberships.
For example, we will create hyperlinks to complementary Web sites and Web sites
of our content providers and, in exchange, such Web sites will feature
hyperlinks to our Web sites. Pursuant to an agreement with CompuServe, we must
make reasonable efforts to ensure that these links keep the user within the
PLACES OF COLOR online resource community. Therefore, most of our links to other
web sites will be framed which means that the user has access to the other web
site in a large section of the screen, but he or she remains on the PLACES OF
COLOR web site.
In the event that we are unable to develop additional strategic
relationships, or one of our existing relationships is discontinued, either in
connection with termination of an agreement or otherwise, our business, results
of operations and financial condition may be materially adversely affected.
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America Online / Compuserve
On February 2, 2000, we entered into an agreement with the CompuServe
Interactive Service, Inc. ("CompuServe") subsidiary of America Online, Inc.
("AOL") for the marketing and development of a CompuServe "Customized Service"
built around the PLACES OF COLOR web site. America Online, Inc. is the largest
Internet service provider in the world. Its CompuServe subsidiary operates a
separate Internet service provider that provides exclusive content and other
services, such as instant messaging, as well as World Wide Web access. The
Customized Service is a version of the CompuServe service whose look and feel
are being developed in conjunction with DME Interactive. The Customized Service
shall be marketed under the name "Places of Color Online, powered by
CompuServe."
Pursuant to the February 2, 2000 agreement, CompuServe will provide
interactive services, including e-mail, instant messaging, and chat rooms, news
briefs, dial up access numbers, and other technical and non-technical
infrastructure and back-office services for the "Places of Color, Powered by
CompuServe" online service. Compuserve will also provide hosting services and
other technical and support services for the PLACES OF COLOR online resource
community. CompuServe will charge a service fee from the customers of Places of
Color online serivce, initially planned to be $19.95 per month. CompuServe will
pay us a predetermined amount monthly for each customer of the Places of Color
online service.
In connection with the strategic agreement with CompuServe, we agreed
to issue America Online, Inc. 1,250,000 shares of our common stock for an
aggregate purchase price of $1,250. Additionally, America Online was granted a
warrant to purchase 4,000,000 shares of our common stock at a purchase price of
$8.563 per share. However, the warrant will only become exercisable if, at the
end of the eighteen month term, we negotiate an extension of the Strategic
Agreement with CompuServe or enter into a substantially similar agreement. We
also entered into an Investor Rights Agreement granting America Online
registration rights with respect to the common stock it acquired or will acquire
through exercise of the warrant.
Employees
As of January 31, 2000, we employed 23 full time employees and four
full time interactive consultants, including three executives, two solutions
managers (who serve as business, marketing and branding strategists), one
project manager, eight designers, two programmers, three sales and marketing
personnel, and four administrative staff.
Our continuing success will depend, in large part, on our ability to
attract, motivate and retain highly qualified employees. Competition for such
personnel is intense, and we may not be able to retain our senior management or
other key personnel in the future. We believe we maintain high employee
retention rates as compared to industry averages by paying competitive salaries,
granting stock options and other awards.
Our employees are not represented by any union and, except for senior
management and certain other employees, are retained on an at will basis. We
consider our relations with its employees to be satisfactory.
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ITEM 2. PROPERTIES
Our principal administrative facility is located in approximately
10,100 square feet of office space in the Silicon Alley area of New York City,
New York, under a non-cancelable operating lease, which expires in July, 2010.
Over the term, the minimum lease payments will total $3.5 million. We also
maintain an office in Englewood Cliffs, New Jersey. We believe our existing
facilities will be sufficient for our needs for at least the next 12 months.
ITEM 3. LEGAL PROCEEDINGS
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Our common stock trades on the OTC Electronic Bulletin Board under the
symbol "DGMF." The OTC Electronic Bulletin Board has a limited and sporadic
trading market and does not constitute an "established trading market." Our
common stock had been traded on the Nasdaq SmallCap Stock Market until we were
delisted in March, 1999. The range of high and low bid prices for our common
stock for each quarter during the period from January 1, 1998 through December
31, 1999 is set forth below.
Common Stock Price Ranges(1)(2)
High Low
12/1/97 - 2/28/98 $3.50 $2.88
3/1/98 - 5/31/98 $4.50 $3.44
6/1/98 - 8/31/98 $3.88 $3.88
9/1/98 - 11/30/98 $3.44 $2.00
12/1/98 - 2/19/99 $3.50 $2.88
6/24/99 - 6/30/99 $2.50 $1.50
7/1/99 - 9/30/99 $3.75 $0.40
10/1/99 - 12/31/99 $7.75 $0.28
(1) This table reflects the range of high and low bid prices for DME's common
stock during the indicated periods, as published by the OTC Bulletin
Board. The quotations merely reflect the prices at which transactions were
proposed, and do not necessarily represent actual transactions. Prices do
not include retail markup, markdown or commissions.
(2) In February 1999, upon announcement of the proposed acquisition of Digital
Mafia, LLC, the Nasdaq SmallCap Stock Market halted trading of our common
stock until the completion and public announcement of the transaction in
June 1999.
There were approximately 127 record holders of our common stock as of
December 31, 1999. We estimate there are approximately 500 beneficial owners of
our common stock.
We currently intend to retain future earnings, if any, to fund the
development and growth of our business and therefore do not anticipate paying
cash dividends within the foreseeable future. Any future payment of dividends
will be determined by our Board of Directors and will depend on our financial
condition, results of operations and other factors deemed relevant by the Board
of Directors.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion and analysis should be read in conjunction
with the consolidated financial
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statements and related notes included elsewhere in this Form 10-KSB. This
discussion contains forward-looking statements based on current expectations,
which involve risks and uncertainties. These statements are commonly identified
by the use of such terms and phrases as "intends", "expects", "anticipates",
"estimates", "seeks" and "believes". Actual results and the timing of certain
events could differ materially from the forward-looking statements as a result
of a number of factors. Factors that could cause or contribute to such
differences include those discussed in "Risk Factors," as well as those
discussed elsewhere herein.
OVERVIEW
Prior to June 18, 1999, our present business was conducted by Digital
Mafia, LLC, a New Jersey limited liability company that had been controlled by
our current Chairman and Chief Executive Officer Darien Dash. At that time, then
known as Pride Automotive Group, Inc., we were engaged in the automobile leasing
business. On June 18, 1999, we sold all of our interests in our subsidiaries,
which subsidiaries contained all of our operating assets and had conducted all
of its operations. On that date, we acquired Digital Mafia, LLC by issuing
14,800,000 shares of our Common Stock to Mr. Dash and certain affiliated
parties. Mr. Dash became our Chairman and Chief Executive Officer at that time.
Additionally, we changed our name to DME Interactive Holdings, Inc. For
accounting purposes, our acquisition of Digital Mafia, LLC was treated as a
reverse merger. Therefore, Digital Mafia, LLC is deemed to be our predecessor
and all financial information included in this Form 10-KSB prior to June
18, 1999 is that of Digital Mafia, LLC.
Currently, we are an advanced technology company which provides
corporate Internet strategy and development services and advertising services
primarily to clients seeking to reach the urban African-American and Latino
markets. We are in the process of developing our own web sites which will
include content, developed by us and others, of interest to our target urban
minority market.
We bill for services in our digital communication solutions business
pursuant to time-and-matierals arrangements, fixed-price contracts or
maintenance agreements. For the year ended December 31, 1999, we used primarily
a combination of fixed-price and time-and-materials arrangements with our
clients. We are seeking to increase the number of maintenance contracts that we
have. To date, we have not realized material revenue from our online resource
communities.
We bill and recognize revenues from time-and-materials projects on the
basis of costs incurred in the period. We use a standardized estimation and work
plan development process to determine the requirements and estimated price for
each project. This process takes into account the type and overall complexity of
the project, the anticipated number of personnel of various skill sets needed
and their associated billing rates, and the estimated duration of and risks
associated with the project. Management personnel familiar with the production
process evaluate and price all project proposals.
We recognize revenues from fixed-price projects using the
percentage-of-completion method based on the ratio of costs incurred to the
total estimated project costs. Fees are billed to the client over the course of
the project. We estimate the price for fixed-price projects using the same
methodology as time-and-materials projects. All fixed-price proposals must first
be approved by a member of our senior management team. Provisions for estimated
losses on contracts are made during the period in which such losses become
probable and can be reasonably estimated. To date,
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such losses have not been significant.
We bill and recognize revenues from maintenance agreements on a monthly
basis while the agreement is in effect. We believe that maintenance arrangements
are indicative of our strong, long-term relationships with clients which yield
significant benefits both to our clients and to us. We believe that we will
achieve greater predictability of revenues and higher revenue growth with
clients who engage us in maintenance-based relationships. Maintenance agreements
are generally one to two years in length and include a renewal clause.
Typically, maintenance relationships with clients result in additional
fixed-price and time-and-materials projects. Maintenance fees currently
represent a small percentage of our overall revenues. Consistent with our focus
on long-term relationships, our goal is to increase our number of
maintenance-based arrangements.
Our revenues and earnings from our digital communication solutions
business are affected by a number of factors, including:
- the amount of business developed from existing relationships;
- our ability to meet the changing needs of the marketplace;
- employee retention;
- billing rates;
- our ability to deliver complex projects on time; and
- efficient utilization of our employees.
Many of our business initiatives are aimed at enhancing these factors.
Further, we believe that our focus on maintenance-based arrangements will
continue to improve the predictability of our quarter-to-quarter results.
Our expenses include direct salaries and costs, selling, general and
administrative and depreciation. Direct salaries and costs includes salaries,
benefits and incentive compensation of billable employees and other direct costs
associated with revenue generation. Sales and marketing expenses include
promotion and new business generation expenses. General and administrative
expenses include benefits costs of management, rent and human resources costs.
Professional fees include accounting, legal and consulting costs. Depreciation
expenses primarily include depreciation of technology equipment and furniture
and fixtures. Personnel compensation and facilities costs represent a high
percentage of our operating expenses and are relatively fixed in advance of each
quarter. Expenses related to our online resource communities were expensed to
operations for the year ended December 31, 1999. In 2000, we expect such
expenses to increase significantly as we complete development and prototype
testing and commence marketing and operations.
As a strategic response to changes in the competitive environment, we
may from time to time make certain pricing, service, technology or marketing
decisions or business or technology acquisitions that could have a material
adverse effect on our business, results of operations and financial condition.
DME may also experience seasonality in its business in the future, resulting in
diminished revenues as a consequence of decreased demand for Internet
professional services
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during summer and year-end vacation and holiday periods.
RESULTS OF OPERATIONS
COMPARISON OF FISCAL YEAR ENDED DECEMBER 31, 1999 AND DECEMBER 31, 1998
GROSS REVENUES. In 1999, gross revenues were $556,071 as compared to $236,232 in
1998. The increase of $319,839, or 135%, was attributable to several factors,
including an increase in the number of clients served, sales of additional
projects to existing clients and additional service offerings.
TOTAL EXPENSES. In 1999, total expenses were $1,401,407 as compared to $507,024
in 1998. The increase of $894,383, or 176%, was primarily due to an increase in
accounting, management consulting and legal services to build the necessary
infrastructure for the anticipated expansion of our business and to commence
development of our online resource communities. In particular, salaries and
employee benefits were $511,049 in 1999 as compared to $111,118 in 1998. The
increase of $399,931, or 360%, was the result of hiring additional salaried
employees to support our internal growth and expanded service offerings.
NET LOSS. As a result of the foregoing, in 1999, we had a net loss of $845,336
as compared to a net loss of $270,792 in 1998.
COMPARISON OF FISCAL YEAR ENDED DECEMBER 31, 1998 AND DECEMBER 31, 1997
GROSS REVENUES. In 1998, gross revenues were $236,232 as compared to $198,173 in
1997. The increase of $38,059, or 19% was attributable to several factors,
including an increase in the number of clients served, sales of additional
projects to existing clients and additional service offerings.
TOTAL EXPENSES. In 1998, total expenses were $507,024 as compared to $338,498
in 1997. The increase of $168,526, or 50%, was primarily due to an increase in
employees, accounting, and legal services to build the digital communications
business. In particular, salaries and employee benefits were $111,118 in 1998 as
compared to $13,803 in 1997.
NET LOSS. As a result of the foregoing, in 1998, we had a net loss of $270,792
as compared to a loss of $140,325 in 1997.
LIQUIDITY
At December 31, 1999, the Company had $171,996 of cash and cash
equivalents compared to $629 at December 31, 1998. Prior to the reverse merger
(recapitalization) transaction on June 18, 1999, the Company's primary source of
liquidity had been proceeds from officer's loan and operating cash flows.
Net cash used in operating activities was $798,505 for 1999 compared to
$237,795 used during 1998. In 1999, net cash used in operating activities was
primarily attributable to our net loss that resulted primarily from establishing
the necessary infrastructure for the expansion of our business and commencing
the development of our online resource communities. During the comparable period
of 1998, net cash used in operating activities was primarily attributable to our
net loss that resulted primarily from establishing our digital communications
business.
Net cash used in investing activities was $45,596 for 1999 compared to
$12,674 used during 1998. The use of cash for investing activities in 1999 and
1998 was attributable to the acquisition of property and equipment.
Net cash provided in financing activities was $1,015,468 for 1999
compared to $242,608 provided by financing activities during 1998. The cash
provided for financing activities during 1999 was primarily the result of
proceeds from the private placement of common stock in connection reverse
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merger (re-capitalization) in June 1999. Additionally, in December 1999, we
issued 366,667 shares of Common Stock in two separate private placements for
gross proceeds of $250,000 to meet our working capital requirements. In 1998,
cash provided for financing was primarily the result of loan from officer.
In January 2000, we issued 500,000 shares of Common Stock and warrants
to acquire an additional 500,000 shares at $2.00 per share in a private
placement in connection with working capital requirements. Proceeds totaled
$1,000,000.
We believe that current cash on hand and cash generated from operations
in 2000 is sufficient to fund our digital communication solutions business at
our current levels but is not sufficient to allow us to implement our expansion
strategy or properly develop our online resource communities. Therefore, we are
pursing external financing. We cannot assure you that such additional capital
will be available when needed on terms acceptable to us, if at all. The
inability to obtain such financing, if needed, could adversely affect our
ability to achieve our business objectives.
Year 2000 Disclosure
Background. Prior to the last few years, many computer programs have
been written using two digits rather than four to identify the year. Any
computer programs that have date-sensitive software may recognize a date using
"00" as the year 1900 rather than the year 2000. Systems that do not properly
recognize this information could fail or generate miscalculations causing
disruptions of operations, including, among other things, a temporary inability
to process transactions, send invoices, or engage in similar normal business
activities. This situation is commonly referred as the Year 2000 or "Y2K"
problem. To date the Y2K problem has caused few computer malfunctions, however,
it is still possible that systems could develop errors in processing
information.
Scope and Impact of Y2K on DME Interactive. DME Interactive has not
experienced any material Y2K problems. The costs of investigating and remedying
Y2K problems at DME Interactive has not been material to date. Although DME
Interactive does not anticipate any material Y2K problems, there can be no
assurance that DME Interactive or its significant customers, suppliers or
strategic partners will not experience Y2K problems in the future that could
have a material adverse effect on DME Interactive.
ITEM 7. FINANCIAL STATEMENTS AND SUPPLEMENTARY
DATA
The financial statements are included in this Form 10-KSB at pages F-1
through F-13.
In February 2000, we changed our fiscal year end from November 30 to
December 31 effective as of the year ended December 31, 1999. Our accounting
predecessor, Digital Mafia, LLC, had a fiscal year end of December 31 and its
most recent audited financial statements covered the year ending December 31,
1998. Therefore, our current fiscal year commenced on January 1, 1999. The
financial statements included in this Form 10-KSB include the eleven
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months ended on November 30, 1999, the one month transition period ended on
December 31, 1999, and the twelve months ended on December 31, 1999.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE
There have been no disagreements concerning any matter of accounting
principle or financial statement disclosure between the Company and its
independent auditors.
Effective with the closing of the transaction in which we sold our
interest in the Pride Automotive Group subsidiaries and acquired Digital Mafia
on June 18, 1999, Civvals, the independent accountants, who were engaged as the
principal accountants to audit the Company's financial statements, were
dismissed. The principal accountants' report on the financial statements of the
Company for the fiscal year ended November 30, 1998 contained a qualification as
to the Company's ability to continue as a going concern. The decision to dismiss
the principal accountants was approved by our Board of Directors.
Part III
Item 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
Directors and Executive Officers
Our directors are elected by the shareholders to serve until the next
annual meeting of shareholders and until their successors are elected and
qualified, or until their earlier death, retirement, resignation or removal. Our
officers hold office at the discretion of the Board of Directors.
The Board of Directors and executive officers of DME and their
respective ages as of February 25, 2000 are set forth in the table below. Also
provided is a brief description of the business experience of each director and
executive officer and the key personnel during the past five years and an
indication of directorships (if any) held by each director in other companies
subject to the reporting requirements under the Federal securities laws.
<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<S> <C> <C>
Darien Dash 28 Chairman and Chief Executive Officer
Thomas O'Rourke 35 Director
Sandi Thomas 40 Director
Andre H. McKoy 35 Executive Vice-President - Finance, Accounting and
Administration
Kathleen McQuaid Packard 30 Senior Vice-President-Production & Technology
</TABLE>
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Business Experience
Darien Dash has served as our Chairman and Chief Executive Officer
since June 1999. He founded our predecessor, Digital Mafia LLC, in 1996 and
served as its President until its acquisition by DME Interactive. From 1993
until 1995, Mr. Dash was the Eastern Region Marketing and Sales Director of
Digital Music Express (DMX), a division of International Cablecasting
Technologies. Prior to working at DMX, Mr. Dash worked as a marketing consultant
for a number of Fortune 500 companies, designing new media marketing and
promotion plans for their existing content. Mr. Dash received a B.A. in
Political Science and Leadership from the University of Southern California in
1993.
Sandi Thomas has been a director of DME Interactive since June 1999.
Since 1997, Ms. Thomas has been the Chief Operating Officer of MSBET, which is
jointly owned by Microsoft Corporation and Black Entertainment Television
Holdings Inc. From 1995 to 1997, Ms. Thomas was a business development manager
for MSBET focusing on the acquisition and development of online-programming from
entertainment media companies. Prior to joining MSBET, Ms. Thomas was group
product manager for Microsoft Works and has also held positions at Apple
Computer Inc., Lotus Development and IBM. Ms. Thomas earned dual BA degrees from
Stanford University in Political Science and African/African-American studies.
Thomas O'Rourke has been a director of DME Interactive since October
1999. Since February 1999, Mr. O'Rourke has been the principal of the Tortoise
Group, LLC, a financial consulting firm located in New Jersey. From 1995 to
1999, Mr. O'Rourke was Chief Executive Officer of Thornwater Company, L.P., a
New York broker-dealer and investment banking firm.
Andre H. McKoy joined the company in August 1999 as its Executive Vice
President of Finance, Accounting and Administration. Prior to joining the
Company, Mr. McKoy held various corporate finance positions ranging from asset
securitization to highly leveraged financings with Citicorp, a unit of
Citigroup, including Vice President, Global Project Finance, from 1997 to 1999,
Vice President, Global Banks Industry group, from 1995 to 1997, and Assistant
Vice President, Commercial Real Estate Securitization group, from 1992 to 1995.
Mr. McKoy received a B.M.E. in Mechanical Engineering from Pratt Institute in
1986 and a M.B.A. in Finance and Corporate Strategy from the University of
Michigan, Ann Arbor in 1992.
Kathleen McQuaid Packard has been Senior Vice-President - Internet
Services of DME since September 1999. From 1997 until 1999, Ms. Packard was the
President and founder of Kathoderay Media, Inc., a New York digital
communication solutions firm. Prior to that, Ms. Packard was a graphic designer
and was employed at One Source, Inc. from 1995 until 1996. Kathleen has a BFA
with Honors in Computer Art from the School of Visual Arts located in New York
City. She is a part-time faculty member of Parsons School of Design, where she
teaches multimedia design and development.
Section 16(a) Beneficial Ownership Reporting Compliance
Ownership of and transactions in our stock by our executive officers
and directors and
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owners of 10% or more of our outstanding Common Stock are required to be
reported to the Securities and Exchange Commission pursuant to Section 16(a) of
the Securities Exchange Act of 1934, as amended (the "Exchange Act"). During the
fiscal year ended November 30, 1999, all reports required to be filed pursuant
to Section 16(a) of the Exchange Act were filed in a timely manner, except that
Form 3s were not filed at for Sandi Thomas, Kathleen McQuid Packard and Andre
McKoy. Form 5s were filed for each of them containing the information that would
have been on the Form 3.
Item 10. EXECUTIVE COMPENSATION
Directors' Compensation
Directors receive no cash compensation in consideration for their
serving on the Board of Directors.
Compensation Committee
Presently, we do not have a compensation committee. Compensation of
executive officers is determined by the board of directors. We intend to form a
compensation committee during the 2000 fiscal year but have not yet determined
who will serve on that committee.
Summary Compensation Table
The following table provides a summary of cash and non-cash
compensation for each of the last three fiscal years ended December 31, 1999,
1998 and 1997 earned by the Chief Executive Officer. No other executive earned
in excess of $100,000 in 1999.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------- ---------------- ---------------
Annual Compensation Long Term
Compensation
- ------------------ ------------- ---------------- -------------- -------------------- ---------------- ---------------
Securities
Name and Other Annual Underlying All Other
Principal Compensation Options/SA Compensation
Position Year Salary ($) Bonus ($) ($)(1) Rs(#) ($)
- ------------------ ------------- ---------------- -------------- -------------------- ---------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Darien Dash 1999 125,500 0 0 0
C.E.O. 1998 20,000 0
1997 20,000 0
- ------------------ ------------- ---------------- -------------- -------------------- ---------------- ---------------
</TABLE>
- --------
(1) Excludes perquisites and other personal benefits which in the aggregate do
not exceed 10% of 1999 annual salary and bonus.
(2) This information is derived from the books and records of DME Interactive
and its accounting predecessor, Digital Mafia, LLC. No information pertaining to
the executive officers of our legal predecessor, Pride Automotive Group, Inc.,
has been included.
25
<PAGE>
Option Grants in Last Fiscal Year
DME Interactive granted its employees options to acquire 1,210,000
shares of its Common Stock in 1999. The following table contains information
concerning the grant of stock options to the Named Executive Officers during the
fiscal year ended December 31, 1999:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------
Individual Grants
- -------------------------------------------------------------------------------------
% of Total
Number of Options
Securities Granted to Exercise or
Underlying Employees in Base Price
Options Fiscal Year ($/Share) Expiration
Name Granted (#) Date
- --------------------- ---------------- ---------------- -------------- --------------
<S> <C> <C> <C> <C>
Andre H. McKoy 250,000 0.625 August 1,
- --------------------- ---------------- ---------------- -------------- --------------
Kathleen McQuaid 60,000 2.00 September 1,
Packard 2009
- --------------------- ---------------- ---------------- -------------- --------------
</TABLE>
26
<PAGE>
Description of 2000 Stock Option Plan
The DME Interactive Holdings, Inc. Stock Option Plan of 2000 ("2000
Plan") is intended to serve as an equity incentive program for management,
qualified employees, non-employee members of the Board of Directors, and
independent advisors or consultants. The 2000 Plan became effective on February
29, 2000 upon adoption by the Board of Directors. The 2000 Plan has not been
ratified by shareholders but will be submitted for shareholder approval at our
2000 annual meeting. Options to acquire up to 3,000,000 shares of Common Stock
may be granted under the 2000 Plan. The following is a summary of the principal
features of the 2000 Plan.
Options granted under the 2000 Plan may be Incentive Stock Options
("ISOs") within the meaning of Section 422 of the Internal Revenue Code of 1986,
as amended, or nonqualified stock options. However, in order to qualify as ISOs,
DME Interactive's shareholders must approve the 2000 Plan. If any outstanding
option expires or is terminated for any reason, the shares of common stock
allocable to the unexercised portion of that option may again be subject to an
option to the same optionee or to a different person eligible under this Plan.
The 2000 Plan is to be administered a committee of two or more members
of the Board of Directors (the "Committee"). The Committee has the sole
authority to prescribe the form, content and status of options to be granted,
select the eligible recipients, determine the timing of option grants, determine
the number of shares subject to each grant, the exercise price, vesting
schedule, and term for which any option will remain outstanding; provided,
however, that the exercise price for any option granted may not be less than the
fair market value per share of the common stock at the date of grant. The
Committee has the authority to determine the terms and restrictions on all
option awards granted under the 2000 Plan, and in general, to construe and
interpret any provision of the 2000 Plan. Currently, entire board is acting as
the Committee. Upon formation of a Compensation Committee, that committee will
administer the 2000 Plan.
27
<PAGE>
The exercise price of options to be granted pursuant to the 2000 Plan
shall not be less than the fair market value of DME Interactive's common stock
on the date of the grant. The exercise price for outstanding option grants under
the 2000 Plan may be paid in cash or, upon approval of the plan administrators,
in shares of common stock valued at fair market value on the exercise date,
having shares withheld from the amount of shares of common stock to be received
by the optionee, by delivery of an irrevocable subscription agreement obligating
the optionee to take and pay for the shares of common stock to be purchased
within one year of the date of such exercise, through a same-day cashless
exercise program or a reduction in the amount of any Company liability to the
optionee, or by such other consideration and method of payment for the issuance
of shares to the extent permitted by applicable laws.
Under the 2000 Plan, no stock option can be granted for a period longer
than ten years. Unless extended by the 2000 Plan administrators until a date not
later than the expiration date of the option, the right to exercise an option
terminates ninety days after the termination of an optionee's employment,
contractual or director relationship with DME Interactive. If the optionee dies
or is disabled, the option will remain exercisable for a period of one year
after the termination of employment or relationship with DME Interactive.
The vesting schedule for options is to be set by the 2000 Plan
administrators, provided that vesting may accelerated upon a change in control
of DME Interactive.
Option Exercises and Fiscal Year-End Values
There were no options exercised by employees of DME Interactive in the
last fiscal year.
Employment and Termination Agreements
In March 2000, DME Interactive entered into an employment agreement
with Darien Dash to serve as Chief Executive Officer. Mr. Dash is to be paid an
annual base salary of $160,000 plus a discretionary bonus and salary increases.
The initial term of his employment expires on March 2, 2003, provided that such
term is extended by an additional year on each anniversary of the date of the
agreement unless either party provides the other at least 90 days written
notice. Mr. Dash may terminate employment at any time upon 120 days notice. Mr.
Dash also may terminate employment, among other reasons, (i) if he is no longer
elected to DME Interactive's board of directors or as its Chief Executive
Officer or (ii) within one year of a change of control of DME Interactive. If
Mr. Dash terminates employment for such reasons, or if DME Interactive
terminates Mr. Dash other than for cause, DME Interactive is required to pay Mr.
Dash a severance package consisting primarily of (i) one year's then current
salary and (ii) five times Mr. Dash's prior year's bonus (including stock based
compensation).
DME Interactive has entered into an employment agreement with Andre H.
McKoy to serve as DME Interactive's Executive Vice President of Finance,
Accounting and Administration. Mr. Mckoy is paid a minimum annual base salary of
$125,000, effective in March 2000, plus a discretionary bonus and salary
increases. The agreement also provides for the grant of options to acquire
250,000 shares of DME Interactive common stock . The initial term of his
employment expires on July 31, 2001, provided that the agreement can be
terminated by either party upon 30 days notice.
DME Interactive has entered into an employment agreement with Kathleen
McQuaid Packard to serve as DME Interactive's Senior Vice President of
Interactive
28
<PAGE>
Services. Ms. McQuaid is to be paid an annual salary of $125,000 with 10% annual
increases plus a discretionary bonus. The agreement also provides for the grant
of options to acquire 60,000 shares of DME Interactive Common Stock. The initial
term of her employment expires on August 31, 2002.
Each of these employment agreements contain provisions prohibiting the
employee to directly or indirectly engage in business conduct competitive with
DME Interactive for the term of their agreement and for a period of one year
after it terminates.
Item 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information concerning stock
ownership of each person who is the beneficial owner of five percent or more of
the Company's outstanding Common Stock, each of the current directors, each of
the Named Executive Officers and all directors and executive officers as a group
as of February 29, 2000. Except as otherwise noted, each person has sole voting
and investment power with respect to the shares shown as beneficially owned.
Percentage of
Name (1) Number of Shares Share Ownership (2)
- -------- ---------------- -------------------
Darien Dash (3) 14,000,000 53.9%
Thomas O'Rourke 1,624,000 (4) 6.3%
35 King Street
Englewood, NJ 07631
The Tortoise Group 1,624,000 6.3%
35 King Street
Englewood, NJ 07631
Andre H. McKoy 250,000 (5) 1.0%
Kathleen McQuaid Packard 60,000 (6) *
Sandi Thomas 0 *
All officer and directors
as a group 14,310,000 54.5%
(5 people)
- -----------
(1) Unless otherwise noted, the address of such persons is care of
DME Interactive, 39 Broadway, New York, New York 10006
(2) Except to the extent such shares are included in this table as
noted in footnotes 4 and 5, this calculation excludes the
effects on total outstanding shares which would result from
exercise of stock purchase options or Warrants.
29
<PAGE>
(3) Includes the following shares for which Mr. Dash holds an
irrevocable voting proxy (i) 1,624,000 shares owned by the
Tortoise Group, LLC, (ii) 444,000 shares owned by Mr. Dash's
mother, Linda Holmes, (iii) 296,000 owned by Mr. Dash's wife
and (iv) a total of 296,000 shares owned by Mr. Dash's minor
children.
(4) Consists of 1,624,000 shares owned by the Tortoise Group.
(5) Consists of 250,000 shares to be issued upon exercise of
outstanding options, which are currently exercisable.
(6) Consists of 60,000 shares to be issued upon exercise of
outstanding options which are currently exercisable.
Item 12. CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS
On June 18, 1999, pursuant to an Agreement Concerning the Exchange of
Common Stock dated March 30, 1999 as amended ("Agreement"), we exchanged
14,800,000 shares of our Common Stock for all of the membership interests of
Digital Mafia Entertainment, LLC ("Digital Mafia"). Darien Dash, the principal
member of Digital Mafia received 11,840,000 of DME Interactive Common Stock.
Additionally, Mr Dash's family members received a total of 1,036,000 shares for
which he has voting control and a right of first refusal to purchase such shares
if the holder determines to sell them. Additionally, the Tortoise Group, LLC, a
financial consulting firm controlled by Thomas O'Rourke, received 1,924,000
shares of common stock for services rendered in connection with the reverse
merger. Mr. O'Rourke was not affiliated with DME Interactive at the time of the
transaction.
In connection with the foregoing, all of our directors resigned and
Darien Dash and Sandi Thomas were elected to fill the vacancies. Additionally,
the then existing officers all resigned and Mr. Dash became our Chairman and
Chief Executive Officer. At that time we changed our name from Pride Automotive
Group, Inc. to DME Interactive Holdings, Inc.
On June 18, 1999, simultaneously with the acquisition of Digital Mafia,
we sold all of our interest in the Pride Automotive Group, Inc. subsidiaries for
$1.00 to Pride, Inc. At that time, Pride, Inc. owned in excess of 50% of our
common stock. Prior to that time, those subsidiaries, which were engaged in the
business of leasing and selling automobiles.
In 1999, the Tortoise Group, LLC, a financial consulting firm
controlled by Thomas O'Rourke, received $48,000 in consulting fees.
30
<PAGE>
Item 13. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a)(1) Financial Statements
The Consolidated Financial Statements of DME Interactive Holdings, Inc.
and subsidiaries as of November 30, 1999, December 31, 1999 and 1998, and the
related consolidated statements of operations, changes in shareholders' deficit
and cash flows for the eleven-month period ended November 30, 1999, the
one-month period ended December 31, 1999 and the years ended December 31, 1999
and 1998 are included in item 7 above and are located in this report commencing
on page F-1.
(a)(2) Exhibits
The following exhibits are incorporated herein by reference or are
filed with this report. Exhibits filed with this report have been indicated with
a **. The documents noted with "XX" were filed with DME Interactive's Form 8-K
filed on February 24, 2000.
<TABLE>
<S> <C>
3.1 Articles of Incorporation
3.2 Certificate of Amendment to Articles of Incorporation
3.3 Certificate of Amendment to Articles of Incorporation
3.4 Bylaws
4.1 Warrant Agreement dated as of April 26, 1996 with respect to DME Interactive Holdings, Inc.'s
Redeemable Common Stock Purchase Warrants
10.1xx Strategic Agreement dated as of February 2, 2000 between DME Interactive Holdings, Inc., Places of
Color, Inc., America Online, Inc., CompuServe Interactive Services, Inc. [Portions of this agreement,
as noted therein, have been omitted pursuant to a request for confidential treatment pursuant to Rule
24b-2 of the Securities and Exchange Act of 1934.]
10.2xx Subscription Agreement dated as of February 2, 2000 between DME Interactive Holdings, Inc. and
America Online, Inc.
10.3xx Warrant to Purchase 4,000,000 Shares of Common Stock of DME Interactive Holdings, Inc., Issued
February 2, 2000 to America Online, Inc.
10.4xx Investor Rights Agreement dated as of February 2, 2000 between DME Interactive Holdings, Inc.,
America Online, Inc. and Darien Dash
10.5** Employment Agreement between DME Interactive Holdings, Inc. and Darien Dash.
10.6** Employment Agreement between DME Interactive Holdings, Inc. and Andre H. Mckoy dated as of
August 1, 1999
10.7** Employment Agreement between DME Interactive Holdings, Inc. and Kathleen McQuaid dated as of
September 1, 1999
10.8** DME Interactive Holdings, Inc. Stock Option Plan of 2000
10.9** Form of non-plan Employee Stock Option Plan
</TABLE>
31
<PAGE>
<TABLE>
<S> <C>
10.10** Warrants to purchase 500,000 shares of DME Interactive Holding Inc.'s Common Stock, dated
January 5, 2000
10.11** Registration Rights Agreement between DME Interactive Holding Inc.'s and Janssen Partners, Inc.
dated January 5, 2000
10.12** Registration Rights Agreement between DME Interactive Holdins, Inc. and certain private
placement investors dated January 5, 2000
21.1** Subsidiaries of the registrant
23.1** Consent of Mitchell & Titus, LLP
99.1** Risk Factors
</TABLE>
(b) Reports on Form 8-K
No reports were filed on Form 8-K in DME Interactive's fiscal fourth
quarter. However, a Form 8-K/A was filed as noted below:
<TABLE>
<CAPTION>
Item # Description Date
- -----------------------------------------------------------------------------------------------------
<S> <C> <C>
7 An amendment to the Form 8-K filed on June 25, 1999 was 9/7/99
filed for purposes of including the financial statements of
Digital Mafia, LLC, which was acquired by DME Interactive on
June 18, 1999.
</TABLE>
32
<PAGE>
SIGNATURE
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
DME INTERACTIVE HOLDINGS,
INC.
Dated: March 2, 2000 By: /s/ Darien Dash
-------------------------
Darien Dash, Chief Executive
Officer and Chairman of the Board
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
- --------- ----- ----
<S> <C> <C>
/s/ Darien Dash Chairman and Chief March 2, 2000
- ------------------------------ Executive Officer (principal
Darien Dash executive officer)
/s/ Thomas O'Rourke Director March 2, 2000
- ------------------------------
Thomas O'Rourke
Director March 2, 2000
- ---------------------------
Sandi Thomas
/s/ Andre H. McKoy Executive Vice President March 2, 2000
- ------------------------------ (principal accounting officer)
Andre H. McKoy
</TABLE>
33
<PAGE>
EXHIBIT INDEX
<TABLE>
<S> <C>
3.1 Articles of Incorporation
3.4 Certificate of Amendment to Articles of Incorporation
3.5 Certificate of Amendment to Articles of Incorporation
3.4 Bylaws
4.1 Warrant Agreement dated as of April 26, 1996 with respect to DME Interactive Holdings, Inc.'s
Redeemable Common Stock Purchase Warrants
10.1xx Strategic Agreement dated as of February 2, 2000 between DME Interactive Holdings, Inc., Places
of Color, Inc., America Online, Inc., CompuServe Interactive Services, Inc. [Portions of this
agreement, as noted therein, have been omitted pursuant to a request for confidential treatment
pursuant to Rule 24b-2 of the Securities and Exchange Act of 1934.]
10.2xx Subscription Agreement dated as of February 2, 2000 between DME Interactive Holdings, Inc. and
America Online, Inc.
10.3xx Warrant to Purchase 4,000,000 Shares of Common Stock of DME Interactive Holdings, Inc., Issued
February 2, 2000 to America Online, Inc.
10.4xx Investor Rights Agreement dated as of February 2, 2000 between DME Interactive Holdings, Inc.,
America Online, Inc. and Darien Dash
10.5** Employment Agreement between DME Interactive Holdings, Inc. and Darien Dash
10.6** Employment Agreement between DME Interactive Holdings, Inc. and Andre H. Mckoy dated as of
August 1, 1999
10.7** Employment Agreement between DME Interactive Holdings, Inc. and Kathleen McQuaid dated as of
September 1, 1999
10.8** DME Interactive Holdings, Inc. Stock Option Plan of 2000
10.9** Form of non-plan Employee Stock Option Plan
10.10** Warrants to purchase 500,000 shares of DME Interactive Holding Inc.'s Common Stock, dated
January 5, 2000
10.11** Registration Rights Agreement between DME Interactive Holding Inc.'s and Janssen Partners, Inc.
dated January 5, 2000
10.12** Registration Rights Agreement between DME Interactive Holdings, Inc. and certain private
placement investors dated January 5, 2000
21.1** Subsidiaries of the registrant
23.1** Consent of Mitchell & Titus, LLP
99.1** Risk Factors
</TABLE>
34
<PAGE>
DME INTERACTIVE HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
AND INDEPENDENT AUDITORS' REPORT
FOR THE PERIODS ENDED NOVEMBER 30, 1999, DECEMBER 31, 1999 AND
FOR THE YEARS ENDED DECEMBER 31, 1999 AND DECEMBER 31, 1998
<PAGE>
DME Interactive Holdings, Inc. And Subsidiaries
TABLE OF CONTENTS
PAGE
Independent auditors' report F-1
Consolidated balance sheets F-2
Consolidated statements of operations F-3
Consolidated statements of changes in shareholders' deficit F-4
Consolidated statements of cash flows F-5
Notes to consolidated financial statements F- 6-13
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors
DME Interactive Holdings, Inc. and Subsidiaries
We have audited the accompanying consolidated balance sheets of DME Interactive
Holdings, Inc. and subsidiaries (the "Company") as of November 30, 1999,
December 31, 1999 and 1998, and the related consolidated statements of
operations, changes in shareholders' deficit and cash flows for the eleven-month
period ended November 30, 1999, the one-month period ended December 31, 1999 and
the years ended December 31, 1999 and 1998. 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 audits 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 DME Interactive
Holdings, Inc. and subsidiaries as of November 30, 1999, December 31, 1999 and
1998, and the results of their operations and their cash flows for the periods
ended November 30, 1999, December 31, 1999 and for the years ended December 31,
1999 and 1998 in conformity with generally accepted accounting principles.
New York, New York
February 28, 2000
F-1
<PAGE>
DME Interactive Holdings, Inc. and Subsidiaries
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
ASSETS
As of As of As of
November 30, December 31, December 31,
1999 1999 1998
----- ----- ----
<S> <C> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 22,866 $ 171,996 $ 629
Accounts receivable, net 116,842 116,168 10,597
Prepaid expenses 23,619 28,661 -
----------- ----------- ---------
Total current assets 163,327 316,825 11,226
Security deposits 167,257 167,257 -
Property and equipment, net 63,676 62,980 30,487
----------- ----------- ---------
Total assets $ 394,260 $ 547,062 $ 41,713
=========== =========== =========
LIABILITIES AND SHAREHOLDERS' DEFICIT
CURRENT LIABILITIES:
Accounts payable and accrued expenses 464,075 460,695 87,272
Due to affiliated company 1,421 1,297 -
Note payable to employee 41,000 41,000 -
Loan from shareholder 50,000 50,000 -
----------- ----------- ---------
Total current liabilities 556,496 552,992 87,272
Notes payable 86,805 86,805 -
Loans from shareholder 158,906 158,906 328,637
Advances/Unearned revenue - - 36,804
----------- ----------- ---------
Total liabilities 802,207 798,703 452,713
----------- ----------- ---------
Commitments (Note 10)
Common stock, par value $0.001; 30,000,000 shares
authorized; 23,347,999 and 23,714,666 issued and
outstanding as of November 30, 1999, December 31,
1999, respectively 23,348 23,715 -
Additional paid-in capital 751,347 980,980 -
Accumulated deficit (1,182,642) (1,256,336) (411,000)
----------- ----------- ---------
Total shareholders' deficit (407,947) (251,641) (411,000)
----------- ----------- ---------
Total liabilities and shareholders' deficit $ 394,260 $ 547,062 $ 41,713
=========== =========== =========
</TABLE>
See accompanying notes to consolidated financial statements.
F-2
<PAGE>
DME Interactive Holdings, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
For the For the For the years ended
11-month 1-month December 31,
period ended period ended -----------------------------
November 30, 1999 December 31, 1999 1999 1998
----------------- ----------------- ------------ ------------
<S> <C> <C> <C> <C>
GROSS REVENUES $ 484,148 $ 65,188 $ 549,336 $ 235,659
------------ ------------ ------------ ------------
COST OF OPERATIONS
Salaries and employee benefits 432,037 79,012 511,049 111,118
Project expense 79,113 5,805 84,918 46,860
Consulting services 30,528 42,025 72,553 47,930
------------ ------------ ------------ ------------
Total cost of operations 541,678 126,842 668,520 205,908
------------ ------------ ------------ ------------
GROSS PROFIT (LOSS) (57,530) (61,654) (119,184) 29,751
GENERAL AND ADMINISTRATIVE
EXPENSES 708,947 11,005 719,952 300,684
------------ ------------ ------------ ------------
LOSS FROM OPERATIONS (766,477) (72,659) (839,136) (270,933)
------------ ------------ ------------ ------------
OTHER INCOME AND (EXPENSES)
Interest income 6,516 219 6,735 573
Interest expense (11,681) (1,254) (12,935) (432)
------------ ------------ ------------ ------------
(5,165) (1,035) (6,200) 141
------------ ------------ ------------ ------------
NET LOSS $ (771,642) $ (73,694) $ (845,336) $ (270,792)
============ ============ ============ ============
LOSS PER SHARE:
Basic $ (0.033) $ (0.003) $ (0.036) $ (0.012)
============ ============ ============ ============
Diluted $ (0.027) $ (0.003) $ (0.031) $ (0.010)
============ ============ ============ ============
WEIGHTED AVERAGE NUMBER OF
SHARES OUTSTANDING:
Basic 23,347,999 23,545,849 23,364,403 23,347,999
------------ ------------ ------------ ------------
Diluted 27,452,999 27,650,849 27,469,403 27,452,999
------------ ------------ ------------ ------------
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE>
DME Interactive Holdings, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' DEFICIT
FOR THE PERIODS ENDED NOVEMBER 30, 1999 AND DECEMBER 31, 1999
AND FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
<TABLE>
<CAPTION>
Common Stock Additional Total
--------------------------- Paid-in Accumulated Shareholders'
Number Amount Capital Deficit Deficit
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Balance - January 1, 1998 -- $ -- $ -- $ (140,208) $ (140,208)
Net loss -- -- -- (270,792) (270,792)
Balance - December 31, 1998 -- -- -- (411,000) (411,000)
Common shares issued 23,347,999 23,348 751,347 -- 774,695
Net loss -- -- -- (771,642) (771,642)
----------- ----------- ----------- ----------- -----------
Balance - November 30, 1999 23,347,599 23,348 751,347 (1,182,642) (407,947)
Common shares issued 366,667 367 229,633 -- 230,000
Net loss -- -- -- (73,694) (73,694)
Balance - December 31, 1999 23,714,666 $ 23,715 $ 980,980 $(1,256,336) $ (251,641)
=========== =========== =========== =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
DME Interactive Holdings, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
For the For the
11-month 1-month For the years ended
period ended period ended December 31,
November 30, 1999 December 31, 1999 1999 1998
----------------- ----------------- ------------ ------------
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net loss $ (771,642) $ (73,694) $ (845,336) $ (270,792)
Adjustments to reconcile net loss
to net cash used in operating activities:
Depreciation 12,396 697 13,093 7,077
(Increase) decrease in accounts receivable (106,245) 674 (105,571) 4,433
(Increase) in prepaid expenses (23,619) (5,042) (28,661) --
(Increase) in security deposits (167,257) -- (167,257) --
Increase (decrease) in due to
affiliated company 1,421 (1,421) -- --
Increase (decrease) in acounts payable 376,803 (3,380) 373,423 59,683
Decrease in advances/unearned revenue (38,196) -- (38,196) (38,196)
----------- ----------- ----------- -----------
Net cash used in operating activities (716,339) (82,166) (798,505) (237,795)
----------- ----------- ----------- -----------
INVESTING ACTIVITIES
Purchases of property and equipment (45,596) -- (45,596) (12,674)
----------- ----------- ----------- -----------
Net cash used in investing activities (45,596) -- (45,596) (12,674)
----------- ----------- ----------- -----------
FINANCING ACTIVITIES
Proceeds from loans and notes payable 402,979 1,296 404,275 242,608
Payments on loans and notes payable (393,502) -- (393,502) --
Proceeds from issue of shares - gross 861,095 250,000 1,111,095 --
Costs of issuing shares (86,400) (20,000) (106,400) --
----------- ----------- ----------- -----------
Net cash provided by financing activities 784,172 231,296 1,015,468 242,608
----------- ----------- ----------- -----------
Net increase (decrease) in cash
and cash equivalents 22,237 149,130 171,367 (7,861)
CASH AND CASH EQUIVALENTS:
Beginning of period/year 629 22,866 629 8,490
----------- ----------- ----------- -----------
End of period/year $ 22,866 $ 171,996 $ 171,996 $ 629
=========== =========== =========== ===========
Supplemental disclosure of
cash flow information:
Cash paid for interest $ 1,325 $ -- $ 1,325 $ 740
=========== =========== =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
DME Interactive Holdings, Inc. And Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Organization and Business
Pride Automotive Group ("Pride") was incorporated in 1995 in
the State of Delaware as a "C" Corporation. On June 18, 1999,
Pride changed its name to DME Interactive Holdings, Inc. ("DME
or Company") following a reverse merger (re-capitalization)
with Digital Mafia Entertainment, LLC. ("Digital Mafia"), a
New Jersey Limited Liability Company (the "Transaction"). The
re-capitalization occurred pursuant to the Exchange of Common
Stock agreement dated March 30, 1999 (as amended). In
connection with the re-capitalization, Pride exchanged
14,800,000 shares of its Common Stock (representing
approximately 64% of the outstanding shares after the
exchange) for all of the membership interests of Digital
Mafia. In addition, Pride sold all of its interest in its two
operating subsidiaries to Pride, Inc., its parent and owner of
more than 50% of its outstanding common stock prior to the
transaction, for $1.00 each. As a result, Digital Mafia became
a wholly owned subsidiary of Pride. For accounting purposes,
the exchange was treated as a re-capitalization, as if Digital
Mafia acquired Pride.
DME is an advanced technology company that provides corporate
internet strategy and development services and advertising
services ("digital communications solutions") primarily to
clients seeking to reach the urban African-American and Latino
markets.
Principles of Consolidation
The accompanying consolidated financial statements include the
accounts of DME and its wholly owned subsidiaries, Digital
Mafia Entertainment, LLC, and DME 39 Broadway Corporation
("DME 39"). All material intercompany transactions and
balances have been eliminated in consolidation.
Basis of Presentation
On February 6, 2000, DME's Board of Directors approved a
change in its fiscal year end from November 30 to December 31,
retroactive to December 31, 1999. As a result, DME has
presented consolidated balance sheets as of November 30 and
December 31, 1999 and the related consolidated statements of
operations, changes in shareholders' equity and cash flows for
the period from January 1, 1999 to November 30, 1999, December
1, 1999 to December 31, 1999 and for the year ended December
31,1999.
Digital Mafia is deemed to be the predecessor company and all
financial information prior to June 18, 1999 is that of
Digital Mafia.
F-6
<PAGE>
DME Interactive Holdings, Inc. And Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
(Continued)
Fixed Assets
Fixed assets are recorded at cost and are depreciated on the
straight-line basis over the estimated useful lives of the
assets.
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
amount of assets and liabilities and disclosures of contingent
assets and liabilities at the date of the consolidated
financial statements and the reported amounts of revenues and
expenses during the reported period. Actual results could
differ from those estimates.
Statement of Cash Flows
For financial statement purposes, cash in demand deposit
accounts and money market accounts with maturities of ninety
days or less are considered to be cash equivalents.
Noncash Transactions
On June 17, 1999, DME issued approximately 120,000 common
shares with a total market value of approximately $120,000 to
consultants for services performed in connection with a
private placement offering.
Allowance for Doubtful Accounts
The Company establishes an allowance for uncollectible
accounts receivable based on historical collection experience
and management's evaluation of collectibility of outstanding
accounts receivable. Accounts receivable is shown net of
allowance for doubtful accounts in the accompanying
consolidated financial statements. The allowance for
uncollectible accounts receivable as of November 30, 1999,
December 31, 1999 and 1998, was $49,112, $30,030 and $0,
respectively.
Revenue Recognition
The Company recognizes project revenues based on the
percentage of completion method. Maintenance revenue is
recognized on a monthly basis while the relevant maintenance
agreement is in effect, and the Company has performed the
agreed-upon maintenance services.
Reclassification
Certain reclassifications have been made to the prior period's
financial statements in order to conform them to the
classifications used for the current year.
F-7
<PAGE>
DME Interactive Holdings, Inc. And Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2. INCOME TAXES:
DME uses the asset and liability method of accounting for
income taxes. At November 30, 1999, and December 31, 1999,
deferred tax asset is the result of operating losses. As of
November 30, 1999 and December 31, 1999, a 100% valuation
allowance was provided against the deferred tax asset.
The gross amounts of deferred tax assets was as follows:
November 30, 1999 December 31, 1999
----------------- -----------------
Gross amount $ 304,540 $ 335,164
Valuation allowance (304,540) (335,164)
--------- ---------
$ - $ -
========= =========
DME did not have any tax assets or liabilities prior to the
Transaction.
Digital Mafia is a Limited Liability Corporation and therefore
not subject to Federal, State and local taxes.
NOTE 3. OPERATING LOSS CARRYFORWARDS:
DME has operating loss carryforwards available at November 30,
1999 and December 31, 1999 of $764,215 and $837,909,
respectively that may be applied against future taxable
income. The loss carryforwards expire in year 2015.
DME did not have any operating loss carryforwards prior to the
Transaction.
NOTE 4. PROPERTY AND EQUIPMENT, NET:
Property and equipment, net is comprised of the following:
<TABLE>
<CAPTION>
Estimated November 30, December 31, December 31,
Useful Life 1999 1999 1998
----------- ------ ------ ------
<S> <C> <C> <C> <C>
Office equipment 5 $ 74,952 $ 74,952 $ 32,772
Furniture and fixtures 5 6,490 6,490 5,752
Software 3 4,628 4,628 1,950
----------- ----------- ----------
86,070 86,070 40,474
Accumulated depreciation (22,394) (23,090) (9,987)
------------ ------------ ----------
$ 63,676 $ 62,980 $ 30,487
=========== =========== ==========
</TABLE>
F-8
<PAGE>
DME Interactive Holdings, Inc. And Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 4. PROPERTY AND EQUIPMENT, NET: (Continued)
Depreciation expense for the eleven-month period ended
November 30, 1999, one-month period ended December 31, 1999
and for the years ended December 31, 1999 and 1998, was
$12,396, $697, $13,093 and $7,077, respectively.
NOTE 5. NOTES PAYABLE:
The Company has two notes payable outstanding, one for $50,000
and another for $36,805. The $50,000 note bears interest at a
rate of 9% per annum and matures on March 21, 2001. The
$36,805 note bears interest at a rate of 9% per annum and has
no stated maturity date.
NOTE 6. STOCK OPTIONS AND WARRANTS:
Employee Stock Options
DME has an incentive stock option plan (the "Plan") for key
management employees. A maximum of 3,000,000 shares of common
stock may be issued under the Plan. The option price, number
of shares and grant date are determined at the discretion of
the Board of Directors. Options granted under the Plan are
exercisable at dates determined by the Board of Directors. If
an employee is terminated by DME, all unexercised options
expire automatically. An employee has ninety days from date of
voluntary termination to exercise options to the extent such
options were exercisable at the time of termination. As of
November 30, 1999 and December 31, 1999 no employee
compensation expenses was incurred nor were any options
exercised.
As of November 30, 1999 and December 31, 1999, a total of
1,210,000 options had been granted to nineteen employees of
the Company. These options were not granted pursuant to the
Plan.
Below is a summary of option activity for the period ended
November 30, 1999, and the period and year ended December 31,
1999:
F-9
<PAGE>
DME Interactive Holdings, Inc. And Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 6. STOCK OPTIONS AND WARRANTS: (Continued)
<TABLE>
<CAPTION>
Weighted
Options Average
Available Number Exercise
For Grant of Options Price
--------- ---------- -----
<S> <C> <C> <C>
Balance, December 31, 1998 - - $ -
Granted - 1,210,000 1.79
Exercised - - -
------------ ------------ ----------
Balances, November 30, 1999 - 1,210,000 1.79
Granted - - -
Exercised - - -
------------ ------------ ----------
Balances, December 31, 1999 - 1,210,000 $ 1.79
============ ============ ==========
</TABLE>
The average remaining contractual life of options outstanding
as of November 30, 1999 and December 31, 1999 was 1.78 years
and 1.60 years, respectively.
The actual fair market value of common shares as of the date
of grant were equal to or below the exercise price of the
stock options. Accordingly, the Company did not incur any
compensation expense as of November 30, 1999 and December 31,
1999.
Pro forma information regarding net loss and loss per share is
required by SFAS No. 123, "Accounting for Stock-Based
Compensation" ("SFAS 123"), and has been determined as if the
Company had accounted for its employee stock options under the
fair value method of that statement. The fair value for these
options was estimated at the date of grant using a
Black-Scholes option pricing model with the following weighted
average assumptions for November 30, 1999 and December 31,
1999.
November 30, December 31,
1999 1999
---- ----
Risk-free interest rate 5.85-6.65% 5.85-6.65%
Dividend yield - -
Volatility factor 0.680 0.680
Weighted average expected life 5 years 5 years
The Black-Scholes option valuation model was developed for
use in estimating the fair value of traded options which have
no vesting restrictions and are fully transferable. In
addition, option valuation models require the input of highly
subjective assumptions including the expected stock price
volatility. Because the Company's employee stock options have
characteristics significantly different from those of
traded options, and because changes in the subjective input
assumptions can materially affect the fair value estimate, in
management's opinion, the existing models do not necessarily
provide a reliable single measure of the fair value of its
employee stock options.
Had SFAS 123 been applied, the Company's pro forma net loss
and loss per share would be as follows:
November 30, December 31,
1999 1999
---- ----
Net loss - as reported $ (771,642) $ (845,336)
Net loss - pro forma $(5,354,810) $(5,428,504)
Loss per share - as reported $ (0.033) $ (0.036)
Loss per share - pro forma $ (0.23) $ (0.23)
Weighted average fair value
of options granted during
the year $ 3.78 $ 3.78
Common Shares Reserved for Senior Management
At November 30, 1999 and December 31, 1999, the Company had
300,000 warrants outstanding in connection with a Senior
Management Incentive Plan.
Warrants
As of November 30, 1999 and December 31, 1999, DME had
2,595,000 redeemable purchase warrants outstanding. Each
warrant allows the holder to purchase one share of the
Company's common stock at a price of $5.75. DME may redeem the
warrants at anytime upon 30 days' written notice at a price of
$0.05 per warrant subject to certain conditions. Holders may
exercise their warrants any time prior to April 23, 2001.
F-10
<PAGE>
DME Interactive Holdings, Inc. And Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 7. NET LOSS PER COMMON SHARE:
The following table presents the calculation of basic and
diluted net loss per common share required under SFAS 128:
<TABLE>
<CAPTION>
Period Period Year Year
Ended Ended Ended Ended
November 30, December 31, December 31, December 31,
1999 1999 1999 1998 *
------ ------ ------ -------
<S> <C> <C> <C> <C>
Net loss ($ 771,642) ($ 73,694) ($ 845,336) ($ 270,792)
============= ============= ============ =============
Weighted average shares -
basic 23,347,999 23,545,849 23,364,403 23,347,999
Effect of dilutive securities:
Warrants and employee
stock options 4,105,000 4,105,000 4,105,000 4,105,000
------------- -------------- ------------- --------------
Weighted average shares -
diluted 27,452,999 27,650,849 27,469,403 27,452,999
------------- -------------- ------------- --------------
Net loss per common
share - basic ($ 0.033) ($ 0.003) ($ 0.036) ($ 0.012)
------------ ------------- ------------ -------------
Net loss per share - diluted ($ 0.028) ($ 0.003) ($ 0.031) ($ 0.010)
------------ ------------- ------------ -------------
</TABLE>
*Information for the year ended December 31, 1998 was
presented as if the transaction had occurred on January 1,
1998.
NOTE 8. PRIVATE PLACEMENT OFFERING:
On December 5 and 22, 1999, the Company issued a total of
366,667 shares through private placement offeings. Total
proceeds received relating to the offering were $250,000.
F-11
<PAGE>
DME Interactive Holdings, Inc. And Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 9. RELATED PARTY TRANSACTION:
Due to Affiliated Company
Digital Mafia shares office space with an affiliated company.
Certain administrative expenses incurred by Digital Mafia may
from time to time be paid by the affiliated company. The
amount payable to the affiliated company as of November 30,
1999 and December 31, 1999 was $1,412 and $1,297,
respectively.
Loan Payable to Employee
DME also issued a $41,000 note payable to an employee pursuant
to an asset purchase agreement executed on September 1, 1999.
The note will be settled from collections on accounts
receivable assigned by the employee to DME.
Principal Shareholder Loan
As of November 30, and December 31, 1999, the Company owes its
principal shareholder a total of $208,906, of which $50,000 is
past due. The $50,000 loan carries interest at the rate of
10.25% per annum and matured on December 5, 1999. The
shareholder has extended the maturity date to January 31,
2000. The remaining loans carry interest at the rate of 9% per
annum and mature on December 31, 2001.
NOTE 10. COMMITMENTS:
On September 23, 1999, DME 39 entered into two non-cancelable
office space rental lease agreements with a real estate
company. The agreements will become effective in March 2000
and expires in July 2010. In addition to base rent and
electricity, DME 39 is required, under the lease agreements,
to pay real estate taxes equal to 2.4% of base tax, as defined
in the agreement.
In conjunction with DME 39's lease signings, DME signed an
absolute and unconditional deed guaranteeing the full, prompt
and complete performance of all of the terms, covenants and
conditions of the lease agreements entered into by DME 39. The
guaranty expires if, at any time, DME and/or DME 39 pays the
landlord base rent equal to $450,000 or more under the above
leases.
In addition, DME 39 entered into a temporary office space
rental agreement which expires five days after substantial
completion of renovations to the office space mentioned above.
Digital Mafia has a non-cancelable office space rental lease
agreement which expires on March 31, 2000. Digital Mafia
shares the office space with an affiliated company and
allocates a certain portion of the rental costs and expenses
to the affiliated company (See Note 9).
F-12
<PAGE>
DME Interactive Holdings, Inc. And Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 10. COMMITMENTS: (Continued)
Future minimum lease payments under the lease agreements are
as follows:
For the Year Ending December 31,
--------------------------------
2000 $ 212,980
2001 245,909
2002 297,695
2003 305,798
2004 314,148
Thereafter 2,226,440
---------------
Total $ 3,602,970
===============
Total rent expense under all operating leases amounted to
$22,233, $5,767, $28,000 and $24,000 for the eleven-month
period ended November 30, 1999, the one-month period ended
December 31, 1999 and for the years ended December 31, 1999,
and December 31, 1998, respectively.
NOTE 11. SUBSEQUENT EVENTS:
On January 12, 2000, DME incorporated a wholly-owned
subsidiary, Places of Color, Inc. ("Places of Color") in the
State of Delaware.
On February 2, 2000, DME and Places of Color entered into a
"strategic agreement" with an internet service provider
("ISP"). The agreement expires 18 months after the "launch
date" of the web-site and requires the ISP to provide hosting
and other technical and support services for a website
("Customized Service") for internet users from the urban
minority market. Places of Color will receive a stated
percentage of the monthly subscription fees received by the
ISP. DME will issue 1,250,000 common shares to the ISP. In
addition to the shares, DME will grant a warrant for 4,000,000
additional shares to the ISP at a purchase price of $8.563 per
share. The warrants are only exercisable if, at the end of the
strategic agreement, the parties negotiate an extension of the
strategic agreement, or enter into a new agreement
substantially similar to the strategic agreement.
On January 5, 2000, DME issued 500,000 shares of common stock
through a private placement for $1,000,000 of gross cash
proceeds.
F-13
<PAGE>
Employment Agreement
THIS AGREEMENT entered into as of the first day of March, 2000, by and
between DME INTERACTIVE HOLDINGS, INC., a Delaware corporation (the "Company"),
and Darien Dash (the "Executive").
WHEREAS, the Board of Directors of the Company (the "Board") has
determined that it is essential and in the best interest of the Company and its
stockholders to enter into this Agreement to retain the services of the
Executive and to ensure his continued dedication and efforts; and
WHEREAS, in order to induce the Executive to enter into employment with
the Company, the Company desires to provide the Executive with certain benefits
during the term of his employment and, in the event his employment is
terminated, to provide the Executive with the benefits and payments described
herein.
NOW, THEREFORE, in consideration of the respective agreements of the
parties contained herein, it is agreed as follows:
1. Employment Term.
The "Employment Term" shall commence on the date hereof (the "Effective
Date") and shall expire on the third (3rd) anniversary of the Effective Date;
provided, however, that on each anniversary of the Effective Date, the
Employment Term shall automatically be extended for one (1) year unless either
the Company or the Executive shall have given written notice to the other at
least ninety (90) days prior thereto that the Employment Term shall not be so
extended.
2. Employment.
(a) Subject to the provisions of Section 8 hereof, the Company agrees
to continue to employ the Executive and the Executive agrees to remain in the
employ of the Company during the Employment Term. During the Employment Term,
the Executive shall be employed as the Chairman and Chief Executive Officer of
the Company. The Executive shall perform the duties, undertake the
responsibilities and exercise the authority customarily performed, undertaken
and exercised by persons situated in a similar executive capacity. He shall also
promote, by entertainment or otherwise, the business of the Company.
(b) During the Employment Term, excluding periods of vacation and sick
leave to which the Executive is entitled, the Executive agrees to devote
reasonable attention and time during usual business hours to the business and
affairs of the Company to the extent necessary to discharge the responsibilities
assigned to the Executive hereunder. The Executive may (1) serve on corporate,
civil or charitable boards or committees, (2) manage personal investments, (3)
deliver lectures and teach at educational institutions, and (4) engage in such
other lawful activities as the Executive in the exercise of his sole discretion
may choose, so long as such activities do not significantly interfere with the
performance of the Executive's responsibilities hereunder. It is expressly
understood and agreed that to the extent that any such activities have been
conducted by the Executive prior to the Effective Date, the continued conduct of
such activities (or the conduct of activities similar in nature and scope
thereto) subsequent to the Effective Date shall not thereafter be deemed to
interfere with the performance of the Executive's responsibilities to the
Company.
3. Compensation.
(a) Base Salary. During the Employment Term, the Company agrees to pay
or cause to be paid to the Executive an annual base salary of One Hundred Sixty
Thousand Dollars ($160,000), and as may be increased from time to time by the
Board or its Executive Committee (the "Executive Committee") (hereinafter
referred to as the "Base Salary"). Such Base Salary shall be payable in
accordance with the Company's customary practices applicable to its executives.
<PAGE>
(b) Annual Bonus. In addition to Base Salary, the Executive may be
awarded, for each fiscal year ending during the Employment Term, an annual
discretionary bonus (the "Annual Bonus") in accordance with the terms and
conditions of the bonus plan approved by the Executive Committee and, if the
Executive Committee shall no longer exist, by the Compensation Committee. Any
actual payment or award under such annual bonus plan, and the size of any
payment or award, will be in accordance with the terms of the plan. Each such
Annual Bonus shall be paid no later than the end of the third month of the
fiscal year next following the fiscal year for which the Annual Bonus is
awarded, unless the Executive shall elect to defer the receipt of such Annual
Bonus.
4. Employee Benefits.
During the Employment Term, the Executive shall be entitled to
participate in all employee benefit plans, practices and programs maintained by
the Company and made available to employees generally, including, without
limitation, all pension, retirement, profit sharing, savings, medical,
hospitalization, disability, dental, life or travel accident insurance benefit
plans. Unless otherwise provided herein, the compensation and benefits under,
and the Executive's participation in, such plans, practices and programs shall
be on the same basis and terms as are applicable to employees of the Company
generally, but in no event on a basis less favorable in terms of benefit levels
and coverage than offered to other similarly situated executives of the Company.
The Company may reduce benefit levels if such changes are part of broad-based
changes in the Company's benefit programs offered generally to all employees.
Notwithstanding the foregoing, nothing herein shall obligate the Company to
adopt such plans, practices or programs.
5. Executive Benefits.
During the Employment Term, the Executive shall be entitled to
participate in all executive benefit or incentive compensation plans maintained
or established by the Company for the purpose of providing compensation and/or
benefits to executives of the Company including, but not limited to, any
supplemental retirement, salary continuation, stock option, deferred
compensation, supplemental medical or life insurance or other bonus or incentive
compensation plans. Unless otherwise provided herein, the compensation and
benefits under, and the Executive's participation in, such plans shall be on the
same basis and terms as other similarly situated executives of the Company. No
additional compensation provided under any of such plans shall be deemed to
modify or otherwise affect the terms of this Agreement or any of the Executive's
entitlements hereunder. Notwithstanding the foregoing, nothing herein shall
obligate the Company to adopt such plans, practices or programs.
6. Other Benefits.
(a) Fringe Benefits and Perquisites. During the Employment Term, the
Executive shall be entitled to all fringe benefits and perquisites (e.g.,
company cars, club dues, physical examinations, financial planning and tax
preparation services) generally made available by the Company to its executives.
Unless otherwise provided herein, the fringe benefits and perquisites provided
to Executive shall be on substantially the same basis and terms as other
similarly situated executives of the Company.
(b) Expenses. The Executive shall be entitled to receive reimbursement
of all expenses reasonably incurred by him in connection with the performance of
his duties hereunder or for promoting, pursuing or otherwise furthering the
business or interests of the Company in accordance with the accounting
procedures and expense reimbursement policies of the Company as it shall adopt
from time to time. In addition, the Company shall pay all expenses incurred by
the Executive in regard to the preparation of the Executive's annual tax
returns.
7. Vacation and Sick Leave.
During the Employment Term, at such reasonable times as the Board shall
in its discretion permit, the Executive shall be entitled without loss of pay,
to absent himself voluntarily from the performance of his employment under this
Agreement, provided that:
2
<PAGE>
(a) The Executive shall be entitled to annual vacation in accordance
with the policies as periodically established by the Board.
(b) The Executive shall be entitled to sick leave (without loss of pay)
in accordance with the Company's policies as in effect from time to time.
8. Termination.
During the Employment Term, the Executive's employment hereunder may be
terminated under the following circumstances:
(a) Cause. The Company may terminate the Executive's employment for
"Cause" as defined below. A termination of employment is for "Cause" if the
Executive:
(1) intentionally engaged in conduct which is demonstrably and
materially injurious to the Company monetarily and from which
he derives an improper material personal benefit; provided,
however, that no termination of the Executive's employment
shall be for Cause as set forth in this clause (1) until:
(i) there shall have been delivered to the Executive
a copy of a written notice setting forth that the
Executive was guilty of the conduct set forth in this
clause (1) and specifying the particulars thereof in
reasonable detail; and
(ii) the Executive shall have been provided an
opportunity to be heard by the Board (with the
assistance of the Executive's counsel if the
Executive so desires). No act, nor failure to act, on
the Executive's part, shall be considered
"intentional" unless he has acted, or failed to act,
with an absence of good faith and without a
reasonable belief that his action or failure to act
was in the best interest of the Company.
(2) commits gross malfeasance or intentionally fails to
perform the duties of the Executive's position; provided,
however, the Company shall first notify the Executive in
writing stating with reasonable specificity the action or
inaction of the Executive which forms the basis for such
notice and the Executive fails to cure such malfeasance or
failure within thirty (30) days of the date of such notice.
Notwithstanding anything contained in this Agreement to the contrary, no failure
to perform by the Executive after a Notice of Termination is given by the
Executive shall constitute Cause for purposes of this Agreement.
(b) Disability. The Company may terminate the Executive's employment
after having established the Executive's Disability. For purposes of this
Agreement, "Disability" means a physical or mental infirmity which impairs the
Executive's ability to substantially perform his material duties under this
Agreement which continues for a period of at least one hundred eighty (180)
consecutive days. The Executive shall be entitled to the compensation and
benefits provided for under this Agreement for any period during the Employment
Term and prior to the establishment of the Executive's Disability during which
the Executive is unable to work due to a physical or mental infirmity.
Notwithstanding anything contained in this Agreement to the contrary, until the
Termination Date specified in a Notice of Termination (as each term is
hereinafter defined) relating to the Executive's Disability, the Executive will
be entitled to return to his position with the Company as set forth in this
Agreement in which event no Disability of the Executive will be deemed to have
occurred.
(c) Good Reason.
(1) The Executive may terminate his employment for "Good
Reason." For purposes of this Agreement, "Good Reason" shall
mean the occurrence of any of the events or conditions
described in Subsections (i) through (vii) hereof:
3
<PAGE>
(i) If the Executive shall cease to be the Chairman
and Chief Executive Officer of the Company (or any
successor or parent thereof) or if he shall not be
elected to the Company's Board or upon the assignment
to the Executive of any material duties or
responsibilities which are inconsistent with his
position or responsibilities; or any removal of the
Executive from or failure to reappoint or reelect him
to any of such offices or positions, except during a
period of disability or in connection with the
termination of his employment for Disability, Cause,
as a result of his death, or by the Executive other
than for Good Reason;
(ii) a reduction in the Executive's Base Salary or
any failure to pay the Executive any compensation or
benefits to which he is entitled within thirty (30)
days of the date due;
(iii) the Company requiring the Executive to be based
at any place outside a one hundred (100) mile radius
from the Company's location in New York, New York,
except for reasonably required travel on the
Company's business;
(iv) a voluntary termination by the Executive
pursuant to a Notice of Termination delivered to the
Company within the first year of a Change In Control.
(v) any material breach by the Company of any
provision of this Agreement: provided, however, the
Executive shall first notify the Company in writing
stating with reasonable specificity the breach by the
Company and the Company fails to cure such breach
within thirty (30) days of the date of such notice;
(vi) any purported termination of the Executive's
employment for Cause by the Company which is found by
a court of competent jurisdiction or an arbitrator
not to comply with the terms of Section 8(a); or
(vii) the failure of the Company to obtain an
agreement, reasonably satisfactory to the Executive,
from any successor or assign of the Company to assume
and agree to perform this Agreement, as contemplated
in Section 13 hereof.
(2) The Executive's right to terminate his employment pursuant
to this Section 8(c) shall not be affected by his incapacity
due to physical or mental illness.
(d) Voluntary Termination. Upon one hundred and twenty (120) days prior
written notice, either the Executive or the Company (only upon majority vote of
the Company's Board of Directors excluding Executive) may voluntarily terminate
the Executive's employment hereunder at any time; provided, however, in the
event of any such termination by the Company, the Company shall pay to the
Executive the amounts set forth in Section 9(c) hereof.
9. Compensation Upon Termination.
Upon termination of the Executive's employment during the Employment
Term, the Executive shall be entitled to the following benefits:
(a) If the Executive's employment with the Company shall be terminated
by the Company for Cause or by the Executive other than for Good Reason, the
Company shall pay the Executive all amounts earned or accrued through the
Termination Date but not paid as of the Termination Date, including:
(1) Base Salary,
(2) reimbursement for reasonable and necessary expenses
incurred by the Executive on behalf of the Company during the
period ending on the Termination Date,
4
<PAGE>
(3) vacation pay, and
(4) sick leave (collectively, "Accrued Compensation").
(b) If the Executive's employment with the Company shall be terminated
by the Company for Disability or by reason of the Executive's death, the Company
shall pay the Executive or his beneficiaries all amounts earned or accrued
through the Termination Date but not paid as of the Termination Date, including
the Accrued Compensation. In addition, the Company shall pay to the Executive or
his beneficiaries the following:
(1) the Base Salary for a period of three (3) years from the
date of such Disability or death, and
(2) an amount equal to the "Pro Rata Bonus" (as hereinafter
defined). The "Pro Rata Bonus" is an amount equal to the
target bonus amount the Executive would have been entitled to
in the fiscal year which includes the Termination Date (the
"Bonus") multiplied by a fraction, the numerator of which is
the number of days in such fiscal year through the Termination
Date and the denominator of which is 365. The Executive's
entitlement to any other compensation or benefits shall be
determined in accordance with the Company's employee benefit
plans and other applicable programs and practices then in
effect.
(c) If the Executive's employment with the Company shall be terminated
(other than by reason of death) by the Company other than for Cause or
Disability or by the Executive for Good Reason, the Company shall pay to the
Executive the following:
(1) the Company shall pay the Executive all Accrued
Compensation and a Pro Rata Bonus;
(2) the Company shall pay the Executive as severance pay and
in lieu of any further compensation for periods subsequent to
the Termination Date, an amount equal to the sum of (A) the
Executive's Base Salary; and (B) the cash value of the
Executive's most recent Annual Bonus (including the Fair
Market Value of any securities included as a part of such
annual bonus) multiplied by a factor of five (5);
(3) during the twelve (12) month period immediately following
the Termination Date (the "Continuation Period"), the Company
shall at its expense continue on behalf of the Executive and
his dependents and beneficiaries the life insurance,
disability, medical, dental and hospitalization benefits
provided (i) to the Executive immediately prior to the Notice
of Termination or (ii) to other similarly situated executives
who continue in the employ of the Company during the
Continuation Period. The coverage and benefits (including
deductibles and costs) provided in this Section 9(c)(3) during
the Continuation Period shall be no less favorable to the
Executive and his dependents and beneficiaries, than most
favorable of such coverages and benefits provided to the
Executive during any of the periods referred to in clauses (i)
and (ii) above. The Company's obligation hereunder with
respect to the foregoing benefits shall terminate in the event
the Executive obtains any such benefits (regardless of level
and scope of coverage) pursuant to a subsequent employer's
benefit plans. This Section 9(c)(3) shall not be interpreted
so as to limit any benefits to which the Executive, his
dependents or beneficiaries may be entitled under any of the
Company's employee benefit plans, programs or practices
following the Executive's termination of employment, including
without limitation, retiree medical and life insurance
benefits;
(4) the restrictions on any outstanding stock options
(including restricted stock and granted performance shares or
units) granted to the Executive under any stock option plans
or under any other incentive plan or arrangement shall lapse
and such incentive award shall become 100% vested, all stock
options and stock appreciation rights granted
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to the Executive shall become immediately exercisable and
shall become 100% vested, and all performance units granted to
the Executive shall become 100% vested;
(5) the Company shall reimburse to the Executive the costs of
any outplacement services incurred by Executive, up to a
maximum amount of Fifty Thousand Dollars ($50,000).
(d) The amounts provided for in Sections 9(a), 9(b)(2), 9(c)(1) and
9(c)(2) shall be paid within thirty (30) days after the Executive's Termination
Date; provided, however, in the event of the determination of the Fair Market
Value of a security pursuant to Section 11(a)(4) hereof, payment of the Fair
Market Value thereof pursuant to Section 9(c)(2) hereof shall occur not later
than fifteen (15) days after the date of such determination. Expenses incurred
by Executive under Section 9(c)(5) shall be paid within thirty (30) days of the
receipt by the Company of a claim for reimbursement submitted by the Executive.
(e) The Executive hereby acknowledges that full payment and/or
performance by the Company of its obligations as set forth in Sections 9(b) or
9(c) hereof shall be in lieu of any other remedy or cause of action the
Executive may have, either at law or in equity as a result of the termination of
the Executive's employment pursuant to such Sections.
10. Covenant Not to Compete.
(a) Non-Competition. Executive hereby expressly covenants and agrees
that he shall not, without the express written consent of the Company, for his
own account or jointly with any other person, during the Term of this Agreement
and for a period of one year thereafter, for any reason, directly or indirectly,
(i) establish or manage any business, or enter into the employ of, or render any
services to, any person, firm or corporation engaged in any business competitive
with the Company and its Affiliates in such state or states as the Company
conducts business during the Employment Term (the "Territory"); (ii) own,
manage, operate, join, control, loan money to, invest in, or otherwise
participate in, or be connected with, or become or act as an officer, employee,
consultant, representative or agent of any business, individual, partnership,
firm or corporation (other than the Company) which is a customer of the Company
or was at any time during the Term of this Agreement a customer of the Company
("Competitive Activities"); or (iii) intervene in or interfere with any
relationships between the Company and its vendors or customers (including
potential customers identified by the Company during the Term of this Agreement)
or disrupt its customer markets, anywhere in the world in which the Company
conducts Company business. Notwithstanding the foregoing, the Executive may at
any time own, solely as an inactive investor, securities of any entity, whether
or not in competition with the Company, if (i) such securities are publicly
traded on a nationally-recognized stock exchange or on NASDAQ, and (ii) the
aggregate holdings of such securities by the Executive and his immediate family
do not exceed two percent (2%) of the voting power or two percent (2%) of the
capital stock of such entity.
(b) Reasonableness of Restrictions. The Executive acknowledges and
agrees that the covenants contained herein with respect to non-competition are
reasonable in scope, geographic application and duration, in view of the
economic bargain contained herein. The Executive represents and warrants to the
Company that his experience, background and skills are such that he is able to
obtain employment on reasonable terms and conditions without violation of the
restrictive covenant contained herein with respect to non-competition; and that
such covenant does not and will not pose any undue hardship to the Executive.
11. Definitions.
(a) Fair Market Value. For the purposes of this Agreement, the "Fair
Market Value" of a security shall be determined as follows:
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(1) the average closing bid price of the security for the ten
trading days ending on the day immediately preceding the day
of the event triggering the obligation to make a payment based
on the Fair Market Value of a security; or, if not applicable,
(2) the Fair Market Value of the security shall be the price
established, determined in good faith, in the most recently
completed arm's-length transaction between the Company and a
person other than an affiliate of the Company, the closing of
which shall have occurred within the six month period
immediately preceding such Termination Date; or
(3) if no transaction shall have occurred within such
six-month period, the Fair Market Value of the security shall
be determined by reference to the price established by the
Board within the six (6) months preceding the Termination Date
for the purpose of granting any options under an incentive
stock option plan maintained by the Company; or
(4) if the Board has failed to establish such price with such
six month period, the Fair Market Value of the security shall
be determined by negotiation, in good faith, between the
Executive and the Company; or
(5) in the event the Executive and the Company have been
unable to agree under Section 11(a)(4) above within thirty
(30) days of the Termination Date as to the Fair Market Value
of the security, the Executive and the Company shall mutually
select, at the expense of the Company, a nationally recognized
firm possessing expertise in the valuation of similar
companies who shall render its opinion to the Company and the
Executive as to the Fair Market Value of the security.
(b) Notice of Termination. For purposes of this Agreement, a "Notice of
Termination" shall mean a notice which indicates the specific termination
provision in this Agreement, if any, relied upon and shall set forth in
reasonable detail the facts and circumstances claimed to provide a basis for
termination of the Executive's employment under the provision so indicated. Any
purported termination by the Company or by the Executive shall be communicated
by written Notice of Termination to the other. For purposes of this Agreement,
no such purported termination of employment shall be effective without such
Notice of Termination.
(c) Termination Date, Etc. For purposes of this Agreement, "Termination
Date" shall mean in the case of the Executive's death, his date of death, or in
all other cases, the date specified in the Notice of Termination subject to the
following:
(1) If the Executive's employment is terminated by the Company
for Cause, the date of the Notice of Termination;
(2) If the Executive's employment is terminated by the Company
due to Disability, the date specified in the Notice of
Termination shall be at least thirty (30) days from the date
the Notice of Termination is given to the Executive, provided
that the Executive shall not have returned to the full-time
performance of his duties during such period of at least
thirty (30) days; and
(3) If the Executive's employment is terminated for Good
Reason, the date specified in the Notice of Termination shall
not be more than sixty (60) days from the date the Notice of
Termination is given to the Company.
(d) Change in Control. For purposes of this Agreement, a "Change in
Control" shall mean any of the following events:
(1) An acquisition (other than directly from the Company) of
any voting securities of the Company (the "Voting Securities")
by any "Person" (as the term person is used for purposes of
Section 13(d) or 14(d) of the Securities Exchange Act of 1934,
as amended (the "Exchange Act")), immediately after which such
Person has "Beneficial Ownership"
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(within the meaning of Rule 13d-3 promulgated under the
Exchange Act) of more than fifty percent (50%) of the combined
voting power of the Company's then outstanding Voting
Securities; provided, however, in determining whether a Change
in Control has occurred, Voting Securities which are acquired
in a "Non-Control Acquisition" (as hereinafter defined) shall
not constitute an acquisition which would cause a Change in
Control. A "Non-Control Acquisition" shall mean an acquisition
by (i) an employee benefit plan (or a trust forming a part
thereof) maintained by (A) the Company or (B) any corporation
or other Person of which a majority of its voting power or its
voting equity securities or equity interest is owned, directly
or indirectly, by the Company (for purposes of this
definition, a "Subsidiary") (ii) the Company or its
Subsidiaries, or (iii) any Person in connection with a
Non-Control Transaction" (as hereinafter defined);
(2) The individuals who, as of the date this Agreement is
approved by the Board, are members of the Board (the
"Incumbent Board"), cease for any reason to constitute at
least two-thirds of the members of the Board; provided,
however, that if the election, or nomination for election by
the Company's common stockholders, of any new directors was
approved by a vote of the members of the Board, such new
directors shall, for purposes of this Plan, be considered as
members of the Incumbent Board; provided, however, that no
individual shall be considered a member of the Incumbent Board
if such individual initially assumed office as a result of
either an actual or threatened "Election Contest" (as
described in Rule 14a-11 promulgated under the Exchange Act)
or other actual or threatened solicitation of proxies or
consents by or on behalf of a Person other than the Board (a
"Proxy Contest") including by reason of any agreement intended
to avoid or settle any Election Contest or Proxy Contest; or
(3) Approval by stockholders of the Company of:
(i) A merger, consolidation or reorganization
involving the Company, unless such merger,
consolidation or reorganization is a "Non-Control
Transaction." A "Non-Control Transaction" shall mean
a merger, consolidation or reorganization of the
Company where:
(A) the stockholders of the Company,
immediately before such merger,
consolidation or reorganization, own
directly or indirectly immediately following
such merger, consolidation or
reorganization, at least eighty percent
(80%) of the combined voting power of the
outstanding voting securities of the
corporation resulting from such merger or
consolidation or reorganization (the
"Surviving Corporation") in substantially
the same proportion as their ownership of
the Voting Securities immediately before
such merger, consolidation or
reorganization;
(B) the individuals who were members of the
Incumbent Board immediately prior to the
execution of the agreement providing for
such merger, consolidation or reorganization
constitute at least two-thirds of the
members of the board of directors of the
Surviving Corporation, or a corporation
beneficially directly or indirectly owning a
majority of the Voting Securities of the
Surviving Corporation; and
(C) no Person other than (i) the Company,
(ii) any Subsidiary, (iii) any employee
benefit plan (or any trust forming a part
thereof) maintained by the Company, the
Surviving Corporation, or any Subsidiary, or
(iv) any Person who, immediately prior to
the merger, consolidation or reorganization
had Beneficial Ownership of thirty percent
(30%) or more of the then outstanding Voting
Securities), has Beneficial Ownership of
thirty percent (30%) or more of the combined
voting power of the Surviving Corporation's
then outstanding voting securities.
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(ii) A complete liquidation or dissolution of the
Company; or
(iii) An agreement for the sale or other disposition
of all or substantially all of the assets of the
Company to any Person (other than a transfer to a
Subsidiary or a parent in a Non-Control Transaction).
(4) Notwithstanding the foregoing, a Change in Control shall
not be deemed to occur solely because any Person (the "Subject
Person") acquired Beneficial Ownership of more than the
permitted amount of the then outstanding Voting Securities as
a result of the acquisition of Voting Securities by the
Company which, by reducing the number of Voting Securities
then outstanding, increases the proportional number of shares
Beneficially Owned by the Subject Persons, provided that if a
Change in Control would occur (but for the operation of this
sentence) as a result of the acquisition of Voting Securities
by the Company, and after such share acquisition by the
Company, the Subject Person becomes the Beneficial Owner of
any additional Voting Securities Beneficially Owned by the
Subject Person, then a Change in Control shall occur.
12. Excise Tax Payments.
(a) In the event that the Company determines that a portion of any
payment or benefit to the Executive or for his benefit payable or distributable
pursuant to the terms of this Agreement will be deemed to be an "excess
parachute payment" within the meaning of Section 280G(b)(1) of the Internal
Revenue Code of 1986, as amended (the "Code") (a "Payment" or "Payments"), then
the Company shall have the right to reduce the Payment by the amount of such
excess.
(b) An initial determination as to whether all or a portion of a
Payment represents an excess parachute payment and the amount thereof shall be
made at the Company's expense by its accounting firm (the "Accounting Firm").
The Accounting Firm shall provide its determination (the "Determination"),
together with detailed supporting calculations and documentation to the Company
and the Executive within ten (10) days of the Termination Date. Within thirty
(30) days of the delivery of the Determination to the Executive, the Executive
shall have the right to dispute the Determination.
13. Successors and Assigns.
(a) This Agreement shall be binding upon and shall inure to the benefit
of the Company, its successors and assigns and the Company shall require any
successor or assign to expressly assume and agree to perform this Agreement in
the same manner and to the same extent that the Company would be required to
perform if no such succession or assignment had taken place. The term "Company"
as used herein shall include such successors and assigns. The term "successors
and assigns" as used herein shall mean a corporation or other entity acquiring
all or substantially all the assets and business of the Company (including this
Agreement) whether by operation of law or otherwise.
(b) Neither this Agreement nor any right or interest hereunder shall be
assignable or transferable by the Executive, his beneficiaries or legal
representatives, except by will or by the laws of descent and distribution. This
Agreement shall inure to the benefit of and be enforceable by the Executive's
legal personal representative.
14. Fees and Expenses.
The Company shall pay all legal fees and related expenses (including
the costs of experts, evidence and counsel) incurred by the Executive as a
result of the breach or default by the Company of the terms hereof.
15. Notice.
For the purposes of this Agreement, notices and all other
communications provided for in the Agreement (including the Notice of
Termination) shall be in writing and shall be deemed to have been duly
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given when personally delivered or sent by certified mail, return receipt
requested postage prepaid, addressed to the respective addresses last given by
each party to the other, provided that all notices to the Company shall be
directed to the attention of the Board with a copy to the Secretary of the
Company. All notices and communications shall be deemed to have been received on
the date of delivery thereof or on the third business day after the mailing
thereof, except that notice of change of address shall be effective only upon
receipt.
16. Non-exclusivity of Rights.
Nothing in this Agreement shall prevent or limit the Executive's
continuing or future participation in any benefit, bonus, incentive or other
plan or program provided by the Company or any of its subsidiaries and for which
the Executive may qualify, nor shall anything herein limit or reduce such rights
as the Executive may have under any other agreements with the Company or any of
its subsidiaries. Amounts which are vested benefits or which the Executive is
otherwise entitled to receive under any plan or program of the Company or any of
its subsidiaries shall be payable in accordance with such plan or program,
except as explicitly modified by this Agreement.
17. Settlement of Claims.
The Company's obligation to make the payments provided for in this
Agreement and otherwise to perform its obligations hereunder shall not be
affected by any circumstances, including, without limitation, any set-off
(except against amounts actually owed by the Executive to the Company as
evidenced by promissory notes, loan agreements and similar documents executed by
the Executive), counterclaim, defense, recoupment, or other right which the
Company may have against the Executive or others.
18. Miscellaneous.
No provision of this Agreement may be modified, waived or discharged
unless such waiver, modification, or discharge is agreed to in writing and
signed by the Executive and the Company. No waiver by either party hereto at any
time of any breach by the other party hereto of, or compliance with, any
condition or provision of this Agreement to be performed by such other party
shall be deemed a waiver of similar or dissimilar provisions or conditions at
the same or at any prior or subsequent time. No agreement or representations,
oral or otherwise, express or implied, with respect to the subject matter hereof
have been made by either party which are not expressly set forth in this
Agreement.
19. Governing Law.
This Agreement shall be governed by and construed and enforced in
accordance with the laws of the State of New York without giving effect to the
conflict of law principles thereof. Subject to Section 22 of this Agreement, any
action brought by any party to this Agreement shall be brought and maintained in
a court of competent jurisdiction in the County of New York, in the State of New
York.
20. Severability.
The provisions of this Agreement shall be deemed severable and the
invalidity or unenforceability of any provision shall not affect the validity or
enforceability of the other provisions hereof.
21. Entire Agreement.
This Agreement constitutes the entire agreement between the parties
hereto and supersedes all prior agreements, if any, understandings and
arrangements, oral or written, between the parties hereto with respect to the
subject matter hereof.
22. Arbitration.
Any dispute or controversy arising out of or relating to this Agreement
shall be determined and settled by arbitration in the City of New York, State of
New York, in accordance with the Employment
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Dispute Resolution Rules of the American Arbitration Association then in effect,
and judgment upon the award rendered by the arbitrator may be entered in any
court of competent jurisdiction. Such arbitrator shall have no power to modify
any of the provisions of this Agreement, and his or her jurisdiction is limited
accordingly. A party requesting arbitration hereunder shall give ten (10) days'
written notice to the other party prior to requesting such arbitration. Unless
the arbitrator decides otherwise, the successful party in any such arbitration
shall be entitled to reasonable attorneys' fees and costs associated with such
arbitration. If the parties hereto cannot agree upon an arbitrator, then one
shall be appointed by the governing official of the New York Chapter of the
American Arbitration Association. Any arbitrator so appointed shall have
extensive experience in a profession connected with the subject matter of the
dispute. Whenever any action is required to be taken under this Agreement within
a specified period of time and the taking of such action is materially affected
by a matter submitted to arbitration, such period shall automatically be
extended by the number of days plus ten (10) that are taken for the
determination of that matter by the arbitrator.
IN WITNESS WHEREOF, the company has caused this agreement to be
executed by its duly authorized officer and the Executive has executed this
Agreement as of the day and year first above written.
DME INTERACTIVE HOLDINGS, INC.
By: /s/ Andre H. Mckoy
--------------------------------
Title Executive Vice-President
------------------------------
Executive
/s/ Darien Dash
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<PAGE>
EMPLOYMENT AGREEMENT
This Employment Agreement (the "Agreement") is between DME
Interactive Holdings, Inc. ("DME" or "Company") and Andre H. McKoy ("Employee").
In consideration of the promises and covenants set forth in this
Agreement, DME and Employee hereby agree as follows:
1. EMPLOYMENT
Company hereby employs Employee and Employee hereby accepts
employment, to render professional services to Company as Executive Vice
President, Finance, in accordance with the terms and conditions set forth
herein. All of Employee's services and duties hereunder shall be performed when
Company may require and, except as specifically limited herein, subject to
Company's direction and control.
2. TERM
Subject to the provisions for termination as hereinafter provided in
Section 7 of this Agreement, the Term of this Agreement shall begin on August 1,
1999 and shall continue for a period of two (2) years. When used herein, "Term"
shall refer to the entire period of engagement of Employee, whether for the
period provided above or whether terminated earlier as hereinafter provided.
3. DUTIES
In Employee's capacity as Executive Vice President, Finance,
Employee duties shall include such duties and responsibilities as assigned from
time to time by the Chief Executive Officer of the Company or its board of
directors. Employee agrees and acknowledges that Company retains sole discretion
to change the scope and extent of Employee's duties at any time, subject only to
the terms of this Agreement.
4. COMPENSATION
(a) Conditioned upon full performance by Employee of all of
Employee's material obligations hereunder, Company agrees to pay Employee, as
full and complete compensation for all of the services to be rendered by
Employee, for all rights granted to Company, and for all representations,
warranties and agreements made by Employee hereunder, the annual compensation of
$125,000.00 for Year 1, payable on a semi-monthly basis. Employee's complete
compensation for Year 2 will be based on annual review by the Chief Executive
Officer, provided, however, Employee's annual compensation will be no less than
$125,000.00 during the Term of this Agreement.
(b) Pursuant to the terms and conditions set forth in the
Stock Option Agreement attached hereto, Company grants to Employee an option to
purchase up to 250,000 shares of the Company's common stock during the Term of
this Agreement at a per share exercise price of $0.625
<PAGE>
(c) Employee will be eligible for a bonus based upon his
satisfactory performance under this Agreement at the discretion of the Company
and subject to the Company's overall performance.
5. BENEFITS
(a) Benefits. Employee shall be entitled to participate in any
Company benefit plans now existing or hereafter adopted for which he may be
eligible pursuant to established Company policy, subject to the provisions of
such plans as the same may be in effect from time to time. Employee agrees that
nothing contained in this Agreement shall prevent Company from terminating or
modifying any such benefit plan in whole or in part at any time.
(b) Vacation. Employee shall be entitled to two (2) week(s)
per contract year as hereinafter defined, of fully paid vacation time, and
holidays in accordance with current Company policy during the term of this
Agreement subject to Company's absolute approval of the dates when such vacation
may be taken. For purposes of this Agreement, the term "Contract Year" shall
mean the period commencing August 1, and ending July 31. Notwithstanding the
above, such vacation rights shall not vest until Employee has worked for Company
for at least six (6) months. Vacation rights shall not be cumulative from
Contract Year to Contract Year, nor shall Employee be paid for more than
fifty-two (52) weeks of employment in each Contract Year irrespective of whether
or not vacation rights are exercised.
(c) Sick/Personal Days. Employees shall be entitled to six (6)
days per Contract Year of fully paid sick/personal days in accordance with
current Company policy during the term of this Agreement. Notwithstanding the
above, such sick/personal day rights shall not vest until Employee has worked
for Company for at least three (3) months. Sick/Personal Day rights shall not be
cumulative from Contract Year to Contract Year, nor shall Employee be paid for
more than fifty-two (52) weeks of employment in each Contract Year irrespective
of whether or not sick/personal days are exercised.
6. EMPLOYEE COVENANTS
6.1. Notice of Creation. Employee shall both during and after
the Term of this Agreement promptly and fully disclose to the Company any and
all inventions, discoveries, improvements, ideas, devices, designs, models,
prototypes, processes, compositions, know-how, information, works (including
computer programs and written and graphics materials), mask works and data,
whether of a business, technical or other nature and whether or not protectable
under U.S. or foreign patent, copyright, trade secret or other law
(collectively, "Works"), that concern or relate to or are useful to the Company
in connection with its business activities ("Company Business") and that are
first conceived, reduced to practice, fixed in a tangible medium of expression
or are otherwise made by Employee solely or jointly with others during the Term
of this Agreement, whether during regular business hours or otherwise (the
"Intellectual Property").
6.2. Ownership of Intellectual Property. Upon its respective
conception, reduction to practice or fixation in a tangible medium of expression
or other making, an item of Intellectual Property and all worldwide right, title
and interest in and to that Intellectual Property, including all common law,
statutory, treaty and convention rights, including the right to sue for all
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past, present and future infringement, shall immediately become and forever
remain the property of Company without any further act or deed being required
and without any additional consideration from Company to Employee, and Employee
hereby irrevocably assigns to Company, and Company hereby accepts, all such
Intellectual Property and all such worldwide right, title and interest. The
Employee hereby waives and agrees not to assert any moral rights or similar
rights under the laws of any jurisdiction with respect to any Intellectual
Property.
6.3. Further Assurances. Employee will from time to time, both
during and after the Term of this Agreement, upon the request and at the expense
of the Company, but without further consideration from the Company, (a) make
application through the attorneys for the Company for Letters Patent, utility
models, copyright registrations and other forms of intellectual property
protection for and on the Intellectual Property in the United States and in
countries foreign thereto, (b) cooperate with the attorneys in the prosecution,
maintenance, reissue, renewal, extension and defense of, and suit upon, all such
applications and resulting Letters Patent, utility models, copyright
registrations and other forms of intellectual property protection, and (c) do
and perform all acts, including executing documents, believed by the attorneys
to be necessary or desirable in furtherance of the foregoing and for assigning
and perfecting all right, title and interest in and to the Intellectual Property
in the Company or its successors or assigns, including executing applications
and assignment documents. All decisions concerning such applications and
resulting Letters Patent, utility models, copyright registrations and other
forms of intellectual property protection, including all decisions concerning
their filing, prosecution, maintenance, reissue, renewal, extension, defense and
suits upon them, shall be solely those of the Company, and Employee shall have
no claim or cause of action against the Company arising out of or concerning any
such decisions of the Company or the results of those decisions.
6.4. Non-Competition. Employee hereby expressly covenants and
agrees that he shall not, without the express written consent of the Company,
for his own account or jointly with any other person, during the Term of this
Agreement and for a period of one year thereafter, for any reason, directly or
indirectly, (i) establish or manage any business, or enter into the employ of,
or render any services to, any person, firm or corporation engaged in any
business competitive with Employer and its Affiliates in such state or states as
Employer conducts business during the Employment Term (the "Territory"); (ii)
own, manage, operate, join, control, loan money to, invest in, or otherwise
participate in, or be connected with, or become or act as an officer, employee,
consultant, representative or agent of any business, individual, partnership,
firm or corporation (other than the Company) which is a customer of the Company
or was at any time during the Term of this Agreement a customer of the Company
("Competitive Activities"); or (iii) intervene in or interfere with any
relationships between the Company and its vendors or customers (including
potential customers identified by the Company during the Term of this Agreement)
or disrupt its customer markets, anywhere in the world in which the Company
conducts Company business. Notwithstanding the foregoing, the Employee may at
any time own, solely as an inactive investor, securities of any entity, whether
or not in competition with the Company, if (i) such securities are publicly
traded on a nationally-recognized stock exchange or on NASDAQ, and (ii) the
aggregate holdings of such securities by the Employee and his immediate family
do not exceed two percent (2%) of the voting power or two percent (2%) of the
capital stock of such entity.
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6.5. Reasonableness of Restrictions. The Employee acknowledges
and agrees that the covenants contained herein with respect to non-competition
are reasonable in scope, geographic application and duration, in view of the
economic bargain contained herein. The Employee represents and warrants to the
Company that his experience, background and skills are such that he is able to
obtain employment on reasonable terms and conditions without violation of the
restrictive covenant contained herein with respect to non-competition; and that
such covenant does not and will not pose any undue hardship to the Employee.
6.6. Tangible Things. Employee covenants and agrees that (i)
all tangible things, including confidential memoranda, notes, notebooks,
drawings, lists (including, without limitation, mailing and customer lists),
records and other confidential documents (and all copies thereof), made or
compiled by Employee or made available to Employee concerning the Company
Business shall be the property of the Company, and (ii) if such tangible things
or copies thereof are in the possession or control of Employee, Employee shall
deliver them to the Company promptly following the Term of this Agreement or at
any other time upon request of the Company.
6.7. No Improper Disclosure. Employee represents and warrants
that Employee has not disclosed, and will not disclose, to the Company any
information, whether confidential, proprietary or otherwise, that the Employee
possesses and that Employee is not legally free to disclose.
6.8. No Employee Solicitation. The Employee hereby agrees that
during the Term of this Agreement and for a period of one (1) years thereafter,
he shall not, directly or indirectly, for his own account or jointly with
another, or for or on behalf of any entity, as principal, agent or otherwise,
solicit or induce or in any manner attempt to solicit or induce any person
employed by the Company or any of its affiliates to leave such employment,
whether or not such employment is pursuant to a written contract with the
Company or otherwise.
6.9. Non-Disclosure. Employee acknowledges that Employee's
work for the Company is expected to bring Employee into close contact with
various confidential technical and research data, confidential business data and
other information of the Company not readily available to the public. The
Employee expressly covenants and agrees that he will not at any time, whether
during or after the Term of this Agreement, directly or indirectly, on any basis
for any reason, use or permit third parties within his control or authority or
under his supervision the use of any trade secrets, confidential information or
proprietary information of, or relating to, the Company, or any affiliate of the
Company (including, without limitation, data and other information relating to
any of the Company's processes, apparatus, products, software, packages,
programs, trends in research, product development techniques or plans, research
and development programs and plans or any works and all secrets, customer lists,
lists of employees, sales representatives and their territories, mailing lists,
details of consultant contracts, pricing policies, operational methods,
marketing plans or strategies, business acquisition plans, new personnel
acquisition plans, designs and design projects and other confidential business
affairs concerning the Company and the Company Business), in connection with any
activity or business, whether for his own account or otherwise, and will not
divulge such trade secrets, confidential information or proprietary information
to any person, firm, corporation or other entity whatsoever. The Employee shall
not be prohibited from divulging information deemed to be trade secret or
confidential or proprietary information of the Company: (i) if and to the extent
that disclosure of any such
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information is pursuant to appropriate safeguards on confidentiality and (a)
necessary and appropriate in connection with the submission of bids by the
Company in the ordinary course of business or (b) required pursuant to the
Company's marketing efforts directed to specific clients or bona fide
prospective clients or the provision of services to existing clients in the
ordinary course of business, (ii) if the specific item of information becomes
generally available to the public without violation of this Agreement or any
other confidentiality agreement between the Employee and the Company or any
other confidentiality agreement to which the Employee is a party, or (iii) if
such disclosure is compelled by law, in which event the Employee agrees to give
the Company prior written notice of any disclosure to be made pursuant to this
Subsection (iii), and the Employee, at the Company's expense, shall cooperate
fully with the Company to obtain protective orders, confidential treatment or
other such protective action as may be available to preserve the confidentiality
of the information required to be disclosed.
6.10. Remedies. It is expressly understood and agreed that the
services to be rendered hereunder by the Employee are special, unique and of
extraordinary character, and in the event of the breach by the Employee of any
of the terms and conditions of this Agreement on his part to be performed
hereunder, or in the event of the breach or threatened breach by the Employee of
the terms and provisions of this Section 6 of this Agreement, then the Company
shall be entitled, if it so elects, to institute and prosecute any proceedings
in any court of competent jurisdiction, either in law or equity, for such relief
as it deems appropriate, including without limiting the generality of the
foregoing, any proceedings to obtain damages for any breach of this Agreement or
to enforce the specific performance thereof by the Employee or to enjoin the
Employee from performing services which are prohibited by this Agreement for any
other person, firm or corporation.
6.11. Enforcement. It is hereby expressly agreed by the
Company and the Employee that if any portion of the restrictive covenants and
provisions set forth in this Section 6 is held to be unreasonable, arbitrary,
against public policy or otherwise unenforceable for any reason, then each such
covenant or provision shall be considered divisible as to scope, time and
geographical area, with each month of a specified period being deemed a separate
period of time and each county within any geographical area being deemed a
separate geographic area. The parties hereto expressly agree that
notwithstanding their mutual expectation that the covenants and restrictions
contained herein will be enforceable and enforced, a lesser scope, period of
time or geographic area shall be enforced to the extent that the covenants
contained herein may be unenforceable as written. The existence of any claim or
cause of action by the Employee against the Company, whether predicated on this
Agreement or otherwise, shall not constitute a defense to the enforcement by the
Company of the restrictive covenants contained in this Section 6.
6.12. Covenants Non-Exclusive. The Employee acknowledges and
agrees that the covenants contained in this Section 6 shall not be deemed
exclusive of any common law rights of the Company in connection with the
relationships contemplated hereby; and that the Company shall have any and all
rights as may be provided by law in connection with the relationships
contemplated hereby.
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7. TERMINATION
The Employee's employment hereunder shall terminate under the
following circumstances:
(a) Termination For Cause. Company may terminate the
employment of Employee for cause at any time upon written notice to Employee
specifying the cause for termination. For purposes of this Section, "for cause"
shall include discharge resulting from a determination by Company that the
Employee has: (i) been convicted of a criminal offense involving dishonesty,
fraud, theft, embezzlement, breach of trust or moral turpitude; (ii) performed
an act or failed to act, which, if he were prosecuted and convicted, would
constitute a crime or offense involving money or property of Company; or (iii)
willfully refused to perform the duties reasonably assigned to Employee and
consistent with his status as a Senior Vice President of Company; or (iv)
violates any non-competition or non-disclosure agreement of the Company.
In the event of Employee's termination under this Section
7(a), Company shall have no further obligation to Employee except for any
amounts earned by, or accrued for, Employee under any employee benefit plans in
which the Employee is then a participant, earned and unpaid salary, accrued and
unused vacation pay, and any rights of Employee under any bonus or stock option
agreement, which right has been earned by Employee at the time of such
termination pursuant to the terms of such plan or agreement. Employee shall not
be entitled to any further Base Salary, Incentive Compensation, severance pay,
fringe benefits, additional stock options, or any other compensation or
benefits, except as otherwise provided herein.
(b) Termination Without Cause. Employee or Company may
terminate this Agreement at any time upon thirty (30 days) prior written notice
to the other party. In the event of such termination, Company shall have no
further obligations to Employee under this Agreement except for any amounts
earned by, or accrued for, Employee under any employee benefit plans in which
Employee is then a participant, earned and unpaid salary and accrued and unused
vacation pay and any rights of Employee under any bonus or stock option
agreement, which right has been earned by Employee at the time of such
termination pursuant to the terms of such plan or agreement. After termination,
Employee shall not be entitled to Base Salary, Bonus Compensation, severance
pay, fringe benefits, additional stock options, or any other compensation or
benefits. Company may, in its sole discretion, accept Employee's resignation and
terminate Employee's employment prior to the expiration of the thirty (30) day
notice period and pay Employee's compensation for the notice period (or
remaining term thereof).
(c) Employee's employment hereunder shall also terminate
automatically, and without any further action by the Employee or the Company,
upon the earlier to occur of (i) the death of the Employee; (ii) the adjudicated
incompetency of the Employee; or (iii) the disability of the Employee to perform
a material portion of his duties for 180 consecutive days, or for 100 business
days, which need not be consecutive, during any twelve-month period.
(d) In Employee's capacity as Executive Vice President,
Finance, Employee has made certain personal guarantees to computer equipment
vendors as set forth in Schedule 7(d). The Company and Employee agree that, in
the event Employee's employment is
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terminated, all such obligations secured by a personal guarantee from Employee
as identified in Schedule 7(d) shall be paid by the Company within ten (10)
days after Employee's termination.
8. ARBITRATION
(a) Exclusive Remedy. If Employee and the Company cannot
resolve a dispute, arising under any legal theory or based on federal, state, or
local statute, or common law (including any claims of discrimination), that in
any way arises out of, relates to, or is connected with the employment
relationship established in this Agreement or the termination thereof (a
"Dispute") then it shall be settled by final and binding arbitration, except
that this Paragraph does not apply to any legal action by the Company or
Employee for injunctive or other equitable relief (including, but not limited
to, any claim for breach or enforcement of the provisions of Paragraph 7 or any
claim for unfair competition or unauthorized use or disclosure of trade secrets
or other confidential information). Arbitration shall be the exclusive remedy
for any Dispute either party may bring against the other, or against any
employee, officer, director or agent of the other.
(b) Procedure. The arbitration shall be conducted in
accordance with the rules of the American Arbitration Association and shall be
conducted in New York, N.Y. Any Dispute submitted to arbitration shall be
decided by a single, neutral arbitrator (the "Arbitrator"). The parties to the
arbitration shall mutually select the Arbitrator not later than forty-five (45)
days after service of the demand for arbitration. If the parties for any reason
do not mutually select the Arbitrator within the forty-five (45) day period,
then either party may apply to any court of competent jurisdiction to appoint an
Arbitrator, chosen in accordance with the rules of the American Arbitration
Association.
9. GENERAL
9.1. No Brokers. Each of the parties to this Agreement
represents and warrants, each to the other, that it has not utilized the
services of any finder, broker or agent. Each of the parties agrees to indemnify
the other party against and hold it harmless from any and all liabilities to any
person, firm or corporation claiming any broker's or finder's fee or commission
of any kind on account of services rendered on behalf of such party in
connection with the transactions contemplated by this Agreement.
9.2. Applicable Law. This Agreement shall, in all respects, be
governed by the laws of the State of New York.
9.3. Venue; Process. The parties to this Agreement agree that
jurisdiction and venue shall properly lie only in any New York state court
located in New York County or the City of New York or in the United States
District Court for the Southern District of New York, with respect to any legal
proceedings arising from this Agreement. The parties agree that they will not
object that any action commenced in the foregoing jurisdictions is commenced in
a forum non conveniens. The parties further agree that the mailing by certified
or registered mail, return receipt requested, of any process required by any
such court shall constitute valid and lawful service of process against them,
without the necessity for service by any other means provided by statute or rule
of court. Notwithstanding the foregoing, however, nothing contained in this
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Subsection 8.3 shall be deemed to limit or waive any right of the parties to
remove any dispute to federal court in New York which might otherwise properly
be removed to such court.
9.4. Survival. The parties hereto agree that the covenants
contained in Section 6 hereof shall survive any termination of employment by the
Employee and any termination of this Agreement.
9.5. Notices. Any and all notices required or desired to be
given hereunder by any party shall be in writing and shall be validly given or
made to another party if delivered either personally, by telex, facsimile
transmission, same day delivery service, overnight delivery service, or if
deposited in the United States mail, certified or registered, postage prepaid,
return receipt requested. If notice is served personally, notice shall be deemed
effective upon receipt. If notice is served by telex or by facsimile
transmission, notice shall be deemed effective upon transmission, provided that
such notice is confirmed in writing by the sender within one day after
transmission. If notice is served by same day delivery service or overnight
expedited delivery service, notice shall be deemed effective the day after it is
sent, and if notice is given by mail, notice shall be deemed effective five days
after it is sent. In all instances, notice shall be sent to the parties at the
respective addresses set forth above. Any party may change its address for the
purpose of receiving notices by a written notice given to the other party.
9.6. Modifications or Amendments. No amendment, change or
modification of this document shall be valid unless in writing and signed by all
of the parties hereto.
9.7. Waiver. Failure of either party to exercise in any
respect any right provided for herein shall not be deemed a waiver of any right
hereunder.
9.8. Successors and Assigns. All of the terms and provisions
contained herein shall inure to the benefit of and shall be binding upon the
parties hereto and their respective heirs, personal representatives, successors
and assigns, but Employee's rights and obligations hereunder are personal to
Employee and shall not be subject to voluntary or involuntary alienation,
assignment or transfer.
9.9. Separate Counterparts. This document may be executed in
one or more separate counterparts, each of which, when so executed, shall be
deemed to be an original. Such counterparts shall, together, constitute and
shall be one and the same instrument.
9.10. Specific Performance. It is agreed that the rights
granted to the parties hereunder are of a special and unique kind and character
and that, if there is a breach by any party of any material provision of this
document, the other party would not have any adequate remedy at law. It is
expressly agreed, therefore, that the rights of the parties hereunder may be
enforced by an action for specific performance and other equitable relief.
9.11. Further Assurances. Each of the parties hereto shall
execute and deliver any and all additional papers, documents and other
assurances, and shall do any and all acts and things reasonably necessary in
connection with the performance of their obligations hereunder and to carry out
the intent of the parties hereto.
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9.12. Legal Fees and Costs. Each party in any action,
proceeding, arbitration or similar legal proceeding arising under this Agreement
shall be responsible for such party's own attorneys' fees and costs.
PLEASE NOTE: BY SIGNING THIS AGREEMENT, EMPLOYEE IS HEREBY
CERTIFYING THAT EMPLOYEE (A) RECEIVED A COPY OF THIS AGREEMENT FOR REVIEW AND
STUDY BEFORE EXECUTING IT; (B) READ THIS AGREEMENT CAREFULLY BEFORE SIGNING IT;
(C) HAD SUFFICIENT OPPORTUNITY BEFORE SIGNING THE AGREEMENT TO ASK ANY QUESTIONS
EMPLOYEE HAD ABOUT THE AGREEMENT AND RECEIVED SATISFACTORY ANSWERS TO ALL SUCH
QUESTIONS; AND (D) UNDERSTANDS EMPLOYEE'S RIGHTS AND OBLIGATIONS UNDER THE
AGREEMENT.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed as of the date first above written.
DME INTERACTIVE HOLDINGS, INC. ANDRE H. MCKOY
By: /s/ Darien Dash /s/ Andre H. Mckoy
-------------------------- ----------------------------
Title: Chief Executive Officer
-------------------------
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EMPLOYMENT AGREEMENT
This Employment Agreement (the "Agreement") is between DME
Interactive Holdings, Inc. ("DME" or "Company") and Kathleen McQuaid Packard
("Employee").
In consideration of the promises and covenants set forth in this
Agreement, DME and Employee hereby agree as follows:
1. EMPLOYMENT
Company hereby employs Employee and Employee hereby accepts
employment, to render professional services to Company as Senior Vice President
of Internet Services in accordance with the terms and conditions set forth
herein. All of Employee's services and duties hereunder shall be performed when
Company may require and, except as specifically limited herein, subject to
Company's direction and control.
2. TERM
Subject to the provisions for termination as hereinafter provided in
Section 7 of this Agreement , the Term of this Agreement shall begin on
September 1, 1999 and shall continue for a period of three (3) years. When used
herein, "Term" shall refer to the entire period of engagement of Employee,
whether for the period provided above or whether terminated earlier as
hereinafter provided.
3. DUTIES
In Employee's capacity as Senior Vice President of Interactive
Services, Employee duties shall include such duties and responsibilities as
assigned from time to time by the Chief Executive Officer of the Company or its
board of directors. Employee agrees and acknowledges that Company retains sole
discretion to change the scope and extent of Employee's duties at any time,
subject only to the terms of this Agreement.
4. COMPENSATION
(a) During the Term and conditioned upon full performance by Employee
of all of Employee's material obligations hereunder, Company agrees to pay
Employee, as full and complete compensation for all of the services to be
rendered by Employee, for all rights granted to Company, and for all
representations, warranties and agreements made by Employee hereunder, the
following, payable on a semi-monthly basis:
Annual Compensation
Year 1 - $125,000.00
Year 2 - $137,500.00
Year 3 - $151,250.00
<PAGE>
(b) Pursuant to the terms and conditions set forth in the Stock Option
Agreement attached hereto, Company grants to Employee an option to purchase up
to 60,000 shares of the Company's common stock at a per share exercise price of
$2.00.
(c) If Employee submits a list of Employee's active existing clients
(the "Active Client List") to Company within ten (10) days of the commencement
of the Term, Employee will be entitled to additional compensation of five (5%)
percent of the gross revenues actually collected from clients on the Active
Client List ("Incentive Compensation") within the term of this agreement,
subject to the following terms:
(i) Incentive Compensation will be paid in January for the
preceding six month period and in July for the preceding six months;
(ii) Employee acknowledges that she will not be entitled to
receive any Incentive Compensation until the Company has collected gross
revenues from clients on the Employee's Active Client List in the amount of
$500,000, it being mutually agreed and understood that the first $25,000 of
Incentive Compensation otherwise payable to Employee will be paid by Company to
Kathoderay Media, Inc., pursuant to the terms of an Asset Purchase Agreement
dated September 1, 1999, between Kathoderay and Company. In calculating
Employee's Incentive Compensation, the first $500,000 of collections from
clients on the Employee's Active Client List shall be excluded and listed on the
Active Client List.
(iii)Employee may add clients to the Employee's Active Client
List during the term, it being agreed and understood that the Active Client List
is limited to existing and future clients of the Company developed principally
by Employee and listed on the Active Client List.
(d) Employee will be eligible for a bonus based upon her satisfactory
performance under this agreement at the discretion of the Company and subject to
the Company's overall performance.
5. BENEFITS
(a) Benefits. Employee shall be entitled to participate in any Company
benefit plans now existing or hereafter adopted for which she may be eligible
pursuant to established Company policy, subject to the provisions of such plans
as the same may be in effect from time to time. Employee agrees that nothing
contained in this Agreement shall prevent Company from terminating or modifying
any such benefit plan in whole or in part at any time.
(b) Vacation. Employee shall be entitled to two (2) week(s) per
contract year as hereinafter defined, of fully paid vacation time, and holidays
in accordance with current Company policy during the term of this Agreement
subject to Company's absolute approval of the dates when such vacation may be
taken. For purposes of this Agreement, the term "Contract Year" shall mean the
period commencing September 1, and ending August 31. Notwithstanding the above,
such
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vacation rights shall not vest until Employee has worked for Company for at
least six (6) months. Vacation rights shall not be cumulative from Contract Year
to Contract Year, nor shall Employee be paid for more than fifty-two (52) weeks
of employment in each Contract Year irrespective of whether or not vacation
rights are exercised.
(c) Sick/Personal Days. Employees shall be entitled to six (6) days
per Contract Year of fully paid sick/personal days in accordance with current
Company policy during the term of this Agreement. Notwithstanding the above,
such sick/personal day rights shall not vest until Employee has worked for
Company for at least three (3) months. Sick/Personal Day rights shall not be
cumulative from Contract Year to Contract Year, nor shall Employee be paid for
more than fifty-two (52) weeks of employment in each Contract Year irrespective
of whether or not sick/personal days are exercised.
6. EMPLOYEE COVENANTS
6.1. Notice of Creation. Employee shall both during and after the
Term of this Agreement promptly and fully disclose to the Company any and all
inventions, discoveries, improvements, ideas, devices, designs, models,
prototypes, processes, compositions, know-how, information, works (including
computer programs and written and graphics materials), mask works and data,
whether of a business, technical or other nature and whether or not protectable
under U.S. or foreign patent, copyright, trade secret or other law
(collectively, "Works"), that concern or relate to or are useful to the Company
in connection with its business activities ("Company Business") and that are
first conceived, reduced to practice, fixed in a tangible medium of expression
or are otherwise made by Employee solely or jointly with others during the Term
of this Agreement, whether during regular business hours or otherwise (the
"Intellectual Property").
6.2. Ownership of Intellectual Property. Upon its respective
conception, reduction to practice or fixation in a tangible medium of expression
or other making, an item of Intellectual Property and all worldwide right, title
and interest in and to that Intellectual Property, including all common law,
statutory, treaty and convention rights, including the right to sue for all
past, present and future infringement, shall immediately become and forever
remain the property of Company without any further act or deed being required
and without any additional consideration from Company to Employee, and Employee
hereby irrevocably assigns to Company, and Company hereby accepts, all such
Intellectual Property and all such worldwide right, title and interest. The
Employee hereby waives and agrees not to assert any moral rights or similar
rights under the laws of any jurisdiction with respect to any Intellectual
Property.
6.3. Further Assurances. Employee will from time to time, both
during and after the Term of this Agreement, upon the request and at the expense
of the Company, but without further consideration from the Company, (a) make
application through the attorneys for the Company for Letters Patent, utility
models, copyright registrations and other forms of intellectual property
protection for and on the Intellectual Property in the United States and in
countries foreign thereto, (b) cooperate with the attorneys in the prosecution,
maintenance, reissue, renewal, extension and defense of, and suit upon, all such
applications and resulting Letters Patent, utility models, copyright
registrations and other forms of intellectual property protection, and (c) do
and perform all acts, including executing documents, believed by the attorneys
to be necessary or desirable in furtherance of the foregoing and for assigning
and perfecting all right, title and interest
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in and to the Intellectual Property in the Company or its successors or assigns,
including executing applications and assignment documents. All decisions
concerning such applications and resulting Letters Patent, utility models,
copyright registrations and other forms of intellectual property protection,
including all decisions concerning their filing, prosecution, maintenance,
reissue, renewal, extension, defense and suits upon them, shall be solely those
of the Company, and Employee shall have no claim or cause of action against the
Company arising out of or concerning any such decisions of the Company or the
results of those decisions.
6.4. Non-Competition. In addition to her obligations of
non-competition set forth in that Asset Purchase Agreement dated
contemporaneously herewith by and among Company, Employee and Employee's then
wholly owned corporation, Kathoderay Media, Inc., Employee hereby expressly
covenants and agrees that she shall not, without the express written consent of
the Company, for her own account or jointly with any other person, during the
Term of this Agreement and for a period of one year thereafter, for any reason,
directly or indirectly, (i) own, manage, operate, join, control, loan money to,
invest in, or otherwise participate in, or be connected with, or become or act
as an officer, employee, consultant, representative or agent of any business,
individual, partnership, firm or corporation (other than the Company) which is a
customer of the Company or was at any time during the Term of this Agreement a
customer of the Company ("Competitive Activities"); or (ii) intervene in or
interfere with any relationships between the Company and its vendors or
customers (including potential customers identified by the Company during the
Term of this Agreement) or disrupt its customer markets, anywhere in the world
in which the Company conducts Company business. Notwithstanding the foregoing,
the Employee may at any time own, solely as an inactive investor, securities of
any entity, whether or not in competition with the Company, if (i) such
securities are publicly traded on a nationally-recognized stock exchange or on
NASDAQ, and (ii) the aggregate holdings of such securities by the Employee and
her immediate family do not exceed two percent (2%) of the voting power or two
percent (2%) of the capital stock of such entity.
6.5. Reasonableness of Restrictions. The Employee acknowledges
and agrees that the covenants contained herein with respect to non-competition
are reasonable in scope, geographic application and duration, in view of the
economic bargain contained herein. The Employee represents and warrants to the
Company that her experience, background and skills are such that she is able to
obtain employment on reasonable terms and conditions without violation of the
restrictive covenant contained herein with respect to non-competition; and that
such covenant does not and will not pose any undue hardship to the Employee.
6.6. Tangible Things. Employee covenants and agrees that (i) all
tangible things, including confidential memoranda, notes, notebooks, drawings,
lists (including, without limitation, mailing and customer lists), records and
other confidential documents (and all copies thereof), made or compiled by
Employee or made available to Employee concerning the Company Business shall be
the property of the Company, and (ii) if such tangible things or copies thereof
are in the possession or control of Employee, Employee shall deliver them to the
Company promptly following the Term of this Agreement or at any other time upon
request of the Company.
6.7. No Improper Disclosure. Employee represents and warrants
that Employee has not disclosed, and will not disclose, to the Company any
information, whether
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confidential, proprietary or otherwise, that the Employee possesses and that
Employee is not legally free to disclose.
6.8. No Employee Solicitation. The Employee hereby agrees that
during the Term of this Agreement and for a period of one (1) years thereafter,
she shall not, directly or indirectly, for her own account or jointly with
another, or for or on behalf of any entity, as principal, agent or otherwise,
solicit or induce or in any manner attempt to solicit or induce any person
employed by the Company or any of its affiliates to leave such employment,
whether or not such employment is pursuant to a written contract with the
Company or otherwise.
6.9. Non-Disclosure. Employee acknowledges that Employee's work
for the Company is expected to bring Employee into close contact with various
confidential technical and research data, confidential business data and other
information of the Company not readily available to the public. The Employee
expressly covenants and agrees that she will not at any time, whether during or
after the Term of this Agreement, directly or indirectly, on any basis for any
reason, use or permit third parties within her control or authority or under her
supervision the use of any trade secrets, confidential information or
proprietary information of, or relating to, the Company, or any affiliate of the
Company (including, without limitation, data and other information relating to
any of the Company's processes, apparatus, products, software, packages,
programs, trends in research, product development techniques or plans, research
and development programs and plans or any works and all secrets, customer lists,
lists of employees, sales representatives and their territories, mailing lists,
details of consultant contracts, pricing policies, operational methods,
marketing plans or strategies, business acquisition plans, new personnel
acquisition plans, designs and design projects and other confidential business
affairs concerning the Company and the Company Business), in connection with any
activity or business, whether for her own account or otherwise, and will not
divulge such trade secrets, confidential information or proprietary information
to any person, firm, corporation or other entity whatsoever. The Employee shall
not be prohibited from divulging information deemed to be trade secret or
confidential or proprietary information of the Company: (i) if and to the extent
that disclosure of any such information is pursuant to appropriate safeguards on
confidentiality and (x) necessary and appropriate in connection with the
submission of bids by the Company in the ordinary course of business or (y)
required pursuant to the Company's marketing efforts directed to specific
clients or bona fide prospective clients or the provision of services to
existing clients in the ordinary course of business, (ii) if the specific item
of information becomes generally available to the public without violation of
this Agreement or any other confidentiality agreement between the Employee and
the Company or any other confidentiality agreement to which the Employee is a
party, or (iii) if such disclosure is compelled by law, in which event the
Employee agrees to give the Company prior written notice of any disclosure to be
made pursuant to this Subsection (iii), and the Employee, at the Company's
expense, shall cooperate fully with the Company to obtain protective orders,
confidential treatment or other such protective action as may be available to
preserve the confidentiality of the information required to be disclosed.
6.10. Remedies. It is expressly understood and agreed that the
services to be rendered hereunder by the Employee are special, unique and of
extraordinary character, and in the event of the breach by the Employee of any
of the terms and conditions of this Agreement on her part to be performed
hereunder, or in the event of the breach or threatened breach by the Employee of
the terms and provisions of this Section 6 of this Agreement, then the Company
shall
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<PAGE>
entitled, if it so elects, to institute and prosecute any proceedings in any
court of competent jurisdiction, either in law or equity, for such relief as it
deems appropriate, including without limiting the generality of the foregoing,
any proceedings to obtain damages for any breach of this Agreement or to enforce
the specific performance thereof by the Employee or to enjoin the Employee from
performing services which are prohibited by this Agreement for any other person,
firm or corporation.
6.11. Enforcement. It is hereby expressly agreed by the Company
and the Employee that if any portion of the restrictive covenants and provisions
set forth in this Section 6 is held to be unreasonable, arbitrary, against
public policy or otherwise unenforceable for any reason, then each such covenant
or provision shall be considered divisible as to scope, time and geographical
area, with each month of a specified period being deemed a separate period of
time and each county within any geographical area being deemed a separate
geographic area. The parties hereto expressly agree that notwithstanding their
mutual expectation that the covenants and restrictions contained herein will be
enforceable and enforced, a lesser scope, period of time or geographic area
shall be enforced to the extent that the covenants contained herein may be
unenforceable as written. The existence of any claim or cause of action by the
Employee against the Company, whether predicated on this Agreement or otherwise,
shall not constitute a defense to the enforcement by the Company of the
restrictive covenants contained in this Section 6.
6.12. Covenants Non-Exclusive. The Employee acknowledges and
agrees that the covenants contained in this Section 6 shall not be deemed
exclusive of any common law rights of the Company in connection with the
relationships contemplated hereby; and that the Company shall have any and all
rights as may be provided by law in connection with the relationships
contemplated hereby.
7. TERMINATION
The Employee's employment hereunder shall terminate under the
following circumstances:
(a) Termination by For Cause. Company may terminate the employment of
Employee for cause at any time upon written notice to Employee specifying the
cause for termination. For purposes of this Section, "for cause" shall include
discharge resulting from a determination by Company that the Employee has: (i)
been convicted of a criminal offense involving dishonesty, fraud, theft,
embezzlement, breach of trust or moral turpitude; (ii) performed an act or
failed to act, which, if she were prosecuted and convicted, would constitute a
crime or offense involving money or property of Company; or (iii) willfully
refused to perform the duties reasonably assigned to Employee and consistent
with her status as a Senior Vice President of Company; or (iv) violates any
non-competition or non-disclosure agreement of the Company.
In the event of Employee's termination under this Section 7(a),
Company shall have no further obligation to Employee except for any amounts
earned by, or accrued for, Employee under any employee benefit plans in which
the Employee is then a participant, earned and unpaid salary, accrued and unused
vacation pay, and any rights of Employee under any bonus or stock option
agreement, which right has been earned by Employee at the time of such
termination pursuant to the terms of such plan or agreement. Employee shall not
be entitled to any further Base
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Salary, Incentive Compensation, severance pay, fringe benefits, additional stock
options, or any other compensation or benefits, except as otherwise provided
herein.
(b) Termination by Employee Without Cause. Employee may terminate
this Agreement at any time upon thirty (30) days' prior written notice to
Company. In the event of such termination, Company shall have no further
obligations to Employee under this Agreement except for any amounts earned by,
or accrued for, Employee under any employee benefit plans in which the Employee
is then a participant, earned and unpaid salary and accrued and unused vacation
pay and any rights of Employee under any bonus or stock option agreement, which
right has been earned by Employee at the time of such termination pursuant to
the terms of such plan or agreement. Employee shall not after termination be
entitled to Base Salary, Incentive Compensation, severance pay, fringe benefits,
additional stock options, or any other compensation or benefits. Company may, in
its sole discretion, accept Employee's resignation and terminate her employment
prior to the expiration of the thirty (30) day notice period and pay Employee's
compensation for the notice period (or remaining term thereof).
(c) Employee's employment hereunder shall also terminate
automatically, and without any further action by the Employee or the Company,
upon the earlier to occur of (i ) the death of the Employee; (ii) the
adjudicated incompetency of the Employee; or (iii) the disability of the
Employee to perform a material portion of her duties for 180 consecutive days,
or for 100 business days, which need not be consecutive, during any twelve-month
period.
8. GENERAL
8.1. No Brokers. Each of the parties to this Agreement represents
and warrants, each to the other, that it has not utilized the services of any
finder, broker or agent. Each of the parties agrees to indemnify the other party
against and hold it harmless from any and all liabilities to any person, firm or
corporation claiming any broker's or finder's fee or commission of any kind on
account of services rendered on behalf of such party in connection with the
transactions contemplated by this Agreement.
8.2. Applicable Law. This Agreement shall, in all respects, be
governed by the laws of the State of New York.
8.3. Venue; Process. The parties to this Agreement agree that
jurisdiction and venue shall properly lie only in any New York state court
located in New York County or the City of New York or in the United States
District Court for the Southern District of New York, with respect to any legal
proceedings arising from this Agreement. The parties agree that they will not
object that any action commenced in the foregoing jurisdictions is commenced in
a forum non conveniens. The parties further agree that the mailing by certified
or registered mail, return receipt requested, of any process required by any
such court shall constitute valid and lawful service of process against them,
without the necessity for service by any other means provided by statute or rule
of court. Notwithstanding the foregoing, however, nothing contained in this
Subsection 8.3 shall be deemed to limit or waive any right of the parties to
remove any dispute to federal court in New York which might otherwise properly
be removed to such court.
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8.4. Survival The parties hereto agree that the covenants
contained in Section 6 hereof shall survive any termination of employment by the
Employee and any termination of this Agreement.
8.5. Notices. Any and all notices required or desired to be given
hereunder by any party shall be in writing and shall be validly given or made to
another party if delivered either personally, by telex, facsimile transmission,
same day delivery service, overnight delivery service, or if deposited in the
United States mail, certified or registered, postage prepaid, return receipt
requested. If notice is served personally, notice shall be deemed effective upon
receipt. If notice is served by telex or by facsimile transmission, notice shall
be deemed effective upon transmission, provided that such notice is confirmed in
writing by the sender within one day after transmission. If notice is served by
same day delivery service or overnight expedited delivery service, notice shall
be deemed effective the day after it is sent, and if notice is given by mail,
notice shall be deemed effective five days after it is sent. In all instances,
notice shall be sent to the parties at the respective addresses set forth above.
Any party may change its address for the purpose of receiving notices by a
written notice given to the other party.
8.6. Modifications or Amendments. No amendment, change or
modification of this document shall be valid unless in writing and signed by all
of the parties hereto.
8.7. Waiver. Failure of either party to exercise in any respect
any right provided for herein shall not be deemed a waiver of any right
hereunder.
8.8. Successors and Assigns. All of the terms and provisions
contained herein shall inure to the benefit of and shall be binding upon the
parties hereto and their respective heirs, personal representatives, successors
and assigns, but Employee's rights and obligations hereunder are personal to
Employee and shall not be subject to voluntary or involuntary alienation,
assignment or transfer.
8.9. Separate Counterparts. This document may be executed in one
or more separate counterparts, each of which, when so executed, shall be deemed
to be an original. Such counterparts shall, together, constitute and shall be
one and the same instrument.
8.10. Specific Performance. It is agreed that the rights granted
to the parties hereunder are of a special and unique kind and character and
that, if there is a breach by any party of any material provision of this
document, the other party would not have any adequate remedy at law. It is
expressly agreed, therefore, that the rights of the parties hereunder may be
enforced by an action for specific performance and other equitable relief.
8.11. Further Assurances. Each of the parties hereto shall
execute and deliver any and all additional papers, documents and other
assurances, and shall do any and all acts and things reasonably necessary in
connection with the performance of their obligations hereunder and to carry out
the intent of the parties hereto.
8.12. Legal Fees. Each party in any action, proceeding,
arbitration or similar legal proceeding arising under this agreement shall be
responsible for such party's own attorneys' fees.
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PLEASE NOTE: BY SIGNING THIS AGREEMENT, EMPLOYEE IS HEREBY CERTIFYING
THAT EMPLOYEE (A) RECEIVED A COPY OF THIS AGREEMENT FOR REVIEW AND STUDY BEFORE
EXECUTING IT; (B) READ THIS AGREEMENT CAREFULLY BEFORE SIGNING IT; (C) HAD
SUFFICIENT OPPORTUNITY BEFORE SIGNING THE AGREEMENT TO ASK ANY QUESTIONS
EMPLOYEE HAD ABOUT THE AGREEMENT AND RECEIVED SATISFACTORY ANSWERS TO ALL SUCH
QUESTIONS; AND (D) UNDERSTANDS EMPLOYEE'S RIGHTS AND OBLIGATIONS UNDER THE
AGREEMENT.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed as of the date first above written.
DME INTERACTIVE HOLDINGS, INC. KATHLEEN MCQUAID PACKARD
By: /s/ Darien Dash /s/ Kathleen McQuaid Packard
------------------ -------------------------------
Title: Chief Executive Officer
-----------------------------
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DME INTERACTIVE HOLDINGS, INC. STOCK OPTION PLAN OF 2000
1. Purpose of the Plan.
The purpose of this DME Interactive Holdings, Inc. Stock Option Plan of
2000 ("Plan") is to further the growth and development of DME Interactive
Holdings, Inc. (the "Company") and its subsidiaries by encouraging selected
employees, consultants, officers, directors, independent contractors and other
persons who contribute and are expected to contribute materially to the success
of the Company or any subsidiary to obtain a proprietary interest in the Company
through the ownership of stock, thereby providing such persons with an added
incentive to promote the long-term financial interests of the Company and
enhancement of long-term stockholder return. The Plan is further intended to
afford the Company and any subsidiary a means of attracting to its service
persons of outstanding ability. Certain options granted hereunder may qualify as
incentive stock options ("Incentive Stock Options") within the meaning of
Section 422 of the Internal Revenue Code of 1986, as amended (the "Code"), and
other options granted hereunder may not qualify as Incentive Stock Options
("Nonqualified Stock Options"), as determined in each instance by the Committee
referred to in Paragraph 4 (the "Committee").
2. Stock Subject to the Plan.
A total of three million (3,000,000) shares of the authorized but
unissued Common Stock have been allocated to the Plan and will be reserved for
issue upon the exercise of options granted under the Plan. The Company may, in
its discretion, use shares held in the treasury in lieu of authorized but
unissued shares. If any such option shall expire or terminate for any reason
without having been exercised in full, the unpurchased shares subject thereto
shall again be available for the purposes of the Plan. Any shares of Common
Stock issued pursuant to the Plan which are used by an optionee as full or
partial payment to the Company of the purchase price of shares of Common Stock
upon exercise of a stock option shall again be available for the purposes of the
Plan. The number of shares with respect to which options may be granted to any
individual during any calendar year may not exceed one million (1,000,000)
shares.
3. Administration.
The Plan shall be administered by the Committee. Subject to the express
provisions of the Plan, the Committee shall have plenary authority, in its
discretion, to determine the individuals to whom, and the time or times at
which, options shall be granted and the number of shares to be subject to each
option. In making such determinations the Committee may take into account the
nature of the services rendered by the respective individuals, their present and
potential contributions to the Company's success and such other factors as the
Committee, in its discretion, shall deem relevant. Subject to the express
provisions of the Plan, the Committee shall also have plenary authority to
interpret the Plan, to prescribe, amend and rescind rules and regulations
relating to it, to determine the terms and provisions of the respective stock
option agreements or certificates (which need not be identical) and to make all
other determinations necessary or advisable for the administration of the Plan.
The Committee's determinations on the matters referred to in this Paragraph 3
shall be final, binding and conclusive. Except to the extent prohibited by
applicable law, the Committee may grant to one or more of its members or to any
person(s) selected by it, subject to revocation or modification by the
Committee, the
<PAGE>
authority to grant options under the Plan to eligible persons described in
Paragraph 5 hereof, except that the no such person may be delegated authority to
grant options to any employee who is subject to the reporting requirements of
Section 16(a) of the Securities Exchange Act of 1934 or who is a "covered
employee" within the meaning of Section 162(m)(3) of the Code.
4. The Committee.
The Committee shall consist of two or more directors appointed by the
Board of Directors, which may from time to time appoint members of the Committee
in substitution for members previously appointed and may fill vacancies, however
caused, in the Committee. The Board shall select a chairman of the Committee.
The Committee shall hold its meetings at such times and places as it may
determine. A majority of its members shall constitute a quorum. All
determinations of the Committee shall be made by a majority of its members
present at any meeting at which there is a quorum. Any decision or determination
reduced to writing and signed by all of the members shall be fully as effective
as if it had been made by a majority vote at a meeting duly called and held. The
Committee may appoint a secretary, shall keep minutes of its meetings and shall
make such rules and regulations for the conduct of its business as it shall deem
advisable.
5. Eligibility.
Options may be granted to employees, consultants or advisors of the
Company or its subsidiaries selected by the Committee, which may include
officers, whether or not they are directors, but does not include directors who
are not also executive employees of the Company, or a subsidiary thereof, but
may include directors of subsidiaries which are organized under laws outside the
United States. Provided, that Incentive Stock Options may only be granted to
employees of the Company or a subsidiary. The term "subsidiary" shall mean any
corporation, partnership, limited liability company or other entity (other than
the Company), in an unbroken chain of entities beginning with the Company if, at
the time of the granting of the option, each of the entities other than the last
entity in the unbroken chain owns equity possessing 50% or more of the total
combined voting power of all classes of equity in one of the other entities in
such chain, or such other meaning as may be hereafter ascribed to it in Section
424 of the Code.
6. Option Prices.
(a) The purchase price of the Common Stock under each option shall not
be less than 100% of the fair market value of the stock on the date of the grant
of the option as determined by the by the Committee in accordance with Section
6.b.. The purchase price is to be paid in full upon the exercise of the option,
either (i) in cash, (ii) in the discretion of the Committee, by the tender,
either actually or by attestation, to the Company of shares of the Common Stock
of the Company, owned by the optionee and registered in his name, having a fair
market value, as defined above, on the date of exercise equal to the cash
exercise price of the option being exercised, or (iii) in the discretion of the
Committee, by any combination of the payment methods specified in clauses (i)
and (ii) hereof; provided that, no shares of Common Stock may be tendered in
exercise of an Incentive Stock Option if such shares were acquired by the
optionee through the exercise of an Incentive Stock Option unless (i) such
shares have been held by the optionee for at least one year and (ii) at least
two years have elapsed since such Incentive Stock Option was granted; provided
further, that no shares may be tendered in exercise of an option
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unless such shares have been held by the optionee for at least six (6) months.
In addition, the optionee may effect a "cashless exercise" of an option in lieu
of paying the option price in cash or shares owned by the optionee, provided
that such "cashless exercise" is facilitated through a third party, other than
the Company, in accordance with the rules and procedures adopted by the
Committee. Further, the Committee, in its discretion, may approve such other
methods or forms of payment of the purchase price, and establish rules and
procedures therefor. The proceeds of sale of stock subject to option are to be
added to the general funds of the Company or to the shares of the Common Stock
of the Company held in its Treasury, and used for such corporate purposes as the
Board of Directors shall determine.
(b) The "fair market value" of a share of Common Stock as of a specified
date shall mean (i) the closing sale price of the Common Stock on the Nasdaq
Small Cap Market (or on such other body on which the Common Stock is then
traded) on the trading day immediately preceding the date as of which the Fair
Market Value is being determined, (ii) if the closing sale price of the Common
Stock is not so quoted, then the mean between the high and low quoted sale
prices of the Common Stock on the last preceding date on which sales were
reported, (iii) if neither of the above is available, then the mean between the
most recent bid and asked prices of the Common Stock quoted by a market maker or
other recognized specialist in the Common Stock, or (iv) if there is no market
maker for the Common Stock, as reasonably determined by the Committee.
7. Option Amounts.
The maximum aggregate fair market value (determined at the time an
option is granted in the same manner as provided for in Paragraph 6 hereof) of
the Common Stock of the Company with respect to which Incentive Stock Options
are exercisable for the first time by any optionee during any calendar year
(under all plans of the Company and its subsidiaries) shall not exceed
$100,000.
8. Exercise of Options.
(a) The term of each option shall be not more than ten (10) years from
the date of granting thereof or such shorter period as is prescribed in
Paragraph 9 hereof; Within such limit, options will be exercisable at such time
or times, and subject to such restrictions and conditions, as the Committee
shall, in each instance, approve, which need not be uniform for all optionees;
provided, however, that except as provided in Subparagraph (b) of this Paragraph
8 or Paragraph 9 hereof, no option may be exercised at any time unless the
optionee is then an employee of the Company or a subsidiary and has been so
employed continuously since the granting of the option. Upon exercise of an
option the Committee shall withhold a sufficient number of shares to satisfy the
Company's withholding obligations for any taxes incurred as a result of such
exercise, based on the fair market value thereof, as defined above, as of the
date taxes are required to be withheld; provided, that in lieu of all or part of
such withholding, the optionee may pay an equivalent amount of cash to the
Company.
(b) Notwithstanding any other provision of the Plan, unless otherwise
provided by the Committee in the option agreement, each outstanding option shall
become immediately and fully exercisable for a one (1) year period following the
date of a "Change of Control" but in no
3
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event beyond the specified term of such options; provided that, after such one
(1) year period, the normal option exercise provisions of the Plan and such
option shall govern; and provided further, that in the event an optionee's
employment with the Company or any subsidiary is terminated within two (2) years
of a Change of Control, all outstanding stock options of such optionee at the
date of termination shall be exercisable for a period of six (6) months
beginning on the date of termination but in no event beyond the specified term
of such options. The option agreements may contain such other or different
provisions as the Committee, in its discretion, may approve in addition to, or
in lieu of, this Subparagraph (b) of Paragraph 8. In addition, the Committee
shall have the authority, in its discretion, to accelerate the vesting and
permit the immediate exercisability of outstanding options under such other
circumstances as it may deem appropriate.
(c) "Change of Control," as used in Paragraph 8(b) shall be deemed to
have occurred if any individual, corporation, partnership or other person or
entity, together with its Affiliates and Associates, acquires as the Beneficial
Owner more than thirty-five percent (35%) in the aggregate of the voting power
of outstanding shares of capital stock of the Company entitled to vote in the
election of Directors, and within a 400-day period thereafter a majority of
Directors elected to the Board of Directors of the Company, or a majority of the
persons constituting a group authorized to hire or terminate employment of
officers, if other than the Board, are different from the Directors or persons
constituting the Board or group just prior to the start of such period or a
group other than the Board is created to hire or terminate employment of
officers. The terms "Affiliates," "Associate" and "Beneficial Owner" as used in
this Paragraph 8(c) shall be defined by reference to the Securities Exchange Act
of 1934, as amended, and the rules and regulations in effect thereunder.
9. Termination of Employment.
The holder of any option issued hereunder must exercise the option prior
to his termination of employment, except that if the employment of an optionee
terminates with the consent and approval of his employer, the Committee in its
absolute discretion may permit the optionee to exercise his option, to the
extent that he was entitled to exercise it at the date of such termination of
employment, at any time within ninety (90) days after such termination, but
not after ten (10) years from the date of the granting thereof. If a subsidiary
of the Company ceases to be a subsidiary of the Company, an optionee who is
employed by such former subsidiary and is no longer employed by either the
Company or any current subsidiary of the Company shall be deemed to have
terminated employment with the Company and every subsidiary of the Company. If
the optionee terminates employment on account of disability he may exercise such
option to the extent he was entitled to exercise it at the date of such
termination at any time within one (1) year of the termination of his employment
but not after ten (10) years from the date of the granting thereof. For this
purpose a person shall be deemed to be disabled if he is permanently and totally
disabled within the meaning of Section 422(c)(6) of the Code, which, as of the
date hereof, shall mean that he is unable to engage in any substantial gainful
activity by reason of any medically determinable physical or mental impairment
which can be expected to result in death or which has lasted or can be expected
to last for a continuous period of not less than 12 months. A person shall be
considered disabled only if he furnishes such proof of disability as the
Committee may require. Options granted under the Plan shall not be affected by
any change of employment so long as the holder continues to be an employee of
the Company or a subsidiary thereof. The option agreements may contain such
provisions as the Committee shall approve
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<PAGE>
with reference to the effect of approved leaves of absence. Nothing in the Plan
or in any option granted pursuant to the Plan shall confer on any individual any
right to continue in the employ of the Company or any subsidiary or interfere in
any way with the right of the Company or any subsidiary thereof to terminate his
employment at any time.
10. Non-Transferability of Options.
Each option granted under the Plan shall, by its terms, be
non-transferable otherwise than by will or the laws of descent and distribution
and an option may be exercised, during the lifetime of the holder thereof, only
by him; provided, however, that the Committee may, in its sole discretion permit
an optionee to transfer a Nonqualified Stock Option to such persons or entities
as the Committee may approve, in its discretion. In the event of any such
transfer, the option shall still be subject to the provisions of Paragraphs 8
and 9 hereof concerning the exercisability during the optionee's employment.
11. Successive Option Grants.
Successive option grants may be made to any holder of options under the
Plan.
12. Investment Purpose.
Each option under the Plan shall be granted only on the condition that
all purchases of stock thereunder shall be for investment purposes, and not with
a view to resale or distribution, except that the Committee may make such
provision with respect to options granted under this Plan as it deems necessary
or advisable for the release of such condition upon the registration with the
Securities and Exchange Commission of stock subject to the option, or upon the
happening of any other contingency warranting the release of such condition.
13. Adjustments Upon Changes in Capitalization or Corporate Acquisitions.
In the event of increases or decreases in the outstanding Common Stock ,
or such shares are exchanged or changed, by reason of any stock dividend, stock
split, reverse stock split, reclassification, recapitalization, merger,
consolidation, reorganization, split-up, spin-off, combination or exchange of
shares or the like, and, in the event of any such increase, decrease, exchange
or change in the outstanding Common Stock, (i) the aggregate number, kind and
class of shares available for issuance under the Plan, (ii) the maximum number
of shares as to which options may be granted to any individual, and (iii) the
number, kind and class of shares subject to outstanding options and the exercise
prices of such options, shall be appropriately and proportionately adjusted or
substituted by the Committee, whose determination shall be final, binding and
conclusive; provided that the number of shares subject to any award shall always
be a whole number. Notwithstanding the foregoing: (1) in the event the Company
or a subsidiary enters into a transaction described in Section 424(a) of the
Code with any other corporation, the Committee may, in its discretion, grant
options to employees or former employees of such corporation in substitution of
options previously granted to them upon such terms and conditions as shall be
necessary to qualify such grant as a substitution described in Section 424(a) of
the Code; and (2) in the event of a special, non-recurring distribution with
respect to the Company's Common Stock, the Committee may, in its discretion,
adjust the number of shares subject to each
5
<PAGE>
option and the option price per share in such manner as the Committee deems just
and equitable to reflect such distribution, but in no event shall the total
number of shares of Common Stock used under the Plan exceed the number
authorized under Paragraph 2.
14. Amendment and Termination.
Either the Board of Directors or the Committee may at any time terminate
the Plan, or make such modifications of the Plan as it shall deem advisable;
provided, however, that neither the Board of Directors nor the Committee may,
without further approval by the holders of Common Stock, increase the maximum
numbers of shares as to which options may be granted under the Plan (except
under the anti-dilution provisions hereof). No termination or amendment of the
Plan may, without the consent of the optionee to whom any option shall
theretofore have been granted, adversely affect the rights of such optionee
under such option.
15. Effectiveness of the Plan.
The Plan shall become effective upon adoption by the Board of Directors
or the Committee subject, however, to its further approval by the shareholders
of the Company given within twelve (12) months of the date the Plan is adopted
by the Board of Directors or the Committee at a regular meeting of the
shareholders or at a special meeting duly called and held for such purpose.
Grants of options may be made prior to such shareholder approval but all option
grants made prior to shareholder approval shall be subject to the obtaining of
such approval and if such approval is not obtained, such options shall not be
effective for any purpose.
16. Time of Granting of Options.
An option grant under the Plan shall be deemed to be made on the date on
which the Committee (or other person to whom the Committee shall have delegated
authority pursuant to Paragraph 3 hereof) makes an award of an option to an
eligible employee of the Company or its subsidiaries (but in no event prior to
the adoption of the Plan by the Board of Directors), provided that such option
is evidenced by a written option agreement or certificate duly executed on
behalf of the Company and on behalf of the optionee within a reasonable time
after the date of the action of the Committee (or other person to whom the
Committee shall have delegated authority pursuant to Paragraph 3 hereof).
17. Term of Plan.
This Plan shall commence on the date specified herein, and subject to
Paragraph 15, shall remain in effect thereafter. Options outstanding at the
termination of the Plan shall continue in full force and effect and shall not be
affected thereby.
18. Indemnification and Exculpation
Each person who is or shall have been a member of the Board of Directors
or of the Committee (and each such person to whom the Committee shall have
delegated authority pursuant to Paragraph 3 hereof) shall be indemnified and
held harmless by the Company against and from any and all loss, cost, liability
or expense that may be imposed upon or reasonably incurred in connection with or
resulting from any claim, action, suit or proceeding to which the
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person may be a party or in which they may be involved by reason of any action
taken or failure to act under the Plan and against and from any and all amounts
paid by them in settlement thereof (with the Company's written approval) or paid
by them in satisfaction of a judgment in any such action, suit or proceeding,
except a judgment based upon a finding of his or her bad faith; subject,
however, to the condition that upon the institution of any claim, action, suit
or proceeding against them, they shall in writing give the Company an
opportunity, at its own expense, to handle and defend the same before
undertaking to handle and defend it on their own behalf. The foregoing right to
indemnification shall not be exclusive of any other right to which such person
may be entitled as a matter of law or otherwise, or any power that the Company
may have to indemnify or hold such person harmless.
Each member of the Board of Directors or of the Committee (and each such
person to whom the Committee shall have delegated authority pursuant to
Paragraph 3 hereof), and each officer and employee of the Company, shall be
fully justified in relying or acting upon any information furnished to or on
behalf of the Company by any person or persons, other than said individual, in
connection with the administration of the Plan. In no event shall any person who
is or shall have been a member of the Board of Directors or of the Committee (or
any such person to whom the Committee shall have delegated authority pursuant to
Paragraph 3 hereof), or an officer or employee of the Company, be liable for any
determination made or other action taken or any omission to act in reliance upon
any such information, or for any action (including the furnishing of
information) taken or any failure to act, if in good faith.
19. Miscellaneous.
(a) Nothing in the Plan or in any option agreement or certificate
granted pursuant to the Plan shall confer on any individual any right to
continue in the employ of the Company or any subsidiary or interfere in any way
with the right of the Company or any subsidiary thereof to terminate his or her
employment at any time, with or without cause.
(b) The holder of an option shall have none of the rights of a
shareholder with respect to the shares subject to option until such shares shall
be issued to him or her upon the exercise of such option.
(c) This Plan and all award agreements or certificates made and actions
taken hereunder and thereunder shall be governed by and construed in accordance
with the laws of the State of Delaware, without regard for conflicts of laws
principles thereof.
(d) In the event any provision of this Plan or any option agreement or
certificate hereunder shall be held illegal or invalid for any reason, the
illegality or invalidty shall not affect the remaining provisions of this Plan
or such agreement, and this Plan and such agreement or certificate shall be
construed and enforced as if the illegal or invalid provision had not been
included.
(e) The granting of awards and the issuance of shares of Common Stock
under this Plan shall be subject to all applicable laws, rules and regulations,
and to such approvals by any governmental agencies or bodies as may be required.
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(f) Captions are provided for convenience only, and shall not serve as a
basis for interpretation or construction of this Plan or any option agreement or
certificate.
* * *
The foregoing Plan was approved and adopted by the Board of Directors of
the Company on February 29, 2000.
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STOCK OPTION AGREEMENT
THIS AGREEMENT is made as of the 1st day of September, 1999 (the "Grant
Date"), between DME Interactive Holdings, INC., a Delaware corporation (the
"Company"), and Kathleen McQuaid Packard (the "Optionee").
WITNESSETH:
WHEREAS, Optionee will be serving as Senior Vice President of
Internet Services of the Company pursuant to an Employment Agreement dated an
even date herewith (the "Employment Agreement") and, in connection therewith,
the Board of Directors of the Company desires to grant Optionee a stock option
as an inducement to the Optionee's accepting the Company's offer of employment;
NOW, THEREFORE, in consideration of the premises, and of the mutual
agreements hereinafter set forth, it is covenanted and agreed as follows:
1. Grant of Option.
1.1 The Company hereby grants to the Optionee the right and option
(the "Option") to purchase all or any part of an aggregate of Sixty Thousand
(60,000) whole shares of the Common Stock of the Company, (the "Shares") subject
to, and in accordance with, the terms and conditions set forth in this
Agreement. The Shares to be delivered upon exercise of the Option may be shares
of the Company's Common Stock held by the Company as treasury stock or newly
issued shares.
1.2 The Option is not intended to qualify as an Incentive Stock
Option within the meaning of Section 422A of Internal Revenue Code of 1990 (the
"Code").
2. Exercise Price
The price at which the Optionee shall be entitled to purchase Shares
upon the exercise of the Option shall be $2.00 per Share (the "Exercise Price").
3. Term of Option.
The Option shall be exercisable to the extent and in the manner
provided herein (a) for a period of ten (10) years from the Grant Date, or (b)
until the date on which the Optionee is terminated for cause or (c) until the
date which is ninety (90) days after the Optionee voluntarily terminates her
employment or the Company terminates Optionee's employment without cause,
whichever is earlier (the "Exercise Term").
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4. Exercise of Option
4.1 Subject to the provisions hereof, the Optionee may exercise the
Option in whole or in part at any time upon surrender of the Option to the
Company during normal business hours on any business day at the Company's
principal executive offices, and upon (i) payment to the Company in cash, by
certified or official bank check or by wire transfer for the account of the
Company of the Exercise Price for the Shares specified by the Optionee in
writing to the Company or (ii) delivery to the Company of a written notice of an
election to effect a "Cashless Exercise" (as defined below) for the Shares
specified by the Optionee in writing to the Company. The Exercise Price shall,
if paid in cash or by certified check, be payable in lawful money of the United
States of America.
4.2 To effect a Cashless Exercise, the Optionee shall submit to the
Company written notice of her intention to do so, including a calculation of the
number of Shares to be issued upon such exercise in accordance with the terms
hereof. In the event of a Cashless Exercise, in lieu of paying the Exercise
Price in cash, the Optionee shall surrender this Option for that number of
Shares determined by multiplying the number of Shares to which she would
otherwise be entitled by a fraction, the numerator of which shall be the
difference between the then current Market Price per share of the Common Stock
and the Exercise Price, and the denominator of which shall be the then current
Market Price per share of Common Stock. For this purpose, "Market Price" shall
be the closing price per share of the Common Stock on the trading day first
preceding the date the Optionee submits written notice of her intention to
effect a Cashless Exercise.
5. Delivery of Shares.
5.1 Upon receipt of notice of exercise and the Exercise Price for
the Shares in respect of which the Option is being exercised (or the written
notice of a Cashless Exercise), the Company shall take appropriate action to
effect the issuance and delivery to the Optionee of the number of Shares as to
which such exercise was effective.
5.2 The Optionee shall not be deemed to be the holder of, or to have
any of the rights of a holder with respect to, any Shares subject to the Option
until (i) the Option shall have been exercised pursuant to the terms of this
Agreement and the Optionee shall have paid the full Exercise Price for the
number of Shares in respect of which the Option was exercised (or delivered the
written notice of a Cashless Exercise), (ii) the Company has complied, in its
discretion, with any listing, registration or qualification requirement of any
securities exchange or the National Association of Securities Dealers, Inc., as
the case may be, or under any state or federal law (including obtaining from
Optionee any necessary investment representations concerning the Shares), (iii)
the Optionee's name shall have been entered as a stockholder of record on the
books of the Company, and (iv) the Company shall have issued and delivered the
Shares in certificate form to the Optionee, whereupon the Optionee shall have
full voting and other ownership rights with respect to such shares.
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6. No Right to Employment; Termination of Employment.
6.1 Nothing in this Agreement shall be interpreted or construed to
confer upon the Optionee any right to employment or retention by the Company in
any capacity.
6.2 If Optionee's employment by the Company shall be terminated (i)
on account of death or disability, or (ii) by the Optionee for or the Company
for any reason other than for cause, then the Option may be exercised by
Optionee (or Optionee's representative or heirs if Optionee has died), to the
extent Optionee was entitled to exercise it at the time of such death or
termination of employment at any time within ninety (90) days after such death
or termination. Any unexercised portion of the Option shall expire at the end of
such ninety (90) days. In the event Optionee's employment is terminated for
cause, the option hereby granted shall immediately terminate.
7. Adjustments.
7.1 Subject and pursuant to the provisions of this Section 7, the
Exercise Price and number of Shares subject to this Option shall be subject to
adjustment from time to time as set forth hereinafter.
7.2 If the Company shall at any time or from time to time while the
Option is outstanding, pay a dividend or make a distribution on its Common Stock
in shares, subdivide its outstanding shares into a greater number of shares or
combine its outstanding shares into a smaller number of shares or issue by
reclassification of its outstanding shares any shares of its capital stock
(including any such reclassification in connection with a consolidation or
merger in which the Company is the continuing corporation), then the number of
Shares purchasable upon exercise of the Option and the Exercise Price in effect
immediately prior to the date upon which such change shall become effective,
shall be adjusted by the Company so that the Optionee shall be entitled to
receive the number of Shares or other capital stock which the Optionee would
have received if the Option had been exercised immediately prior to such event.
Such adjustment shall be made successively whenever any event listed above shall
occur.
7.3 If any capital reorganization, reclassification of the capital
stock of the Company, consolidation or merger of the Company with another
corporation, or sale, transfer or other disposition of all or substantially all
of the Company's properties to another corporation shall be effected, then, as a
condition of such reorganization, reclassification, consolidation, merger, sale,
transfer or other disposition, lawful and adequate provision shall be made
whereby the Optionee shall thereafter have the right to purchase and receive
upon the basis and upon the terms and conditions herein specified and in lieu of
the Shares immediately theretofore issuable upon exercise of the Option, such
shares of stock, securities or properties as may be issuable or payable with
respect to or in exchange for a number of outstanding Shares equal to the number
of Shares immediately theretofore issuable upon exercise of the Option, had such
reorganization, reclassification, consolidation, merger, sale, transfer or other
disposition not taken place, and in any such case appropriate provision shall
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be made with respect to the rights and interests of the Optionee to the end that
the provisions hereof (including, without limitation, provision for adjustment
of the Exercise Price) shall thereafter be applicable, as nearly equivalent as
may be practicable in relation to any shares of stock, securities or properties
thereafter deliverable upon the exercise thereof. The Company shall not effect
any such consolidation, merger, sale, transfer or other disposition unless prior
to or simultaneously with the consummation thereof the successor corporation (if
other than the Company) resulting from such consolidation or merger, or the
corporation purchasing or otherwise acquiring such assets or other appropriate
corporation or entity shall assume, by written instrument executed and delivered
to the Company, the obligation to deliver to the Optionee such shares of stock,
securities or assets as, in accordance with the foregoing provisions, the
Optionee may be entitled to purchase and the other obligations under this
Option. These provisions shall similarly apply to successive reorganizations,
reclassifications, consolidations, mergers, sales, transfers or other
dispositions.
7.4 In case the Company shall fix a record date for the making of a
distribution to all holders of Common Stock (including any such distribution
made in connection with a consolidation or merger in which the Company is the
continuing corporation) of evidences of indebtedness or assets (other than cash
dividends or cash distributions payable out of consolidated earnings or earned
surplus or dividends or distributions referred to in Section 7.1 above), or
subscription rights or warrants, the Exercise Price to be in effect after such
record date shall be determined by multiplying the Exercise Price in effect
immediately prior to such record date by a fraction, the numerator of which
shall be the total number of shares of Common Stock outstanding multiplied by
the Market Price per Share (as determined pursuant to Section 4.3 above), less
the fair market value (as determined by the Company's Board of Directors in good
faith) of said assets or evidences of indebtedness so distributed, or of such
subscription rights or warrants, and the denominator of which shall be the total
number of shares of Common Stock outstanding multiplied by such current Market
Price per share. Such adjustment shall be made successively whenever such a
record date is fixed. An adjustment shall become effective immediately after the
record date in the case of each dividend or distribution and immediately after
the effective date of each other event which requires an adjustment.
7.5 In the event that, as a result of an adjustment made pursuant to
Section 7.2, the Optionee shall become entitled to receive any shares of capital
stock of the Company other than shares of Common Stock, the number of such other
shares so receivable upon exercise of the Option shall be subject thereafter to
adjustment from time to time in a manner and on terms as nearly equivalent as
practicable to the provisions with respect to the Shares covered by this Option.
7.6 Shares of Common Stock owned by or held for the account of the
Company or any majority-owned subsidiary shall not be deemed outstanding for the
purpose of any computation under this Agreement.
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8. Amendment.
This Agreement may be amended or terminated and any terms or
condition hereof may be waived in accordance with a written instrument executed
on behalf of each party hereto.
9. Notice.
All notices, requests, claims, demands and other communications
hereunder shall be in writing and shall be deemed to have been duly given when
delivered in person, by facsimile transmission or by registered or certified
mail (postage prepaid, return receipt requested) to the parties at the
respective addresses last given by each party to the other.
10. Validity.
The invalidity or unenforceability of any provision of this
Agreement shall not affect the validity or enforceability of any other provision
of this Agreement, which shall remain in full force and effect.
11. Headings.
The headings contained in this Agreement are for reference
purposes only and shall not affect in any way the meaning or interpretation of
this Agreement.
12. Counterparts.
This Agreement may be executed by the parties hereto in two or
more counterparts, each of which shall be deemed to be an original instrument,
but all of which together shall be deemed to be one and the same instrument.
13. Governing Law.
This Agreement shall be governed by and construed in
accordance with the laws of the State of Delaware without giving effect to the
principles of conflicts of the laws thereof.
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14. Resolution of Disputes.
Any dispute or disagreement which may arise under, or as a
result of, or in any way relate to, the interpretation, construction or
application of this Agreement shall be determined by the Board of Directors of
the Company. Any such determination shall be final, binding and conclusive on
the Optionee and the Company for all purposes.
DME INTERACTIVE HOLDINGS, INC.
By: /s/ Darien Dash
----------------------------
Name: Darien Dash
Title: President
KATHLEEN MCQUAID PACKARD
/s/ Kathleen McQuaid Packard
-----------------------------------
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THIS WARRANT HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, OR THE SECURITIES LAWS OF ANY STATE AND MAY NOT BE SOLD, TRANSFERRED OR
OTHERWISE DISPOSED OF EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT OR
EXEMPTION FROM REGISTRATION UNDER THE FOREGOING LAWS. ACCORDINGLY, THIS WARRANT
MAY NOT BE SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF WITHOUT (i) AN OPINION OF
COUNSEL SATISFACTORY TO THE ISSUER OF THIS WARRANT THAT SUCH SALE, TRANSFER OR
OTHER DISPOSITION MAY LAWFULLY BE MADE WITHOUT REGISTRATION UNDER THE SECURITIES
ACT OF 1933 AND APPLICABLE STATE SECURITIES LAWS OR (ii) SUCH REGISTRATION.
DME INTERACTIVE HOLDINGS, INC.
WARRANT
TO PURCHASE
SHARES OF COMMON STOCK
For value received, Janssen Partners, Inc. ("Holder"), is entitled to purchase
from DME INTERACTIVE HOLDINGS, INC., a Delaware corporation (the "Company"), up
to 500,000 fully paid and nonassessable shares of the Company's Common Stock,
$.001 par value per share ("Common Stock") or such greater or lesser number of
such shares as may be determined by application of the anti-dilution provisions
of this warrant, at the price of $2.00 per share, subject to adjustments as
noted below (the "warrant exercise price").
This warrant may be exercised by Holder at any time or from time to time prior
to the close of business on January 3, 2002.
This warrant is subject to the following terms and conditions:
1. Exercise. The rights represented by this warrant may be exercised by the
Holder, in whole or in part, by written election, in the form set forth below,
by the surrender of this warrant (properly endorsed if required) at the
principal office of the Company, by payment to it by cash, certified check or
bank draft of the warrant exercise price for the shares to be purchased and by
delivery of a subscription agreement, an investment letter and/or similar
documents acceptable to the Company demonstrating that the sale of the shares to
be purchased is exempt from registration under the Securities Act of 1933, as
amended, and any state securities law. The shares
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so purchased shall be deemed to be issued as of the close of business on the
date on which this warrant has been exercised by payment to the Company of the
warrant exercise price. Certificates for the shares of stock so purchased,
bearing an appropriate restrictive legend, shall be delivered to the Holder
within 7 days after the rights represented by this warrant shall have been so
exercised, and, unless this warrant has expired, a new warrant representing the
number of shares, if any, with respect to which this warrant has not been
exercised shall also be delivered to the Holder hereof within such time. No
fractional shares shall be issued upon the exercise of this warrant.
In addition, as an alternative to payment of the exercise price in
accordance with the preceding paragraph, the Holder may elect to effect a
cashless exercise by so indicating on the exercise notice and including a
calculation of the number of shares of Common Stock to be issued upon such
exercise in accordance with the terms hereof (a "Cashless Exercise"). In the
event of a Cashless Exercise, the Holder shall surrender this Warrant for that
number of shares of Common Stock determined by multiplying the number of shares
of Common Stock for which this warrant is being exercise by the differnce
between the "Closing Price", as herein defined minus the exercise price in
effect at such time, divided by the Closing Price. The "Closing Price" for each
day shall be the last reported sale price regular way or, in case no sale takes
place on such day, the average of the closing bid and asked prices regular way
on such day, in either case as reported on the New York Stock Exchange Composite
Tape, or, if the Common Stock is not listed or admitted to trading on such
Exchange, on the principal national securities exchange on which the Common
Stock is listed or admitted to trading, or, if the Common Stock is not listed or
admitted to trading on any national securities exchange, on the NASDAQ National
Market System, or, if the Common Stock is not admitted for quotation on the
NASDAQ National Market System, the average of the high bid and low asked prices
on such day as recorded by the National Association of Securities Dealers, Inc.
through NASDAQ, or, if the National Association of Securities Dealers, Inc.
through NASDAQ shall not have reported any bid and asked prices for the Common
Stock on such day, the average of the bid and asked prices for such day as
furnished by any New York Stock Exchange member firm selected from time to time
by the Company for such purpose, or, if no such bid and asked prices can be
obtained from any such firm, the fair market value of one share of the Common
Stock on such
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day as determined in good faith by the Board of Directors of the Company.
2. Shares. All shares that may be issued upon the exercise of the rights
represented by this warrant shall, upon issuance, be duly authorized and issued,
fully paid and nonassessable shares. During the period within which the rights
represented by this warrant may be exercised, the Company shall at all times
have authorized and reserved for the purpose of issue or transfer upon exercise
of the subscription rights evidenced by this warrant a sufficient number of
shares of its Common Stock to provide for the exercise of the rights represented
by this warrant.
3. Adjustment. The warrant exercise price shall be subject to adjustment from
time to time as hereinafter provided in this Section 3:
(a) If the Company at any time divides the outstanding shares of the
Common Stock into a greater number of shares (whether pursuant to a stock
split, stock dividend or otherwise), and conversely, if the outstanding
shares of the Common Stock are combined into a smaller number of shares,
the warrant exercise price in effect immediately prior to such division or
combination shall be proportionately adjusted to reflect the reduction or
increase in the value of each such common share.
(b) If any capital reorganization or reclassification of the capital
stock of the Company, or consolidation or merger of the Company with
another corporation, or the sale of all or substantially all of its assets
to another corporation shall be effected in such a way that holders of the
Common Stock shall be entitled to receive stock, securities or assets with
respect to or in exchange for such Common Stock, then, as a condition of
such reorganization, reclassification, consolidation, merger or sale, the
Holder shall have the right to purchase and receive upon the basis and
upon the terms and conditions specified in this warrant and in lieu of the
shares of the Common Stock immediately theretofore purchasable and
receivable upon the exercise of the rights represented hereby, such shares
of stock, other securities or assets as would have been issued or
delivered to the Holder if Holder had exercised this warrant and had
received such shares of common stock immediately prior to such
reorganization, reclassification, consolidation, merger or sale. The
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<PAGE>
Company shall not effect any such consolidation, merger or sale unless
prior to the consummation thereof the successor corporation (if other than
the Company) resulting from such consolidation or merger or the
corporation purchasing such assets shall assume by written instrument
executed and mailed to the Holder at the last address of the Holder
appearing on the books of the Company the obligation to deliver to the
Holder such shares of stock, securities or assets as, in accordance with
the foregoing provisions, the Holder may be entitled to purchase.
(c) If the Company takes any other action, or if any other event
occurs, which does not come within the scope of the provisions of Section
3(a) or 3(b), but which should result in an adjustment in the warrant
exercise price and/or the number of shares subject to this warrant in
order to fairly protect the purchase rights of the Holder, an appropriate
adjustment in such purchase rights shall be made by the Company.
(d) Upon each adjustment of the warrant exercise price, the Holder
shall thereafter be entitled to purchase, at the warrant exercise price
resulting from such adjustment, the number of shares obtained by
multiplying the warrant exercise price in effect immediately prior to such
adjustment by the number of shares purchasable pursuant hereto immediately
prior to such adjustment and dividing the product thereof by the warrant
exercise price resulting from such adjustment.
(e) Upon any adjustment of the warrant exercise price, the Company
shall give written notice thereof to the Holder stating the warrant
exercise price resulting from such adjustment and the increase or
decrease, if any, in the number of shares purchasable at such price upon
the exercise of this warrant, setting forth in reasonable detail the
method of calculation and the facts upon which such calculation is based.
4. Reservation of Common Stock Issuable on Exercise of Warrants. The Company
will at all times reserve and keep available, solely for issuance and delivery
on the exercise of this warrant, all shares of Common Stock from time to time
issuable on the exercise of this warrant.
5. Impairment. The Company will not, by any voluntary action, avoid or seek
to avoid the observance or performance of any of
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the terms of this warrant, but will at all times in good faith assist in the
carrying out of all such terms and in the taking of all such action as may be
necessary or appropriate in order to protect the rights of the Holder against
dilution or other impairment.
6. No Rights as Shareholder. This warrant shall not entitle the Holder to any
voting rights or other rights as a shareholder of the Company.
7. Transfer of Warrant
7.1. Transferability of Warrant. This warrant and all rights hereunder
are transferable, in whole or in part, subject to the provisions of the
Stockholders Agreement, and in any event subject to compliance with state and
federal securities laws, at the principal office of the Company by the holder
hereof in person or by duly authorized attorney, upon surrender of this warrant
properly endorsed. The bearer of this warrant, when endorsed, may be treated by
the Company and all other persons dealing with this warrant as the absolute
owner hereof for any purpose and as the person entitled to exercise the rights
represented by this warrant, or to the transfer hereof on the books of the
Company, any notice to the contrary notwithstanding; but until such transfer on
such books, and unless such purported transfer was in compliance with the terms
and conditions of the Rights Agreement, the Company may treat the registered
owner hereof as the owner for all purposes.
7.2 Warrant Register. The Company will maintain a register (the "Warrant
Register") containing the names and addresses of the Holder or Holders. The
Holder may change his address as shown on the Warrant Register by written notice
to the Company requesting such change. Any notice or written communication
required or permitted to be given to the Holder may be delivered or given by
mail to such Holder as shown on the Warrant Register and at the address shown on
the Warrant Register. Until this warrant is transferred on the Warrant Register
of the Company, the Company may treat the Holder as shown on the Warrant
Register as the absolute owner of this warrant for all purposes, notwithstanding
any notice to the contrary.
7.3 Warrant Agent. The Company may, by written notice to the Holder,
appoint an agent for the purpose of maintaining the Warrant Register referred to
in Section 8.2 above, issuing the Common Stock or other securities then issuable
upon the exercise
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<PAGE>
of this warrant, exchanging this warrant, replacing this warrant, or any or all
of the foregoing. Thereafter, any such registration, issuance, exchange, or
replacement, as the case may be, shall be made at the office of such agent.
7.4 Exchange of Warrant Upon a Transfer. On surrender of this warrant for
exchange, properly endorsed on the Assignment Form and subject to the provisions
of this warrant with respect to compliance with the Act and with the limitations
on assignments and transfers contained in this Section 8, the Company, at its
expense shall issue to or on the order of the Holder or as the Holder may
direct, for the number of shares issuable upon exercise hereof.
7.5 Compliance with Securities Laws.
(a) Holder, by acceptance hereof, acknowledges that this warrant and
the shares of Common Stock to be issued upon exercise hereof are being acquired
solely for the Holder's own account and not as a nominee for any other party,
and for investment, and that the Holder will not offer, sell or otherwise
dispose of this warrant or any shares of Common Stock to be issued upon exercise
hereof except under circumstances that will not result in a violation of the Act
or any state securities laws. Upon exercise of this warrant, the Holder shall,
if requested by the Company, confirm in writing, in a form satisfactory to the
Company, that the shares of Common Stock so purchased are being acquired solely
for the Holder's own account and not as a nominee for any other party, for
investment, and not with a view toward distribution or resale.
(b) This warrant and all shares of Common Stock issued upon exercise
hereof shall be stamped or imprinted with a legend in substantially the
following form (in addition to any legend required by state securities laws):
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY
APPLICABLE STATE SECURITIES LAWS AND MAY NOT BE SOLD,
TRANSFERRED OR DISPOSED OF WITHOUT COMPLIANCE WITH THE
REGISTRATION OR QUALIFICATION PROVISIONS OF APPLICABLE
FEDERAL AND STATE SECURITIES LAWS OR APPLICABLE EXEMPTIONS
THEREFROM.
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7.6 Replacement of Warrants. On receipt of evidence reasonably
satisfactory to the Company of the loss, theft, destruction or mutilation of any
warrant and, in the case of any such loss, theft or destruction of any warrant,
on delivery of an indemnity agreement or security reasonably satisfactory in
form and amount to the Company or, in the case of any such mutilation, on
surrender and cancellation of such warrant, the Company at its expense will
execute and deliver, in lieu thereof, a new warrant of like tenor,
8. Amendments. Any term of this warrant may be amended with the mutual
written consent of the Company and the Holder. Any amendment effected in
accordance with this Section 9 shall be binding upon the Company, the Holder and
any future transferee of the Warrant.
9. Notices. All demands and notices to be given hereunder shall be
delivered or sent by first class mail, postage prepaid; in the case of the
Company, addressed to its corporate headquarters, 39 Broadway, New York, New
York 10006, until a new address shall have been substituted by like notice; and
in the case of Holder, addressed to Holder at the address written below, until a
new address shall have been substituted by like notice.
10. Governing Law. This warrant shall be construed and enforced in
accordance with and governed by the laws of the State of New York.
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IN WITNESS WHEREOF, the Company has caused this warrant to be executed and
delivered by a duly authorized officer.
Dated: As of January 5, 2000
DME Interactive Holdings, Inc
By: /S/ Darien Dash
-------------------------------
Darien Dash, President
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WARRANT EXERCISE
(To be signed only upon exercise of this warrant)
The undersigned, the Holder of the foregoing warrant, hereby irrevocably
elects to exercise the purchase right represented by such warrant for, and to
purchase thereunder, __________ shares of Common Stock of DME Interactive
Holdings, Inc., to which such warrant relates and herewith makes payment of
$__________ therefor in cash, certified check or bank draft and requests that
the certificates for such shares be issued in the name of, and be delivered to
____________________, whose address is set forth below the signature of the
undersigned.
Dated: ___________
-----------------------
Signature
If shares are to be issued other than to Holder:
Social Security or other Tax Identification No.
Please print present name and address
9
<PAGE>
WARRANT ASSIGNMENT
(To be signed only upon transfer of this warrant)
FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers
unto _______________ the right represented by the foregoing warrant to purchase
the shares of Common Stock of DME Interactive Holdings, Inc. and appoints
____________________ attorney to transfer such right on the books of DME
Interactive Holdings, Inc., with full power of substitution in the premises.
Dated: ______
---------------------------------
Signature
Social Security or other Tax
Identification No.
---------------------------------
Please print present name and complete address
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REGISTRATION RIGHTS AGREEMENT
This Registration Rights Agreement (the "Agreement") is entered into as
of January 5, 2000, by and among DME Interactive Holdings, Inc., a Delaware
corporation (the "Company"), and Janssen Partners, Inc. (the "Janssen").
WHEREAS, Janssen has been issued 500,000 shares of the Company's Common
Stock and a warrant to purchase 500,000 shares of common stock as a fee in
connection with the transactions contemplated in Stock Purchase Agreement, dated
January 5, 2000 ("SPA").
WHEREAS, in connection with such transactions, the Company and Janssen
desire to enter into certain arrangements with respect to the registration for
public sale under the Securities Act of 1933, as amended (the "Securities Act"),
of the shares of the Company's common stock, par value $.001 per share.
NOW, THEREFORE, in consideration of the mutual promises and agreements
contained herein, and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the Company and Janssen hereby
agree as follows:
1. Definitions.
1.1 "Commission" shall mean the Securities and Exchange Commission
or any other federal agency at the time administering the Securities Act.
1.2 "Company" shall mean DME Interactive Holdings, Inc., a Delaware
corporation.
1.3 "Common Shares" shall mean the shares of common stock, par value
$.001 per share, authorized by the Company's Certificate of Incorporation and
any additional shares of common stock which may be authorized in the future by
the Company, and any stock into which such Common Shares may hereafter be
changed.
1.4 "Public Offering" shall mean any offering of Common Shares to
the public, either on behalf of the Company or any of its security holders,
pursuant to an effective registration statement under the Securities Act.
1.5 "Janssen" shall mean Janssen Partners, Inc.
<PAGE>
1.6 "Registrable Securities" shall mean (a) the Common Shares issued
to Janssen in connection with the transactions contemplate by the SPA, (b) the
Common Shares issuable upon the exercise of the Warrant issued to Janssen in
connection with the transactions contemplated by the SPA and (c) any additional
securities issued with respect to the above-described securities upon any stock
split, stock dividend, recapitalization, or similar event. Registrable
Securities shall cease to be Registrable Securities upon the first to occur of :
(i) a registration statement with respect to the sale of such securities shall
have been declared effective under the Securities Act and such securities shall
have been disposed of in accordance with such registration statement, (ii) such
securities shall be eligible to be distributed pursuant to Rule 144 under the
Securities Act in a single three-month period by the holder thereof, (iii) such
securities shall have ceased to be outstanding or (iv) five (5) years after the
date hereof.
1.7 "Registration Expenses" shall mean the expenses described in
Section 5.
1.8 "Securities Act" shall mean the Securities Act of 1933, as
amended.
2. Piggyback Registration.
2.1 Each time the Company shall determine to proceed with the actual
preparation and filing of a registration statement under the Securities Act in
connection with the proposed offer and sale for money of any of its securities
by it or any of its security holders (other than a registration statement on
Form S-8, Form S-4 or other limited purpose form and expressly excluding a
post-effective amendment to registration statement), the Company will give
written notice of its determination to all record holders of Registrable
Securities. Upon the written request of a record holder of any Registrable
Securities given within 30 days after the date of any such notice from the
Company, the Company will, except as herein provided, cause all Registrable
Securities the registration of which is requested to be included in such
registration statement, all to the extent requisite to permit the sale or other
disposition by the prospective seller or sellers of the Registrable Securities
to be so registered; provided, however, that nothing herein shall prevent the
Company from, at any time, abandoning or delaying any registration.
<PAGE>
2.2 If any registration pursuant to Section 2.1 is underwritten in
whole or in part, the Company may require that the Registrable Securities
included in the registration be included in the underwriting on the same terms
and conditions as the securities otherwise being sold through the underwriters.
If, in the good faith judgment of the managing underwriter of the Public
Offering, the inclusion of all of the Registrable Securities originally covered
by requests for registration would reduce the number of shares to be offered by
the Company or interfere with the successful marketing of the shares offered by
the Company, the number of Registrable Securities to be included in the Public
Offering may be reduced pro rata, among the requesting holders thereof in
proportion to the number of Registrable Securities included in their respective
requests for registration. The Registrable Securities which are thus excluded
from the underwritten Public Offering shall be withheld from the market by the
holders thereof for a period which the managing underwriter reasonably
determines is necessary in order to effect the Public Offering. If the managing
underwriter of an public offering of Common Shares requests that Registrable
Securities be excluded from such offering, the Company shall not be required to
include any Registrable Securities in such registration statement.
3. Registration Procedures. If and whenever the Company is required by
the provisions of Article 2 to include Registrable Securities in a Registration
Statement under the Securities Act, the Company will use its best efforts to
effect the registration and sale of such Registrable Securities in accordance
with the intended methods of disposition specified by the holders participating
therein. Without limiting the foregoing, the Company in each such case will, as
expeditiously as possible:
3.1 use its best efforts to cause such registration statement to
become effective; provided, however, that as far in advance as practical before
filing such registration statement or any amendment thereto, the Company will
furnish counsel for the requesting holders of Registrable Securities with copies
of reasonably complete drafts of all such documents proposed to be filed
(including exhibits), and any such holder shall have the opportunity to object
to any information pertaining solely to such holder that is contained therein
and the Company will make the corrections reasonably requested by such holder
with respect
3
<PAGE>
to such information prior to filing such registration statement or amendment.
3.2 Prepare and file with the Commission such amendments and
supplements to such registration statement and any prospectus used in connection
therewith as may be necessary to maintain the effectiveness of such registration
statement and to comply with the provisions of the Securities Act with respect
to the disposition of all Registrable Securities included in such registration
statement, in accordance with the intended methods of disposition thereof, until
the earlier of (a) such time as all of the Registrable Securities included in
such registration statement have been disposed of in accordance with the
intended methods of disposition by the holder or holders thereof as set forth in
such registration statement or (b) one hundred eighty (180) days after such
registration statement becomes effective.
3.3 Promptly notify each requesting holder and the underwriter
or underwriters, if any, of:
(a) when such registration statement or any prospectus used in
connection therewith, or any amendment or supplement thereto, has been
filed and, with respect to such registration statement or any
post-effective amendment thereto, when the same has become effective;
(b) any written request by the Commission for amendments or
supplements to such registration statement or prospectus;
(c) any notification received by the Company from the Commission
regarding the Commission's initiation of any proceeding with respect to,
or of the issuance by the Commission of, any stop order suspending the
effectiveness of such registration statement; and
(d) the receipt by the Company of any notification with respect to
the suspension of the qualification of any Registrable Securities for sale
under the applicable securities or blue sky laws of any jurisdiction.
3.4 Furnish to each holder of Registrable Securities included in
such registration statement such number of conformed copies of such registration
statement and of each amendment and
4
<PAGE>
supplement thereto, and such number of copies of the prospectus contained in
such registration statement (including each preliminary prospectus and any
summary prospectus) and any other prospectus filed under Rule 424 promulgated
under the Securities Act relating to such seller's Registrable Securities, and
such other documents, as such holder may reasonably request to facilitate the
disposition of its Registrable Securities.
3.5 Use its best efforts to register or qualify all Registrable
Securities included in such registration statement under the securities or "blue
sky" laws of such states as each holder of Registrable Securities shall
reasonably request within twenty (20) days following the original filing of such
registration statement and to keep such registration or qualification in effect
for so long as such registration statement remains in effect, and take any other
action which may be reasonably necessary or advisable to enable such holder to
consummate the disposition in such states of the Registrable Securities owned by
such holder, except that the Company shall not for any such purpose be required
(a) to qualify generally to do business as a foreign corporation in any
jurisdiction wherein it would not but for the requirements of this Section 5.5
be obligated to be so qualified, (b) to consent to general service of process in
any such jurisdiction or (c) to subject itself to taxation in any such
jurisdiction by reason of such registration or qualification.
3.6 Use its best efforts to cause all Registrable Securities
included in such registration statement to be registered with or approved by
such other governmental agencies or authorities as may be necessary to enable
each holder thereof to consummate the disposition of such Registrable
Securities.
3.7 Notify each holder whose Registrable Securities are included in
such registration statement, at any time when a prospectus relating thereto is
required to be delivered under the Securities Act, of the happening of any event
as a result of which any prospectus included in such registration statement, as
then in effect, includes an untrue statement of a material fact or omits to
state any material fact required to be stated therein or necessary to make the
statements therein, in the light of the circumstances under which they were
made, not misleading, and at the request of any such holder promptly prepare and
furnish to such holder a reasonable number of copies of a supplement to or an
amendment of such prospectus as may be
5
<PAGE>
necessary so that, as thereafter delivered to the purchasers of such Registrable
Securities, such prospectus shall not include an untrue statement of a material
fact or omit to state a 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.
3.8 Otherwise use its best efforts to comply with all applicable
rules and regulations of the Commission.
3.9 Use its best efforts to cause all Registrable Securities
included in such registration statement to be listed, upon official notice of
issuance, on any securities exchange or quotation system on which any of the
securities of the same class as the Registrable Securities are then listed.
3.10 The Company may require each holder whose Registrable
Securities are being registered to, and each such holder, as a condition to
including Registrable Securities in such registration statement, shall, furnish
the Company and the underwriters with such information and affidavits regarding
such holder and the distribution of such Registrable Securities as the Company
and the underwriters may from time to time reasonably request in writing in
connection with such registration statement. At any time during the
effectiveness of any registration statement covering Registrable Securities
offered by a holder, if such holder becomes aware of any change materially
affecting the accuracy of the information contained in such registration
statement or the prospectus (as then amended or supplemented) relating to such
holder, it will immediately notify the Company of such change.
3.11 Upon receipt of any notice from the Company of the happening of
any event of the kind described in Section 3.7, each holder will forthwith
discontinue such holder's disposition of Registrable Securities pursuant to the
registration statement relating to such Registrable Securities until such holder
receives the copies of the supplemented or amended prospectus contemplated by
Section 3.7 and, if so directed by the Company, shall deliver to the Company all
copies, other than permanent file copies, then in such holder's possession of
the prospectus relating to such Registrable Securities.
3.12 If requested by the Company or its underwriters, none of the
holders will sell their Registrable Securities for a
6
<PAGE>
specified period (not to exceed one hundred and eighty (180) days) following the
effective date of a Registration Statement relating to the sale of Securities by
the Company.
4. Expenses. With respect to any registration requested pursuant this
Agreement, the Company shall bear all of the expenses ("Registration Expenses")
incident to the Company's performance of or compliance with its obligations
under this Agreement in connection with such registration including, without
limitation, all registration, filing, securities exchange listing and NASD fees,
all registration, filing, qualification and other fees and expenses or complying
with state securities or "blue sky" laws, all word processing, duplicating and
printing expenses, messenger and delivery expenses, the fees and disbursements
of counsel for the Company and of its independent public accountants, including
the expenses of any special audits or "cold comfort" letters required by or
incident to such performance and compliance, premiums and other costs of any
policies of insurance against liabilities arising out of the Public Offering of
the Registrable Securities being registered obtained by the Company (it being
understood that the Company shall have no obligation to obtain such insurance)
and any fees and disbursements of underwriters customarily paid by issuers or
sellers of securities; but excluding underwriting discounts and commissions and
transfer taxes, if any, in respect of Registrable Securities and any fees and
disbursements of counsel and accountants to the holders of the Registrable
Securities, which discounts, commissions, transfer taxes, fees and disbursements
shall in any registration be payable by the holders of the Registrable
Securities being registered, pro rata in proportion to the number of Registrable
Securities being sold by them.
5. Indemnification.
5.1 The Company will, to the full extent permitted by law, indemnify
and hold harmless each holder of Registrable Securities which are included in a
registration statement pursuant to the provisions of this Agreement, and its
directors, officers and partners and each other person, if any, who controls
such holder within the meaning of the Securities Act, from and against any and
all losses, claims, damages, expenses or liabilities, joint or several
(collectively, "Losses") to which such holder or any such director, officer,
partner or controlling person may become subject under the Securities Act
7
<PAGE>
or otherwise, insofar as such Losses (or actions or proceedings, whether
commenced or threatened, in respect thereof) arise out of or are based upon any
untrue statement or alleged untrue statement of any material fact contained in a
registration statement prepared and filed hereunder, any preliminary, final or
summary prospectus contained therein or any amendment or supplement thereto or
any omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein (in the case of a
prospectus, in the light of the circumstances under which they were made) not
misleading, and the Company will reimburse the holder and each such director,
officer, partner and controlling person for any legal or other expenses
reasonably incurred by them in connection with investigating or defending
against any such Losses (or action or proceeding in respect thereof); provided,
however, that the Company will not be liable in any such case to the extent that
any such Losses arise out of or are based upon (a) an untrue statement or
alleged untrue statement or omission or alleged omission made in conformity with
written information furnished by such holder specifically for use in the
preparation of the registration statement or (b) such holder's failure to send
or give a copy of the final prospectus to the persons asserting an untrue
statement or alleged untrue statement or omission or alleged omission at or
prior to the written confirmation of the sale of Registrable Securities to such
person if such statement or omission was corrected in such final prospectus.
Such indemnity shall remain in full force and effect regardless of any
investigation made by or on behalf of such holder or any such director, officer,
partner or controlling person of such holder and shall survive the transfer of
such securities by such holder. The Company shall also indemnify each other
person who participates (including as an underwriter) in the offering or sale of
Registrable Securities, their officers and directors, and partners, and each
other person, if any, who controls any such participating person within the
meaning of the Securities Act to the same extent provided above with respect to
holders of Registrable Securities.
5.2 Each holder of Registrable Securities which are included in a
registration pursuant to the provisions of this Agreement will, to the full
extent permitted by law, indemnify and hold harmless the Company, its officers,
directors and each other person, if any, who controls the Company within the
meaning of the Securities Act from and against any and all
8
<PAGE>
Losses to which the Company or any such officer, director or controlling person
may become subject under the Securities Act or otherwise, insofar as such Losses
(or actions or proceedings, whether commenced or threatened, in respect thereof)
arise out of or are based upon any untrue or alleged untrue statement of any
material fact contained in a registration statement prepared and filed
hereunder, any preliminary, final or summary prospectus contained therein 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 (in the case of a
prospectus, in the light of the circumstances under which they were made) not
misleading, in each case to the extent, but only to the extent, that such untrue
statement or alleged untrue statement or omission or alleged omission was so
made in reliance upon and in strict conformity with written information
furnished by such holder specifically for use in the preparation of such
registration statement. Such indemnity shall remain in full force and effect
regardless of any investigation made by or on behalf of the Company or any such
director, officer or controlling person of the Company. The holder of
Registrable Securities included in a registration statement shall also indemnify
each other person who participates (including as an underwriter) in the offering
or sale of Registrable Securities, their officers and directors, and partners,
and each other person, if any, who controls any such participating person within
the meaning of the Securities Act to the same extent as provided above with
respect to the Company. In no event shall the liability of any holder under this
Section 7.2 exceed the net proceeds received by such holder from the sale of
their Registrable Securities.
5.3 Promptly after receipt by a party indemnified pursuant to the
provisions of Section 5.1 or Section 5.2 of notice of the commencement of any
action involving the subject matter of the foregoing indemnity provisions, such
indemnified party will, if a claim thereof is to be made against the
indemnifying party pursuant to the provisions of Section 5.1 or Section 5.2,
promptly notify the indemnifying party of the commencement thereof; but the
omission so to notify the indemnifying party will not relieve the indemnifying
party from any liability which it may have to any indemnified party except to
the extent that the indemnifying party is actually prejudiced by such failure to
give notice. In case any such action is brought against any indemnified party,
the indemnifying party
9
<PAGE>
shall have the right to participate in, and, to the extent that it may wish,
jointly with any other indemnifying party, to assume the defense thereof, with
counsel reasonably satisfactory to such indemnified party; provided, however,
that if the defendants in any action include both the indemnified party and the
indemnifying party and the indemnified party reasonably concludes that there is
a conflict of interest that would prevent counsel for the indemnifying party
from also representing the indemnified party, the indemnified party shall have
the right to select separate counsel to participate in the defense of such
action on behalf of the indemnified party or parties. After notice from the
indemnifying party to such indemnified party of its election so to assume the
defense thereof, the indemnifying party will not be liable to such indemnified
party pursuant to the provisions of Section 5.1 or Section 5.2 for any legal or
other expense subsequently incurred by such indemnified party in connection with
the defense thereof unless (a) the indemnified party shall have employed counsel
in accordance with the proviso of the preceding sentence, (b) the indemnifying
party shall not have employed counsel reasonably satisfactory to the indemnified
party to represent the indemnified party within a reasonable time after the
notice of the commencement of the action or (c) the indemnifying party has
authorized the employment of counsel for the indemnified party at the expense of
the indemnifying party. If the indemnifying party is not entitled to, or elects
not to, assume the defense of a claim, it will not be obligated to pay the fees
and expenses of more than one counsel for the indemnified parties with respect
to such claim, unless in the reasonable judgment of any indemnified party a
conflict of interest may exist between such indemnified party and any other
indemnified parties with respect to such claim, in which event the indemnifying
party shall be obligated to pay the fees and expenses of additional counsel or
counsels for the indemnified parties. No indemnifying party shall consent to
entry of any judgment or enter into any settlement which does not include as an
unconditional term thereof the giving by the claimant or plaintiff to such
indemnified party of a release from all liability in respect to such claim or
litigation without the consent of the indemnified party. No indemnifying party
shall be subject to any liability for any settlement made without its consent.
An indemnified party may at any time elect to participate in the defense of any
claim or proceeding at its own expense.
10
<PAGE>
6. Covenants Relating to Rule 144. If at any time the Company is
required to file reports in compliance with either Section 13 or Section 15(d)
of the Securities Exchange Act of 1934, as amended, (the "Exchange Act") the
Company will use its best efforts to use its best efforts to (a) file reports in
compliance with the Exchange Act and (b) comply with all rules and regulations
of the Commission applicable to the use of Rule 144.
7. Underwritten Offerings. If a distribution of Registrable Securities
pursuant to a registration statement is to be underwritten, the holders whose
Registrable Securities are to be distributed by such underwriters shall be
parties to such underwriting agreement. No requesting holder may participate in
such underwritten offering unless such holder agrees to sell its Registrable
Securities on the basis provided in such underwriting agreement and completes
and executes all questionnaires, powers of attorney, indemnities and other
documents reasonably required under the terms of such underwriting agreement. If
any requesting holder disapproves of the terms of an underwriting, such holder
may elect to withdraw therefrom and from such registration by notice to the
Company and the managing underwriter, and each of the remaining requesting
holders shall be entitled to increase the number of Registrable Securities being
registered to the extent of the Registrable Securities so withdrawn in the
proportion which the number of Registrable Securities being registered by such
remaining requesting holder bears to the total number of Registrable Securities
being registered by all such remaining requesting holders.
8. Amendment. The Company shall not amend this Agreement without the
written consent of the holders of more than 50% of the Registrable Securities.
11
<PAGE>
9. Termination. This Agreement, and all of the Company's
obligations hereunder (other than its obligations pursuant to Article 7,
which obligations shall survive such termination), shall terminate the date
on which there are no Registrable Securities outstanding or
DME INTERACTIVE HOLDINGS, INC.
By: /s/ Darien Dash
----------------------------------
Name: Darien Dash
Title: President
Janssen Partners, Inc.
By: /s/ David Janssen
----------------------------------
Name: David Janssen
-------------------------------
Title: Principal
-------------------------------
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<PAGE>
REGISTRATION RIGHTS AGREEMENT
This Registration Rights Agreement (the "Agreement") is entered into as of
January 5, 2000, by and among DME Interactive Holdings, Inc., a Delaware
corporation (the "Company"), and the persons listed on the signature page hereof
(the "Purchasers").
WHEREAS, the Purchasers have agreed to purchase shares of the Company's
Common Stock pursuant to a Stock Purchase Agreement, dated January 5, 2000
("SPA").
WHEREAS, in connection with such purchase, the Company and the Purchasers
desire to enter into certain arrangements with respect to the registration for
public sale under the Securities Act of 1933, as amended (the "Securities Act"),
of the shares of the Company's common stock, $.001.
NOW, THEREFORE, in consideration of the mutual promises and agreements
contained herein, and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the Company and the Purchasers
hereby agree as follows:
1. Definitions.
1.1 "Commission" shall mean the Securities and Exchange Commission
or any other federal agency at the time administering the Securities Act.
1.2 "Company" shall mean DME Interactive Holdings, Inc., a Delaware
corporation.
1.3 "Common Shares" shall mean the shares of common stock, par
value $.001 per share, authorized by the Company's Certificate of Incorporation
and any additional shares of common stock which may be authorized in the future
by the Company, and any stock into which such Common Shares may hereafter be
changed.
1.4 "Public Offering" shall mean any offering of Common Shares to
the public, either on behalf of the Company or any of its security holders,
pursuant to an effective registration statement under the Securities Act.
1.5 "Purchasers" shall mean the holders from time to time of the
Common Shares issued pursuant to the SPA.
1.6 "Registrable Securities" shall mean (a) the Common Shares
issued to Purchasers pursuant to the SPA and (b) any additional securities
issued with respect
<PAGE>
to the above-described securities upon any stock split, stock dividend,
recapitalization, or similar event. Registrable Securities shall cease to be
Registrable Securities upon the first to occur of : (i) a registration statement
with respect to the sale of such securities shall have been declared effective
under the Securities Act and such securities shall have been disposed of in
accordance with such registration statement, (ii) such securities shall be
eligible to be distributed pursuant to Rule 144 under the Securities Act in a
single three-month period by the holder thereof, (iii) such securities shall
have ceased to be outstanding or (iv) five (5) years after the date hereof.
1.7 "Registration Expenses" shall mean the expenses described in
Section 5.
1.8 "Securities Act" shall mean the Securities Act of 1933, as
amended.
2. Piggyback Registration.
2.1 Each time the Company shall determine to proceed with the actual
preparation and filing of a registration statement under the Securities Act in
connection with the proposed offer and sale for money of any of its securities
by it or any of its security holders (other than a registration statement on
Form S-8, Form S-4 or other limited purpose form and expressly excluding a
post-effective amendment to registration statement), the Company will give
written notice of its determination to all record holders of Registrable
Securities. Upon the written request of a record holder of any Registrable
Securities given within 30 days after the date of any such notice from the
Company, the Company will, except as herein provided, cause all Registrable
Securities the registration of which is requested to be included in such
registration statement, all to the extent requisite to permit the sale or other
disposition by the prospective seller or sellers of the Registrable Securities
to be so registered; provided, however, that nothing herein shall prevent the
Company from, at any time, abandoning or delaying any registration.
2.2 If any registration pursuant to Section 2.1 is underwritten in
whole or in part, the Company may require that the Registrable Securities
included in the registration be included in the underwriting on the same terms
and conditions as the securities otherwise being sold through the underwriters.
If, in the good faith judgment of the managing underwriter of the Public
Offering, the inclusion of all of the Registrable Securities originally covered
by requests for registration would reduce the number of shares to be offered by
the Company or interfere with the successful marketing of the shares offered by
the Company, the number of Registrable Securities to be included in the Public
Offering may be reduced pro rata, among the requesting holders thereof in
proportion to the number of Registrable Securities included in their respective
requests for registration. The Registrable Securities which are thus excluded
2
<PAGE>
from the underwritten Public Offering shall be withheld from the market by the
holders thereof for a period which the managing underwriter reasonably
determines is necessary in order to effect the Public Offering. If the managing
underwriter of an public offering of Common Shares requests that Registrable
Securities be excluded from such offering, the Company shall not be required to
include any Registrable Securities in such registration statement.
3. Registration Procedures. If and whenever the Company is required by
the provisions of Article 2 to include Registrable Securities in a Registration
Statement under the Securities Act, the Company will use its best efforts to
effect the registration and sale of such Registrable Securities in accordance
with the intended methods of disposition specified by the holders participating
therein. Without limiting the foregoing, the Company in each such case will, as
expeditiously as possible:
3.1 use its best efforts to cause such registration statement to
become effective; provided, however, that as far in advance as practical before
filing such registration statement or any amendment thereto, the Company will
furnish counsel for the requesting holders of Registrable Securities with copies
of reasonably complete drafts of all such documents proposed to be filed
(including exhibits), and any such holder shall have the opportunity to object
to any information pertaining solely to such holder that is contained therein
and the Company will make the corrections reasonably requested by such holder
with respect to such information prior to filing such registration statement or
amendment.
3.2 Prepare and file with the Commission such amendments and
supplements to such registration statement and any prospectus used in connection
therewith as may be necessary to maintain the effectiveness of such registration
statement and to comply with the provisions of the Securities Act with respect
to the disposition of all Registrable Securities included in such registration
statement, in accordance with the intended methods of disposition thereof, until
the earlier of (a) such time as all of the Registrable Securities included in
such registration statement have been disposed of in accordance with the
intended methods of disposition by the holder or holders thereof as set forth in
such registration statement or (b) one hundred eighty (180) days after such
registration statement becomes effective.
3.3 Promptly notify each requesting holder and the underwriter
or underwriters, if any, of:
(a) when such registration statement or any prospectus used in
connection therewith, or any amendment or supplement thereto, has been
filed and, with respect to such registration statement or any
post-effective amendment thereto, when the same has become effective;
3
<PAGE>
(b) any written request by the Commission for amendments or
supplements to such registration statement or prospectus;
(c) any notification received by the Company from the Commission
regarding the Commission's initiation of any proceeding with respect to,
or of the issuance by the Commission of, any stop order suspending the
effectiveness of such registration statement; and
(d) the receipt by the Company of any notification with respect to
the suspension of the qualification of any Registrable Securities for sale
under the applicable securities or blue sky laws of any jurisdiction.
3.4 Furnish to each holder of Registrable Securities included in
such registration statement such number of conformed copies of such registration
statement and of each amendment and supplement thereto, and such number of
copies of the prospectus contained in such registration statement (including
each preliminary prospectus and any summary prospectus) and any other prospectus
filed under Rule 424 promulgated under the Securities Act relating to such
seller's Registrable Securities, and such other documents, as such holder may
reasonably request to facilitate the disposition of its Registrable Securities.
3.5 Use its best efforts to register or qualify all Registrable
Securities included in such registration statement under the securities or "blue
sky" laws of such states as each holder of Registrable Securities shall
reasonably request within twenty (20) days following the original filing of such
registration statement and to keep such registration or qualification in effect
for so long as such registration statement remains in effect, and take any other
action which may be reasonably necessary or advisable to enable such holder to
consummate the disposition in such states of the Registrable Securities owned by
such holder, except that the Company shall not for any such purpose be required
(a) to qualify generally to do business as a foreign corporation in any
jurisdiction wherein it would not but for the requirements of this Section 5.5
be obligated to be so qualified, (b) to consent to general service of process in
any such jurisdiction or (c) to subject itself to taxation in any such
jurisdiction by reason of such registration or qualification.
3.6 Use its best efforts to cause all Registrable Securities
included in such registration statement to be registered with or approved by
such other governmental agencies or authorities as may be necessary to enable
each holder thereof to consummate the disposition of such Registrable
Securities.
4
<PAGE>
3.7 Notify each holder whose Registrable Securities are included in
such registration statement, at any time when a prospectus relating thereto is
required to be delivered under the Securities Act, of the happening of any event
as a result of which any prospectus included in such registration statement, as
then in effect, includes an untrue statement of a material fact or omits to
state any material fact required to be stated therein or necessary to make the
statements therein, in the light of the circumstances under which they were
made, not misleading, and at the request of any such holder promptly prepare and
furnish to such holder a reasonable number of copies of a supplement to or an
amendment of such prospectus as may be necessary so that, as thereafter
delivered to the purchasers of such Registrable Securities, such prospectus
shall not include an untrue statement of a material fact or omit to state a
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.
3.8 Otherwise use its best efforts to comply with all applicable
rules and regulations of the Commission.
3.9 Use its best efforts to cause all Registrable Securities
included in such registration statement to be listed, upon official notice of
issuance, on any securities exchange or quotation system on which any of the
securities of the same class as the Registrable Securities are then listed.
3.10 The Company may require each holder whose Registrable
Securities are being registered to, and each such holder, as a condition to
including Registrable Securities in such registration statement, shall, furnish
the Company and the underwriters with such information and affidavits regarding
such holder and the distribution of such Registrable Securities as the Company
and the underwriters may from time to time reasonably request in writing in
connection with such registration statement. At any time during the
effectiveness of any registration statement covering Registrable Securities
offered by a holder, if such holder becomes aware of any change materially
affecting the accuracy of the information contained in such registration
statement or the prospectus (as then amended or supplemented) relating to such
holder, it will immediately notify the Company of such change.
3.11 Upon receipt of any notice from the Company of the happening of
any event of the kind described in Section 3.7, each holder will forthwith
discontinue such holder's disposition of Registrable Securities pursuant to the
registration statement relating to such Registrable Securities until such holder
receives the copies of the supplemented or amended prospectus contemplated by
Section 3.7 and, if so directed by the Company, shall deliver to the Company all
copies, other than permanent file copies, then in such holder's possession of
the prospectus relating to such Registrable Securities.
5
<PAGE>
3.12 If requested by the Company or its underwriters, none of the
holders will sell their Registrable Securities for a specified period (not to
exceed one hundred and eighty (180) days) following the effective date of a
Registration Statement relating to the sale of Securities by the Company.
4. Expenses. With respect to any registration requested pursuant this
Agreement, the Company shall bear all of the expenses ("Registration Expenses")
incident to the Company's performance of or compliance with its obligations
under this Agreement in connection with such registration including, without
limitation, all registration, filing, securities exchange listing and NASD fees,
all registration, filing, qualification and other fees and expenses or complying
with state securities or "blue sky" laws, all word processing, duplicating and
printing expenses, messenger and delivery expenses, the fees and disbursements
of counsel for the Company and of its independent public accountants, including
the expenses of any special audits or "cold comfort" letters required by or
incident to such performance and compliance, premiums and other costs of any
policies of insurance against liabilities arising out of the Public Offering of
the Registrable Securities being registered obtained by the Company (it being
understood that the Company shall have no obligation to obtain such insurance)
and any fees and disbursements of underwriters customarily paid by issuers or
sellers of securities; but excluding underwriting discounts and commissions and
transfer taxes, if any, in respect of Registrable Securities and any fees and
disbursements of counsel and accountants to the holders of the Registrable
Securities, which discounts, commissions, transfer taxes, fees and disbursements
shall in any registration be payable by the holders of the Registrable
Securities being registered, pro rata in proportion to the number of Registrable
Securities being sold by them.
5. Indemnification.
5.1 The Company will, to the full extent permitted by law, indemnify
and hold harmless each holder of Registrable Securities which are included in a
registration statement pursuant to the provisions of this Agreement, and its
directors, officers and partners and each other person, if any, who controls
such holder within the meaning of the Securities Act, from and against any and
all losses, claims, damages, expenses or liabilities, joint or several
(collectively, "Losses") to which such holder or any such director, officer,
partner or controlling person may become subject under the Securities Act or
otherwise, insofar as such Losses (or actions or proceedings, whether commenced
or threatened, in respect thereof) arise out of or are based upon any untrue
statement or alleged untrue statement of any material fact contained in a
registration statement prepared and filed hereunder, any preliminary, final or
summary prospectus contained therein or any amendment or supplement thereto or
any omission or alleged omission to state therein a material fact required to be
stated therein or necessary to
6
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make the statements therein (in the case of a prospectus, in the light of the
circumstances under which they were made) not misleading, and the Company will
reimburse the holder and each such director, officer, partner and controlling
person for any legal or other expenses reasonably incurred by them in connection
with investigating or defending against any such Losses (or action or proceeding
in respect thereof); provided, however, that the Company will not be liable in
any such case to the extent that any such Losses arise out of or are based upon
(a) an untrue statement or alleged untrue statement or omission or alleged
omission made in conformity with written information furnished by such holder
specifically for use in the preparation of the registration statement or (b)
such holder's failure to send or give a copy of the final prospectus to the
persons asserting an untrue statement or alleged untrue statement or omission or
alleged omission at or prior to the written confirmation of the sale of
Registrable Securities to such person if such statement or omission was
corrected in such final prospectus. Such indemnity shall remain in full force
and effect regardless of any investigation made by or on behalf of such holder
or any such director, officer, partner or controlling person of such holder and
shall survive the transfer of such securities by such holder. The Company shall
also indemnify each other person who participates (including as an underwriter)
in the offering or sale of Registrable Securities, their officers and directors,
and partners, and each other person, if any, who controls any such participating
person within the meaning of the Securities Act to the same extent provided
above with respect to holders of Registrable Securities.
5.2 Each holder of Registrable Securities which are included in a
registration pursuant to the provisions of this Agreement will, to the full
extent permitted by law, indemnify and hold harmless the Company, its officers,
directors and each other person, if any, who controls the Company within the
meaning of the Securities Act from and against any and all Losses to which the
Company or any such officer, director or controlling person may become subject
under the Securities Act or otherwise, insofar as such Losses (or actions or
proceedings, whether commenced or threatened, in respect thereof) arise out of
or are based upon any untrue or alleged untrue statement of any material fact
contained in a registration statement prepared and filed hereunder, any
preliminary, final or summary prospectus contained therein 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 (in the case of a prospectus, in the
light of the circumstances under which they were made) not misleading, in each
case to the extent, but only to the extent, that such untrue statement or
alleged untrue statement or omission or alleged omission was so made in reliance
upon and in strict conformity with written information furnished by such holder
specifically for use in the preparation of such registration statement. Such
indemnity shall remain in full force and effect regardless of any investigation
made by or on behalf of the Company or any such director, officer or controlling
person of the Company. The holder of Registrable
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Securities included in a registration statement shall also indemnify each other
person who participates (including as an underwriter) in the offering or sale of
Registrable Securities, their officers and directors, and partners, and each
other person, if any, who controls any such participating person within the
meaning of the Securities Act to the same extent as provided above with respect
to the Company. In no event shall the liability of any holder under this Section
7.2 exceed the net proceeds received by such holder from the sale of their
Registrable Securities.
5.3 Promptly after receipt by a party indemnified pursuant to the
provisions of Section 5.1 or Section 5.2 of notice of the commencement of any
action involving the subject matter of the foregoing indemnity provisions, such
indemnified party will, if a claim thereof is to be made against the
indemnifying party pursuant to the provisions of Section 5.1 or Section 5.2,
promptly notify the indemnifying party of the commencement thereof; but the
omission so to notify the indemnifying party will not relieve the indemnifying
party from any liability which it may have to any indemnified party except to
the extent that the indemnifying party is actually prejudiced by such failure to
give notice. In case any such action is brought against any indemnified party,
the indemnifying party shall have the right to participate in, and, to the
extent that it may wish, jointly with any other indemnifying party, to assume
the defense thereof, with counsel reasonably satisfactory to such indemnified
party; provided, however, that if the defendants in any action include both the
indemnified party and the indemnifying party and the indemnified party
reasonably concludes that there is a conflict of interest that would prevent
counsel for the indemnifying party from also representing the indemnified party,
the indemnified party shall have the right to select separate counsel to
participate in the defense of such action on behalf of the indemnified party or
parties. After notice from the indemnifying party to such indemnified party of
its election so to assume the defense thereof, the indemnifying party will not
be liable to such indemnified party pursuant to the provisions of Section 5.1 or
Section 5.2 for any legal or other expense subsequently incurred by such
indemnified party in connection with the defense thereof unless (a) the
indemnified party shall have employed counsel in accordance with the proviso of
the preceding sentence, (b) the indemnifying party shall not have employed
counsel reasonably satisfactory to the indemnified party to represent the
indemnified party within a reasonable time after the notice of the commencement
of the action or (c) the indemnifying party has authorized the employment of
counsel for the indemnified party at the expense of the indemnifying party. If
the indemnifying party is not entitled to, or elects not to, assume the defense
of a claim, it will not be obligated to pay the fees and expenses of more than
one counsel for the indemnified parties with respect to such claim, unless in
the reasonable judgment of any indemnified party a conflict of interest may
exist between such indemnified party and any other indemnified parties with
respect to such claim, in which event the indemnifying party shall be obligated
to pay the fees and expenses of additional counsel or counsels for the
indemnified parties. No
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indemnifying party shall consent to entry of any judgment or enter into any
settlement which does not include as an unconditional term thereof the giving by
the claimant or plaintiff to such indemnified party of a release from all
liability in respect to such claim or litigation without the consent of the
indemnified party. No indemnifying party shall be subject to any liability for
any settlement made without its consent. An indemnified party may at any time
elect to participate in the defense of any claim or proceeding at its own
expense.
6. Covenants Relating to Rule 144. If at any time the Company is
required to file reports in compliance with either Section 13 or Section 15(d)
of the Securities Exchange Act of 1934, as amended, (the "Exchange Act") the
Company will use its best efforts to use its best efforts to (a) file reports in
compliance with the Exchange Act and (b) comply with all rules and regulations
of the Commission applicable to the use of Rule 144.
7. Underwritten Offerings. If a distribution of Registrable Securities
pursuant to a registration statement is to be underwritten, the holders whose
Registrable Securities are to be distributed by such underwriters shall be
parties to such underwriting agreement. No requesting holder may participate in
such underwritten offering unless such holder agrees to sell its Registrable
Securities on the basis provided in such underwriting agreement and completes
and executes all questionnaires, powers of attorney, indemnities and other
documents reasonably required under the terms of such underwriting agreement. If
any requesting holder disapproves of the terms of an underwriting, such holder
may elect to withdraw therefrom and from such registration by notice to the
Company and the managing underwriter, and each of the remaining requesting
holders shall be entitled to increase the number of Registrable Securities being
registered to the extent of the Registrable Securities so withdrawn in the
proportion which the number of Registrable Securities being registered by such
remaining requesting holder bears to the total number of Registrable Securities
being registered by all such remaining requesting holders.
8. Amendment. The Company shall not amend this Agreement without the
written consent of the holders of more than 50% of the Registrable Securities.
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9. Termination. This Agreement, and all of the Company's obligations
hereunder (other than its obligations pursuant to Article 7, which obligations
shall survive such termination), shall terminate the date on which there are no
Registrable Securities outstanding or
DME INTERACTIVE HOLDINGS, INC.
By: /s/ Darien Dash
-------------------------------
Name: Darien Dash
Title: President
Purchasers:
Argonaut Partnership LP
By:
--------------------------
Quota Rabbico II, Ltd
By:
--------------------------
Argonaut Investment Fund, Ltd.
By:
--------------------------
- -----------------------------
David Gerstenhauser
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Exhibit 21.1 Subsidiaries of DME Interactive Holdings, Inc.
Places of Color, Inc.
DME 39 Broadway Corp.
Digital Mafia, LLC
<PAGE>
CONSENT OF MITCHELL & TITUS, LLP
EXHIBIT 23.1
CONSENT OF MITCHELL & TITUS, LLP, INDEPENDENT AUDITORS
INDEPENDENT AUDITORS' REPORT
The Board of Directors of
DME Interactive Holdings, Inc. and Subsidiaries
We consent to the inclusion on form 10-KSB of our report dated February 28,
2000, with respect to the consolidated balance sheets of DME Interactive
Holdings, Inc. and Subsidiaries as of November 30, 1999, December 31, 1999 and
1998, and the related consolidated statements of operations, changes in
shareholders' equity and cash flows for the eleven-month period ended November
30, 1999, the one-month period ended December 31, 1999 and years ended December,
1999 and 1998, which report appears in the report on form 10-KSB of DME
Interactive Holdings, Inc. and Subsidiaries, filed with the Securities and
Exchange Commission on March 8, 2000.
/s/ MITCHELL & TITUS, LLP
- ----------------------------------
Mitchell & Titus, LLP
New York, New York
March 8, 2000
<PAGE>
RISK FACTORS
AN INVESTMENT IN OUR COMMON STOCK IS HIGHLY SPECULATIVE AND INVOLVES A
HIGH DEGREE OF RISK. YOU SHOULD CAREFULLY CONSIDER THE RISKS DESCRIBED BELOW
BEFORE YOU DECIDE TO BUY OUR COMMON STOCK. IF ANY OF THE FOLLOWING RISKS
ACTUALLY OCCUR, OUR BUSINESS, FINANCIAL CONDITION OR RESULTS OF OPERATIONS WOULD
LIKELY SUFFER. IN THIS CASE, THE TRADING PRICE OF OUR COMMON STOCK COULD
DECLINE, AND YOU MAY LOSE ALL OR PART OF YOUR INVESTMENT.
This Form 10-KSB contains, in addition to historical information,
forward-looking statements that involve risks and uncertainties. All statements,
other than statements of historical fact, regarding our financial position,
potential, business strategy, plans and objectives for future operations are
"forward looking statements". These statements are commonly identified by the
use of such terms and phrases as "intends, "expects, "anticipates", "estimates",
"seeks" and "believes". You are urged to note the description of our plans and
objectives for future operations, assumptions underlying these plans and
objectives and other forward-looking statements included in "Business" and
"Management's Discussion And Analysis" of this Form 10-K. These descriptions and
statements are based on management's current expectations. Our actual results
may differ significantly from the results discussed in these forward-looking
statements as a result of certain factors, including those set forth in this
"Risk Factors" section and elsewhere in this prospectus.
Risks Relating to DME Interactive
We have incurred operating losses and anticipate additional losses
Historically, we have incurred losses from operating activities. For the
years ended December 31, 1999, December 31, 1998 and December 31, 1997, we had
net losses of $845,336, $270,407 and $140,325, respectively. We expect to
increase expenditures to expand marketing operations and to further develop our
PLACES OF COLOR and Fan4Life online resource communities. These anticipated
increases in operating expense levels and developmental costs will adversely
affect operating results and we expect to continue to incur losses through at
least the remainder of the current fiscal year. There can be no assurance that
we can operate profitably and generate positive cash flow from operations in the
future.
Our sources of capital may be insufficient to satisfy our plans for growth
We believe existing working capital and anticipated cash from operating
activities will be sufficient to allow us to meet demand for services during
2000. However, we cannot assure that our financial resources will be sufficient
to fund operating expenses. Moreover, the development and implementation of our
PLACES OF COLOR and Fan4Life online resource communities and the "Places of
Color, Powered by CompuServe" service, and the expansion of our digital
communications solutions business will require additional capital. Currently, we
do not have
<PAGE>
sufficient working capital for that development and there can be no
assurance that working capital will be available or will be adequate for that
development. Furthermore, if developed, we cannot assure you that PLACES OF
COLOR or Fan4Life will produce material revenue or operate profitably. If we are
successful in our business plans, we may experience rapid growth and may require
additional funds to support expanded operations. Our working capital
requirements in the foreseeable future will depend on a variety of factors,
including our ability to implement our business plan.
We anticipate that a significant portion of anticipated capital
requirements may be provided through the exercise of our publicly traded
redeemable common stock purchase warrants (the "Warrants"), which are
exercisable at the price of $5.75. The perceived value of the Warrants at any
given time is related to the market price of our shares, which trade on the OTC
Bulletin Board. Furthermore, we will be unable to accept the exercise price and
issue the shares issuable upon exercise of the Warrants if we do not have an
effective registration statement for such issuance. We intend to file such a
registration statement in the near future, but there can be assurance when, if
at all, such a registration will be effective. If we are unable to obtain
anticipated financing through the exercise of Warrants, we cannot assure you
that we will be able to successfully implement our plans for expansion or meet
our working capital requirements.
While we are exploring a number of options in order to secure alternative
financing, if our business required additional capital, we cannot assure you
that we will be able to successfully obtain additional financing, or that
financing will be available when needed or on terms acceptable to us. We do not
have any commitments for additional financing. Our ability to obtain additional
capital may be dependent on market conditions, the national economy and others
factors outside our control. If adequate funds are not available or are not
available at acceptable terms, our ability to finance its expansion, develop or
enhance services or respond to competitive pressures would be significantly
limited. The failure to secure necessary financing would have a material adverse
effect on our business, prospects, financial condition and results of
operations.
Our limited operating history makes evaluating for business difficult
We commenced operations in 1995 through Digital Mafia, our predecessor.
Accordingly, you can only evaluate our business based on our limited operating
history. You should evaluate our chances of financial and operational success in
light of the risks, uncertainties, expenses, delays and difficulties associated
with starting a new business, many of which may be beyond our control. As a
result of our limited operating history, our plans for growth and the emerging
nature of the markets in which we compete, we believe that quarter-to-quarter
comparisons of our results of operations for preceding quarters are not
necessarily meaningful. You should not rely upon them as indications of future
performance. The uncertainty of our future performance and the uncertainties of
our operating in a new and expanding market increase the risk that the value of
your investment will decline.
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Our future success is uncertain because we are an early stage company
Because we are in an early stage of development, we are subject to the
risks that we will fail to implement our business plan and strategy successfully
and we will need to revise our business plan and strategy should industry
conditions and competition change. These risks are even greater because we are
operating in a new and rapidly evolving market. We cannot assure you that we
will be successful in addressing these risks. If we are not successful in
addressing these risks, our business, prospects, results of operations and
financial condition will be materially adversely affected.
There can be no assurance of the development of our PLACES OF COLOR and Fan4Life
online resources communities
We intend to develop PLACES OF COLOR into a major online resource for
African-Americans and Latino-Americans. In conjunction with that development,
we, along with CompuServe Interactive Services, Inc. ("Compuserve"), intend to
develop "Places of Color, Powered by CompuServe" into a leading Internet service
provider for the urban minority market. Fan4Life will be an online resource
community providing direct links to entertainers and athletes who represent the
urban culture. We have not yet been a provider of content for or access to the
Internet. You should evaluate the PLACES OF COLOR and Fan4Life chances of
financial and operational success in light of the risks, uncertainties,
expenses, delays and difficulties associated with starting a new business, many
of which may be beyond our control. These risks and difficulties include our
ability to: attract a large audience of users to our websites, increase
awareness of our tradenames, strengthen user loyalty, offer compelling content,
services and e-commerce opportunities, maintain our current and develop new
affiliate relationships, attract a large number of advertisers who desire to
reach our users, respond effectively to the offerings of competitive providers
of content of interest to the urban minority market, continue to develop and
upgrade our technology, and attract, retain and motivate qualified personnel.
Development and success of the PLACES OF COLOR online resource community will
require dependence on third parties.
In order to make our PLACES OF COLOR online resource community more
attractive to consumers and advertisers, we will have to enter into agreements
with third party content providers. There can be no assurance that we will be
able to enter into agreements with attractive content providers on reasonable
terms, if at all, that such providers will not terminate the provision of
content on short notice, or that such agreements will result in any revenue or
customer traffic for our web sites.
The success of PLACES OF COLOR and the Places of Color, Powered by
Compuserve is also dependent on the Compuserve and the Strategic Agreement that
we entered into with
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Compuserve on February 2, 2000. Pursuant to that agreement, we will depend on
Compuserve for virtually all of our technical support and hosting services for
PLACES OF COLOR. Additionally, the success PLACES OF COLOR will be dependent on
the success of the "Places of Color, Powered by Compuserve" service to provide
users access and encourage them to utilize the PLACES OF COLOR online resource
community. The Strategic Agreement is for a term of eighteen (18) months and is
terminable sooner for a number of reasons, such as our breach. Failure of
Compuserve to perform in accordance with the Strategic Agreement, or the
termination of such agreement, would have a material adverse effect on the
PLACES OF COLOR online resource community.
Failure by third-party suppliers to provide software and hardware components
will affect our business.
The performance of PLACES OF COLOR and Fan4Life will depend on the
Internet and third parties for access to client products and services, including
CompuServe, Internet service providers, Internet backbone providers and Web
browsers. Users may experience difficulties due to system failures unrelated to
our systems and services. If the Internet were to become regularly unavailable
for many hours at a time, or its ability to handle traffic loads deteriorate
enough to cause frequent unavailability or very slow response times, there would
be less traffic to the PLACES OF COLOR and Fan4Life online resource communities
and the perception of its quality could suffer.
Portions of our business are dependent upon the availability and adequacy
of systems, such as servers, operated by us and others. Such systems may fail
due to technical malfunction, fire, flood or other causes. We have limited
backup systems and redundancy designed into our systems, a portion of which is
based upon third-parties equipment. In addition, as the amount of web pages of
traffic increases, there can be no assurance that we will be able to expand and
scale our systems proportionately. To improve performance and prevent
disruptions in our operations, we may have to make substantial investment to
deploy additional servers, or one or more copies of our, or our clients,
websites to mirror existing online resources. Our failure to successfully
address these issues could have a material adverse effect on our business,
prospects, results. operations and financial condition.
Our efforts to raise awareness of our tradenames may not be successful, which
may limit our ability to expand our client base and attract acquisition
candidates and employees
We believe that building awareness of our tradenames, Digital Mafia, DME
Interactive, Fan4Life and Places of Color, is critical for attracting clients
and employees to our digital communications solutions business. If we do not
continue to build awareness of our tradenames on a national basis, we may not be
able to affect our strategy. We also believe that reputation and name
recognition will grow in importance as the number of companies competing in the
market for
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digital communications solutions increases. Promotion and enhancement of our
names will depend largely on our success to provide high quality, reliable and
cost-effective services. If clients do not perceive our services as meeting
their needs, or if we fail to market our services effectively, we will be
unsuccessful in maintaining and strengthening our brands. If we fail to promote
and maintain our brands, or incur excessive expenses to do so, our business,
prospects, results of operations and financial condition will materially suffer.
We do not have long-term contracts with our interactive service clients
Our clients generally hire us for at least a one year assignment, which
includes hosting and maintenance of the web development solution, but such
agreements generally allow our clients to terminate the agreement without
penalty and with relatively short notice. Once an assignment is completed there
can be no assurance that a client will engage us for further services. As a
result, a client that generates substantial revenue for us in one period may not
be a substantial source of revenue in a subsequent period. In addition, our
clients generally have the right to terminate their relationships with us
without penalty and with relatively short notice. The termination of our
business relationships with any of our significant clients, or a material number
of clients, could adversely affect our future financial performance.
If we fail to accurately estimate costs in fixed-price assignments, our
operating results may be adversely affected
In the fiscal year ended December 31, 1999, approximately 60% of our
revenues were derived from fixed-price assignments. If we fail to estimate costs
accurately, control costs during performance of a fixed-price assignment,
anticipate technical problems or obtain a fee adjustment in the event that we
underestimate costs, our future financial performance could be adversely
affected. We recognize revenues from assignments based on our estimate of the
percentage of each assignment completed in a reporting period. To the extent our
estimates are inaccurate, the revenues and operating profits, if any, we report
for periods during which we are working on an assignment may not accurately
reflect the final results of the assignment and we would be required to record
an expense for such period equal to the amount by which our revenues were
previously overstated.
We may be liable to our clients for damages
Many of our engagements involve the development, implementation and
maintenance of marketing programs that are critical to our clients' businesses.
Our failure or inability to meet a client's expectations in the performance of
services could injure our business reputation or result in a claim for
substantial damages against us regardless of our responsibility for such
failure. In addition, the marketing programs we provide for our clients may
include confidential or proprietary client information. Although we have
implemented policies to prevent such client information from being disclosed to
unauthorized parties or used inappropriately, any such unauthorized disclosure
or
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use could result in a claim against us for substantial damages. Our contractual
provisions attempting to limit such damages may not be enforceable in all
instances or may otherwise fail to protect us from liability for damages, which
could adversely affect our future operating performance.
We may be held liable for information retrieved from our online resource
community
Because our services can be used to download and distribute information to
others, there is a risk that claims may be made against us for defamation,
negligence, copyright or trademark infringement or other claims based on the
nature and content of such material, such as violation of censorship laws.
Although we carry general liability insurance, our insurance may not cover
potential claims of this type, or may not be adequate to indemnify us for all
liability that may be imposed. Any imposition of liability that is not covered
by our insurance or is in excess of our insurance coverage could have a material
adverse effect on our business, results of operations and financial condition.
Variability of our operating results may impact our stock price
Our operating results have fluctuated in the past, and may continue to
fluctuate in the future, as a result of a variety of factors, many of which are
outside of our control, including:
X timing of new projects;
X reductions, cancellations or completions of major projects;
X the loss of significant clients;
X changes in pricing by us or our competitors;
X employee utilization rates;
X changes in personnel;
X costs related to expansion of our business;
X increased competition; and
X marketing budget decisions by our clients.
As a result of these fluctuations, we believe that period-to-period
comparisons of our operating results cannot be relied upon as indicators of
future performance. In some quarters our operating results may fall below the
expectations of securities analysts and investors due to any of
6
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the factors described above. In such event, the trading price of the common
stock would likely decline.
We also expect to experience some variation in operating results
throughout the year which results in part from the marketing communications
spending patterns and business cycles of our clients, and from marketing
communications spending patterns in general. Our revenues may be higher during
the second half of our fiscal year as our clients prepare marketing campaigns
for products and services launched in anticipation of the holiday season. We
expect this variation in operating results to continue in the future.
Continued growth of our business will place increased demands on our systems and
resources and may impact our operating results
The expansion of our business and customer base has placed increased
demands on our management, operating systems, internal controls and financial
and physical resources. Our continued growth, if any, may further strain
existing management and human resources in particular, affecting our ability to
attract and retain talented personnel. Consequently, we may be required to
increase expenditures to hire new employees, open new offices and invest in new
equipment or make other capital expenditures. Any failure to expand any of the
foregoing areas in an efficient manner could adversely affect our business.
There also can be no assurance that we will be able to sustain the rates of
growth that we have experienced in the past.
We depend on certain clients for a substantial portion of our revenue.
In 1999, our largest customer accounted for 17% of our total revenue and
our top 5 customers accounted for 54% of revenue. We do not have long term
contracts with these clients and are often retained only for short term
development projects. There can be no assurance that these customers will
continue to utilize us for digital communication solutions services. The loss of
these or other important clients, if not replaced with other clients, would have
a material adverse effect on our business, prospects, results of operations and
financial condition.
We may experience difficulty in the recruitment and retention of qualified
professionals
Our business is labor intensive and therefore our success depends in part
on our ability to identify, hire, train and retain qualified professionals who
can provide the technical, marketing, Internet strategy and creative skills
required by our clients. There is currently a shortage of such professionals and
other technically skilled employees and this shortage is likely to continue in
the foreseeable future. We compete intensely for qualified personnel with other
companies and we cannot assure you that we will be able to attract, assimilate
or retain other highly qualified technical, marketing and managerial personnel
in the future. The failure to attract and retain the necessary
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technical, marketing and managerial personnel would have a material adverse
effect on our business, prospects, results of operations and financial
condition.
The developing market for our digital communications solutions is subject to
uncertainties
The market for digital communications solutions has only recently begun to
develop, is evolving rapidly and is characterized by an increasing number of
market entrants. Demand for and market acceptance of recently introduced
services are subject to a high level of uncertainty and are dependent on a
number of factors, including:
X the growth in consumer access to and acceptance of new interactive
technologies, such as the internet, online services and corporate
intranets;
X the development of technologies that facilitate interactive communication
between organizations and targeted audiences; and
X our ability to anticipate such technologies and incorporate them into our
services in a timely fashion.
Significant issues concerning the commercial use of these technologies
remain unresolved, and may have a negative impact on the growth of marketing
activities that utilize these technologies. Such significant issues include
security, privacy, reliability, cost, ease of use and quality of service. In
addition, no standards have yet been widely accepted for the measurement of the
effectiveness of interactive services, and there can be no assurance that such
standards will develop sufficiently to support digital communications solutions
services as a significant marketing medium. There can be no assurance that the
market for interactive services will continue to grow, that demand for our
services will continue or that individual personal computer users in business or
at home will continue to use the Internet or other interactive media for
commerce and communication. If the market for digital communications solutions
develops more slowly than we expect, or if our services do not continue to
achieve market acceptance, our future operating performance could be materially
adversely affected.
Our business depends on continued growth in use and improvement of the Internet
Because we are in the business of providing digital communications
solutions, our future success depends on the continued expansion of, and
reliance of consumers and businesses on, the Internet. The Internet may not be
able to support an increased number of users or an increase in the volume of
data transmitted over it. As a result, the performance or reliability of the
Internet may be adversely affected as use increases. The improvement of the
Internet in response to increased demands will require timely improvement of the
high speed modems and other communications equipment that form the Internet
infrastructure. The Internet has already experienced certain outages
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and delays as a result of damage to portions of its infrastructure. The
effectiveness of the Internet may also decline due to delays in the development
or adoption of new technical standards and protocols designed to support
increased levels of activity. There can be no assurance that the infrastructure,
products or services necessary to maintain and expand the Internet will be
developed, or that the Internet will be a viable commercial medium for
advertisers.
Our success relies on Internet advertising and sponsorship activities and
e-Commerce, which may not be as effective or profitable as traditional marketing
media and sales methods.
Our future is highly dependent on increased use of the Internet as an
advertising and e-commerce medium. Many of our digital communication solution
clients and use the Internet as a means of advertising or creating Web-sites in
which they expect to receive advertising or sales revenue. We expect our PLACES
OF COLOR and Fan4Life online resource communities to derive a substantial amount
of revenue from advertising and sponsorships. Many of our potential advertisers
have little or no experience advertising on selling over the Internet and have
allocated only a limited portion of their advertising budgets to Internet
advertising. Furthermore, our agreement with CompuServe prohibits us from
including certain types of advertisements for certain products on our PLACES OF
COLOR web site.
X Online advertising is an unproven business and our ability to generate and
maintain significant advertising revenue will depend, among other things,
on:
X Advertisers' acceptance of the Internet as an effective and sustainable
advertising medium;
X the development of a large base of users of our portal network possessing
demographic characteristics attractive to advertisers;
X our ability to contract with a diverse group of advertising affiliates
with traffic patterns and user demographics that are attractive to
advertisers; and
X the effectiveness of our advertising delivery, tracking and reporting
systems.
If the market for Internet advertising and commerce fails to develop or
develops more slowly than we expect, then our ability to generate revenue would
be materially adversely affected.
Various pricing models are used to sell advertising on the Internet. It is
difficult to predict which, if any, will emerge as the industry standard,
thereby making it difficult to project our future advertising rates and
revenues. Our advertising revenues could be adversely affected if we are unable
to adapt to new forms of Internet advertising.
Furthermore, the development of Web software that blocks Internet
advertisements before they appear on a user's screen may hinder the growth of
online advertising. The expansion of ad
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blocking on the Internet may decrease our revenues because when an ad is
blocked, it is not downloaded from our ad server, which means that such
advertisements are not tracked as a delivered advertisement. In addition,
advertisers may choose not to advertise on the Internet and on our advertising
network because of the use of the Internet advertisement blocking software. The
use of Web software that blocks Internet advertisements may materially and
adversely affect our business.
Consumers' concerns about privacy on the Internet may adversely affect our
business
A feature of the services we provide to some of our clients is the ability
to develop and maintain individual user profiles to measure the effectiveness of
digital marketing programs and to determine the nature of the content to be
provided to particular customers. We also intend to use this on our web sites.
Profile information is often captured when consumers visit a site on the
Internet and volunteer information in response to questions or other forms of
solicitation concerning their backgrounds, interests and preferences. These
profiles may be used by our clients to manage the distribution and frequency as
well as the content of advertising placement. We also intend to use this
information to demonstrate that our online resource communities will reach a
demographically similar group of consumers that can be effectively targeted by
advertisers.
However, privacy concerns may cause consumers to resist providing the
personal data necessary to support this profiling capability. Moreover, even the
perception of privacy concerns, whether or not valid, may indirectly inhibit
market acceptance of the Internet as a means of commerce and marketing. Privacy
concerns would be heightened by legislative or regulatory requirements that
mandate notification to Internet users that the data captured on certain
Internet sites may be used by marketing entities to address product promotion
and advertising to that user. While we are not aware of any such legislation or
regulatory requirements in the United States, no assurance can be given that
they will not be adopted. To the extent we are unable to collect demographic
information, it may hurt our ability to market our on-line resource community to
advertisers as having a demographically similar audience. If the privacy
concerns of consumers are not adequately addressed, our future operating
performance could be materially and adversely affected.
We operate in a rapidly changing, highly competitive environment with low
barriers to entry
The digital communications solutions business is intensely competitive,
rapidly evolving and subject to rapid technological change. We expect
competition to persist, intensify and increase in the future. Most of our
competitors have longer operating histories, larger existing customer bases,
longer relationships with clients and significantly greater financial, technical
and marketing resources than we have.
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There are relatively low barriers to entry into our business. We rely on
the skill of our personnel and the quality of our client service. We have no
patented technology that would preclude or inhibit others from competing with.
We expect to face additional competition from new entrants into the market in
the future. We cannot assure you that existing or future competitors will not
develop or offer services that provide significant performance, price, creative
or other advantages over those offered by us, which could have a material
adverse effect on our business, prospects, results of operations and financial
condition.
We depend on our key management personnel for our future success
We rely on our key management personnel, including Darien Dash, our Chief
Executive Officer, Andre McKoy, our Executive Vice President of Finance,
Accounting and Administration, and Kathleen McQuaid Packard, Senior Vice
President of Production. DME Interactive has written employment agreements with
these employees, but those agreements are terminable upon certain events,
including, in the case of Mr. McKoy and Ms. Packard, thirty days notice. We
believe that our future success will depend upon our ability to attract and
retain additional highly skilled personnel. If any of our officers or key
employees leave our employ, it could have material adverse effect on our
business, prospects on results of operations. Additionally, the Strategic
Agreement with CompuServe provides that CompuServe may terminate the agreement
if Mr. Dash is no longer one of our senior officers.
We are controlled by a single stockholder
Our Chairman and Chief Executive Officer, Darien Dash, owns approximately
44.8% of our outstanding shares of shares and has voting control over
approximately 53.9% of the shares. when taking into account shares of family
members and other entities for whose shares he has a voting proxy. Therefore, he
will have the power to control the election of our directors, influence the
appointment of new management and control the approval of any other action
requiring the approval of our stockholders, including any amendments to our
Certificate of Incorporation and mergers or sales of all of our assets. In
addition, without the consent of Mr. Dash, we could be prevented from entering
into certain transactions that could be beneficial to us. Also, third parties
could be discouraged from making a tender offer or bid to acquire our company at
a price per share that is above the price at which the common stock trades.
Any future acquisitions we make of companies or technologies, or strategic
relationships that we may establish, may result in disruptions to our business
and/or the distraction of our management, due to difficulties in assimilating
acquired personnel and operations.
We may acquire or make investments in complementary businesses,
technologies, services or products or enter into strategic relationships if
appropriate opportunities arise. From time to time
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we engage in discussions and negotiations with companies regarding our acquiring
or investing in such companies' businesses, products, services or technologies,
and we regularly engage in discussions and negotiations in the ordinary course
of our business for the establishment of strategic relationships. Some of those
discussions also contemplate the other party making an investment in our
company. We cannot assure you that we will be able to identify future suitable
acquisition, investment, or strategic partnership candidates, or if we do
identify suitable candidates, that we will be able to make such acquisitions,
investments or strategic relationships on commercially acceptable terms or at
all. If we acquire, invest in or receive an investment from another company, we
could have difficulty in assimilating that company's personnel, operations,
technology and software. These difficulties could disrupt our ongoing business,
distract our management and employees, increase our expenses and adversely
affect our results of operations. Furthermore, we may incur indebtedness or
issue equity securities to pay for such future transaction. The issuance of
equity securities would be dilutive to our existing stockholders. As of the date
of this prospectus, we have no agreement to enter into any material transaction.
Changes in government regulation could adversely affect our business
The digital communications industry is subject to extensive government
regulation, both domestic and foreign, with respect to the truth in and fairness
of advertising. We must comply with Federal Trade Commission regulations
governing the marketing of products and services and similar state regulations.
In addition, there has been an increasing tendency in the United States on the
part of businesses to resort to the judicial system to challenge comparative
advertising of their competitors on the grounds that the advertising is false
and deceptive. There can be no assurance that we will not be subject to claims
against us or our clients by other companies or governmental agencies or that
any such claims, regardless of merit, would not have a material adverse effect
on our future operating performance.
Due to the increasing popularity and use of the Internet, any number of
state, federal, or foreign, international laws and regulations may be adopted
regarding pricing, acceptable content, taxation and quality of products and
services. Any new legislation could inhibit the growth in use of the Internet
and decrease the acceptance of the Internet as a communications and commercial
medium, or could in turn decrease the demand for our services or otherwise have
a material adverse effect on our future operating performance.
There is uncertainty regarding how new or existing tax laws may effect our
business and our industry and any changes to these laws may adversely affect our
business.
There is currently significant uncertainty as to whether or how existing
laws governing sales and other taxes apply to the Internet and commercial online
services. In addition, one or more states could seek to impose additional income
tax obligations on out-of-state companies, such as ours, which engage in or
facilitate online commerce. A number of proposals have been made at
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state and local levels that could impose these taxes on the sale or products and
services online and the income derived from these sales. These proposals, if
adopted, could remove a significant advantage of online commerce versus other
forms of commerce. These taxes could result in an increase in tax expense for
us. More significantly, these taxes could hamper the growth of commerce on the
Internet, limiting the number of potential customers, strategic partners and
advertisers available to us. Therefore, additional taxes could have a material
adverse effect on our business, prospects, results of operations and financial
condition.
Our predecessor operations may expose us to liabilities that could adversely
affect our operating results
Until June of 1999, we were engaged in the business of leasing and selling
automobiles. Those operations were conducted through two subsidiaries that were
sold in June of 1999. However, to the extent that any operations were conducted
directly by DME or if DME guaranteed the obligations of such subsidiaries, then
DME may be subject to liabilities unrelated to its existing operations.
Management is not aware of any such liabilities and would be entitled for
indemnification from Pride, Inc., the purchaser of the two subsidiaries, if such
liabilities arose. However, there can be no assurance that DME will not have
liabilities related to its predecessor operations that would have a material
adverse effect on its financial condition.
Risks related to the Trading Market for our Common Stock
Market volatility may impact or share price
The stock market in general, and the market for technology-related stocks
in particular, have experienced extreme volatility that often has been unrelated
to the operating performance of particular companies. These broad market and
industry fluctuations may adversely affect the trading price of our common
stock, regardless of our actual operating performance.
There is no assurance of established public trading market for our common stock
Although our common stock trades on the OTC Bulletin Board, there can be
no assurance that a regular trading market will be sustained. The OTC Bulletin
Board is an inter-dealer, over-the-counter market which provides significantly
less liquidity than the Nasdaq Stock Market. Quotes for stocks included on the
OTC Bulletin Board are not listed in the financial sections of newspapers as are
those for the Nasdaq Stock Market. Therefore, prices for securities traded
solely on the OTC Bulletin Board may be difficult to obtain and holders of
common stock may be unable to resell their securities at or near their original
offering price or at any price. Furthermore, the NASD has enacted recent changes
that limit quotations on the OTC Bulletin Board to securities of issuers that
are current in their reports filed with the SEC. The intent of the change is to
make reliable and current financial and other information about issuers
available to the investing public.
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Additional changes to the OTC Bulletin Board have been proposed, which if and
when implemented will require broker-dealers and market makers to review current
information about an issuer before making recommendations to a customer in the
security, and to provide certain disclosure information on the trade
confirmation for all customer transactions. The effect on the Bulletin Board of
these rule changes can not be determined at this time. In the event our common
stock is not included on the OTC Bulletin Board and does not qualify for Nasdaq,
quotes for the securities may be included in the "pink sheets" for the
over-the-counter market.
"Penny Stock" regulations impose certain restrictions on marketability of
securities
The Securities and Exchange Commission ("SEC") has adopted regulations
which generally define "penny stock" to be any equity security that is not
traded on a national securities exchange or Nasdaq and that has a market price
of less than $5.00 per share or an exercise price of less than $5.00 per share,
subject to certain exceptions. A security of an issuer that meets certain
minimum financial requirements would also be excluded from the definition of
"penny stock" (generally, with net tangible assets in excess of $2 million or $5
million, respectively, depending upon whether the issuer has been continuously
operating for less or more than three years, or "average revenue" of at least $6
million for the last three years.)
As long as we do not meet the financial requirements, and our common stock
is trading at less than $5.00 per share on the OTC Bulletin Board, our common
stock is subject to rules that impose additional sales practice requirements on
broker-dealers who sell these securities to persons other than established
customers and accredited investors (generally, investors with a net worth in
excess of $1,000,000 or an individual annual income exceeding $200,000, or,
together with the investor's spouse, a joint income of $300,000). For
transactions covered by these rules, the broker-dealer must make a special
suitability determination for the purchase of such securities and have received
the purchaser's written consent to the transaction prior to the purchase.
Additionally, for any transaction involving a penny stock, unless exempt, the
rules require, among other things, the delivery, prior to the transaction, of a
risk disclosure document mandated by the SEC relating to the penny stock market
and the risks associated therewith. The broker-dealer must also disclose the
commission payable to both the broker-dealer and the registered representative,
current quotations for the securities and, if the broker-dealer is the sole
market-maker, the broker-dealer must disclose this fact and the broker-dealer's
presumed control over the market. Finally, monthly statements must be sent
disclosing recent price information for the penny stock held in the account and
information on the limited market in penny stocks. Consequently, the penny stock
rules may restrict the ability of broker-dealers to sell our common stock and
may limit your ability to sell our common stock in the secondary market.
Substantial sales of Common Stock eligible for resale could adversely affect our
stock price
Sales of a substantial number of shares of our Common Stock could
adversely affect the
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market price of our common stock by introducing a large number of sellers to the
market. Given the volatility and lack of established market that exists for our
shares, such sales could cause the market price of our common stock to decline.
As of the date of this filing, we have outstanding 25,964,666 shares of
Common Stock, of which 3,210,850 shares are freely trading without restriction
under the Securities Act of 1933, as amended (the "Securities Act"), and
22,753,816 of which may be sold subject to the provisions of Rule 144 or another
exemption under the Securities Act. Generally, the shares of Common Stock
subject to the act may be sold commencing within one year of issuance (and
therefore less than one year from the date hereof), provided that 14,000,000 of
such shares have been issued to our officers and directors and therefore are
subject to the volume limitations of Rule 144. Additionally, 2,595,000 shares
are issuable upon exercise of our public traded common stock purchase warrants,
4,000,000 shares are issuable upon exercise of warrants issued to America
Online, Inc. in connection with a Strategic Agreement, and 500,000 shares are
issuable upon exercise of a warrant granted in connection with our 2000 private
placement. All of these warrants are subject to agreements requiring us to
register the shares of common stock issuable upon exercise. Another 1,204,500
shares are to be issued pursuant to currently outstanding options granted to our
employees.
Our charter documents and Delaware law may inhibit a takeover that stockholders
may consider favorable.
Provisions in our charter and by-laws, particularly the authorization for
the board of directors to issue preferred stock, may have the effect of
preventing or delaying a change in control or changes in our management that our
stockholders may consider favorable or beneficial. This could have the result of
preventing stockholders from being paid a premium over the market value of the
shares of common stock or causing a decline in the market price of the common
stock.
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