<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
--------------------
FORM S-4
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
--------------------
FTM MEDIA, INC.
(Exact Name of Registrant as Specified in its Charter)
<TABLE>
<CAPTION>
DELAWARE 4832 84-1295270
<S> <C> <C>
(State or Other Jurisdiction (Primary Standard Industrial (I.R.S. Employer
of Incorporation of Organization) Classification Code Number) Identification No.)
</TABLE>
6991 EAST CAMELBACK ROAD, SUITE D-103, SCOTTSDALE, ARIZONA 85251
(480) 425-0099
(Address, including zip code and telephone number, including area code of
registrant's principal executive offices)
SCOTT MANSON
6991 EAST CAMELBACK ROAD, SUITE D-103, SCOTTSDALE, ARIZONA 85251
(480) 425-0099
(Name, address, including zip code and telephone number,
including area code of agent for service)
COPY TO:
RICHARD C. WIRTHLIN, ESQ.
IRELL & MANELLA LLP
1800 AVENUE OF THE STARS, SUITE 900, LOS ANGELES, CALIFORNIA 90067
(310) 277-1010
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the Registration Statement becomes effective.
If the securities being registered on this form are being offered in connection
with the formation of a holding company and there is compliance with General
Instruction G, check the following box. [ ]
If this form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If this form is a post-effective amendment filed pursuant to Rule 462(d) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
- ------------------------------ ----------------- ------------------------ ---------------------- -----------------
PROPOSED
MAXIMUM AMOUNT PROPOSED MAXIMUM PROPOSED MAXIMUM AMOUNT OF
TITLE OF EACH CLASS OF TO BE OFFERING PRICE PER AGGREGATE OFFERING REGISTRATION
SECURITIES TO BE REGISTERED REGISTERED(1) SHARE(2) PRICE FEE (3)
- ------------------------------ ----------------- ------------------------ ---------------------- -----------------
<S> <C> <C> <C> <C>
Common Stock, $0.001 par 2,153,032 $1.630 $3,509,442 $975.62
value per share
- ------------------------------ ----------------- ------------------------ ---------------------- -----------------
</TABLE>
(1) Represents the maximum number of shares of common stock of FTM Media, Inc.
("FTM Delaware"), $0.001 par value per share ("FTM Common Stock") to be
issued pursuant to the merger with Interactive Radio Group, Inc. ("INRG"),
based on the issuance of 1.25 shares of FTM Common Stock in exchange for
each share of INRG common stock and a maximum of 1,722,425 shares of INRG
common stock to be acquired in the merger.
(2) Estimated solely for purposes of calculating the registration fee pursuant
to Rule 457(f)(2) of the Securities Act of 1933, based upon the book value
per share of $1.630 for each share of INRG common stock as of September 15,
1999.
(3) The registration fee of $975.62 was calculated pursuant to Rule 457(f)
under the Securities Act by multiplying .000278 times the proposed maximum
aggregate offering price.
---------------------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(a) OF THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THIS
REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE
COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a), MAY DETERMINE.
<PAGE> 2
NOTICE OF ACTION BY THE WRITTEN CONSENT
OF
MAJORITY SHAREHOLDER
INTERACTIVE RADIO GROUP, INC.
a Delaware Corporation
Dear Interactive Radio Group, Inc. Stockholder:
Pursuant to Section 228(d) of the Delaware General Corporation Law, we
hereby give you notice of an action by the written consent of the majority
shareholder of INRG approving (i) the merger of INRG into FTM Media, Inc., a
Delaware corporation ("FTM Delaware"), where FTM Delaware will be the surviving
corporation, and (ii) the adoption of the Interactive Radio Group, Inc. 1999
Stock Option Plan.
The merger will take place approximately 10 days following the date of
this notice. At the time of the merger of INRG into FTM Delaware, your shares of
INRG common stock will be converted automatically into 1.25 shares of common
stock of FTM Delaware. FTM Delaware's common stock will be traded on the OTC
Bulletin Board under the symbol "FTMM."
Sincerely,
/s/ Scott Manson
------------------------------------
Scott Manson
Secretary
2
<PAGE> 3
PROSPECTUS
FTM MEDIA, INC.
a Delaware Corporation
Dear Interactive Radio Group, Inc. Stockholder:
Pursuant to the action by written consent of the majority shareholder of
Interactive Radio Group, Inc., a Delaware corporation ("INRG"), INRG will merge
into FTM Media, Inc., a Delaware corporation ("FTM Delaware") in a merger in
which FTM Delaware will be the surviving corporation. FTM Delaware is a wholly
owned subsidiary of FTM Media, Inc. (formerly Redwood Broadcasting, Inc.), a
Colorado corporation ("FTM Colorado"), which currently owns approximately 74% of
the outstanding shares of INRG's common stock. Immediately prior to this merger,
FTM Colorado will be reincorporated into Delaware by merging into FTM Delaware.
At the time of the merger of INRG into FTM Delaware, your shares of INRG
common stock will be converted automatically into 1.25 shares of common stock of
FTM Delaware. FTM Delaware's common stock will be traded on the OTC Bulletin
Board under the symbol "FTMM."
We believe that this merger is in your best interest as a stockholder of
INRG.
The attached documents provide you with detailed information about the
merger. You can also obtain information about us from publicly available
documents that have been filed with the Securities and Exchange Commission.
Please read these documents carefully in their entirety.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved these securities or determined if this
prospectus is accurate or adequate. Any representation to the contrary is a
criminal offense.
The date of this prospectus is [ ], 1999 and is first being
mailed to stockholders on or about [ ], 1999.
3
<PAGE> 4
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
SUMMARY....................................................................................6
Treatment of Stock Options in the Merger...........................................7
Treatment of INRG Preferred Stock in the Merger....................................7
Reasons for the Merger.............................................................7
Anticipated Closing of the Merger..................................................7
Conditions of the Merger...........................................................7
Termination of the Merger..........................................................7
Federal Income Tax Treatment.......................................................7
Anticipated Accounting Treatment...................................................7
Markets and Market Prices..........................................................8
Appraisal Rights...................................................................8
Action by Written Consent of Majority Shareholder..................................8
Forward-Looking Statements May Prove Inaccurate....................................8
QUESTIONS AND ANSWERS ABOUT THE MERGER.....................................................9
DISCLOSURE AND FORWARD-LOOKING STATEMENTS.................................................10
RISK FACTORS..............................................................................10
SELECTED HISTORICAL FINANCIAL DATA........................................................22
THE MERGER................................................................................32
Background of the Merger..........................................................32
Reasons for the Merger............................................................32
Plan of Merger....................................................................32
Material United States Federal Income Tax Consequences of the Merger..............34
Anticipated Accounting Treatment..................................................35
Restrictions on Resales by Affiliates.............................................35
Appraisal Rights..................................................................35
Operations After the Merger.......................................................37
THE COMPANY...............................................................................39
CBS Agreement.....................................................................40
Other Potential Internet Products and Services....................................40
The Market........................................................................40
Strategy..........................................................................41
Sales and Marketing...............................................................42
Competition.......................................................................42
Government Regulation and Legal Uncertainties.....................................44
Employees.........................................................................45
</TABLE>
4
<PAGE> 5
<TABLE>
<S> <C>
Description of Property...........................................................46
Legal Proceedings.................................................................46
Directors, Executive Officers and Principal Consultants...........................49
Board Committees..................................................................51
Family Relationships..............................................................51
Executive Compensation............................................................51
Stock Incentive Plan..............................................................52
Director Compensation.............................................................53
Agreement Regarding Directorships.................................................53
Security Ownership of Certain Beneficial Owners and Management....................53
INRG Ownership....................................................................53
Projected FTM Delaware Ownership Post-Merger......................................54
LEGAL MATTERS.............................................................................61
Experts...........................................................................61
WHERE YOU CAN FIND MORE INFORMATION.......................................................61
ANNEX A AGREEMENT AND PLAN OF MERGER...................................................A-1
ANNEX B CERTIFICATE OF INCORPORATION OF FTM MEDIA, INC................................B-1
ANNEX C BYLAWS OF FTM MEDIA, INC........................................................C-1
ANNEX D DELAWARE CODE TITLE 8. CORPORATIONS CHAPTER 1.
GENERAL CORPORATION LAW SUBCHAPTER IX. MERGER OR CONSOLIDATION...............D-1
ANNEX E INTERACTIVE RADIO GROUP, INC 1999 STOCK OPTION PLAN.............................E-1
ANNEX F FTM MEDIA, INC 1999 STOCK OPTION PLAN...........................................F-1
Part II Information Not Required In Prospectus......................................II-1
Item 20.Indemnification of Directors and Officers...............................II-1
Item 21.Exhibits and Financial Statement Schedules..............................II-1
Item 22.Undertakings............................................................II-2
SIGNATURES..............................................................................II-5
EXHIBIT INDEX...........................................................................II-6
</TABLE>
5
<PAGE> 6
SUMMARY
This summary highlights selected information from this document and does
not contain all of the information that may be important to you. To understand
the merger fully and for a more complete description of the legal terms of the
merger, you should read carefully this entire document and the documents to
which we have referred you. See "Where You Can Find More Information" on
page 61.
THE MERGER
The majority shareholder of INRG has approved by a written consent a
merger in which INRG will be merged with and into FTM Delaware, and each holder
of INRG common stock will receive 1.25 shares of FTM Delaware common stock for
each share of INRG common stock. Approximately 74% of the outstanding shares of
INRG's common stock are currently owned by FTM Colorado, which owns 100% of the
stock of FTM Delaware.
FTM Delaware is currently a wholly owned subsidiary of FTM Colorado.
Immediately before the merger of INRG into FTM Delaware, FTM Colorado will be
reincorporated in Delaware by merging into FTM Delaware. (This merger is
sometimes referred to as the "Reincorporation Merger".)
The mergers described above will result in the elimination of the
minority interest in INRG. However, there will be no other changes to the
business, management, location, policies or properties of INRG.
The mergers are expected to take effect [ ], 1999. Following these
mergers, FTM Delaware's common stock will be traded on the OTC Bulletin Board
under the symbol "FTMM."
THE COMPANIES
FTM Delaware is a newly organized Delaware corporation which is wholly
owned by FTM Colorado and which has been formed to be the surviving corporation
under the Merger Agreement. FTM Delaware has had no operations prior to the date
of this prospectus.
INRG is a majority-owned subsidiary of FTM Colorado. The business of
INRG consists primarily of developing a network of linked, interactive,
multi-media, 2-D/3-D Internet web sites for major market radio stations.
FTM Colorado, formerly Redwood Broadcasting, Inc., owns a majority
interest in INRG and 100% of the stock of FTM Delaware.
UNLESS THE CONTEXT OTHERWISE REQUIRES, "WE," "US," "OUR" AND SIMILAR
TERMS, AS WELL AS REFERENCES TO THE "COMPANY" REFER TO INRG AND FTM COLORADO
ON A COMBINED BASIS PRIOR TO THE MERGERS, AND TO THE COMBINED ENTITY THAT WILL
BE FORMED AS A RESULT OF THE MERGERS.
6
<PAGE> 7
TREATMENT OF STOCK OPTIONS IN THE MERGER
In the INRG merger, each stock option previously granted under the INRG
Stock Option Plan will be converted into a stock option to purchase a number of
shares of FTM Delaware common stock equal to 1.25 times the number of shares of
INRG common stock subject to the option with no change in the aggregate exercise
price of the option.
TREATMENT OF INRG PREFERRED STOCK IN THE MERGER
In the merger, INRG's Series A Preferred Stock will be converted into
the Series A preferred stock of FTM Delaware, with substantially similar terms.
REASONS FOR THE MERGER
The Board of Directors of INRG believes that the merger is fair and in
the best interests of INRG and its stockholders because it will complete the
acquisition of INRG by FTM, eliminate the minority interest in INRG and provide
greater liquidity to the minority stockholders in INRG.
ANTICIPATED CLOSING OF THE MERGER
We currently anticipate that the merger will be closed by [ , 1999].
CONDITIONS OF THE MERGER
INRG and FTM Delaware will complete the merger only if the conditions to
the merger are either satisfied or waived. These conditions include, among other
things:
- FTM Colorado has been reincorporated into Delaware by merging with and
into FTM Delaware; and
- no governmental agency or court has prohibited consummation of the
merger.
TERMINATION OF THE MERGER
The merger may be terminated by the mutual consent of the parties.
FEDERAL INCOME TAX TREATMENT
In order for the INRG merger to occur, INRG must receive an opinion from
outside legal counsel that the merger constitutes a "reorganization" for federal
income tax purposes. If the merger is a "reorganization," you will generally
recognize no gain or loss upon your receipt of FTM Delaware common stock in the
merger in exchange for your outstanding shares of INRG common stock. However,
you will need to pay tax on cash received, if any, for fractional shares.
ANTICIPATED ACCOUNTING TREATMENT
We will account for the acquisition of the minority shareholders'
interest in INRG under the purchase method of accounting in accordance with
Accounting Principles Board Opinion
7
<PAGE> 8
(APB) No. 16 "Business Combinations" and AICPA Accounting Interpretation 26
"Acquisition of Minority Interest" of APB Opinion 16.
The merger of INRG and the reincorporation merger of FTM Colorado into
FTM Delaware will be accounted for as a transfer or exchange of net assets at
historical cost in a manner similar to that in pooling of interest accounting in
accordance with the provisions of AICPA Accounting Interpretation 39 "Transfers
and Exchanges between Companies under Common Control" of APB Opinion 16.
MARKETS AND MARKET PRICES
The common stock of FTM Colorado (the predecessor to FTM Delaware) is
currently traded on the OTC Bulletin Board, under the symbol "FTMM". After the
merger, FTM Delaware Common Stock will be traded on the OTC Bulletin Board,
under the symbol "FTMM". On September 15, 1999, the closing price of the common
stock of FTM Colorado was $8.25. INRG common stock has never publicly traded on
an exchange.
APPRAISAL RIGHTS
If you are (i) a holder of record of INRG common stock and (ii) you
deliver a demand for the appraisal of your shares within 20 days of the mailing
of this notice and prospectus, you may demand payment for your shares if the
merger of INRG into FTM Delaware is consummated. Failure to comply in a timely
manner with each of the procedural requirements specified by Delaware law will
result in the loss of appraisal rights. See "Appraisal Rights."
ACTION BY WRITTEN CONSENT OF MAJORITY SHAREHOLDER
FTM Colorado, which owns a majority of the outstanding common stock of
INRG, has authorized by written consent the merger of INRG into FTM Delaware.
FORWARD-LOOKING STATEMENTS MAY PROVE INACCURATE
We have made forward-looking statements in this document that are
subject to risks and uncertainties. Forward-looking statements include
expectations concerning matters that are not historical facts. Words such as
"believes," "expects," "anticipates" or similar expressions indicate
forward-looking statements. For more information regarding factors that could
cause actual results to differ from these expectations, you should refer to
"Risk Factors" on page 10.
8
<PAGE> 9
QUESTIONS AND ANSWERS ABOUT THE MERGER
Q: WHY DID THE BOARD OF DIRECTORS OF INRG AGREE TO MERGE INTO FTM DELAWARE?
A: The Board of Directors of INRG believes that the INRG merger is in INRG's
best interest in order to complete the acquisition process that began with
FTM Colorado's acquisition of a majority interest in INRG on March 31, 1999,
to eliminate the minority interest in INRG and to provide liquidity to the
minority stockholders in INRG.
Q: WHAT WILL HAPPEN TO THE STOCK OF INRG?
A: In the INRG merger, INRG stockholders will receive 1.25 shares of FTM
Delaware common stock in exchange for each share of INRG common stock. Cash
will be paid for fractional shares.
Q: HOW DID THE BOARD OF DIRECTORS DETERMINE THE 1.25:1 CONVERSION RATIO IN THE
INRG MERGER?
A: On March 31, 1999, FTM Colorado obtained a controlling interest in INRG when
the majority stockholders of INRG exchanged their INRG shares for shares of
FTM Colorado. In this exchange, the stockholders of INRG received 1.25 shares
of FTM Colorado stock for each share of INRG contributed. The 1.25:1
conversion ratio was used in the proposed merger so that the minority
stockholders in INRG will receive the same conversion ratio as that obtained
by the former majority holders of INRG common stock.
Q: WHEN WILL THE INRG MERGER TAKE EFFECT?
A: We expect that the merger will become effective promptly after the conditions
to the merger have been satisfied.
Q: WHAT SHOULD I DO NOW?
A: You need not do anything unless you intend to exercise your appraisal rights,
in which case you must deliver a demand for the appraisal of your shares
within 20 days of the mailing of this notice and prospectus.
Q: SHOULD I SEND MY SHARE CERTIFICATES NOW?
A: No. After the merger is completed, you will be sent written instructions for
sending in your share certificates and receiving FTM Delaware Common Stock
and cash, if any, to which you are entitled.
Q: WHOM SHOULD I CALL WITH QUESTIONS AND TO OBTAIN ADDITIONAL COPIES OF THE
PROSPECTUS?
A: If you have any questions about the merger, you should call Scott Manson, the
Chief Financial Officer of FTM Colorado, at (480) 425-0099.
9
<PAGE> 10
DISCLOSURE AND FORWARD-LOOKING STATEMENTS
This document includes or incorporates by reference "forward-looking
statements" within the meaning of Section 27A of the Securities Act of 1933, as
amended and Section 21E of the Securities Exchange Act of 1934, as amended,
regarding among other things, our business strategy, our prospects and our
financial position. Although we believe that the expectations reflected in such
forward-looking statements are reasonable, they are inherently subject to risks,
uncertainties and assumptions about our subsidiaries and us. Important factors
that could cause actual results to differ materially from our expectations are
disclosed or incorporated by reference in this document.
All subsequent written and oral forward-looking statements attributable
to us or persons acting on our behalf are expressly qualified in their entirety
by the cautionary statements included in this document. We undertake no
obligation to publicly update or revise any forward-looking statements, whether
as a result of new information, future events or otherwise. In light of these
risks, uncertainties and assumptions, the forward-looking events discussed in
this document might occur.
RISK FACTORS
You should carefully consider the risks described below before making a
decision to buy our common stock. If any of the following risks actually occurs,
our business could be harmed. In that case the trading price of our common stock
could decline dramatically, and you may lose all or part of your investment. You
should also refer to the other information in this Prospectus, including our
financial statements and the related notes.
Our prospects should be considered in light of the risks, difficulties
and uncertainties frequently encountered by companies in an early stage of
development, particularly companies in new and rapidly evolving markets such as
the market for Internet content, business services and advertising.
It is especially important to keep these risk factors in mind when you
read forward-looking statements. These are statements that relate to future
periods and include statements about our:
- expected operating results,
- market opportunities, and
- ability to compete
Generally, the words "anticipates," "believes," "expects," "intends" and
similar expressions identify such forward-looking statements. Forward-looking
statements involve risks and uncertainties, and our actual results could differ
materially from the results discussed in the forward-looking statements because
of these and other factors.
10
<PAGE> 11
WE HAVE A LIMITED OPERATING HISTORY THAT MAKES AN EVALUATION OF OUR BUSINESS
DIFFICULT AND WE CANNOT ASSURE YOU THAT WE WILL ACHIEVE MARKET ACCEPTANCE.
We have a limited operating history on which you may evaluate our
business and prospects. We have only been operating since March 1998. We have a
limited operating history with respect to the development and implementation of
our affiliated radio station web sites. We have not yet earned any revenues in
our current line of business. While we are in discussions with radio stations,
we have not currently signed any contracts to provide Internet services to any
radio stations. This limited operating history makes the prediction of our
future operating results difficult or impossible, and there can be no assurance
that we will generate sufficient revenues and achieve or maintain profitability.
WE MAY NOT ACHIEVE FUTURE PROFITABILITY DUE TO CONTINUING OPERATING LOSSES AND
LACK OF SALES REVENUES.
To date we have not been profitable. We have had negative cash flow
since inception and expect to continue to have insufficient liquidity and cash
resources until such time as our sales revenues increase substantially. In fact,
there can be no assurance that we will be able to achieve or maintain profitable
operations or positive cash flow at any time in the future. Our lack of
financial strength may be a negative factor for our ability to penetrate the
radio and entertainment market even if our products and services are superior.
WE MAY HAVE PROBLEMS RAISING THE MONEY WE NEED IN THE FUTURE.
To date we have covered our operating losses by selling our common stock
and preferred stock. We believe that additional funding may be required to fully
implement our business plan. Thus, we may seek additional debt or equity
financing through banks, other financial institutions, companies or individuals.
No assurance can be given that we will be able to obtain any such additional
equity or debt financing on satisfactory terms or at all. In addition, even if
we are able to find additional equity or debt financing, in order to raise that
money we need, we may be required to issue securities with better rights than
the rights of our common stock or we may be required to take other actions which
lessen the value of our common stock, including borrowing money on terms that
are not favorable to us. No assurance can be given that any such financing, if
obtained, will be adequate to meet our needs for the foreseeable future. If we
are not able to successfully obtain sufficient capital, our ability to continue
as a viable business enterprise will be substantially impaired.
WE WILL BE HEAVILY DEPENDENT UPON OUR RELATIONSHIPS WITH CBS RADIO AND OTHER
THIRD PARTIES.
In March 1998, we entered into a five-year agreement with CBS Radio. The
agreement generally provides us with access to all CBS Radio owned radio
stations for purposes of soliciting these stations to purchase Internet products
and services. While we are in negotiations with CBS-owned radio stations
regarding the provision of such Internet services, no agreements have been
entered into, and there is no assurance that any such agreements will be entered
into. The failure to enter into such agreements could materially and adversely
impact our results.
Our strategy is dependent on its ability to enter into profitable
agreements to provide our Internet products and services to radio stations.
There can be no assurance that such agreements
11
<PAGE> 12
will be entered into or that this strategy will be successful. The costs to us
of complying with our obligations under any agreements with radio stations are
expected to be substantial, and there are no assurances that the costs to
develop, maintain, host, update and support the internet web sites will be
offset by the revenues from radio stations and the other revenues generated by
our Internet products and services. The failure to produce significant revenues
from radio stations would have a material adverse effect on our business,
prospects, financial condition or operating results.
Although the principal source of revenue associated with our agreements
is expected to be the bartering of advertising spots on the radio stations with
which we enter into contracts, our failure to market and sell additional
Internet Web Site advertising on attractive terms could have a material adverse
effect on our business, prospects, financial condition or operating results.
Furthermore, it is expected that the radio stations that we enter into contracts
with will have substantial discretion in the substance and quantity of
promotional services they provide in connection with the Internet web sites, and
there can be no assurance that the promotional services provided by radio
stations will enable the Internet web sites to attract sufficient advertising
and sponsorship revenues to generate profits for us. The termination or
expiration without renewal of our agreements with radio stations and/or the
deterioration of our relationship with CBS Radio could have a material adverse
effect on our business, prospects, financial condition or operating results.
In addition to the radio station agreements, we intend to utilize barter
arrangements to significantly increase brand recognition and traffic to the
Internet web sites we license to radio stations rather than incurring cash
expense for this purpose. Barter arrangements would involve our exchange of
advertising space on the web sites we provide to radio stations for reciprocal
space in other media publications or other Internet web sites or receipt of
tangible goods used as game prizes or access to editorial or software content.
If we are unable to enter into such arrangements, we could experience
significant cash flow difficulties during the early stages of our development
and operations.
Other Internet web sites, particularly search engines, directories and
other navigational tools managed by Internet Service Providers and Internet Web
Browser companies may significantly affect traffic to our Internet web sites.
Our ability to develop original and compelling Internet content is also
dependent on maintaining relationships with and using products provided by third
party vendors of Internet development tools and technologies. Developing and
maintaining satisfactory relationships with third parties could become more
difficult and more expensive as competition increases among Internet content
providers. If we are unable to develop and maintain satisfactory relationships
with such third parties on acceptable commercial terms, or if our competitors
are better able to leverage such relationships, our business, prospects,
financial condition or operating results will be materially adversely affected.
12
<PAGE> 13
WE EXPECT QUARTERLY OPERATING RESULTS TO FLUCTUATE, WHICH MAY NEGATIVELY AFFECT
OUR STOCK PRICE.
Our quarterly operating results may fluctuate significantly in the
future as a result of a variety of factors, many of which are outside our
control. These factors include:
- availability of compelling content by and for our potential
affiliated radio stations web sites and the costs of acquiring and
distributing that content,
- demand for our products and services from radio stations and Internet
users,
- demand for advertising on our web sites and on the Internet in
general,
- amount and timing of our capital expenditures and other costs relating
to the expansion of our operations,
- technical difficulties or system downtime,
- new products or services that we, or our competitors, offer, and
- general economic conditions and economic conditions specific to the
Internet or to the retail sales or advertising markets.
As a result of these and other factors, our operating results for any
particular quarter may not be indicative of future operating results and you
should not rely on them as indications of our future performance. It is also
possible that our operating results in one or more quarters will fail to meet
the expectations of securities market analysts or investors. In such an event
the price of our common stock could decline.
OUR ADVERTISING REVENUES MAY FLUCTUATE, WHICH MAY NEGATIVELY AFFECT OUR STOCK
PRICE.
Advertising sales in television, radio and print media fluctuate
unpredictably and are typically lower in the first and third calendar quarters
of each year. Advertising expenditures also fluctuate significantly with
economic cycles, which may negatively affect our stock price. A number of
factors may affect our ability to generate advertising revenues, including:
- acceptance and continued growth of the Internet as an advertising
medium,
- continued consumer Internet use,
- traffic on our web sites,
- pricing of advertising on other web sites,
- our ability to generate listener demographic characteristics that are
attractive to advertisers,
- development and expansion of our advertising sales force, and the
establishment and retention or maintenance of desirable advertising
sales agency relationships.
IF THE INTERNET IS NOT ACCEPTED AS AN ADVERTISING MEDIUM, OUR ADVERTISING
REVENUES MAY DECLINE.
The growth of Internet advertising requires that advertisers accept of
the Internet as an effective advertising medium. This has yet to fully occur.
Acceptance of the Internet among advertisers will also depend on growth in the
commercial use of the Internet. If widespread commercial use of the Internet
does not develop, or if the Internet does not develop as an effective and
measurable medium for advertising, our advertising revenues may decline.
13
<PAGE> 14
No standards have been widely accepted to measure the effectiveness of
Internet advertising. If these standards do not develop, existing advertisers
may not continue their current levels of Internet advertising and advertisers
who are not currently advertising on the Internet may be reluctant to do so. Our
business could be materially damaged if the market for Internet advertising
fails to develop or develops more slowly than expected.
OUR FUTURE SUCCESS DEPENDS GREATLY ON MORE PEOPLE AND BUSINESSES USING THE
INTERNET IN THE FUTURE.
Our future success depends greatly on more people and businesses using
the Internet for advertising, marketing, providing services and conducting
business in the future. Right now, commercial use of the Internet is at an early
stage of development. It is unclear how popular various uses of the Internet
will be in the future. People are unsure how effective advertising on the
Internet is in generating business when compared to more traditional types of
advertising such as print, television and radio. A further uncertainty is
whether the physical networks and other products and services necessary to
support increases in the number of users of the Internet will be available in
the future. Because a significant portion of our business is dependent on the
success of our Internet operating company subsidiaries, if commercial use of the
Internet does not grow in the future for any reason, our business will suffer.
Furthermore, even if use of the Internet grows, people and businesses using the
Internet may not be interested in our products and services.
OUR BUSINESS MAY BE NEGATIVELY AFFECTED BY FUTURE RESTRICTIONS ON THE USE OF
"COOKIES."
Our Internet services use "cookies" to deliver targeted advertising and
marketing, help compile demographic information about users of the Internet and
limit the frequency with which a specific ad is shown to a particular Internet
user. Cookies are bits of information keyed to a specific user's computer hard
drive. When an Internet user browses, these bits of information are transmitted
automatically to certain businesses via the Internet without the Internet user's
knowledge or consent. An Internet user can remove cookies at any time through
the modification of the user's Internet browser settings. Due to privacy
concerns, Germany has imposed laws restricting the use of cookies, and several
Internet commentators, advocates and governmental bodies have suggested that the
use of cookies be restricted or eliminated. In addition, certain currently
available Internet browsers readily allow an Internet user to delete cookies or
prevent cookies from being stored on the user's hard drive.
If the use of cookies is reduced or eliminated, the effectiveness of our
ad targeting and marketing programs could be reduced. Such a reduction in the
effectiveness of our products and services may lower demand for these products
and services and lower the rates which we are able to charge for our
advertisements.
WE MAY BE NEGATIVELY AFFECTED BY FUTURE GOVERNMENT REGULATION AFFECTING THE
INTERNET.
With the exception of regulations applicable to businesses generally, we
are not currently subject to direct regulation by any government agency. Due to
increasing popularity and use of the Internet, however, it is possible that a
number of laws may be adopted with respect to the Internet in the future,
covering issues such as:
14
<PAGE> 15
- user privacy,
- taxing of goods and services offered, and
- types of products and services offered.
An example of the kind of laws that may be adopted to cover use of the
Internet is the Telecommunications Act of 1996. The Telecommunications Act
prohibited the transmission over the Internet of certain types of information.
Although the Telecommunications Act was held unconstitutional, similar laws may
be enacted in the future. Other nations, including Germany, have taken similar
actions to restrict the free flow of information deemed to be objectionable on
the Internet. In addition, certain telecommunications carriers continue to
advocate that the Federal Communications Commission should regulate
telecommunications over the Internet in the same manner as other
telecommunications services. These telecommunications carriers want to see the
government eliminate the current exemption from payment of telecommunications
access charges for Internet service providers.
If the government adopts any additional laws or regulations covering use
of the Internet, these actions could decrease the growth of the Internet. Any
such reduction in the growth of the Internet may reduce demand for our goods and
services and raise the cost to us of producing our goods and services. Finally,
our sales of goods and services may be reduced and the costs to us of producing
these goods and services may be increased if existing U.S. state and federal
laws and foreign laws governing issues such as commerce, taxation, property
ownership, defamation and personal privacy are increasingly applied to the
Internet.
RAPID CHANGE IN TECHNOLOGY AND DISTRIBUTION CHANNELS RELATED TO THE INTERNET
MIGHT LEAVE US BEHIND IF WE ARE UNABLE TO ADAPT.
The markets for our Internet products and services are characterized by:
- rapidly changing technology,
- evolving industry standards,
- frequent new product and service introductions,
- shifting distribution channels, and
- changing customer demands.
Our future success will depend on our ability to adapt to this rapidly
evolving marketplace. We may not be able to adequately adapt our products and
services or to acquire new products and services that can compete successfully.
We may not be able to establish and maintain effective distribution channels for
our products and services. If we are unable to offer competitive products and
services and maintain effective distribution channels, we will sell fewer
products and services and lose revenue. In addition, in order for us to respond
to the rapid technological changes occurring in Internet products and services,
we may have to spend substantial amounts of money, and there is no guarantee
that such expenditures will yield a positive investment return.
15
<PAGE> 16
WE ARE SUBJECT TO INTENSE COMPETITION.
The market for Internet products and services is already highly
competitive. Exacerbating this situation is the fact that the market for
Internet products and services lacks significant barriers to entry, making it
relatively easy for new businesses to enter this market. Competition in the
market for Internet products and services may intensify in the future. Numerous
well-established companies and smaller entrepreneurial companies are focusing
significant resources on developing and marketing products and services that
will compete with our products and services. In addition, many of our current
and potential competitors have greater financial, technical, operational and
marketing resources than us. We may not be able to compete successfully against
these competitors in selling our goods and services. Competitive pressures may
also force prices for Internet goods and services down and such price reductions
likely would reduce our revenues.
A significant factor in the ability of our Internet products and
services to compete successfully in the market will be its ability to secure and
maintain relationships with major national chains of radio stations. There is no
assurance that our business plan to develop and maintain such relationships can
be successfully implemented. We will compete with established individuals and
entities, many of which will have significantly greater operating history, name
recognition and resources than us. Our lack of financial strength may be a
negative factor for our ability to penetrate the radio and entertainment market
even if our products and services are superior.
MANAGING OUR GROWTH PLACES STRAINS ON US.
Our growth has placed, and is expected to continue to place, a
significant strain on our managerial, operational and financial resources.
Further, as the number of our affiliate radio stations, users, advertisers and
other business partners grows, we will be required to manage multiple
relationships with various customers, strategic partners and other third
parties. These requirements will be exacerbated in the event of our further
growth or in the event of further increases in the number of our strategic and
sponsorship relationships. Our business systems, procedures and controls may not
be adequate to support our operations in the future. If our growth continues,
our management may not be able to achieve the rapid execution necessary to
successfully offer our products and services and implement our business plan.
Our future revenues and operating results will also depend on our ability to
expand our sales and marketing organization and expand our support organization
commensurate with the growth of our business and the Internet.
WE DEPEND ON RELATIONSHIPS WITH THIRD PARTIES FOR OUR SUCCESS.
We are currently, and expect in the future to be, dependent on our
relationships with a number of third parties. These relationships include
arrangements relating to the creation of traffic on Internet web sites that are
affiliated with us and the resulting generation of advertising and
commerce-related revenue. If these affiliated web sites terminate or fail to
renew their relationships with us on reasonable terms, it could harm our
business.
16
<PAGE> 17
We will also dependent on relationships with advertisers, sponsors and
partners. Most of these arrangements:
- do not require minimum commitments to use our services,
- are not exclusive, and
- are short-term or may be terminated at the convenience of the other
party.
There is a risk that these third parties may:
- not regard their relationship with us as important to their own
respective businesses and operations,
- reassess their commitment to us in the future, or
- develop their own competitive services or products.
There is no assurance that the services and products of the third
parties with which we deal will achieve market acceptance or commercial success.
As a result there is no guarantee that our existing relationships with these
parties will result in sustained or successful business partnerships or
significant revenues for us.
WE FACE SECURITY RISKS.
The secure transmission of confidential information over public
telecommunications facilities is a significant barrier to electronic commerce
and communications on the Internet. Many factors may cause compromises or
breaches of the security systems used by us or other Internet sites to protect
proprietary information, including:
- advances in computer and software functionality or
- new discoveries in the field of cryptography.
A compromise of security on the Internet would have a negative effect on
the use of the Internet for commerce and communications. This in turn would have
a negative effect on our business. A party who is able to circumvent our
security measures could misappropriate our proprietary information or cause
interruptions in our operations. Protecting against the threat of such security
breaches or alleviating problems caused by such breaches may require us to
expend significant capital and other resources. When our activities and the
activities of our customers and sponsors involve the storage and transmission of
proprietary information, such as credit card numbers, security breaches may
expose us to a risk of loss or litigation and possible liability. There is no
guarantee that our security measures will prevent security breaches.
OUR BUSINESS WILL SUFFER IF ANY OF OUR PRODUCTS OR SYSTEMS, OR THE PRODUCTS OR
SYSTEMS OF THIRD PARTIES ON WHOM WE RELY, FAIL TO BE YEAR 2000 COMPLIANT.
Many currently installed computer systems and software products are
coded to accept only two digit entries in the date code field. These date code
fields will need to accept four digit entries to distinguish 21st century dates
from 20th century dates. As a result, many companies will need to update or
replace their software and computer systems in order to comply with such
17
<PAGE> 18
"Year 2000" requirements. We are in the process of evaluating the Year
2000 compliance of our products and services. We are also evaluating the Year
2000 compliance of third party equipment and software that we use in both
information technology and non-information technology applications in our
business. Examples of non-information technology systems include our building
security and voice mail systems.
OUR SUCCESS DEPENDS ON THE INTERNET'S INFRASTRUCTURE.
The success of commercial use of the Internet depends in large part upon
the development and maintenance of the Internet's infrastructure, including the
development of complementary products such as high-speed modems. The number of
users of the Internet and the amount of traffic on the Internet has grown
significantly and it is expected they will continue to grow. To the extent the
numbers of users of the Internet and the amount of traffic on the Internet
continue to increase there will be greater demands placed on the Internet's
infrastructure. The Internet infrastructure may not be able to support the
demands placed on it by this continued growth without the performance or
reliability of the Internet being decreased. Any outages or delays in services
using the Internet could lower the level of Internet usage. In addition, the
infrastructure and complementary products and services necessary to make the
Internet a viable commercial marketplace may not develop. If usage of the
Internet is curtailed due to infrastructure constraints or lack of complementary
products, we expect an adverse impact on our business and revenues. Even if such
infrastructure and complementary products and services do develop, there is no
guarantee that the Internet will become a viable commercial marketplace for
products and services such as ours.
OUR SUCCESS DEPENDS ON OUR PROPRIETARY THIRD-PARTY TECHNOLOGY AND OUR ABILITY TO
PROTECT THEM.
Our success depends in part on our proprietary third-party technology
and our ability to protect such technology under applicable patent, trademark,
copyright and trade secret laws. We seek to protect the intellectual property
rights underlying our products and services by filing applications and
registrations, as appropriate, and through our agreements with our employees,
suppliers, customers and partners. However, the measures we have adopted to
protect our proprietary third-party technology may not prevent infringement or
misappropriation of our technology. A further risk is introduced by the fact
that many legal standards relating to the validity, enforceability and scope of
protection of certain proprietary rights in the context of the Internet industry
currently are not resolved.
From time to time we expect to be subject to claims in the ordinary
course of our business, including claims of our alleged infringement of the
intellectual property rights of third parties. Any such claims could damage our
business and results of operations by:
- subjecting us to significant liability for damages,
- resulting in invalidation of our proprietary rights,
- demanding the diversion of time and expense spent on other operations
to their defense, even if such claims are not meritorious, and
- resulting in the diversion of management time and attention.
18
<PAGE> 19
WE MAY HAVE LIABILITY FOR INFORMATION RETRIEVED FROM THE INTERNET.
Because materials may be downloaded from the Internet and subsequently
distributed to others, there is a potential that claims may be made against us
for defamation, negligence, copyright or trademark infringement, personal injury
or other theories based on the nature, content, publication and distribution of
such materials.
WE ARE UNCERTAIN OF WHETHER WE WILL BE ABLE TO ACHIEVE WIDESPREAD MARKET
ACCEPTANCE OF OUR PRODUCTS AND SERVICES. WE ARE COGNIZANT OF OUR LIMITED
MARKETING EXPERIENCE.
We are currently developing our products and services. We have conducted
only limited marketing activities and have limited marketing experience with
respect to all of our products and services. As is typical with new products and
services, demand and market acceptance for our products are subject to a high
level of uncertainty. Achieving widespread market acceptance for these products
will require substantial marketing efforts and the expenditure of sufficient
funds to create market recognition and customer demand and to cause potential
customers to consider the potential benefits of our products and services as
against the products and services to which the potential customer base are
already accustomed. Moreover, we have limited marketing capabilities and
resources.
To date, members of our senior management team have conducted
substantially all of our marketing activities. The prospects for our product
line will be largely dependent upon our ability to achieve market penetration
for such products. Achieving market penetration will require sufficient efforts
to create awareness of and demand for our products and services. Our ability to
build a customer base will depend in part on our ability to locate, hire and
retain sufficiently qualified marketing personnel and to fund marketing efforts,
including advertising. There can be no assurance that our products and services
will achieve widespread market acceptance or that our marketing efforts will
result in profitable operations.
OUR FUTURE REVENUES AND PROFITABILITY ARE UNPREDICTABLE.
To date we have no revenues and expect that initial revenues from the
licensing of Internet web sites to radio stations will be in the form of barter
radio Ad units, which the we must re-sell at a discount to produce cash income
or exchange for technical services, advertising, editorial and software content,
and prizes. Our future prospects are substantially dependent upon our success in
generating revenues from sources other than advertising, such as Internet web
site licensing fees, merchandise sales, and end-user fees for playing premium
games , and inability or failure to do so could have a material adverse effect
on our business, prospects, financial condition or operating results. As a
result, our future operating results are not predictable.
Our current and anticipated future expense levels are based largely on
management's assessment of our prospects and estimates of future revenues. It is
expected that expense levels will be fixed to a significant extent. Accordingly,
we may be unable to adjust spending in a timely manner to compensate for any
unexpected revenue shortfall, and a shortfall in actual revenue as compared to
estimated revenue could have an immediate adverse effect on our business,
prospects, financial condition or operating results that would be material. In
addition, we currently intend to significantly increase sales and marketing
expenses, particularly for
19
<PAGE> 20
additional sales and marketing staff necessary to develop and maintain
relationships with radio stations, advertising customers, advertising agencies
and other third parties, and to increase production and engineering expenses,
including to increase engineering staff levels necessary to develop and produce
Internet web sites, as well as to continuously improve existing technology and
develop new technology. Increases in operating expenses may also occur in
response to increased hardware and software infrastructure requirements to
handle larger amounts of traffic and to attract, retain and motivate qualified
personnel. To the extent these expenditures do not result in a substantial
increase in revenues, our business, prospects, financial condition or operating
results would be materially adversely affected.
THE MARKET FOR OUR PRODUCTS AND SERVICES IS RAPIDLY EVOLVING AND SUBJECT TO A
HIGH LEVEL OF UNCERTAINTY.
The market for interactive/multi-media Internet web sites and other
Internet features, promotions, games is at a very early stage of development, is
rapidly evolving and is characterized by an increasing number of entrants that
are introducing or developing competing products and services. As is typical in
the case of a new and rapidly evolving industry, demand and market acceptance
for recently introduced products and services such as ours are subject to a high
level of uncertainty and risk. Because the market for our Internet products and
services is new and evolving, it is difficult to predict with any assurance the
market's size, growth rate or durability. In addition, it is not known whether
individuals will utilize the Internet to any significant degree as a means of
purchasing goods and services.
OUR BUSINESS COULD SUFFER IF WE ARE UNABLE TO RETAIN CERTAIN IMPORTANT
EMPLOYEES.
We are highly dependent on the services of our top ranking officers. The
familiarity of these individuals with the Internet industry makes them
especially valuable to our success. In addition, our future success is dependent
on our ability to attract, train, retain and motivate high quality personnel,
especially our management team. The loss of the services of any of our executive
officers or key employees would harm our business. Our future success also
depends on our continuing ability to attract, train, retain and motivate other
highly qualified technical and managerial personnel. Competition for such
personnel is intense and we may not be able to attract, train, retain or
motivate other highly qualified technical and managerial personnel in the
future.
THE DEVELOPMENT OF OUR PRODUCTS AND SERVICES IS SUBSTANTIALLY INCOMPLETE AND WE
ANTICIPATE A GREAT DEAL OF REFINEMENT, DEVELOPMENT AND IMPROVEMENT IN THE
FUTURE.
Our development work on our products and services is substantially
incomplete. Testing of primary products and services to date has been very
limited. We anticipate that our future research and development activities,
combined with experience gained from commercial use of our Internet products and
services, could result in the need for further refinement and development. We
also expect to modify the products for particular customer applications. There
can be no assurance that unforeseen circumstances will not require expensive
additional development of our products and their applications. In addition, we
may in the future need to make improvements in our Internet products and
services in order for our Internet products and services to remain competitive.
20
<PAGE> 21
OUR COMMON STOCK IS THINLY TRADED AND IT MAY BE DIFFICULT FOR YOU TO SELL THE
COMMON STOCK YOU RECEIVE IN THE MERGER.
Our common stock is thinly traded. As a result, prices quoted for our
stock may not reflect the actual fair market value of the stock. Also, because
of the low volume of trading in our common stock, it may be difficult for you to
sell the common stock you receive in the merger.
21
<PAGE> 22
SELECTED HISTORICAL FINANCIAL DATA
The following table sets forth selected historical financial data of FTM
Colorado and INRG on a consolidated bases for each of the three years in the
period ended March 31, 1999 and for the three months ended June 30, 1999 and
1998. The table should be read together with the consolidated financial
statements and related notes thereto and the "Management's Discussion and
Analysis of Financial Condition and Results of Operations" included elsewhere in
this document.
The selected financial data at March 31, 1999 and 1998 and for each of
the three years in the period ended March 31, 1999 are derived from consolidated
financial statements audited by Rotenberg & Company, LLP, which are included
elsewhere in this document. The selected financial data at March 31, 1997 and
1996 and for the period from Inception (February 22, 1994) to March 31, 1996 are
derived from audited financial statements not included in this document.
The selected financial data at June 30, 1999 and 1998 and for the three
months ended June 30, 1999 and 1998 are unaudited. In the opinion of management,
this data has been prepared on the same basis as the audited financial data and
include all adjustments of a recurring nature necessary for a fair presentation
of such information.
Operating results for the three months ended June 30, 1999 are not
necessarily indicative of the results that may be expected for the fiscal year
ending March 31, 2000. Historical results are not necessarily indicative of the
results to be expected in the future.
22
<PAGE> 23
<TABLE>
<CAPTION>
Three Years February 22, Three Months
Ended March 31 1994 Ended June 30
----------------------------------------- (Inception) to -------------------------
1999 1998 1997 March 31, 1996 1999 1998
----------- ---------- ---------- -------------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
Summary of Operations:
Revenues $ -- $ -- $ -- $ -- $ -- $ --
Capital Formation Expense 282,162 -- -- -- 142,788 --
Consulting Fees 126,534 -- -- -- 116,180 --
Legal & Accounting Fees 300,948 -- 17,479 5,826 114,677 --
Salaries & Benefits 57,873 15,901 62,027 18,909 180,563 --
Website Development Costs 15,373 -- -- -- 509,504 --
Other Operating Expenses 116,168 6,360 151,360 61,302 208,901 --
Interest Expense (Income) (2,365) -- -- -- (10,383) --
----------- ---------- ---------- ---------- ----------- ----------
Total Expenses $ 896,693 $ 22,261 $ 230,866 $ 86,037 $ 1,262,230 $ --
----------- ---------- ---------- ---------- ----------- ----------
Loss from Continuing Operations
Before Minority Interest $ (896,693) $ (22,261) $ (230,866) $ (86,037) $(1,262,230) $ ---
Minority Interest 82,048 2,037 21,124 7,872 324,071 --
----------- ---------- ---------- ---------- ----------- ----------
Net Loss $ (814,645) $ (20,224) $ (209,742) $ (78,165) $ (938,159) $ ---
=========== ========== ========== ========== =========== ==========
Basic Loss per Common Share $ (0.129) $ (0.003) $ (0.033) $ (0.012) $ (0.148) $ ---
----------- ---------- ---------- ---------- ----------- ---------
Shares used in Computing
Basic Loss per Share 6,319,542 6,319,542 6,319,542 6,319,542 6,319,542 6,319,542
Financial Position:
Cash $ 2,027,833 $ 2,796 $ -- $ -- $ 2,301,053 $ 2,796
Goodwill 76,550 78,513 78,513 -- 74,587 78,513
Total Assets 2,350,953 81,309 103,570 11,553 3,052,428 81,309
Current Liabilities 272,921 -- -- -- 491,765 --
Minority Interest 3,187,150 375,782 377,819 -- 3,230,734 375,782
Capital Stock Subscriptions
of Subsidiary 2,883,897 -- -- -- 1,925,041 --
Working Capital 1,778,880 2,796 -- -- 2,034,369 2,796
Capital Expenditures 72,613 -- -- -- 388,969 --
Capital Stock 25,278 25,278 25,278 11,553 1,402,483 25,278
Stockholders' Equity (Deficit) (1,109,118) (294,473) (274,249) 11,553 (670,071) (294,473)
</TABLE>
23
<PAGE> 24
SELECTED PRO FORMA CONSOLIDATED CONDENSED FINANCIAL DATA
In the proposed merger, INRG will be merged with and into FTM Delaware,
and each holder of INRG common stock will receive 1.25 shares of FTM Delaware
common stock for each share of INRG common stock. Approximately 72% of the
outstanding shares of INRG's common stock is currently owned by FTM Colorado,
which owns 100% of the stock of FTM Delaware.
FTM Delaware is currently a wholly-owned subsidiary of FTM Colorado.
Immediately before the merger of INRG into FTM Delaware, FTM Colorado will be
reincorporated in Delaware by merging into FTM Delaware. (This merger is
sometimes referred to as the "Reincorporation Merger".)
The mergers described above will result in the elimination of the
minority interest in INRG. The acquisition of the minority shareholders'
interest in INRG will be accounted for under the purchase method of accounting.
However, there will be no other changes to the business, management, location,
policies, properties or the consolidated assets or liabilities of INRG with the
exception of the recording of goodwill. Goodwill will be recorded based on the
difference between the fair value of the underlying assets and liabilities of
the minority interest acquired and the fair value of the Company's common stock
exchanged.
It is anticipated that the Company will issue 2,153,035 shares of its
common stock in exchange for the minority interest in INRG. The bid price of the
Company's common stock was $8.25 as of the close of business on September 15,
1999. The acquisition of the minority interest is estimated to result in a total
purchase price of approximately $18 million dollars and will result in goodwill
being recorded of approximately $15 million.
The actual allocation of the purchase price and the resulting effect on
loss from operations may differ significantly from the pro forma amounts
included herein. These pro forma adjustments represent the Company's preliminary
determination of purchase accounting adjustments and are based upon available
information and certain assumptions that the Company believes to be reasonable.
Consequently, the amounts reflected in the Pro Forma Financial Statements are
subject to change, and the final amounts may differ substantially.
The accompanying Unaudited Pro Forma Condensed Consolidated Statements
of Operations for the year ended March 31, 1999 and for the three months ended
June 30, 1999 assume that the acquisition of the minority shareholders' interest
in the Company's subsidiary (INRG) took place on April 1, 1998, the beginning of
the Company's fiscal year. The Pro Forma Condensed Consolidated Statements of
Operations do not include the effect of any nonrecurring write-offs directly
attributable to the acquisition. The Pro Forma Balance Sheet gives pro forma
effect to the acquisition of the minority interest and the merger as if the
transaction occurred on June 30, 1999.
The accompanying pro forma information is presented for illustrative
purposes only and is not indicative of the financial position or results of
operations that may be reported in the future.
24
<PAGE> 25
The accompanying Pro Forma Condensed Consolidated Financial Statements
should be read in conjunction with the historical financial statements and
related notes thereto of the Company and its subsidiary as reported in the
annual Form 10KSB and the quarterly Form 10QSB.
Unaudited Pro Forma Condensed Consolidated Statement of Operations
For the Three Month Period Ended June 30, 1999
<TABLE>
<CAPTION>
Actual
Consolidated Pro Forma
FTM Pro Forma FTM
Colorado Adjustments Delaware
----------- ----------- -----------
<S> <C> <C> <C>
Revenues $ -- $ --- $ ---
----------- --------- -----------
Operating Expenses
Website Development Costs 509,504 -- 509,504
Capital Formation Expenses 142,788 -- 142,788
Consulting Fees 116,180 -- 116,180
Legal and Accounting 114,677 -- 114,677
Payroll and Related Costs 180,563 -- 180,563
Depreciation and Amortization 21,385 -- 114,855
Other 187,516 93,740 (2) 187,516
----------- --------- -----------
Total Operating Expenses 1,272,613 93,470 1,366,083
----------- --------- -----------
Loss Before Other Income (1,272,613) (93,470) (1,366,083)
Other Income 10,383 -- 10,383
----------- --------- -----------
Loss Before Provision for Taxes (1,262,230) (93,470) (1,355,700)
Provision for Taxes -- -- --
----------- --------- -----------
Loss Before Minority Interest (1,262,230) (93,470) (1,355,700)
Minority Interest 324,071 (324,071)(2) --
----------- --------- -----------
Net Loss $ (938,159) (417,541) $(1,355,700)
=========== ========= -----------
Basic Loss Per Share $ (.148) $ (.160)
=========== ===========
Average Weighted Common
Shares Outstanding 6,319,542 8,472,577
=========== ===========
</TABLE>
25
<PAGE> 26
Unaudited Pro Forma Condensed Consolidated Statement of Operations
For the Three Month Period Ended June 30, 1999
<TABLE>
<CAPTION>
Actual
Consolidated Pro Forma
FTM Pro Forma FTM
Colorado Adjustments Delaware
---------- ----------- -----------
<S> <C> <C> <C>
Revenues $ -- $ -- $ --
---------- -------- -----------
Operating Expenses
Website Development Costs 15,373 -- 15,373
Capital Formation Expenses 282,162 -- 282,162
Consulting Fees 126,534 -- 126,534
Legal and Accounting 300,948 -- 300,948
Payroll and Related Costs 57,873 -- 57,873
Depreciation and Amortization 4,077 373,883(2) 377,960
Other 112,091 -- 112,091
---------- -----------
Total Operating Expenses 899,058 373,883 1,272,941
---------- -------- -----------
Loss Before Other Income (899,058) (373,883) (1,272,941)
Other Income 2,365 -- 2,365
---------- -------- -----------
Loss Before Provision for Taxes (896,693) (373,883) (1,270,576)
Provision for Taxes -- -- --
---------- -------- -----------
Loss Before Minority Interest (896,693) (373,883) (1,270,576)
Minority Interest 82,048 (82,048)(2) --
---------- ======== -----------
Net Loss $ (814,645) (455,931) $(1,270,576)
========== ======== -----------
Basic Loss Per Share $ (.129) $ (.150)
========== -----------
Average Weighted Common
Shares Outstanding 6,319,542 8,472,577
========== ===========
</TABLE>
26
<PAGE> 27
Unaudited Pro Forma Condensed Consolidated Statement of Operations
For the Three Month Period Ended June 30, 1999
<TABLE>
<CAPTION>
Actual FTM
Consolidated Pro Forma
Colorado Adjustments Delaware
----------- ----------- -----------
<S> <C> <C> <C>
ASSETS $2,301,053
Current Assets 225,081
-----------
Cash and Cash Equivalents $2,301,053 $ --
Prepaid Expenses 225,081 --
-----------
Total Current Assets 2,526,134 -- 2,526,134
Property and Equipment--Net of
Accumulated Depreciation 440,047 -- 440,047
Other Assets 11,660 -- 11,660
Goodwill--Net of Accumulated
Amortization 74,587 14,955,313 15,029,900
---------- ----------- -----------
Total Assets $3,052,428 $14,955,313 $18,007,741
----------- ===========
</TABLE>
27
<PAGE> 28
Unaudited Pro Forma Condensed Consolidated Balance Sheet
As of June 30, 1999, continued
LIABILITIES AND STOCKHOLDER'S EQUITY
<TABLE>
<CAPTION>
Actual
Consolidated Pro Forma
FTM Pro Forma FTM
Colorado Adjustments Delaware
------------ ----------- -----------
<S> <C> <C> <C>
Current Liabilities
Accounts Payable and $ 406,874 -- $ 406,874
Accrued Expenses 84,892 -- 84,892
----------- ----------- -----------
Short Term Notes Payable
Total Liabilities 491,766 -- 491,766
----------- ----------- -----------
Minority Interest
Preferred Stock of Subsidiary 423,508 (423,508)(3) --
Common Stock of Subsidiary 2,807,226 (2,807,226)(2) --
----------- ----------- -----------
Total Minority Interest 3,230,734 (3,230,734) --
----------- ----------- -----------
Stockholder's Equity (Deficit)
Series A Preferred Stock
$0.001 Par; 50,000 Shares
Authorized, 40,637 Issued
and Outstanding -- 423,508 (3) 423,508
Series B Preferred Stock
$0.001 Par; 400,000 Shares
Authorized 267,522 Issued
and Outstanding 10,701 (10,433)(4) 268
Common Stock - $.001 Par
50,000,000 Shares Authorized
8,472,577 Issued and Outstanding 25,278 (18,959)(4) 8,473
2,154 (2)
Additional Paid in Capital 1,366,504 29,392 (4) 19,156,281
17,760,385 (2)
Deficit Accumulated During
Development Stage (2,072,555) -- (2,072,555)
----------- ----------- -----------
Total Stockholders'
Equity (Deficit) (670,072) 18,186,047 17,515,975
----------- ----------- -----------
Total Liabilities and Stockholders'
Equity (Deficit) $ 3,052,428 $14,955,313 $18,007,741
=========== =========== ===========
</TABLE>
28
<PAGE> 29
Notes to Pro Forma Condensed Consolidated Financial Statements
(1) The Pro Forma Condensed Consolidated Statements of Operations assumes that
the acquisition of the minority interest in INRG occurred on April 1, 1998.
(2) The acquisition of the minority interest in INRG was accounted for by the
purchase method of accounting. Under purchase accounting, the total purchase
price is allocated to the tangible and intangible assets and liabilities of
INRG based upon their respective fair values as of the closing date based
upon valuations and other studies.
The estimated purchase price and preliminary allocation of the purchase
price in excess of the net assets acquired as a result of the acquisition of
the minority interest in INRG is as follows:
<TABLE>
<S> <C>
Purchase Price:
Estimated Fair Value of Common Stock Issued $17,762,539
Book Value of Minority Interest in
Net Assets of INRG Acquired 2,807,226
-----------
Purchase Price in Excess of Net Assets Acquired $14,955,313
===========
Preliminary Allocation of Purchase Price in
Excess of Net Assets Acquired:
Goodwill $14,955,313
===========
</TABLE>
For purposes of the Pro Forma Condensed Consolidated Statements of
Operations, Goodwill is being amortized over a 40 year estimated useful
life.
(3) The acquisition of minority shareholders' interest in the preferred stock of
INRG was treated as an even exchange for the Series A Preferred Stock of FTM
Delaware since the terms of the securities are substantially identical. The
Series A Preferred Stock is carried on the Pro Forma Condensed Consolidated
Balance Sheet at liquidation value which is $10 per share plus interest
compounded annually at 7.5% for three years, commencing on the date of
issuance.
(4) The reincorporation merger of FTM Colorado into FTM Delaware is accounted
for as a transfer or exchange of net assets at historical cost in a manner
similar to that in pooling of interest accounting. The pro forma adjustments
to stockholders' equity reflect the change in par value from $.004 to $.001
per share. In addition the Company has increased the number of authorized
shares from 12,500,000 to 50,000,000.
29
<PAGE> 30
COMPARATIVE HISTORICAL PER SHARE DATA
Because FTM Colorado's March 31, 1999 acquisition of a controlling
interest in INRG is treated as a reverse merger for accounting purposes, FTM
Colorado's historical financial condition and results of operations have become
the historical financial condition and results of operations of INRG on a
consolidated basis. Therefore, there is no calculable difference between the
historical per share data of the two companies. FTM Delaware is a newly formed
wholly owned subsidiary of FTM Colorado and has no historical per share
performance.
MARKET PRICE INFORMATION
The Common Stock of FTM Colorado (which is the predecessor to FTM
Delaware) is traded over the counter and quoted [on the Bulletin Board on a
limited and sporadic basis under the symbol "FTMM."] Neither the FTM Delaware
shares nor the INRG shares are traded in any established market. The following
table shows the closing price of the FTM Colorado shares September 15, 1999, the
last trading day prior to the adoption of the Agreement and Plan of Merger by
our Board of Directors.
<TABLE>
<CAPTION>
FTM Colorado Equivalent Market Value
Closing Price of INRG common stock*
------------- -----------------------
<S> <C> <C>
September 15, 1999 $8.25 $10.3125
</TABLE>
* Assumes that the FTM Delaware common stock has the same value per share as the
FTM Colorado common stock.
The reported high and low bid and ask prices of the FTM Colorado common
stock are shown below for 1999. Prices for prior periods are not shown because
those prices reflect the prior business of FTM Colorado, which was completely
disposed of by the end of 1998. The bid and ask prices of the common stock on
September 15, 1999 were $9.00 and $7.38, respectively, as quoted on the Bulletin
Board. As of September 15, 1999, there were approximately 1650 stockholders of
record of the FTM Colorado common stock and 69 stockholders of record of INRG.
There were no dividends paid on the INRG or the FTM Colorado shares of Common
Stock during these periods. The prices presented are bid and ask prices which
represent prices between broker-dealers and do not include retail mark-ups or
markdowns or any commission to the broker-dealer. The prices do not necessarily
reflect actual transactions:
<TABLE>
<CAPTION>
BID ASK
---------------- ----------------
HIGH LOW HIGH LOW
------ ----- ------ -----
<S> <C> <C> <C> <C>
1999:
First Quarter $9.75 $4.00 $10.25 $5.00
Second Quarter $15.13 $9.00 $14.88 $8.25
Third Quarter (through $11.31 $9.00 $11.50 $7.38
September 15, 1999)
</TABLE>
30
<PAGE> 31
PROSPECTUS
This prospectus is being furnished to you in connection with our
proposed merger. This prospectus is first being furnished to stockholders of
INRG on or about [_________], 1999.
STOCKHOLDER RECORD DATE FOR YOUR EXERCISE OF APPRAISAL RIGHT
INRG's board of directors has fixed the close of business on
[_________], 1999, as the record date for determination of INRG stockholders
entitled to exercise appraisal rights upon the merger. On the record date, there
were [_________] shares of INRG common stock outstanding, held by approximately
[______] holders of record.
ADOPTION OF THE MERGER AGREEMENT AND INRG STOCK OPTION PLAN BY ACTION OF
MAJORITY STOCKHOLDER
FTM Colorado, the majority shareholder of INRG's common stock, adopted
and approved, by its written consent, the merger agreement and the INRG Stock
Option Plan.
YOU SHOULD NOT SEND IN ANY STOCK CERTIFICATES. A TRANSMITTAL FORM WITH
INSTRUCTIONS FOR THE SURRENDER OF ANY STOCK CERTIFICATES FOR INRG COMMON STOCK
WILL BE MAILED TO YOU AS SOON AS PRACTICABLE AFTER COMPLETION OF THE MERGER.
31
<PAGE> 32
THE MERGER
This section of the prospectus describes material aspects of the
proposed INRG merger, including the merger agreement. While we believe that the
description covers the material terms of the merger and the related
transactions, this summary may not contain all of the information that is
important to you. You should read this entire document and the other documents
we refer to carefully for a more complete understanding of the merger.
BACKGROUND OF THE MERGER
FTM Colorado (then Redwood Broadcasting, Inc.) was previously engaged in
the business of acquiring and developing undervalued radio broadcasting
properties located in small to medium sized markets. In December 1998, FTM
Colorado disposed of all of its assets and liabilities related to this former
business.
On March 31, 1999, FTM Colorado acquired a majority interest in INRG by
acquiring 4,415,820 shares of INRG common stock from certain stockholders of
INRG in exchange for the issuance of 5,519,775 shares of common stock of FTM
Colorado. This represented a ratio of 1.25 shares of FTM Delaware common stock
for each share of INRG common stock. Following this acquisition, the individuals
who served as directors of INRG were also appointed to serve as directors of FTM
Colorado.
On September 22, 1999, the board of directors of INRG met and approved
the merger of INRG into FTM Delaware (the successor to FTM Colorado) in a
transaction in which the INRG stockholders would receive 1.25 shares of FTM
Delaware common stock for each share of INRG common stock. On the same date, the
board of directors of FTM Colorado (which has the same directors as INRG)
approved the reincorporation of FTM Colorado into Delaware through the merger of
FTM Colorado into FTM Delaware. The board of directors of INRG did not obtain a
fairness opinion in connection with this transaction.
REASONS FOR THE MERGER
The Board of Directors of INRG and FTM Colorado believe that the INRG
merger is fair and is in the best interests of INRG, FTM Colorado and their
stockholders because it will complete the acquisition of INRG by FTM Delaware,
eliminate the minority interest in INRG and provide greater liquidity to the
minority stockholders in INRG.
PLAN OF MERGER
This section highlights selected information from the merger agreement.
To better understand the merger and for a more complete description of the terms
of the merger you should read carefully the merger agreement which is reprinted
as Annex A to this prospectus and is incorporated herein by reference.
The Effective Time of the Merger. The merger will become effective upon
the filing of a certificate of merger with the Secretary of the State of
Delaware. Assuming all conditions to the merger contained in the merger
agreement are satisfied or, if permissible, waived, it is anticipated that the
effective time of the merger will occur as soon as practicable following the
32
<PAGE> 33
special meeting. We are working towards completing the merger as quickly as
possible. We hope to complete the merger during the Fall of 1999.
Conditions to the Merger. In order to close the merger, it must have
been approved by each class of outstanding voting stock of INRG by the
affirmative vote of a majority of the outstanding shares. In addition, the
merger cannot close until FTM Colorado has been reincorporated into Delaware by
merging into FTM Delaware. Furthermore, the merger will not be closed if there
is an injunction or law prohibiting the merger, any legal action challenging the
merger or any stop order or Securities and Exchange Commission proceeding for
such purpose.
Structure of the Merger and Manner and Basis of Converting INRG common
stock. In accordance with the merger agreement and Delaware law, INRG will be
merged with and into FTM Delaware. As a result of the merger, the separate
corporate existence of INRG will cease and FTM Delaware will be the surviving
corporation.
Upon completion of the merger, each share of outstanding INRG common
stock, without any action on the part of the holders, will automatically be
converted into 1.25 shares of common stock of FTM Delaware. No certificate or
scrip representing fractional shares of FTM Delaware common stock will be issued
in connection with the merger. Instead you will receive cash, without interest,
in lieu of a fraction of a share of FTM Delaware common stock.
Promptly following the effective time of the merger, FTM Delaware will
instruct Corporate Stock Transfer, which has been selected by FTM Delaware to
act as exchange agent, to mail to each record holder of INRG common stock
immediately prior to the effective time of the merger, information advising you
of the consummation of the merger and a letter of transmittal for use in
exchanging your INRG common stock certificates for FTM Delaware common stock
certificates. After the effective time of the merger, there will be no further
registration of transfers on the stock transfer books of INRG of shares of their
stock that were outstanding immediately prior to the effective time of the
merger. Your INRG share certificates should NOT be surrendered for exchange
prior to the effective time of the merger.
Your shares will not be entitled to receive any dividends or other
distributions payable by FTM Delaware until the merger is complete and all of
your certificates representing stock in INRG are surrendered. Upon surrender,
however, subject to applicable laws, you will receive accumulated dividends and
distributions, without interest, together with cash in lieu of fractional
shares, less the amount of any applicable withholding taxes.
Treatment of Preferred Stock. In the merger, each share of Series A
Preferred Stock of INRG will be converted into one share of Series A Preferred
Stock of FTM Delaware, with substantially similar terms.
Treatment of Stock Options. Options issued pursuant to the INRG Stock
Option Plan will be converted into a stock option to purchase a number of shares
of FTM Delaware common stock equal to 1.25 times the number of shares of INRG
common stock subject to the option with no change in the aggregate exercise
price of the option.
33
<PAGE> 34
REGULATORY FILINGS AND APPROVALS REQUIRED TO COMPLETE THE MERGER
There are no material regulatory filings or approvals required to
complete the merger.
MATERIAL UNITED STATES FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER
The following is a general summary of the material United States federal
income tax consequences of the merger to you as holders of INRG common stock and
does not purport to be a complete analysis or discussion of all potential tax
considerations or consequences relevant to the merger. The following discussion
is based upon the current provisions of the Internal Revenue Code of 1986, as
amended, existing regulations proposed or promulgated thereunder and current
administrative rulings and court decisions, all of which are subject to change.
Any such change, which may or may not be retroactive, could alter the tax
consequences to INRG, FTM Delaware or to you as the stockholders of these
companies.
No attempt has been made to comment on all federal income tax
consequences of the merger that may be relevant to your particular situation,
including, without limitation, the alternative minimum tax. In particular, the
following discussion does not address the U.S. federal income tax consequences
of the merger to stockholders subject to special U.S. federal income tax
treatment including (without limitation) persons who are not U.S. citizens or
residents, foreign persons, insurance companies, tax-exempt entities, retirement
plans, dealers in securities, persons who acquired their stock pursuant to the
exercise of employee stock options or otherwise as compensation, and persons who
hold their stock as part of a "straddle", "hedge", or "conversion transaction."
The following discussion assumes that shares of INRG are held as capital
assets (within the meaning of Section 1221 of the Code) at the time of the
Offer. It is also based on certain customary assumptions regarding the factual
circumstances that will exist at the time of the merger. If any of these factual
assumptions is inaccurate, the tax consequences of the merger could differ from
those described herein. In addition, the following discussion does not address
the tax consequences of the merger under state, local and foreign tax laws,
federal tax laws other than those pertaining to the U.S. federal income tax, or
the tax consequences of transactions effectuated prior to or after the merger,
(whether or not such transactions are in connection with the merger).
Accordingly, you are advised and expected to consult your own tax advisers
regarding the federal income tax consequences of the merger in light of your
personal circumstances and the consequences under state, local and foreign tax
laws.
No ruling from the Internal Revenue Service has been or will be
requested in connection with the merger. Irell & Manella LLP shall issue an
opinion to the effect that the merger will be treated for federal income tax
purposes as a reorganization within the meaning of Section 368(a) of the
Internal Revenue Code; that INRG and FTM Delaware will each be a party to the
reorganization; that INRG and FTM Delaware will not recognize any gain or loss
as a result of the merger and that stockholders of INRG will not recognize any
gain or loss upon the receipt of FTM Delaware common stock for their INRG common
stock. Such opinion is subject to certain assumptions. You should be aware that
such opinion is not binding on the IRS and no assurance can be given that the
IRS will not adopt a contrary position or that a contrary IRS position would not
be sustained by a court.
The following federal income tax consequences will result from the
merger qualifying as a reorganization:
- no gain or loss will be recognized by you, as a holder of INRG common
stock, upon the exchange of all of your shares solely for shares of
FTM Delaware common stock in the merger (except to the extent you
receive cash in lieu of fractional shares, see below);
- to the extent that you receive cash in lieu of fractional shares, you
will recognize gain or loss equal to the difference between your
basis in such fractional shares and the amount of cash received with
respect to such fractional shares. Assuming that your fractional
shares were held as a capital asset, such gain or loss will be
treated as capital gain or loss, with gain resulting from fractional
shares held for more than one year taxed at a maximum rate of 20% and
gain resulting from fractional shares held for one year or less taxed
at a maximum rate of 39.6%
- the aggregate basis of your shares of FTM Delaware received in the
merger will be the same as your aggregated basis for your shares of
INRG stock surrendered in the merger, less the basis attributable
to any fractional shares of INRG stock exchanged for cash;
34
<PAGE> 35
- the holding period of shares of FTM Delaware received by you in the
merger will include the holding period of the INRG stock surrendered
in exchange.
ANTICIPATED ACCOUNTING TREATMENT
We will account for the acquisition of the minority shareholders'
interest in INRG under the purchase method of accounting in accordance with
Accounting Principles Board Opinion (APB) No. 16 "Business Combinations" and
AICPA Accounting Interpretation 26 "Acquisition of Minority Interest" of APB
Opinion 16.
The reincorporation merger of FTM Colorado into FTM Delaware will be
accounted for as a transfer or exchange of net assets at historical cost in a
manner similar to that in pooling of interest accounting in accordance with the
provisions of AICPA Accounting Interpretation 39 "Transfers and Exchanges
between Companies under Common Control" of APB Opinion 16.
RESTRICTIONS ON RESALES BY AFFILIATES
The shares of FTM Delaware common stock to be issued in connection with
the INRG merger will be registered under the Securities Act of 1933, as amended,
and will be freely transferable under the Securities Act, except for shares of
FTM Delaware common stock issued to any person who is deemed to be an
"affiliate" of either INRG or FTM Delaware at the time of the special meeting.
Persons who may be deemed to be affiliates include individuals or entities that
control, are controlled by, or are under the common control of either of INRG or
FTM Delaware and may include some of our officers and directors, as well as our
principal stockholders. Affiliates may not sell their shares of FTM Delaware
common stock acquired in connection with the merger except pursuant to:
- an effective registration statement under the Securities Act covering
the resale of those shares;
- an exemption under paragraph (d) of Rule 145 under the Securities Act;
- or any other applicable exemption under the Securities Act.
FTM Delaware's registration statement on Form S-4, of which this
prospectus forms a part, does not cover the resale of shares of FTM Delaware
common stock to be received by affiliates in the merger.
APPRAISAL RIGHTS
You, as a record holder of shares of INRG common stock, will be entitled
to assert appraisal rights under Section 262 of the Delaware General Corporation
Law. Such rights entitle you to require INRG to purchase your dissenting shares
for cash at their fair market value, excluding any appreciation or depreciation
as a result of the merger. The following is a summary description of the
provisions of the applicable Delaware law.
This summary is complete in all material respects but should be read
with the full text of the applicable law, a copy of which is attached hereto as
Annex D. If you are intending to
35
<PAGE> 36
exercise your statutory appraisal rights, you are urged to review Annex D
carefully and to consult with legal counsel so as to assure strict compliance
with its provisions.
Under Section 262 of the Delaware General Corporation Law, you, as a
record holder of INRG common stock following the procedures set forth in such
law will be entitled to have your INRG common stock appraised by the Delaware
Court of Chancery and to receive payment in cash of the "fair value" of such
shares, exclusive of any element of value arising from the accomplishment or
expectation of the merger, together with a fair rate of interest, if any, as
determined by such court. If you are considering seeking appraisal you should be
aware that the fair value of your INRG common stock under Section 262 could be
more than, less than or equal to the merger consideration otherwise to be
received by such holder.
If you wish to exercise statutory appraisal rights, you must deliver to
INRG, within 20 days after the date of mailing of this notice and prospectus, a
written demand for appraisal of your INRG common stock. If you, as a holder of
INRG common stock, wish to exercise such rights, you must be the record holder
of such shares on the date the written demand is made and must continue to hold
such shares of record through the effective time. Accordingly, if you are a
holder of the INRG common stock who is a record holder on the date that the
demand is made but who subsequently transfers such shares prior to the effective
time, you will lose your right to appraisal with respect to the shares
transferred.
A demand for appraisal should be executed by or on behalf of you, as the
holder of record, as your name appears on your stock certificate. If your shares
of INRG common stock in question are held in a fiduciary or representative
capacity, such as by a trustee, guardian or custodian, execution of the demand
should be made in that capacity. If your shares are owned of record by more than
one person, as in a joint tenancy or a tenancy in common, the demand should be
executed by or on behalf of all joint owners. An authorized agent, including one
or more joint owners, may execute a demand for appraisal on behalf of a holder
of record; however, the agent must identify the record owner or owners and
expressly disclose the fact that, in executing the demand, the agent is agent
for such owner or owners. All demands for appraisal must be in writing and must
be sent or delivered to INRG at 6991 East Camelback Road, Suite D-103,
Scottsdale, AZ 85251; Attn: Scott Manson.
Any holder of INRG common stock who has demanded an appraisal in
compliance with Section 262 will not, from and after the effective time, be
entitled to vote the INRG common stock subject to the demand for any purpose or
be entitled to the payment of future dividends or other distribution on the INRG
common stock.
Within ten days after the effective time, INRG will be required to
notify each stockholder who has complied with the provisions of Section 262 of
the date that the merger became effective. Within 120 days after the effective
time, any stockholder who has complied with the requirements for exercise of
statutory appraisal rights will be entitled, upon written request, to receive
from INRG a statement setting forth the aggregate number of shares of INRG
common stock to which demands for appraisal have been received and the aggregate
number of holders of such INRG common stock. Such statements must be mailed
within ten days after a written request therefor has been received by INRG or
within ten days after the expiration of the period for delivery of demands,
whichever is later.
36
<PAGE> 37
Within 120 days after the effective time, INRG or any stockholder who
has complied with the statutory requirements described above may file a petition
in the Delaware Chancery Court demanding a determination of the fair value of
the INRG Commons Stock. INRG is under no obligation to and does not currently
intend to file a petition with respect to the appraisal of the fair value of the
INRG common stock. Accordingly, it will be the obligation of you, as
stockholders, to initiate all necessary action to perfect statutory appraisal
rights with respect to your INRG common stock within the time periods prescribed
by Section 262.
If a petition for appraisal is timely filed, stockholders entitled to
statutory appraisal rights may receive notice of the time and place of a hearing
on the petition. After such hearing, the Delaware Court of Chancery will
determine the stockholders entitled to statutory appraisal rights and the "fair
value" of their INRG common stock, exclusive of any element of value arising
from the accomplishment or expectation of the merger, together with a fair rate
of interest, if any, to be paid thereon. The Delaware Supreme Court has stated
that "proof of value by any techniques or methods which are generally considered
acceptable in the financial community and otherwise admissible in court" should
be considered in determining fair value in an appraisal proceeding. The Delaware
Supreme Court has further stated that in determining fair value in an appraisal
proceeding, the court must consider market value, dividends, earnings prospects,
the nature of the enterprise and any other facts which could be ascertained as
of the date of the merger that throw any light on the future prospects of the
merger corporation. In Weinberger v. UOP, Inc., the Delaware Supreme Court held
that the "elements of future value, including the nature of the enterprise,
which are known or susceptible of proof as of the date of the merger and not the
product of speculation, may be considered" in determining fair value.
The costs of an appraisal action may be determined by the Court of
Chancery and taxed upon the parties as it deems equitable. The Chancery Court
may also order that all or a portion of the expenses incurred by any stockholder
in connection with appraisal, including, reasonable attorneys' fees and the fees
and expenses of experts utilized in the appraisal proceeding, be charged pro
rata against the value of all of the shares of INRG common stock entitled to
appraisal.
If any stockholder who properly demands appraisal of his or her INRG
common stock under Section 262 fails to perfect, or effectively withdraws or
loses his or her right to appraisal, as provided under Delaware law, such
stockholder's shares will be converted into the right to receive the
consideration specified in the merger agreement. A stockholder will fail to
perfect statutory appraisal rights, or effectively lose or withdraw his or her
right to appraisal if, among other things, no petition for appraisal is filed
within 120 days after the effective time or if the stockholder delivers to INRG
a written withdrawal of his or her demand for appraisal and acceptance of the
merger. Any such attempt to withdraw an appraisal demand more than 60 days after
the effective time will require written approval of INRG.
OPERATIONS AFTER THE MERGER
Following the merger, FTM Delaware will continue the operations of FTM
Colorado and INRG. The members of the board of directors of FTM Delaware will be
the same as the members of the board of directors of INRG. The stockholders of
INRG will become stockholders of FTM Delaware, and their rights as stockholders
will be governed by the FTM
37
<PAGE> 38
Delaware Certificate of Incorporation, as currently in effect, the FTM Delaware
Bylaws and the laws of the State of Delaware. See "Comparison of Rights of
Holders of INRG common stock and FTM Delaware Common Stock."
COMPARISON OF RIGHTS OF HOLDERS OF INRG COMMON STOCK AND FTM DELAWARE COMMON
STOCK
The rights of both the INRG stockholders and the FTM Delaware
stockholders are governed by Delaware law and their respective certificates of
incorporation and bylaws, which are substantially similar. The following is a
summary of the material differences between the current rights of the INRG
stockholders and those of the FTM Delaware stockholders.
Capital Stock.
Under the FTM Delaware Certificate, the authorized capital stock of FTM
Delaware will consist of 50,000,000 shares of common stock, $0.001 par value per
share, and 5,000,000 shares of preferred stock of which 50,000 shall be
designated as Series A Preferred Stock, $0.001 par value per share, and 400,000
as Series B preferred stock, $0.04, par value per share. As of September 15,
1999, the total shares of INRG common stock issued and outstanding was
1,722,425, $.001 par value per share, and 40,636 shares of Series A preferred
stock, $.001 par value per share ("INRG Preferred Stock"). The rights and
preferences of the INRG Series A Preferred Stock are substantially similar to
those of the FTM Delaware Series A preferred stock.
The rights and preferences of Series B Preferred Stock include the
following:
- The stock ranks senior to Common Stock and any other class or series
of capital stock of the Corporation with respect to liquidation, dissolution, or
winding up of the business unless such other class or series constitutes Parity
Stock or Senior Stock.
- Holders of the stock are entitled to receive annual dividends $0.702
per share prior and in preference to any declaration or payment of any cash
dividend on the Common Stock or any other Junior Stock of the Corporation.
- Holders of the stock have no voting rights except for those minimum
rights required by the Colorado Business Corporation Act, in which case the
stock shall vote together with the Common Stock as a single class, unless the
Colorado Business Corporation Act requires the Series B Convertible Preferred
Stock to vote separately as a single class.
- Holders have the option to convert their stock to Common shares equal
to the conversion rate in effect at the time of conversion. The conversion rate
shall be an amount equal to $5.85 divided by the conversion price. The
conversion price shall equal $5.85 minus the multiple of the aggregate unpaid
accrued dividends per share times 0.64103.
- After June 15, 2000, the Corporation may elect to cause each share to
be automatically converted into a number of fully paid and non-assessable Common
shares equal to the conversion rate then in effect as of any date on which the
closing price for each of the twenty trading days preceding such date equals or
exceeds $8.35 per share.
38
<PAGE> 39
THE COMPANY
Our company's history begins with INRG. INRG was incorporated on
February 22, 1994. Prior to March 1998, INRG had not engaged in any form of
commercial business activity. In March 1998, our principal business focus became
the Internet and the production of interactive, multi-media, 2-D/3-D Internet
web sites for the radio industry.
On December 7, 1998, INRG acquired Cybermusic, Inc. ("Cybermusic") in a
merger. The business of Cybermusic consisted primarily of developing a network
of linked, interactive, multimedia, 2-D/3-D Internet web sites for radio
stations. Our business plan is to develop, operate and manage this network,
perform related services and provide Internet access to participating radio
stations in order to produce new sources of revenue for the radio stations. It
is expected that the Internet web sites for participating radio stations will
feature multi-media interactive capability, streaming audio and video, local and
national chat, games, P1 targeting and music sampling. We also expect to provide
market and audience research with daily and weekly analysis, licenses,
e-commerce, and technical support/customer service and to run operations center
available seven days per week.
We will initially seek to build our Internet network through building
web sites for radio stations owned by CBS/Infinity Broadcasting, and later other
radio stations. On March 9, 1998, the INRG entered into an Agreement with CBS
(the "CBS Agreement") pursuant to which Infinity Broadcasting will help us meet
with the general managers of radio stations owned by CBS/Infinity Broadcasting
for the purpose of discussing the participation of such radio stations in the
FTM Radio Internet Network.
Our business is still in the very early stages of development. We are in
discussions with various CBS/Infinity Broadcasting affiliated radio stations
regarding the providing of Internet products and services, but do not yet have
binding agreements with any radio stations to provide such products and
services. In addition, while we are currently developing a Radio Station
Internet Web site for the CBS-affiliated Los Angeles Radio Station "KROQ",
CBS-affliated San Francisco Radio Station "KITS" and the CBS-affiliated Chicago
Radio Station "B96", these web sites do not incorporate all of the currently
available technical features that we expect to include in our fully operational
web sites. We have yet to generate our first revenues and have no operating
history upon which an evaluation of the prospects for the acceptance of our
Internet products and services and the related sale of Internet advertising may
be based.
We anticipate three initial sources of revenue including: (1) the sale
of radio advertising units received from radio stations in the top twenty five
U.S. markets in exchange for the Company's various Web site products and
services and for participation in our Internet network, (2) the sale of local
and national advertising, "integrated interactive advertising and sponsorships"
on our Internet network, and (3) the sale of merchandise, in addition to other
e-commerce activities generated within our Internet network.
There is increasing competition for limited advertising dollars on the
Internet and we will seek to differentiate ourselves through the sale of
sponsorships and "integrated advertising." Integrated advertising is a unique
program that involves advertisers in the creation of a message allowing them to
better target a specific audience or audience segment. Our growth strategy
depends, in part, on our ability to generate advertising revenue by the
introduction of new and
39
<PAGE> 40
enhanced Internet products and services. In addition, we will attempt to
generate advertising revenue through the introduction of new and enhanced
Internet products and services to our Internet network by the creation of new
features, promotions, games, in order to provide sponsors and advertisers with
even greater ability to target a specific audience.
CBS AGREEMENT
Pursuant to the CBS Agreement, CBS/Infinity Broadcasting will provide,
until March 2003, access and assistance to us to contact radio stations owned
and/or operated by CBS/Infinity for the purposes of soliciting such stations to
(1) participate in our Internet network, (2) to engage us to develop, operate
and maintain internet web sites for such stations and to provide related
services and (3) to engage us to function as an Internet access provider for
such stations in order for the station to generate new sources of revenue. In
exchange for such rights and assistance, we have agreed to (i) use commercially
reasonable efforts to provide unimpeded and uninterrupted access and operability
of internet sites to the participating radio stations, (ii) propose to
stockholders that, for so long as CBS/Infinity Broadcasting continues to own at
least ten percent (10%) of the issued and outstanding shares of our Common Stock
(on a fully diluted basis), a representative designated by CBS Radio or Infinity
be elected to our Board of Directors, and to use best efforts to cause all of
its insiders and affiliates to vote their shares in favor of the election of
said representative, and (iii) allow CBS Infinity Broadcasting to audit our
books and records not more than once each calendar year on behalf of those
stations who participate in our Internet network with respect to the accounting
statements tendered to such radio stations under their agreements with us.
OTHER POTENTIAL INTERNET PRODUCTS AND SERVICES
We anticipate that advertising revenues generated from the sale of
Internet web site advertising and sponsorships will represent only a portion of
our operating revenues and profits, and further, we believe that our future
success will depend, in part, on our ability to generate revenues and profits
from other sources. We intend to explore other opportunities to increase
revenues through new game platforms, co-branding relationships, cross-licensed
technologies, merchandise opportunities, specialized CD-ROM's, classified
advertising, personals, archiving fees, specialty Web-based-only entertainment
events, emerging artist management, publishing and music distribution, and
market specific consumer research.
THE MARKET
Consumer household usage of the Internet is growing exponentially. The
market for interactive multimedia websites, promotions, games, information, and
online commerce is a rapidly growing segment of the United States economy. An
estimate of 1999 Web use by Nielsen Media Research placed current Web users at
92 million persons, up from 70 million in 1998. A January 1999 Arbitron/Edison
Media Research survey of Arbitron's Fall `98 diarykeepers found that 57% of U.S.
households have a computer, and more than half of all Americans are currently
online (at home, work, school, or other locations).
As the Internet becomes more accessible, functional, and widely used by
consumers and businesses, its commercial potential continues to grow
dramatically in terms of both e-commerce
40
<PAGE> 41
and ad spending. The number of people making purchases online has jumped 40% in
the last nine months, up to 28 million people, according to a recent
Nielsen/CommerceNet study.
The overlap between potential Web users and devoted radio listeners is
significant, according to the recent Arbitron/Edison study. Fully 82% of
partisan Alternative Rock listeners have computers at home, compared to the 57%
of total homes. Of those PC-owning Alternative Rock listeners, 91% already have
Internet access. In fact, most young people - the most active radio listeners --
are online. Fully 81% of those 12-17 and 71% of those 18-24 are online.
Penetration is high among older listeners also as well over half of those 25-54
are online.
Broadcast advertising is one of the most powerful drivers of Web
traffic. Radio is well positioned to capitalize on this, thanks to its
convenience, reach, and devoted audience. According to Arbitron/Edison,
two-thirds of those surveyed had heard a station promote its website on-air, and
a third had actually visited a station website (rising to 44% among Modern Rock
listeners).
Consumer-focused Internet companies (such as AOL, eBay, Amazon, and
Priceline.com) clearly believe that radio listeners can drive listeners to their
sites. Online companies spent more than $37 million on traditional radio
advertising during the first quarter of 1999, up from just $6 million in the
same period a year ago, according to a recent Competitive Media/Industry
Standard report. PaineWebber recently upgraded its estimate of total 1999 online
companies' advertising spending from around $500-$600 million up to $800
million. PW expects 40% of that to go to radio, for a total of $320 million in
1999 radio ad revenues. PW estimates the dot-coms' 1999 offline advertising
breakdown will be 40% radio, 40% TV, and 20% other media.
After establishing our initial Internet network, we intend to add
additional Internet Web site products and services by partnering with
prospective advertisers and sponsors to develop games that will appeal to
specific target markets. We have conceptual plans for our Internet network and
web site features, promotions, games designed to appeal to groups that it
believes are not effectively served by existing Internet web programming. These
plans include products based on relationships and designed to appeal to women,
educational games for young adults, and other specifically targeted features to
attract broad demographic support.
Many companies that focus on the development of radio station web sites
have entered the Internet market in the last few years in anticipation of the
perceived opportunities. We believe that these companies tend to siphon
listeners from client stations' websites by sending them away to partner content
sites. We believe that it is easier and less costly - in the short term - to
allow third parties to provide the information, entertainment, and e-commerce
portions of a full-featured website, but we believe that the long-term costs of
sharing user data, traffic, and revenues more than outweigh the convenience.
STRATEGY
Our objective is to become the leading developer of Internet web sites
for the radio broadcast industry. We seek to assemble and utilize, through
strategic partnerships and licensing agreements, a number of existing
proprietary third-party technologies to create a unique web presence for the
radio broadcast industry.
41
<PAGE> 42
SALES AND MARKETING
In addition to our Director of Sales and Marketing, we intend to employ
the services of independent national media sales organizations in New York,
Chicago and Los Angeles to help maximize the development of the FTM
National/Local General Lifestyle and Demographic "Audience Specific" advertising
opportunities. We intend to hire several additional employees in sales and
marketing over the next two and one-half years to fully extend the "target
marketing and brand capabilities" of our "local and national format communities"
and distribution networks (radio stations). The planned extensions include a
"frequent user/buyer" bonus program for all registered users with local station
and national network premium rewards. It is expected that the growing sales and
marketing staff and our various associates will focus principally on maximizing
"integrated advertising" and "sponsorship" opportunities, which typically
require more time and involvement to bring to fruition than Banner advertising
sales. We also expect that our internal sales force will be responsible for the
origination of all our "audience and music research products" and any product
licensing arrangements. In addition, we believe that the strength of the CBS
Radio brands and their large audiences will facilitate our advertising
relationships and sponsorship placements.
COMPETITION
FTM's direct competitors include:
- OnRadio--Partially owned by Katz Radio Group, which in turn is owned
by the Chancellor Radio Group. OnRadio supplies basic, template-based websites
to radio stations in exchange for the radio station providing a "link" to
OnRadio national content. There is also a banner ad revenue split, and the
participating radio stations barter some airtime to OnRadio in exchange for its
services. OnRadio does not supply custom content to its affiliate radio
stations, and OnRadio national websites can be accessed directly, without going
through the local radio station website. OnRadio has a strategic alliance with
Microsoft and features Microsoft's Windows Media Player for streaming media.
OnRadio has been in operation for more than three years and boasts over 400
affiliate radio stations; however, most stations are in small and medium-sized
markets.
- AMFMi--Following its 1998 acquisition of Capstar Broadcasting,
Chancellor Media has renamed itself and reorganized to take advantage of
Internet opportunities. AMFMi was formed as an in-house Web development group
with goals very similar to FTM's.
- FIMC/RadCity--A successor company to the now-defunct First Internet
Franchise Corp., First Internet Media Corporation offers stations a
market-exclusive licensing arrangement for each "RadCity," a local portal
comprised of third-party information providers. The strategy is currently being
tested in six small markets and one major city (San Francisco).
- Magnitude Network--Owned by Web investment firm CMGI, Magnitude has
about 200 station affiliates, almost all of them in small to medium markets.
Services include traffic data tracking, Web hosting, update tools,
station-branded listener e-mail, streaming audio, and content drawn from
third-party suppliers such as Rolling Stone/Jam TV.
42
<PAGE> 43
- MP3Radio.com--A recent merger between Cox Enterprises and MP3 has
created this company that will be staffing up to build radio station sites using
templates. The initiative is to approach broadcast companies and offer a
solution to get all of the company's stations online, for basically revenue
sharing opportunities and a piece of the station's database. The content will be
MP3 driven.
FTM's indirect competitors include:
- America Online (AOL)--AOL recently acquired two of the leading MP3
Web music entities. Nullsoft is the developer of Winamp, the leading MP3 player.
Its SHOUTcast service allows anyone with the time and desire become an online
broadcaster using the MP3 format. AOL also acquired Spinner.com, which uses a
proprietary, downloadable software interface to stream music over the Web.
Spinner's strengths include its built-in e-commerce (similar to FTM's planned
e-commerce strategy), its "now playing" info (also part of FTM's package), and
high sound quality (QuickTime 4, one of FTM's streaming options, delivers
unmatched audio for PC and Mac). Spinner also touts its wide variety of songs
and channels.
- Clear Channel/InXsys--Clear Channel, a major radio group owner, plans
to launch a national Internet-only radio station named KIISFMi, after the
group's flagship Los Angeles station, KIIS-FM. Developed in conjunction with
InXsys, a Web network developer and E-commerce/classified/auction content
provider, the station's programming will differ slightly from that of KIIS-FM.
Following September, 1999 launch of a Top 40 feed, the companies plan to launch
a new format every two months, moving on to Spanish (based in Miami), Country
(Nashville), and Rap (Detroit). Clear Channel is attempting to leverage a few
established local radio format Brands to create national radio "superstations."
- Rolling Stone / Jam TV--Rolling Stone Magazine, through its long-term
deal with Jam TV, offers radio stations links to national content, including
online concerts and repurposed features, in exchange for banner ad sales.
Rolling Stone / Jam TV also provides some website development assistance to
participating radio stations.
- Broadcast.com--has become a large aggregator of radio stations in a
relatively short period of time. In exchange for 5-10 bartered ad units a week,
Broadcast.com puts local radio stations' signals on the Internet with a
RealAudio streaming license and software. Broadcast.com offers its affiliates no
website services or content.
- Motorola--Radiowave, Motorola's Internet radio software, is a
downloadable player that streams an audio feed and matches it with visual
information about the artists "now playing" or the commercials "now airing." The
company does not create websites, but rather, licenses its streaming technology.
Currently, Radiowave is streaming 38 stations, including college and religious
broadcasters.
- Lifestyle Aggregators--including MSN's new lifestyle communities,
Yahoo!, Excite, Disney's GO Network, and others, all have the potential to offer
increased services and targeted content to local radio stations.
43
<PAGE> 44
- Music Aggregators--There are literally thousands of music-related
websites on the Internet. Some of the more prominent include Launch, MTV, Spin,
Underground Band List, and All Music Guide. Consolidation has been swift in this
category. Some of these websites may in time develop a strong enough Web
presence and visitor base to compete, to a degree, with us in some e-commerce
and advertising categories.
We anticipate that the number of direct and indirect competitors will
increase significantly in the future. The market for Internet products and
services is growing exponentially and there are relatively few barriers to entry
into the marketplace. There can be no assurance that our current or potential
competitors will not develop Internet products and services comparable or
superior to those to be developed by us or adapt more quickly than us to new
technologies, evolving industry trends or changing Internet user preferences.
Increased competition could result in price reductions, reduced margins or loss
of market share, any of which would materially and adversely affect our
business, prospects, financial condition or operating results. In addition, if
we expand internationally, we may face new competition. There can be no
assurance that we will be able to compete successfully against current and
future competitors, or that competitive pressures faced by us will not have a
material adverse effect on our business, prospects, financial condition or
operating results.
GOVERNMENT REGULATION AND LEGAL UNCERTAINTIES
We are subject to various laws and governmental regulations applicable
to businesses generally. We believe we are currently in material compliance with
such laws and that such laws do not have a material adverse impact on our
operations. In addition, although there are currently few laws or regulations
directly applicable to access to or commerce on the Internet, due to the
increasing popularity and use of the Internet, it is possible that more
stringent federal, state, local and international laws and regulations may be
adopted with respect to the Internet. A variety of issues may prompt such
regulations including problems involving participant privacy and expression,
consumer protection, pricing, payment methodologies, financing practices,
intellectual property, information security, anti-competitive practices, the
convergence of traditional channels with Internet commerce, characteristics and
quality of products and services and the taxation of subscription fees or gross
receipts of Internet service providers. The enactment or enforcement of such
laws or regulations or others in the future may increase our cost of doing
business or decrease the growth of the Internet, which could in turn decrease
the demand for our Internet products and services, increase our costs, or
otherwise have an adverse effect on our business, financial condition or
operating results. Moreover, the applicability to the Internet of existing laws
in various jurisdictions including laws and regulations relating to matters such
as property ownership, libel and personal privacy is uncertain, may take years
to resolve and could expose us to substantial liability for which we might not
be indemnified by content providers or other third parties. Any such new
legislation or regulation or the application of existing laws and regulations to
the Internet could have a material adverse effect on our business, prospects,
financial condition or operating results.
Our use of prizes in connection with features, promotions, games may be
subject to federal, state, local and international laws governing lotteries and
gambling. Such laws vary from jurisdiction to jurisdiction and are complex and
uncertain. We will attempt to design our prizing structure to fall within
exemptions from such laws, but there can be no assurance that our prizing
44
<PAGE> 45
structure will be exempt from all applicable laws. Failure to comply with
applicable laws could have a material adverse affect on our business, prospects,
financial condition or operating results.
EMPLOYEES
As of September 15, 1999, we employed approximately 50 full and
part-time personnel. Additional administrative, marketing and technical
personnel will be hired from time to time to meet our operating requirements.
DESCRIPTION OF PROPERTY
Our executive business offices are located at 6991 East Camelback Rd,
Suite D-103, Scottsdale, Arizona 85251. In addition, we are occupying an
approximate 13,000 square foot operating facility at 111 North First Street,
Suite 200, Burbank, California.
LEGAL PROCEEDINGS
We are not currently involved in any litigation and are not aware of any
threatened litigation.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
Liquidity and Capital Resources - March 31, 1999 Compared to March 31,
1998
Total assets increased $2,269,644 to $2,350,953 as of March 31, 1999
compared to March 31, 1998; total liabilities for the current period increased
significantly from $0.00 as of March 31, 1998 to $272,921 as of March 31, 1999;
total stockholder's deficit increased to $1,134,396 as of March 31, 1999 from
$294,473 as of March 31, 1998. Contributing to the increase in Stockholder's
deficit were an increase in our accumulated deficit of $1,109,118 attributable
to our current period operating loss and an increase in common and preferred
stock and additional paid in capital associated with several equity transactions
involving the issuance of common and preferred stock pursuant to our private
placement transactions. Total current assets as of March 31, 1999 were
$2,051,801 and consisted of cash of $2,027,833 and other current assets of
$23,968. Total current liabilities as of March 31, 1999 were $272,921 comprised
primarily of vendor accounts payable and accrued expenses of $64,820. We posted
a dramatic improvement in working capital from $2,796 at March 31, 1998 to
$2,027,833 at March 31, 1999. Contributing to the increase in working capital
for the period was the sale via private placement of INRG common stock by which
INRG received $2,883,897 in cash in exchange for 960,616 shares of its Common
Stock. Prior to March 31, 1998 we were not engaged in any form of business
activity and a comparison for 1998 with 1997 is not available.
We also received approximately $1,500,000 in equity financing through
our sale of Redwood Broadcasting, Inc. Series B Preferred Stock on or about June
15, 1999.
We believe that the funds available to us in 1999 will be adequate to
meet our operating requirements through for the immediate term. As it is
unlikely that the we will be able to generate sufficient cash flow from
operations during the near future to meet our capital requirements, in the event
that we require additional funds, we will attempt to generate cash by
45
<PAGE> 46
selling securities or raising debt financing. During 1999 we will continue to
acquire computer hardware and software to expand our overall Internet web site
development operations and create the FTM Radio Internet Network of major market
radio stations. Funds for such computer hardware and software equipment will
come from working capital or borrowings. Any corporate acquisition activity
undertaken by us during 1999 will be contingent upon obtaining the necessary
financing. We continually assesses our need for capital resources. From time to
time, we may evaluate and pursue additional sources of capital.
Other than the foregoing and the risk factors discussed above, we know
of no trends, demands, or uncertainties that are reasonably likely to have a
material impact on our short term liquidity or capital resources.
Liquidity and Capital Resources - June 30, 1999 compared to March 31,
1999
At June 30, 1999, we had total assets of $3,052,428 representing an
increase in the total assets of $703,475 over total assets at March 31, 1999.
Total liabilities increased to $491,765 at June 30, 1999 from $272,921 at March
31, 1999. Minority interest increased to $3,230,734 at June 30, 1999 from
$3,187,150 at March 31, 1999. Total Stockholders Deficit decreased to $670,072
at June 30, 1999 from $1,109,118 at March 31, 1999.
Total current assets at June 30, 1999 were $2,526,134, which consisted
of cash and cash equivalents of $2,301,053 and prepaid expenses of $225,081.
Total current liabilities at June 30, 1999 were $491,765 consisting of accounts
payable of $406,783 and the current portion of a note payable in the amount of
$84,892. Working capital at June 30, 1999 was $2,034,369 compared to $1,778,880
at March 31, 1999. This represented an improvement in our working capital
position of $255,489.
At June 30, 1999 we reported total assets of $3,052,428 which consisted
of $2,526,134 of current assets described above, $440,047 of Net Property and
Equipment, $11,660 of Lease Deposits and $74,587 of Net Goodwill.
Total liabilities at June 30, 1999 are comprised entirely of the current
liabilities described above.
Minority interest at June 30, 1999 totaled $3,230,734, which consisted
of Preferred Stock of a subsidiary in the amount of $423,508 and common stock of
INRG in the amount of $2,807,226.
At June 30, 1999 we reported a Stockholders Deficit of $670,072. This
represents a decrease of $439,046 over March 31, 1999 Stockholders Deficit of
$1,109,118. This decrease was the result of the sale of 267,522 shares of Series
B Convertible Preferred Stock in which we received $1,565,005, increased by the
payment of $187,800 of dividends to the shareholders of Series B Convertible
Preferred Stock and increased by the net loss for the period of $938,159.
Results of Operations - March 31, 1999 Compared to March 31, 1998
As previously discussed, the comparisons of operating results for 1999
to 1988 are affected by our divestiture and acquisitions.
46
<PAGE> 47
We reported a net operating loss of $896,693 for the 12 month period
ending March 31, 1999 compared to a net operating loss of $22,261 at March 31,
1998. The March 31, 1999 net operating loss is $(0.129) per share compared to
$(0.003) per share for the period ending March 31, 1998. Our revenues for the
period ending March 31, 1999 and for the same period ending 1998 were $0.00.
Operating expenses for the year ended March 31, 1999 were $899,058 compared to
$22,261 for the period ending March 31, 1998. We incurred interest expenses of
$9,519, depreciation and amortization of $4,077, financing costs of $282,163 and
legal fees of $298,598 all for the period ending March 31, 1999. We incurred
higher legal expenses during the year associated with the various divestitures,
acquisitions, merger and financing transactions.
Inflation did not have any material effect on our operations for 1999
and 1998. Our attempts to mitigate the impact of cost increases by evaluating
its suppliers, by increasing its effectiveness, and by adjusting its prices for
services rendered and products sold. While we do not expect inflation to have a
material impact on 1999 operations, there are no guarantees that future cost
increases would not have an adverse impact.
Other than the foregoing and the risk factors described below,
management knows of no trends, demands, or uncertainties that are reasonably
likely to have a material impact on our results of operations.
Results of Operations - Three Months Ended June 30, 1999 compared to the
Three Months Ended June 30, 1998
Net Revenues for the three months ended June 30, 1999 were 0, compared
to net revenue of 0 for the same period a year ago. This is attributable to our
continuing to be in development stage and therefore not yet generating any
revenue from operations.
Operating expenses for the three months ended June 30, 1999 were
$1,272,613 which consisted of website development costs of $509,504, general and
administrative expenses of $741,724 and depreciation and amortization of
$21,385. Operating expenses for the three months ended June 30, 1998 were 0.
We recorded net interest income (interest income offset by interest
expense) of $10,383 for the quarter ended June 30, 1999. The interest income was
money earned on our cash and cash equivalents.
As a result of the foregoing we posted a net loss of $1,262,230 before
minority interest. The minority interest in our net loss was $324,071 resulting
in a net loss to us of $938,159 for the three months ended June 30, 1999 or
$(.148) per share compared to a net loss of 0 for the three months ended June
30, 1998.
Net Operating Loss Carryforwards
At March 31, 1999, we had a net operating loss carryforward for income
tax purposes of approximately $1,134,396, which expires beginning in 2017. Under
the Tax Reform Act of 1986, the amounts of and the benefits from net operating
loss carryforwards are subject to certain limitations in the amount of net
operating losses that we may utilize to offset future taxable income.
47
<PAGE> 48
Impact of Recently Issued Accounting Standards
Statement of Financial Accounting Standards 133 Accounting for
Derivative Instruments and Hedging Activities (SFAS 133) was recently issued.
SFAS 133 established accounting and reporting standards for derivative financial
instruments and for hedging activities. We do not currently engage in any
activities that would be covered by SFAS 133.
DIRECTORS, EXECUTIVE OFFICERS AND PRINCIPAL CONSULTANTS
Each executive officer will hold office until his or her successor is
duly elected and qualified, until his resignation or until he shall be removed
in the manner provided by the Company's Bylaws. The entire Board of Directors
will be up for election at the next annual meeting of stockholders.
Our Directors, Executive Officers and Principal Consultants and their
ages, are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
Frank Wood 56 Chairman/Director
Robert Wilson 52 Vice Chairman/Director
Ronald Conquest 54 CEO/Director
Jeffrey Pollack 46 Consultant/Director
Gregory Mastroieni 48 Consultant/Director
Vickie Collier 35 Manager of Operations/Director
Scott Manson 39 CFO/General Counsel/Secretary/Treasurer
Andy Schuon 34 Director
John Gehron 52 Director
</TABLE>
FRANK WOOD - CHAIRMAN & DIRECTOR Frank Wood is President and CEO of
Secret Communications, L.P., which owned and operated radio stations in nine
major markets since its formation in 1994. The entire portfolio of stations was
recently sold but Secret continues to pursue broadcasting opportunities. Mr.
Wood is also a co-founder and principal in The Darwin Group, a recently
organized venture capital firm. He has been involved with the founding or
management of such other entities as Jacor Communications, Inc., Rich
Communications, Inc., Critical Mass Media, Eastman Radio, Circe Communication,
Broadcast Alchemy L.P., T.C. Monte, Inc., Brute Force Cybernetics and Trebuchet
Corporation. He graduated A.B. cum laude, Economics from Harvard and Juris
Doctor from the University of Chicago Law School.
ROBERT WILSON - VICE CHAIRMAN & DIRECTOR Bob Wilson is best known as the
founder of Radio & Records (R&R), a company that he built from a trade
publication into one of the radio and music industry's information leaders. Over
the course of two decades, Mr. Wilson continually expanded R&R's editorial scope
and led R&R into the development of electronically delivered news and
information services to better meet the needs of decision-makers at all
48
<PAGE> 49
management levels of the radio and music industries. Prior to founding R&R in
1973, Mr. Wilson was program director for a number of California radio stations.
As an independent producer of theatrical film, home video and television
projects in the mid-1980's, Mr. Wilson was also co-creator of Solid Gold, one of
the most profitable and long-running syndicated weekly music programs in the
history of television.
RONALD CONQUEST - CEO & DIRECTOR Ron Conquest has over 30 years of
experience as a businessman, consultant and entrepreneur and since 1987 has
served as partner and Chairman/CEO of Warwick-Clarendon Investors Ltd., a
diverse investment/merchant banking entity providing a variety of business,
financial and development services to emerging private and public companies.
Prior to 1987, Mr. Conquest was Chairman/CEO of an Oklahoma based oil & gas
exploration/operating company. Mr. Conquest's experience includes extensive
strategic planning, start-up, organizational, and public entity operating
skills. He attended the University of Oklahoma.
JEFFREY POLLACK - CONSULTANT & DIRECTOR Jeffrey Pollack is a leading
music and media consultant in the highly competitive world of radio and
television broadcasting. Since 1980, he has been Chairman and Chief Executive
Officer of Los Angeles-based Pollack Media Group, the world's largest
international music and media consulting firm. Mr. Pollack's clients include
radio stations in the Top 10 U.S. markets, Europe, Australia and New Zealand as
well as MTV USA, MTV Europe and MTV Latino.
GREGORY MASTROIENI - CONSULTANT & DIRECTOR Gregory Mastroieni has 25
years of experience as an entrepreneur and has been President of Unicorp, Inc.
since 1975, a "start-up" venture capital organization. Unicorp has developed
numerous projects, including real estate, manufacturing, hi-tech opportunities
such as Quartz products to produce silicon wafers, leading edge robotics, and
music entertainment. Concurrently for the past 8 years, Mr. Mastroieni has
served as C.O.O. of Strange Forces Productions and Managing Partner of Aftermath
Music. These companies have developed, published, produced and marketed music
products and promoted new talent, including Platinum recording artist Ronny
Loren and former Miss America Sharlene Hawkes. Recently, Aftermath Music
completed a 15 album project for America's largest independent record label,
Madacy Entertainment. Mr. Mastroieni attended the University of California,
Berkeley.
VICKIE COLLIER - MANAGER OF OPERATIONS/DIRECTOR Vickie Collier most
recently served as a Senior Executive with the Walt Disney Company where she was
involved with a variety of web sites with very high traffic volume. She has been
instrumental in the launch of Web-sites for Walt Disney Pictures, Walt Disney
Animation, Touchstone Pictures, Hollywood Pictures and Muppet Treasure Island,
which today collectively receive several million visitors per day. Previously,
she worked with Bob Wilson for seven years at Radio and Records, the radio and
music industry's leading trade publication where her responsibilities included
serving as director of electronic publications and overseeing the design and
development of the R&R Web Site and co-directing the development of R&R On-line,
a proprietary information retrieval system.
SCOTT MANSON - CFO/GENERAL COUNSEL/SECRETARY/TREASURER Scott Manson is a
CPA and Attorney at Law. Mr. Manson has over 15 years of financial and legal
experience with publicly held and rapid growth companies. Recently Mr. Mason was
CFO of Imaging Management
49
<PAGE> 50
Associates, a NASDAQ listed owner and operator of diagnostic imaging centers. In
addition Mr. Manson was one of the founders of both "MagazineWeek" and Health
New England, the first for profit HMO in the state of Massachusetts. Mr. Manson
received a Juris Doctor from Hofstra University School of Law and a B.B.A cum
laude in Accounting from Hofstra University.
ANDY SCHUON - DIRECTOR Andy Schuon currently is Executive Vice
President, General Manager of Warner Brothers Records. Before joining Warner
Brothers in March of 1998 he was Executive Vice President, Programming for MTV
where he was responsible for creating many of the hit programs currently being
shown on MTV. His duties at MTV also included overseeing all programming aspects
of MTV's second cable music channel VH1. From 1989 to 1992, Mr. Schuon served as
the Programming Director for KROQ-FM in Los Angeles, the flagship alternative
rock station of the FTM Radio Internet Network.
JOHN GEHRON - DIRECTOR John Gehron is Co-Chief Operating Officer for
CBS Radio. Mr. Gehron joined American Radio Systems as Co-Chief Operating
Officer in May 1994 and has more than twenty years of radio industry experience.
Mr. Gehron began his career as a Program Director in Philadelphia, New York and
Chicago before he joined Capital Cities/ABC in 1983 as VP/GM of WLS AM/FM in
Chicago. Mr. Gehron is a graduate of Pennsylvania State University with a B.S.
in Business Administration.
BOARD COMMITTEES
During the fiscal year ended March 31, 1999, we did not have a standing
Audit Committee. We plan to form an Audit Committee during the current fiscal
year. No member of the Audit Committee will receive any additional compensation
for his service as a member of that Committee. The Audit Committee is
responsible for providing assurance that financial disclosures made by
management reasonably portray our financial condition, results of operations,
plan and long-term commitments.
We plan to form a Compensation Committee during fiscal 2000. It is not
expected the members of the Compensation Committee will receive additional
compensation for service as a member of that Committee. The Compensation
Committee will be responsible for reviewing pertinent data and making
recommendations with respect to compensation standards for the executive
officers, including the President and Chief Executive Officer, establishing
guidelines and making recommendations for the implementation of management
incentive compensation plans, reviewing the performance of the President and
CEO, establishing guidelines and standards for the grant of incentive stock
options to key employees under our Stock Option Plans, and reporting regularly
to the Board of Directors with respect to its recommendations.
FAMILY RELATIONSHIPS
There are no family relationships among Directors. The present term of
office of each Director will expire at the next annual meeting of stockholders.
EXECUTIVE COMPENSATION
The following table and discussion set forth information with respect to
all compensation earned by or paid to our CEO, and our most highly compensated
executive officers other than the
50
<PAGE> 51
CEO, for all services rendered in all capacities for each of our last three
fiscal years. However, no disclosure has been made for any executive officer,
other than the CEO, whose total annual salary and bonus does not exceed $100,000
as of March 31, 1999.
TABLE 1
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------
Annual Compensation Long-Term Compensation
- -----------------------------------------------------------------------------------------------------------------
Awards Payouts
----------------------- --------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
OTHER UNDER-LYING
ANNUAL OPTIONS/
Name and C. D. COMPEN- STOCK SARS LTIP ALL OTHER
Principal B. Salary BONUS SATION AWARD(S) (#) PAYOUTS COMPENSATION
Position YEAR ($) ($) ($) ($) (2) ($) ($)
- -----------------------------------------------------------------------------------------------------------------
Ron Conquest, 1998 60,000(1) -- -- -- -- -- --
President and
CEO
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
(1) The stated salary was paid to a corporation for the provision of Ron
Conquest's services as INRG's President and Chief Executive Officer on or about
October 1, 1998.
(2) Ron Conquest is scheduled to receive 100,000 statutory and non-statutory
stock options to purchase shares of INRG common stock pursuant to the INRG Stock
Option Plan. Such grants of stock options pursuant to the INRG Stock Option Plan
were ratified by the written consent of the majority shareholders of INRG. Each
stock option previously granted under the INRG Stock Option Plan will be
converted into a stock option to purchase a number of shares of FTM Delaware
common stock equal to 1.25 times the number of shares of INRG common stock
subject to the option with no change in the aggregate exercise price of the
option pursuant to the FTM Stock Option Plan with substantially similar terms
and conditions as the INRG Stock Option Plan, contingent upon the approval of
such conversion by the stockholders of FTM Colorado.
STOCK INCENTIVE PLAN
Our Board of Directors and Stockholders adopted and approved the Redwood
Broadcasting, Inc. 1996 Equity Incentive Plan (the "Redwood Plan"). At August
31, 1999, the Company had granted no incentive stock options under the Redwood
Plan. The Board of Directors terminated the Redwood Plan by unanimous written
consent on September 22, 1999.
Our key executives and other employees have been granted certain
incentive and nonstatutory stock options to purchase shares of INRG's common
stock pursuant to the INRG Stock Option Plan and shares of FTM Colorado Common
Stock under the FTM Colorado Stock Option Plan. The INRG Stock Option Plan has
been adopted by the Board of Directors and approved by the written consent of
INRG's majority. For a more complete discussion please see
51
<PAGE> 52
our discussion in the section entitled "APPROVAL OF THE INRG 1999 STOCK OPTION
PLAN," below.
DIRECTOR COMPENSATION
All authorized out of pocket expenses incurred by a Director on behalf
of FTM Delaware will be subject to reimbursement upon receipt by the Company of
required documentation substantiating such expense. At present, each Director
will receive an annual Director's fee in the amount of $5,000. Said Director's
fee is subject to annual review and will be subject to annual stockholder
approval. Each Director will also be eligible to participate in our defined
stock option and/or incentive plan(s).
At present, the following Directors have been granted stock options for
75,000 shares of INRG common stock: Messrs. Wilson, Pollack, Mastroieni, Schoun
and Gehron. Mr. Wood is scheduled to receive stock options for 150,000 shares of
INRG common stock. Such grants of stock options pursuant to the INRG Stock
Option Plan are contingent upon upon the adoption and ratification of the grants
pursuant to the INRG Stock Option Plan for conversion into stock options for the
purchase of 75,000 and 150,000 shares of FTM Delaware Common Stock,
respectively.
Directors who are also our executive officers receive no additional
compensation for their services as Directors.
AGREEMENT REGARDING DIRECTORSHIPS
Messrs. Wilson, Pollack, Mastroieni and Conquest are parties to an
agreement pursuant to which each such individual (i) will serve as a member of a
four/five person executive committee, if such committee is formed by our Board
of Directors (said committee has not been formed and the current Board has no
plans to do so), that determines the policy and direction of the Company subject
to approval by our Board of Directors and (ii) will be nominated to serve as a
Director subject to stockholder approval at each annual meeting.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
As of September 15, 1999 there were 6,403,025 shares of FTM Colorado
Common Stock outstanding, and 6,138,245 shares of INRG common stock outstanding.
FTM Colorado beneficially owns 4,415,820 shares of INRG common stock,
representing approximately 72% of the outstanding INRG shares. An aggregate of
1,722,425 INRG shares are held by stockholders other than FTM Colorado. FTM
Colorado presently owns 100% of the shares of FTM Delaware.
INRG OWNERSHIP
The following table sets forth, on a pro forma basis, certain
information regarding beneficial ownership as of September 15, 1999 of INRG's
common stock by all directors, executive officers and key employees and
consultants and all persons who we know to own beneficially, directly or
indirectly, more than five percent of INRG's Common Stock, and all our
directors, executive officers and key employees as a group:
52
<PAGE> 53
<TABLE>
<CAPTION>
NAME AND ADDRESS OF
BENEFICIAL OWNERS(1) NUMBER OF SHARES(2)(3) PERCENTAGE OWNERSHIP
- --------------------- ----------------------- --------------------
<S> <C> <C>
Frank Wood 25,000 0.4%
312 Walnut Street
Cincinnati, Ohio 45202
Andy Schuon 25,000 0.4%
3300 Warner Brothers Blvd.
Burbank, California 91505
John Gehron 25,000 0.4%
455 North City Plaza
Chicago, Illinois 60611
- --------------------------------------------------------------------------------------------
Total: 75,000 1.1%
</TABLE>
(1) Unless otherwise indicated, we have been advised that each person above
has sole voting power over the shares indicated.
(2) Shares not outstanding but deemed beneficially owned by virtue of the
individual's right to acquire them within sixty (60) days of the date of
this prospectus are treated as outstanding when determining the percent
of the class owned by such individual and when determining the percent
owned by the group.
(3) Does not reflect the effect of the conversion of shares of INRG Series A
Preferred Stock into Common Stock. Assuming a fair market value of $9.00
per share of Common Stock, conversion of the INRG Series A Preferred
Stock would result in CBS Corporation, Mr. Pollack and Mr. Wilson owning
50,600, 3,932 and 1,907 shares of Common Stock, respectively.
PROJECTED FTM DELAWARE OWNERSHIP POST-MERGER
The following table sets forth, on a pro forma basis, certain
information regarding beneficial ownership as of September 22, 1999 of FTM
Delaware's Common Stock, assuming that the merger becomes effective, by all
directors, executive officers and key employees and consultants and all persons
who we known to own beneficially, directly or indirectly, more than five percent
of FTM Delaware's Common Stock, and all of our directors, executive officers and
key employees as a group:
53
<PAGE> 54
<TABLE>
<CAPTION>
NAME AND ADDRESS OF
BENEFICIAL OWNERS(1) NUMBER OF SHARES(2) PERCENTAGE OWNERSHIP(3)
- ----------------- ------------------- -----------------------
<S> <C> <C>
CBS Corporation 1,500,000 17.5%
40 West 57th Street
New York City, New York 10019
Andaman Investments Ltd. 655,310 7.7%
c/o Albert Raponi, Esq.
700 West Pender Street, Suite 505
Vancouver, BC, Canada V6C 1G8
Gregory Mastroieni 655,310 7.7%
644 North Country Club
Mesa, Arizona 85201
Jeffrey Pollack 656,250 7.7%
860 Via De La Paz
Pacific Palisades, California 90272
Robert Wilson 656,250 7.7%
860 Via De La Paz
Pacific Palisades, California 90272
Ronald Conquest 250,000 2.9%
3104 East Camelback Rd.
Phoenix, Arizona 85016
Vickie Collier 250,000 2.9%
11440 Mt. Gleason Ave.
Tujunga, California 91042
Frank Wood 31,250 0.4%
312 Walnut Street
Cincinnati, Ohio 45202
Andy Schuon 31,250 0.4%
3300 Warner Brothers Blvd.
Burbank, California 91505
</TABLE>
54
<PAGE> 55
<TABLE>
NAME AND ADDRESS OF
BENEFICIAL OWNERS(1) NUMBER OF SHARES(2) PERCENTAGE OWNERSHIP(3)
- ----------------- ------------------- -----------------------
<S> <C> <C>
John Gehron 31,250 0.4%
455 North City Plaza
Chicago, Illinois 60611
Scott Manson 10,000 0.1%
6991 East Camelback Road,
Suite D-103
Scottsdale, AZ 85251
- ------------------------------------- ----------------------------- -------------------------
TOTAL: 4,708,120 55.0%
</TABLE>
(1) Unless otherwise indicated, we have been advised that each person above
has sole voting power over the shares indicated.
(2) Shares not outstanding but deemed beneficially owned by virtue of the
individual's right to acquire them within sixty (60) days of the date of
this prospectus are treated as outstanding when determining the percent
of the class owned by such individual and when determining the percent
owned by the group.
(3) The percentage ownership is based upon the assumption that FTM Delaware
will have 8,556,057 shares of common stock outstanding after the merger,
which is based upon the conversion of 6,403,025 shares of common stock
of FTM Colorado on a 1:1 basis, and 1,722,425 shares of INRG common
stock on a 1:25:1 basis.
55
<PAGE> 56
THE INTERACTIVE RADIO GROUP, INC.
1999 STOCK OPTION PLAN
INRG's 1999 Stock Option Plan (the "INRG Stock Option Plan") has been
approved pursuant to the written consent of INRG's majority shareholder. The
INRG Stock Option Plan was adopted by the board of directors of INRG on February
1, 1999. Options to purchase 973,000 shares of INRG common stock have previously
been granted under the INRG Stock Option Plan, including 710,000 shares to our
officers and directors.
INRG's majority shareholder also voted in favor of converting each
outstanding grant under the INRG Stock Option Plan into an option to purchase
shares of common stock of FTM Delaware, except that the number of shares of FTM
Delaware common stock subject to each option will be equal to 1.25 times the
number of shares of INRG common stock subject to the option, with no change to
the aggregate exercise price of the option.
The following is a brief summary of certain significant provisions of
the INRG Stock Option Plan. This summary highlights selected information from
the INRG Stock Option Plan and does not contain all of the information that may
be important to you. For more information, you should consult the copy of the
INRG Stock Option Plan that is attached as Annex E to this prospectus. The
following description of the INRG Stock Option Plan is qualified in its entirety
by reference to Annex E. After the merger, the FTM 1999 Stock Option Plan (the
"FTM Stock Option Plan") will become the plan of FTM Delaware. The FTM Stock
Option Plan is substantially similar to the INRG Stock Option Plan. For more
information, you should consult the copy of the INRG Stock Option Plan that is
attached to this prospectus' Annex F.
PURPOSE
The purposes of the INRG Stock Option Plan are to attract and retain the
best available personnel for positions of substantial responsibility, to provide
additional incentive to our key employees, consultants and directors, and to
promote the success of our business. The INRG Stock Option Plan provides for
both the grant awards of common stock as well as options to purchase common
stock.
MAXIMUM NUMBER OF SHARES SUBJECT TO THE INRG STOCK OPTION PLAN
The INRG Stock Option Plan provides for the granting of awards options
with respect to up to 1,750,000 shares of INRG common stock. After the merger,
the FTM Stock Option Plan will become a plan of FTM Delaware, and will permit
the issuance of 2,187,500 shares of FTM Delaware common stock. The INRG Stock
Option Plan limits the number of shares subject to options that can be granted
to any individual in any fiscal year to 200,000 shares of FTM common stock.
ADMINISTRATION
The FTM Stock Option Plan is administered by the board of directors or a
committee appointed by the board of directors. Currently the INRG Stock Option
Plan is administered by a Compensation Committee of the Board of Directors
consisting of Greg Mastroieni and Ron Conquest. After our Common Stock is
registered pursuant to Section 12 of the Exchange Act, the INRG Stock Option
Plan will be administered only by a committee, which will then consist solely of
persons who are both "non-employee directors" within the meaning of Rule 16b-3
promulgated under the Exchange Act and "outside directors" within the meaning of
Section
56
<PAGE> 57
162(m) of the Code. The board or applicable committee has the power to interpret
the INRG Stock Option Plan and has discretion to select participants, establish
the manner in which options are granted and exercised, cancel and modify options
in certain situations and otherwise prescribe all of the terms and provisions of
options granted under the INRG Stock Option Plan.
PARTICIPANTS
Eligible participants in the Plan include our employees, directors and
consultants.
AMENDMENTS TO THE INRG STOCK OPTION PLAN
The board of directors may at any time amend, alter, suspend or
terminate the INRG Stock Option Plan.
TERM OF OPTIONS
Both incentive stock options and non-qualified stock options may be
granted under the the INRG Stock Option Plan. No options can be granted under
the INRG Stock Option Plan or later than ten years from the date of adoption.
Incentive stock options can have a maximum exercise period of ten years (five
years for option holders who own more than ten percent of the total combined
voting power of all of our classes of stock). Non-qualified stock options can
have a maximum exercise period of ten years from the date of grant. Within these
maximum exercise periods, the INRG Stock Option Plan permits the committee to
establish, in its discretion, the time period within which any individual option
can be exercised. The INRG Stock Option Plan provides that, upon (a) termination
of an optionholder's director, employment or consulting relationship with us for
a cause other than death or disability, the optionholder's right to exercise any
option granted under the INRG Stock Option Plan will terminate within 30 days
following cessation of the director, employment or consulting relationship. In
the event of termination of the consulting or employment relationship due to
death or disability, the same provisions apply except that the period of time
for exercise is six months.
TRANSFERABILITY
Options granted under the INRG Stock Option Plan are not transferable
except in the event of death. If our common stock becomes tradable on a national
exchange or the NASDAQ National Market, certain transfers of options for estate
planning purposes may be permitted.
EXERCISE PRICE
Generally, the exercise price per share for each non-qualified stock
option granted under the INRG Stock Option Plan cannot be less than 85% of the
fair market value of our common stock on the date of grant. However, in the case
of option holders who own more than ten percent (10%) of the total combined
voting power of all classes of stock of the Company or its parent or subsidiary
corporation or corporations, in which case the exercise price cannot be less
than one hundred ten percent (110%) of the fair market value of a share of the
Common Stock on the date of grant. The aggregate fair market value (determined
as of the time such option is granted) of the Common Stock for which any
employee may have incentive stock options which become exercisable for the first
time in any calendar year may not exceed $100,000.
57
<PAGE> 58
PAYMENT OF EXERCISE PRICE
The entire option price must be paid at the time the option is
exercised, in cash, or to the extent then permitted by the committee, in the
form of a promissory note or other shares of our common stock having a market
value equal to the exercise price.
STOCK AWARDS
Subject to the express provisions and limitations of the INRG Stock
Option Plan, the committee, in its sole and absolute discretion, may grant stock
awards to participants for a number of shares of common stock on the terms and
conditions and to the participants that it deems advisable and specifies in the
respective grants. The committee, in its sole and absolute discretion, may
impose restrictions in connection with any stock award, including without
limitation (1) imposing a restricted period during which all or a portion of the
common stock subject to the stock award may not be sold, assigned, transferred,
pledged or otherwise encumbered, and (2) providing for a vesting schedule with
respect to the common stock such that if a grantee ceases to be an employee,
director or consultant during the Restricted Period, some or all of the shares
of common stock subject to the stock award will be immediately forfeited and
returned to the issuing company. The committee may, at any time, reduce or
terminate the restricted period. Each certificate issued in respect to shares of
common stock pursuant to a stock award that is subject to restrictions will be
registered in the name of the grantee, will be deposited by the grantee with the
issuer together with a stock power endorsed in blank and will bear an
appropriate legend summarizing the restrictions imposed with respect to the
shares of common stock.
Subject to the terms of any agreement governing a stock award, the
grantee of a stock award will have all the rights of a shareholder with respect
to the common stock issued pursuant to a stock award, including the right to
vote the shares; provided, however, that dividends or distributions paid with
respect to shares that have not vested will be deposited with the issuer and
will be subject to forfeiture until the underlying shares have vested unless
otherwise released by the committee in its sole discretion. A grantee will not
be entitled to interest with respect to the dividends or distributions so
deposited.
FEDERAL INCOME TAX MATTERS
We believe that under currently applicable provisions of the Internal
Revenue Code, an option holder will not be deemed to receive any income for
Federal tax purposes upon the grant of an option under the INRG Stock Option
Plan, nor will we be entitled to a tax deduction at that time because the
incentive stock options are so treated under the Internal Revenue Code and the
non-qualified stock options will not have a "readily ascertainable fair market
value" at the time of grant. However, upon the exercise of an option, the tax
consequences are as follows:
(a) Upon the exercise of a non-qualified stock option, the option holder
will have ordinary income in an amount equal to the excess of the value
of the shares on the exercise date over the exercise price. We will be
allowed an income tax deduction at that time in the same amount.
58
<PAGE> 59
(b) Upon the exercise of an incentive stock option, there is no income
recognized by the option holder at the time of exercise. If the stock is
held at least one (1) year following the date of transfer of the stock
to him and at least two (2) years from the date of grant of the option,
the option holder will realize a long-term capital gain or loss upon a
sale of the underlying stock, measured by the difference between the
option exercise price and the sale price. If either of these holding
period requirements is not satisfied, and thus a "disqualifying
disposition" has occurred, ordinary income tax treatment will apply to
the difference between the option exercise price and the fair market
value of the stock on the date of exercise of the option. If the actual
gain on the disposition exceeds the amount of ordinary income, the
excess will be considered short-term or long-term capital gain depending
on how long the shares were actually held. No income tax deduction will
be allowed to us with respect to shares purchased by an option holder
upon the exercise of an incentive stock option, if such shares are held
for the required periods as described above. If a disqualifying
disposition occurs, we will be allowed an income tax deduction equal to
the amount of ordinary income recognized by the option holder upon the
disposition. If the amount which the option holder realizes on the
disqualifying disposition would result in a loss if the rules regarding
disqualifying dispositions applied, the amount of ordinary income which
the option holder would recognize (and the amount of our deduction) is
limited to the excess of the amount realized on the sale over the basis
of such stock.
If awards of common stock are made to a participant, and the shares are
transferable or not subject to forfeiture restrictions, the participant will
recognize taxable income in an amount equal to the fair market value of the
common stock at the time of the award, and the issuer will be entitled to a
deduction in the same amount. A participant will normally not recognize taxable
income upon an award of shares that are non-transferable and subject to
forfeiture restrictions, and the issuer will not be entitled to a deduction
until the lapse of the applicable restrictions. Upon the lapse of the
restrictions, the participant will recognize ordinary taxable income in an
amount equal to the fair market value, at the time of such lapse, of the common
stock as to which the restrictions have lapsed, and the issuer will be entitled
to a deduction in the same amount. However, a participant may elect under
Section 83(b) of the Code to recognize taxable ordinary income in the year the
restricted shares are awarded in an amount equal to the fair market value of the
shares at that time, determined without regard to the restrictions. In this
event, the issuer will then be entitled to a deduction in the same amount. Any
gain or loss subsequently recognized by the participant will be a capital gain
or loss. If, after making a Section 83(b) election, any restricted shares are
forfeited, or if the fair market value at vesting or upon sale is lower than the
amount on which the participant was taxed, the participant cannot then claim a
tax deduction for the loss.
59
<PAGE> 60
LEGAL MATTERS
Legal matters in connection with the merger are being passed upon for by
Irell & Manella LLP of Los Angeles, California.
EXPERTS
The financial statements of INRG and FTM Colorado at March 31, 1999, and
for each of the three years in the period ended March 31, 1999, included in this
prospectus and the registration statement of which this prospectus is part, have
been audited by Rotenberg & Company, independent auditors, as set forth in their
report appearing elsewhere in this prospectus, and in the registration
statement, and are included in reliance upon that report given upon the
authority of that firm as experts in accounting and auditing.
WHERE YOU CAN FIND MORE INFORMATION
FTM Colorado files reports, proxy statements and other information with
the Securities and Exchange Commission. You may inspect and copy such material
at the public reference facilities maintained by the SEC at Room 1024, 450 Fifth
Street, N.W., Washington, D.C. 20549, and at the SEC's regional offices at
Northwestern Atrium Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661, and at Seven World Trade Center, New York, New York 10048. You
may also obtain copies of such material from the Public Reference Section of the
SEC at 450 Fifth Street, N.W., Washington, D.C. 20549 at prescribed rates. You
can also inspect such materials at the New York Stock Exchange, Inc., 20 Broad
Street, New York, New York 10005.
Please call the SEC at 1-800-SEC-0330 for more information on the public
reference rooms. You can also find FTM Colorado's SEC filings at the SEC's web
site, www.sec.gov.
The SEC allows us to "incorporate by reference" the information that we
file with them, which means that we can disclose important information to you by
referring you to those documents. Information that we file later with the SEC
will automatically update and supercede this information.
All documents filed by us pursuant to Section 13(a), 13(c), 14 or 15(d)
of the Exchange Act after the date of this prospectus and before the date of the
special meeting are incorporated by reference into and are deemed to be a part
of this prospectus from the date of filing of those documents. You should rely
only on the information contained in this document or that which we have
referred you to. We have not authorized anyone to provide you with any
additional information.
YOU MAY REQUEST A COPY OF THESE FILINGS (EXCLUDING EXHIBITS WHICH ARE
NOT SPECIFICALLY INCORPORATED BY REFERENCE INTO THIS PROSPECTUS), AT NO COST TO
YOU, BY WRITING OR TELEPHONING US AT: FTM MEDIA, INC., 6991 EAST CAMELBACK ROAD,
SUITE D-103, SCOTTSDALE, ARIZONA, 85251 (TELEPHONE: 480-425-0099).
60
<PAGE> 61
EXHIBIT F
INRG AND FTM CONSOLIDATED BALANCE SHEET
FTM MEDIA, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
June 30, 1999 March 31, 1999
(unaudited) (audited)
------------- --------------
<S> <C> <C>
ASSETS
Current Assets
Cash and Cash Equivalents 2,301,053 2,027,833
Prepaid Expenses 225,081 23,968
---------- ----------
Total Current Assets 2,526,134 2,051,801
Property and Equipment - Net of Accumulated Depreciation 440,047 70,499
Other Assets
Lease Deposits 11,660 20,535
Web Site Design - IN Progress 0 131,568
Goodwill - Net of Amortization 74,587 76,550
---------- ----------
Total Assets 3,052,428 2,350,953
---------- ----------
LIABILITIES AND STOCKHOLDERS DEFICIT
Liabilities
Accounts Payable 406,873 208,101
Accrued Expenses 0 64,820
Short Term Portion of Notes Payable 84,892 0
---------- ----------
Total Liabilities 491,765 272,921
Minority Interest
Preferred Stock of Subsidiary 423,508 415,889
Common Stock of Subsidiary 2,807,226 2,771,261
---------- ----------
Total Minority Interest 3,230,734 3,187,150
Stockholders Deficit
Series B Preferred Stock - $.04 Par, 2,500,000 shares 10,701 0
authorized 267,522 issued and outstanding
Common Stock - $.004 Par, 12,500,000 shares authorized 25,278 25,278
6,319,542 shares issued and outstanding
Additional Paid In Capital 1,366,504 0
Deficit accumulated During Development stage (2,072,555) (1,134,396)
---------- ----------
Total Stockholders Deficit (670,072) (1,109,118)
========== ==========
Total Liabilities and Stockholders Equity 3,052,428 2,350,953
========== ==========
</TABLE>
F-1
<PAGE> 62
FTM MEDIA, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
3 months ended 3 months ended
June 30, 1999 June 30, 1998
(unaudited) (unaudited)
-------------- --------------
<S> <C> <C>
Total Revenues 0 0
Website development costs 509,504 0
Capital Formation Expense 142,788 0
Consulting Fees 116,180 0
Contract Labor 1,948 0
Depreciation and Amortization 21,385 0
Directors Fees and Expenses 4,812 0
Employment Fees and Costs 2,254 0
Insurance 20,890 0
Internet connection and maintenance 35,249 0
Legal and Accounting Fees 114,677 0
Office and Computer supplies 13,535 0
Other 20,826 0
Payroll 157,908 0
Payroll Taxes and Benefits 22,655 0
Rent 36,519 0
Telephone 20,712 0
Travel and Entertainment 30,770 0
---------------------------
Total Expenses 1,272,613 0
Loss Before other Income (1,272,613) 0
Other Income
Interest Income net of interest expense 10,383 0
---------------------------
Loss Before Provision of Income Taxes (1,262,230) 0
Provision for Income taxes 0 0
---------------------------
Loss Before minority interest (1,262,230) 0
Minority Interest 324,071 0
===========================
Net Loss (938,159) 0
===========================
Basic Loss Per common share (0.148) 0.000
Weighted Average number of common shares 6,319,542 6,319,542
</TABLE>
F-2
<PAGE> 63
FTM MEDIA, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
3 months ended 3 months ended
June 30, 1999 June 30, 1998
(unaudited) (unaudited)
----------- ------------
<S> <C> <C>
OPERATING ACTIVITIES
Net Income (loss) (938,159) 0
Adjustments to reconcile net income (loss) to net cash used
in operating activities:
Depreciation and amortization 21,385 0
Decrease in Capitalized development costs 131,568 0
Minority Interest (324,071) 0
Increase in liquidation value - minority interest 7,619 0
Changes in Operating Assets & Liabilities
Increase in Prepaid assets (201,113) 0
Decrease in Deposits 8,875 0
Increase in Accounts Payable 133,952 0
Increase in short term notes payable 84,892 0
---------- -----
Net Cash Flow from Operating Activities (1,075,052) 0
INVESTMENT ACTIVITIES
Acquisition of Fixed Assets (388,969) 0
Financing Activities
Private Placement - Common Stock of subsidiary 360,036 0
Private Placement - Sale of Preferred Stock 1,565,005 0
Payment of Preferred Dividends (187,800) 0
---------- -----
Net Cash Flow from financing 1,737,241 0
---------- -----
Net increase in Cash and Cash Equivalents 273,220 0
Cash and Cash Equivalents beginning of quarter 2,027,833 2,796
Cash and Cash Equivalents end of quarter 2,301,053 2,796
</TABLE>
F-3
<PAGE> 64
FTM MEDIA, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS DEFICIT
<TABLE>
<CAPTION>
Additional
Par Common Par Preferred Paid in
Shares Value Stock Shares Value Stock Capital
--------- ----- ------ ------ ----- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
3/31/99 6,319,542 0.004 25,278 0 0
Increase in liquidation
of INRG preferred stock
INRG stock purchased by
minority shareholders 4/99
Sale of FTM Series B
preferred stock 267,522 0.04 10,701 1,554,304
Dividend paid on
preferred stock (187,800)
Net Loss
--------------------------------------------------------------------------------
Balance - 6/30/99 6,319,542 0.004 25,278 267,522 0.04 10,701 1,366,504
</TABLE>
<TABLE>
<CAPTION>
Deficit
accumulated total
during stockholders
development equity minority
stage (deficit) interest
----------- ------------ ---------
<S> <C> <C> <C> <C>
3/31/99 (1,134,396) (1,109,118) 3,187,150
Increase in liquidation
of INRG preferred stock 7,619
INRG stock purchased by
minority shareholders 4/99 360,036
Sale of FTM Series B
preferred stock 1,565,005
Dividend paid on
preferred stock (187,800)
Net Loss (938,159) (938,159) (324,071)
----------- --------- ---------
Balance - 6/30/99 (2,072,555) (670,072) 3,230,734
</TABLE>
F-4
<PAGE> 65
FTM MEDIA, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
1. General
The accompanying unaudited financial statements of FTM Media, Inc. formerly
Redwood Broadcasting, Inc. Have been prepared in accordance with generally
accepted accounting principles for interim financial information and with the
instructions to Form 10-QSB and article 10 of Regulation S-X. Accordingly they
do not include all of the information and footnotes required by generally
accepted accounting principles for complete financial statements. The balance
sheet at March 31, 1999 has been derived from audited consolidated financial
statements at that date but does not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements.
The accompanying financial statements are unaudited and reflect all adjustments
which are in the opinion of management necessary for a fair presentation of the
financial position and operating results for the interim periods. The
consolidated financial statements should be read in conjunction with the
consolidated financial statements and notes thereto, together with management's
discussion and analysis of financial condition and results of operations,
contained in the Company's annual report on Form 10-KSB for the fiscal year
ended March 31, 1999. Results of operations for interim periods are not
necessarily indicative of results which may be expected for the year as a whole.
2. Nature of Operations and Summary of Significant Accounting Policies
FTM Media, Inc.
The Corporation was formed in December 1994 pursuant to the laws of the
State of Colorado with the name Redwood Broadcasting, Inc. On July 19, 1999
at a special meeting of shareholders, the shareholders approved changing the
name of the Corporation to FTM Media, Inc. On December 31, 1998,
substantially all of the assets and liabilities of FTM/Redwood were
transferred to a wholly owned subsidiary. The common stock of the subsidiary
was then to be distributed to the FTM/Redwood shareholders. As a result of
this and the reverse acquisition of the Corporation by Interactive Radio
Group, Inc. (INRG), the prior operations of FTM/Redwood are not reflected in
these financial statements. Accordingly the financial statements reflect the
operating activity of FTM/Redwood beginning with the acquisition of the
majority interest in INRG. The Corporation is in the development stage as
its operations involve the raising of capital, market research and start up
production. Because it is in the development stage, the Corporation has had
no revenue from product sales, which is not regarded as typical for normal
operating periods.
Interactive Radio Group, Inc.
Interactive Radio Group, Inc. was formed in February 1994 pursuant to
the laws of the State of Delaware. The company was inactive until April,
1998 when it began its
F-5
<PAGE> 66
business of designing and hosting Internet websites for radio stations.
The acquisition of the majority interest in INRG by FTM/Redwood was
accounted for as a reverse acquisition, resulting in the historic
operations of INRG being treated as the historical operations of the
Corporation. Accordingly the accompanying historic financial statements
have been restated to reflect the financial position, results of
operations and cash flows for all periods presented as if the
recapitalization had occurred at the beginning of the earliest period
presented.
Cybermusic Acquisition Corp.
Cybermusic Acquisition Corp. was formed in February, 1996
pursuant to the laws of the State of Delaware. Cybermusic was acquired
by INRG and became a wholly owned subsidiary in December, 1998.
Cybermusic's principal business of designing websites for radio stations
has been carried on by INRG since the acquisition. The acquisition of
Cybermusic by INRG was accounted for as a reverse acquisition, resulting
in the historic operations of Cybermusic being treated as the historical
operations of the Corporation. Accordingly the accompanying historic
financial statements have been restated to reflect the financial
position, results of operations and cash flows for all periods presented
as if the recapitalization had occurred at the beginning of the earliest
period presented.
Method of Accounting
The Corporation maintains its books and prepares its financial
statements on the accrual basis of accounting.
Cash and Cash Equivalents
Cash and cash equivalents include time deposits, certificates of
deposit and all highly liquid debt instruments with original maturities
of three months or less. The Company maintains cash and cash equivalents
at financial institutions which periodically may exceed federally
insured amounts.
Fixed Assets and Depreciation
Fixed Assets are stated at cost, less accumulated depreciation
computed using the straight line method over the estimated useful lives
as follows:
Office Equipment 3-5 years
Office Furniture 5 years
Leasehold Improvements 7 months
Maintenance and repairs are charged to expense. The cost of assets
retired or disposed of and their related accumulated depreciation are
removed from the accounts.
Web Site Design - In progress
The Corporation had previously capitalized its costs incurred in
developing its websites for radio stations. The Company now charges to
expense all such costs. The Company has expensed all such previously
capitalized costs.
F-6
<PAGE> 67
Goodwill
Goodwill has been capitalized and is being amortized over ten
years.
Net Loss Per Common Share
Net income (loss) per common share is computed in accordance with
SFAS 128, "Earnings Per Share" by dividing the income available to
common stockholders by the weighted average number of common shares
outstanding for each period after reflecting the recapitalization. The
effects of conversion of Convertible Preferred Stock were not included
in the calculation of diluted loss per share because the Corporation has
experienced losses in all of the periods presented and therefore the
effect would be anti-dilutive.
Income Taxes
The Corporation accounts for income taxes in accordance with SFAS
109 "Accounting for Income Taxes", using the asset and liability
approach, which requires recognition of deferred tax liabilities and
assets for the expected future tax consequences of temporary differences
between the carrying amounts and the tax basis of such assets and
liabilities. The method uses enacted statutory tax rates in effect for
the year in which the temporary differences are expected to reverse ands
gives immediate effect to changes in income tax rates upon enactment.
Deferred tax assets are recognized, net of any valuation allowance, for
temporary differences and net operating loss and tax credit carry
forwards. Deferred income tax expense represents the change in net
deferred assets and liability balances. The Corporation had no material
deferred tax assets or liabilities for the period presented.
3. Stockholder's Equity
During June, 1999 the Corporation received $1,565,005 in a private
placement of 267,522 shares of $.04 par value Series B Convertible
Preferred Stock. Pursuant to the terms of the Series B Convertible
Preferred Stock, the Corporation in June, 1999 paid $187,800 in
dividends to the holders of the Series B Convertible Preferred Stock.
The rights, privileges and restrictions of the Series B Convertible
Preferred Stock are as follows:
b. The stock ranks senior to Common Stock and any other
class or series of capital stock of the Corporation with respect to liquidation,
dissolution or winding up of the business.
c. Holders of the Series B Convertible Preferred Stock are
entitled to receive annual dividends in the amount of $.702 per share payable on
each semi-annual anniversary of the Series B Convertible Preferred Stock Issue
Date. The dividends payable for the twelve month period immediately following
the Series B Convertible Preferred Stock Issue Date shall be paid on the Series
B Convertible Preferred Stock Issue Date.
d. Holders of the Series B Convertible Preferred Stock
have no voting rights except for those minimum voting rights required by the
Business Corporation Act of the State of Colorado, in which case the Series B
Convertible Preferred Stock shall vote together with the Common Stock as a
single class, unless the Business Corporation Act of the State of
F-7
<PAGE> 68
Colorado requires that the Series B Convertible Preferred Stock has the right to
vote separately as a single class.
e. Holders of the Series B Convertible Preferred Stock
have the option to convert their Series B Convertible Preferred Stock to common
shares anytime at an amount equal to $5.85 divided by the conversion price. The
conversion price shall be equal to $5.85 minus the aggregate amount of accrued
dividends per share which are then unpaid for fifteen days or more multiplied by
.64103.
f. The Corporation may cause each share of Series B
Convertible Preferred Stock to be automatically converted into shares of common
stock at an amount equal to $5.85 minus the aggregate amount of accrued
dividends per share which are then unpaid for fifteen days or more multiplied by
.64103. as of any date on which the closing price for each of the twenty trading
days preceding such date equals or exceeds $8.35 per share. Such conversion
cannot occur prior to the first anniversary of Series B Convertible Preferred
Stock Issue Date.
g. In the case of a capital reorganization or
reclassification of outstanding shares of Common Stock or in case of any merger
of the Corporation into another corporation or in case of a sale or conveyance
to another corporation of all or substantially all of the assets or property of
the Corporation each share of Series B Convertible Preferred Stock shall
thereafter be convertible into, in lieu of the Common Stock issuable upon such
conversion, the kind and amount of shares of stock and other securities and
property receivable upon the consummation of such transaction by a holder of
that number of shares of Common Stock into which one share of Series B
Convertible Preferred Stock was convertible immediately prior to such
transaction.
4. Fixed Assets
Fixed Assets are recorded at cost and consisted of the following
at June 30, 1999 and March 31, 1999:
<TABLE>
<CAPTION>
1999 1998
------- ------
<S> <C> <C>
Computer Equipment 346,494 56,548
Office Equipment 103,220 16,065
Leasehold Improvements 11,869 0
------- ------
461,583 72,613
Less Accumulated Depreciation 21,537 2,114
------- ------
Net Fixed Assets 488,046 70,499
</TABLE>
Depreciation expense for the quarters ended June 30, 1999 and
March 31, 1999 was $19,422 and $2,114 respectively
5. Goodwill
The Corporation acquired goodwill with INRG's purchase of
Cybermusic. Goodwill is being amortized over ten years and consisted of
the following at June 30, 1999 and March 31, 1999.
<PAGE> 69
<TABLE>
<CAPTION>
1999 1998
------ -----
<S> <C> <C>
Goodwill 78,513 78,513
Less: Accumulated Amortization 3,926 1,963
------ ------
Net Goodwill 74,587 76,550
</TABLE>
Amortization expense for the quarters ended June 30, 1999 and
March 31, 1999 was $1,963 and $1,963 respectively
6. Notes Payable
Notes Payable consist at June 30, 1999 of a note payable to AICCO
with interest at 8.95% payable in monthly installments of principal and
interest $10,976.99 through February 2000 with the remaining balance due
at that date.
7. Minority Interest
The minority interest in INRG has two components:
1. Preferred Stock of Subsidiary
INRG issued 40,637 shares of series A Preferred Stock, par value
$.001 to the former shareholders of Cybermusic, upon acquisition
in December 1998, The minority interest in the Preferred stock of
INRG was recorded at the stocks liquidation value of $10 per
share and goodwill was recorded for $78,513. Rights, privileges
and restrictions of the Series A Preferred Stock are as follows:
a. The stock ranks senior to Common Stock and any other class
or series of capital stock of the Corporation with respect
to liquidation, dissolution or winding up of the business.
b. Holders of the stock are not entitled to receive dividends
or other distributions except upon liquidation,
dissolution or winding up of the business.
c. Holders of the stock have a right to vote with the Common
stockholders as a single class unless the Delaware General
Corporation Law requires the Series A Preferred
stockholders to vote separately as a class.
d. Holders have the option to convert their stock to common
shares equal to the Series A Preferred Stock liquidation
value anytime after September 30, 2000, or to common stock
of a parent corporation if more than 80% of the issued and
outstanding Common Stock of INRG is owned by another
corporation.
e. Holders may redeem their stock for cash equal to the
liquidation value anytime after December 7, 2001. INRG may
elect to redeem any or all of the outstanding shares of
series A Preferred stock anytime, at the liquidation
value.
f. The liquidation clue of each share of Series A Preferred
Stock is $10, increased with interest compounded annually
at 7.5% for three years commencing on the issuance date.
The Corporation recorded interest expense on the
liquidation value in the amount of $7,619 during the
F-9
<PAGE> 70
quarter ended June 30, 1999. The Series A Preferred Stock
liquidation value consisted of the following at June 30,
1999:
<TABLE>
<S> <C> <C>
Liquidation value at issuance $406,370
Accrued interest to date 17,138
--------
Total Liquidation Value $423,508
</TABLE>
2. Common Stock of Subsidiary
On March 31, 1999, FTM/Redwood acquired 90.85% of the issued and
outstanding Common Stock of INRG. The remaining 9.15% of Common
Stock represented a minority interest in INRG. The parent
corporation and the minority interest share pro rata in the net
income or loss of INRG.
During March, 1999, subsequent to the acquisition, INRG received
$2,883,897 from a private placement offering for 960,616 common
shares. During April, 1999 INRG received a further $360,036 from
the same private placement offering for 120,012 common shares.
With the issuance of these shares the minority interest in INRG
increased to 25.67% and will increase further if additional
common shares are issued. The $3,243,933 of stock purchased is
included on the balance sheet under Minority Interest - Common
Stock of Subsidiary.
8. Related Party Transactions
The Corporation has entered into a management agreement to pay
consulting fees on a monthly basis to Ingenious Enterprises, Inc.
a Nevada corporation in the amount of $120,000 annually
commencing October 1, 1998 on behalf of the services provided by
Ron Conquest. Conquest, an employee of Ingenious Enterprises,
Inc. is the President, Chief Executive Officer and a Director of
the Corporation. Consulting fees paid pursuant to this agreement
during the quarters ended June 30, 1999 and June 30, 1998 were
$30,000 and 0 respectively.
The Corporation has entered into a management agreement to pay
consulting fees on a monthly basis to EchoMedia in the amount of
$75,000 annually commencing February 1, 1999 on behalf of the
services provided by Greg Mastroieni. Mastroieni, the owner of
EchoMedia is a member of the Board of Directors of the
Corporation. Consulting fees paid pursuant to this agreement
during the quarters ended June 30, 1999 and June 30, 1998 were
$18,750 and 0 respectively.
The Corporation has entered into a management agreement to pay
consulting fees on a monthly basis to Four Score Entertainment,
Inc. in the amount of $75,000 annually commencing February 1,
1999 on behalf of the services provided by Jeffery Pollack.
Pollack, an employee of Four Score Entertainment, Inc. is a
member of the Board of Directors of the Corporation. Consulting
fees paid pursuant to this agreement during the quarters ended
June 30, 1999 and June 30, 1998 were $18,750 and 0 respectively.
F-10
<PAGE> 71
The Corporation has entered into a management agreement to pay
consulting fees on a monthly basis to BW Productions in the
amount of $120,000 annually commencing February 1, 1999 on behalf
of the services provided by Robert Wilson. Wilson, an employee of
BW Productions is Vice Chairman and a member of the Board of
Directors of the Corporation. Consulting fees paid pursuant to
this agreement during the quarters ended June 30, 1999 and June
30, 1998 were $30,000 and 0 respectively.
9. Income Taxes
The Corporation has $2,437,335 of consolidated net operating loss
carryforwards for federal tax purposes as of June 30, 1999, which
are available to offset future taxable income and expire during
the years 2011 through 2020. The corporation has not fully
reserved for any future tax benefits from the net operating loss
carryforwards since it has not generated any revenues to date.
10. Year 2000
The Corporation's computer systems are currently year 2000
complaint. The Corporation is not aware of any material risks
associated with its vendors regarding year 2000 compliance,
however there is no guarantee that such risks do not exist and
will not have an adverse effect on operations. It is not
anticipated that any impact would be material, however the cost
of a potential impact is not determinable.
11. Subsequent Events
Subsequent to June 30, 1999, the Corporation at a Special Meeting
of Shareholders approved an amendment to the Corporation's
Articles of Incorporation changing the name of the Corporation
from Redwood Broadcasting, Inc. to FTM Media, Inc.
Subsequent to June 30, 1999, the Corporation changed it's trading
symbol on the NASDAQ Bulletin Board from RWBD to FTMM.
Subsequent to June 30, 1999 the Corporation received $34,995 for
a private placement offering for 5,982 Series B Convertible
Preferred Stock.
F-11
<PAGE> 72
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors
and Stockholders
FTM Media, Inc.
and Subsidiary
Scottsdale, Arizona
We have audited the accompanying consolidated balance sheets of FTM
Media, Inc. and Subsidiary as of March 31, 1999 and 1998, and the related
consolidated statements of changes in stockholders' deficit, operations and cash
flows for each of the three years in the period ended March 31, 1999. These
financial statements are the responsibility of the company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the 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 consolidated financial position of
FTM Media, Inc. and Subsidiary as of March 31, 1999 and 1998 and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended March 31, 1999, in conformity with generally
accepted accounting principles.
Rotenberg & Co., LLP
Rochester, New York
June 24, 1999
F-12
<PAGE> 73
FTM MEDIA, INC.
AND SUBSIDIARY
Scottsdale, Arizona
CONSOLIDATED BALANCE SHEETS AT
MARCH 31, 1999 AND 1998
<TABLE>
ASSETS
<CAPTION>
1999 1998
----------- ----------
<S> <C> <C>
Current Assets
Cash and Cash Equivalents $ 2,027,833 $ 2,796
Prepaid Expenses 23,968 --
----------- ---------
Total Current Assets $ 2,051,801 $ 2,796
Property and Equipment - Net of Accumulated Depreciation 70,499 --
Other Assets
Lease Deposits 20,535 --
Web Site Design - In Progress 131,568 --
Goodwill - Net of Accumulated Amortization 76,550 78,513
----------- ---------
Total Assets $ 2,350,953 $ 81,309
=========== =========
LIABILITIES AND STOCKHOLDERS' DEFICIT
Liabilities
Accounts Payable $ 208,101 $ --
Accrued Expenses 64,820 --
----------- ---------
Total Liabilities $ 272,921 --
----------- ---------
Minority Interest
Preferred Stock of Subsidiary $ 415,889 $ 406,370
Common Stock of Subsidiary 2,771,261 (30,588)
----------- ---------
Total Minority Interest $ 3,187,150 $ 375,782
----------- ---------
Stockholders' Deficit
Preferred Stock - $.04 Par; 2,500,000 Shares Authorized;
None Issued and Outstanding $ -- $ --
Common Stock - $.004 Par; 12,500,000 Shares Authorized;
6,319,542 Shares Issued and Outstanding 25,278 25,278
Deficit Accumulated During Development Stage (1,134,396) (319,751)
----------- ---------
Total Stockholders' Deficit (1,109,118) (294,473)
----------- ---------
Total Liabilities and Stockholders' Deficit $ 2,350,953 $ 81,309
=========== =========
</TABLE>
The accompanying notes are an integral part of this financial statement.
F-13
<PAGE> 74
FTM MEDIA, INC.
AND SUBSIDIARY
Scottsdale, Arizona
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' DEFICIT FOR THE
PERIOD FEBRUARY 22, 1994 (INCEPTION) TO MARCH 31, 1999
<TABLE>
<CAPTION>
Par Common Preferred
Shares Value Stock Stock
---------- ----- ------ ---------
<S> <C> <C> <C> <C>
Inception - February 22, 1994 11,553,100 $ .001 $ 11,553 $ --
Net Loss through March 31, 1996 -- -- -- --
---------- --------- -------- -------
Balance - March 31, 1996 11,553,100 $ .001 $ 11,553 $ --
5 for 1 Reverse Split (9,242,480) .001 (9,242) --
Issuance of Stock to
Acquire Cybermusic:
Common 2,550,000 .001 2,550 --
Preferred 40,637 .001 -- 41
Recapitalization into Redwood (4,415,820) .001 (4,416) --
Minority Interest in Subsidiary:
Common Shareholders (444,800) .001 (445) --
Preferred Shareholders (40,637) .001 -- (41)
Redwood Stock Outstanding
Before the Recapitalization 799,767 .004 3,199 --
Stock Issued in Exchange for
INRG Stock at 1.25 for 1 5,519,775 .004 22,079 --
Net Loss -- -- -- --
---------- --------- -------- -------
Balance - March 31, 1997 6,319,542 $ .004 $ 25,278 $ --
</TABLE>
<TABLE>
<CAPTION>
Deficit
Accumulated
Additional During Total
Paid-In Development Stockholders' Minority
Capital Stage Equity/(Deficit) Interest
---------- ----------- ---------------- --------
<S> <C> <C> <C> <C>
Inception - February 22, 1994 $ -- $ -- $ 11,553 $ --
Net Loss through March 31, 1996 -- (86,037) (86,037) --
--------- --------- --------- ---------
Balance - March 31, 1996 $ -- $ (86,037) $ (74,484) $ --
5 for 1 Reverse Split 9,242 -- -- --
Issuance of Stock to
Acquire Cybermusic:
Common -- -- 2,550 --
Preferred 406,329 -- 406,370 --
Recapitalization into Redwood (9,242) -- (13,658) --
Minority Interest in Subsidiary:
Common Shareholders -- 7,872 7,427 (7,427)
Preferred Shareholders (406,329) -- (406,370) 406,370
Redwood Stock Outstanding
Before the Recapitalization -- (3,199) -- --
Stock Issued in Exchange for
INRG Stock at 1.25 for 1 -- (8,421) 13,658 --
Net Loss -- (209,742) (209,742) (21,124)
--------- --------- --------- ---------
Balance - March 31, 1997 $ -- $(299,527) $(274,249) $ 377,819
</TABLE>
F-14
<PAGE> 75
FTM MEDIA, INC.
AND SUBSIDIARY
Scottsdale, Arizona
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' DEFICIT FOR THE
PERIOD FEBRUARY 22, 1994 (INCEPTION) TO MARCH 31, 1999 - CONTINUED
<TABLE>
<CAPTION>
Additional
Par Common Preferred Paid-In
Shares Value Stock Stock Capital
------ ----- ------ -------- ----------
<S> <C> <C> <C> <C> <C>
Net Loss -- $ -- $ -- $ -- $ --
--------- ----- ------- ----- ------
Balance - March 31, 1998 6,319,542 $.004 $25,278 $ -- $ --
Increase in Liquidation Value
of INRG's Preferred Stock -- -- -- -- --
INRG Stock Subscribed for by
Minority Shareholders
on March 31, 1999 -- -- -- -- --
Net Loss -- -- -- -- --
--------- ----- ------- ----- ------
Balance - March 31, 1999 6,319,542 $.004 $25,278 -- --
========= ====== ======= ===== ======
</TABLE>
<TABLE>
<CAPTION>
Deficit
Accumulated
During Total
Development Stockholders' Minority
Stage Equity/(Deficit) Interest
-------------- ----------------- ------------
<S> <C> <C> <C>
Net Loss $ (20,224) $ (20,224) $ (2,037)
------------ ----------------- ------------
Balance - March 31, 1998 $ (319,751) $ (294,473) $ 375,782
Increase in Liquidation Value
of INRG's Preferred Stock -- -- 9,519
INRG Stock Subscribed for by
Minority Shareholders
on March 31, 1999 -- -- 2,883,897
Net Loss (814,645) (814,645) (82,048)
----------- ------------ -----------
Balance - March 31, 1999 $(1,134,396) $(1,109,118) $ 3,187,150
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of his financial statement.
F-16
<PAGE> 76
FTM MEDIA, INC.
AND SUBSIDIARY
Scottsdale, Arizona
CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE
YEARS ENDED MARCH 31, 1999, 1998 AND 1997 AND FOR THE
PERIOD FEBRUARY 22, 1994 (INCEPTION) TO MARCH 31, 1999
<TABLE>
<CAPTION>
February 22, 1994
(Inception) to
1999 1998 1997 March 31, 1999
---------- ---------- ---------- -------------
<S> <C> <C> <C> <C>
Total Revenues $ -- $ $ -- $ --
========== ========== =========== =============
Expenses
Accounting Fees $ 2,350 $ -- $ -- $ 2,350
Capital Formation Expense 282,162 -- -- 282,162
Consulting Fees 126,534 -- -- 126,534
Contract Labor 2,233 -- -- 2,233
Depreciation and Amortization 4,077 -- -- 15,630
Director's Expenses 8,096 -- -- 8,096
Interest 9,519 -- -- 9,519
Legal Fees 298,598 -- 17,479 321,903
License, Dues, and Fees 4,699 -- -- 4,699
Market Research 20,242 -- -- 20,242
Office Supplies and Expense 11,954 147 22,313 41,838
Payroll 44,375 14,224 56,999 133,017
Payroll Tax and Benefits 13,498 1,677 5,028 21,693
Rent 17,649 5,213 30,545 63,009
Repairs and Maintenance 6,332 -- -- 6,332
Telephone 4,642 733 9,003 17,298
Travel and Entertainment 26,725 -- 11,878 42,562
Video Production Expense -- 267 77,621 103,732
Web Site Development 15,373 -- -- 15,373
------------ ---------- ----------- -------------
Total Expenses $ 899,058 $ 22,261 $ 230,866 $ 1,238,222
------------ ---------- ----------- -------------
Loss Before Other Income $ (899,058) $ (22,261) $ (230,866) $ (1,238,222)
Other Income 2,365 -- -- 2,365
------------ ---------- ----------- -------------
Loss Before Provision for Income Taxes $ (896,693) $ (22,261) $ (230,866) $ (1,235,857)
Provision for Income Taxes -- -- -- --
------------ ---------- ----------- -------------
Loss Before Minority Interest $ (896,693) $ (22,261) $ (230,866) $ (1,235,857)
Minority Interest 82,048 2,037 21,124 113,081
------------ ---------- ----------- -------------
Net Loss $ (814,645) $ (20,224) $ (209,742) $ (1,122,776)
============ ========== =========== =============
Loss Per Common Share $ (.129) $ (.003 $ (.033) $ (.178)
============ ========== =========== =============
Weighted Average Number of Common
Shares Outstanding After Recapitalization 6,319,542 6,319,542 6,319,542 6,319,542
============ ========== =========== =============
</TABLE>
The accompanying notes are an integral part of this financial statement.
F-17
<PAGE> 77
FTM MEDIA, INC.
AND SUBSIDIARY
Scottsdale, Arizona
CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE
YEARS ENDED MARCH 31, 1999, 1998 AND 1997 AND FOR THE
PERIOD FEBRUARY 22, 1994 (INCEPTION) TO MARCH 31, 1999
<TABLE>
<CAPTION>
February 22, 1994
(Inception) to
1999 1998 1997 March 31, 1999
----------- -------- --------- ------------------
<S> <C> <C> <C> <C>
Cash Flows from Operating Activities
Net Loss $ (814,645) $(20,224) $(209,742) $(1,122,776)
Adjustments to Reconcile Net Loss to
Net Cash Flows from Operating Activities:
Amortization 1,963 -- -- 13,516
Depreciation 2,114 -- -- 2,114
Minority Interest (82,048) (2,037) (21,124) (113,081)
Increase in Liquidation Value -
Minority Interest 9,519 -- -- 9,519
Changes in Assets and Liabilities
Prepaid Expenses (23,968) -- -- (23,968)
Lease Deposits (20,535) -- -- (20,535)
Accounts Payable 208,101 -- -- 208,101
Accrued Expenses 64,820 -- -- 64,820
----------- -------- --------- -----------
Net Cash Flows from Operating
Activities $ (654,679) $(22,261) $(230,866) $ (982,290)
=========== ======== ========= ===========
Cash Flows from Investing Activities
Acquisition of Fixed Assets $ (72,613) $ -- $ -- $ (72,613)
Web Site Design - In Progress (131,568) -- -- (131,568)
----------- -------- --------- -----------
Net Cash Flows from Investing
Activities $ (204,181) $ -- $ -- $ (204,181)
=========== ======== ========= ===========
Cash Flows from Financing Activities
Borrowings from Stockholders $ -- $ 25,057 $ 230,866 $ 330,407
Common Stock Subscribed
for in Minority Interest 2,883,897 -- -- 2,883,897
----------- -------- --------- -----------
Net Cash Flows from Financing
Activities $ 2,883,897 $ 25,057 $ 230,866 $ 3,214,304
=========== ======== ========= ===========
Net Increase in Cash and Cash Equivalents $ 2,025,037 $ 2,796 $ -- $ 2,027,833
Cash and Cash Equivalents -
Beginning of Year 2,796 -- -- --
----------- -------- --------- -----------
Cash and Cash Equivalents -
End of Year $ 2,027,833 $ 2,796 $ -- $ 2,027,833
=========== ======== ========= ===========
</TABLE>
F-17
<PAGE> 78
NON-CASH INVESTING AND FINANCING ACTIVITIES
<TABLE>
<CAPTION>
February 22, 1994
(Inception) to
1999 1998 1997 March 31, 1999
---------- ---------- ------------ ---------------
<S> <C> <C> <C> <C>
Conversion of Shareholder Loans
to Capital in Subsidiary $ -- $25,057 $230,866 $330,407
Issuance of INRG Common Stock
to Acquire Cybermusic $ -- $ -- $ 2,550 $ 2,550
Issuance of INRG Preferred Stock
to Acquire Cybermusic $ -- $ -- $406,370 $406,370
Goodwill Recorded in Connection
with the Acquisition of Cybermusic $ -- $ -- $ 78,513 $ 78,513
Issuance of Common Stock related
to the Reverse Acquisition $ -- $ -- $ 22,079 $ 22,079
Increase in Par Value of Common Stock
due to the Recapitalization $ -- $ -- $ 11,620 $ 11,620
</TABLE>
The accompanying notes are an integral part of this financial statement.
F-18
<PAGE> 79
FTM MEDIA, INC.
AND SUBSIDIARY
Scottsdale, Arizona
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note A - Summary of Transaction
The consolidated financial statements for all periods presented
reflect the Contribution Agreement which was effective March 31, 1999,
pursuant to which Interactive Radio Group, Inc. (hereinafter "INRG"), a
Delaware Corporation, became a majority owned subsidiary of FTM Media,
Inc. (hereinafter "Redwood"). Per the Contribution Agreement, Redwood
acquired 90.85% of the issued and outstanding common shares of INRG in
consideration of the INRG common shareholders receiving 1.25 shares of
Redwood common stock for each contributed share of INRG common stock.
The business combination was accounted for as a recapitalization of
INRG and is designated as such in the consolidated statements of
changes in stockholders' deficit.
All references to the "Corporation" herein include FTM Media, Inc.
and its majority owned subsidiary, Interactive Radio Group, Inc., and
its wholly-owned subsidiary, Cybermusic Acquisition Corp., individually
or collectively.
Effective March 31, 1999, the date of the recapitalization, the
principal business activity of the Corporation is being carried on
through INRG. As a result, the acquisition of the majority interest in
INRG by Redwood was treated as a reverse acquisition, resulting in the
historical operations of INRG being treated as the historical
operations of the Corporation. Accordingly, the accompanying historical
financial statements have been restated to reflect the financial
position, results of operations, and cash flows for all years presented
as if the recapitalization had occurred at the beginning of the
earliest period presented.
Note B - Nature of Operations and Summary of Significant Accounting Policies
FTM Media, Inc.
The Corporation was formed in December 1994 under the laws of the
State of Colorado. On December 31, 1998, substantially all of the
assets and liabilities of Redwood were transferred to its wholly-owned
privately held subsidiary. The subsidiary's common stock was then
distributed to the Redwood shareholders. As a result of this
distribution and the change in control of Redwood, which occurred on
March 31, 1999 with the reverse acquisition of the Corporation by the
majority interest in INRG, the prior operations of Redwood are not
reflected in these financial statements. Accordingly, the financial
statements reflect the operating activity of Redwood beginning with the
acquisition of the majority interest in INRG.
The Corporation is in the development stage as its operations
principally involve the raising of capital, market research, and
start-up production. Because it is in the development stage, the
Corporation has had no revenue from product sales, which should not be
regarded as typical for normal operating periods.
Interactive Radio Group, Inc.
INRG was formed on February 22, 1994 under the laws of the State of
Delaware. The company was dormant until April 1, 1998 when it began its
business of designing and hosting Internet Web sites for radio
stations. The acquisition of the majority interest in INRG by Redwood
was accounted for as a reverse acquisition, resulting in the historical
operations of INRG being treated as the historical operations of the
Corporation. Accordingly, the accompanying historical financial
statements have been restated to reflect the financial position,
results of operations, and cash flows for all years presented as if the
recapitalization had occurred at the beginning of the earliest period
presented.
F-19
<PAGE> 80
Note B - Nature of Operations and Summary of Significant Accounting
Policies - continued
Cybermusic Acquisition Corp.
Cybermusic Acquisition Corp. (hereinafter "Cybermusic") was formed on
February 8, 1996 under the laws of the State of Delaware. Cybermusic
was acquired by INRG and became its wholly-owned subsidiary in
December, 1998. Its principal business activity of designing Web sites
for radio stations has been carried on through INRG since its
acquisition. The acquisition of Cybermusic by INRG was accounted for as
a reverse acquisition, resulting in the historical operations of
Cybermusic being treated as the historical operations of the
Corporation. Accordingly, the accompanying historical financial
statements have been restated to reflect the financial position,
results of operations, and cash flows for all years presented as if the
recapitalization had occurred at the beginning of the earliest period
presented.
Principles of Consolidation
The consolidated financial statements include the accounts of Redwood
and its majority owned subsidiary, INRG (and its wholly-owned
subsidiary, Cybermusic). All significant intercompany balances and
transactions have been eliminated in consolidation.
Segment Data, Geographic Information, and Significant Customers
The Corporation operates in one industry segment and will seek to
generate revenues from Web site development for radio stations in the
30 largest U.S. radio markets.
Method of Accounting
The corporation maintains its books and prepares its financial
statements on the accrual basis of accounting.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues
and expense during the reporting period. Actual results can differ from
those estimates.
Concentrations of Credit Risk
Financial instruments which potentially expose the Corporation to
significant concentrations of credit risk consist principally of bank
deposits. Cash is placed primarily in high quality short term interest
bearing financial instruments.
Cash and Cash Equivalents
Cash and cash equivalents include time deposits, certificates of
deposit, and all highly liquid debt instruments with original
maturities of three months or less. The company maintains cash and cash
equivalents at financial institutions which periodically may exceed
federally insured amounts.
Property, Equipment and Depreciation
Property and equipment are stated at cost, less accumulated
depreciation computed using the straight line method over the estimated
useful lives as follows:
Office Equipment 3 - 5 Years
Office Furniture 5 Years
Maintenance and repairs are charged to expense. The cost of the
assets retired or otherwise disposed of and the related accumulated
depreciation are removed from the accounts.
Web Site Design - In Progress
Web site design - in progress represents costs incurred to develop
Web sites for radio stations, including labor and materials.
Realization of the costs will occur upon completion of the sites and
F-20
<PAGE> 81
Note B - Nature of Operations and Summary of Significant Accounting
Policies - continued
will coincide with licensing contract terms sold to customers of
approximately 5 years. There has been no amortization of the costs to
date since Web site design is still in progress.
Goodwill
Goodwill has been capitalized and is being amortized over ten years.
Net Income Per Common Share
Net income (loss) per common share is computed in accordance with
SFAS No. 128, "Earnings Per Share," by dividing income available to
common stockholders by the weighted average number of common shares
outstanding for each period, after reflecting the recapitalization.
Income Taxes
The Corporation accounts for income taxes in accordance with SFAS No.
109, "Accounting for Income Taxes," using the asset and liability
approach, which requires recognition of deferred tax liabilities and
assets for the expected future tax consequences of temporary
differences between the carrying amounts and the tax basis of such
assets and liabilities. This method utilizes enacted statutory tax
rates in effect for the year in which the temporary differences are
expected to reverse and gives immediate effect to changes in income tax
rates upon enactment. Deferred tax assets are recognized, net of any
valuation allowance, for temporary differences and net operating loss
and tax credit carryforwards. Deferred income tax expense represents
the change in net deferred assets and liability balances. The
Corporation had no material deferred tax assets or liabilities for the
periods presented.
Note C - Property and Equipment
Property and equipment are recorded at cost and consisted of the
following at March 31, 1999 and 1998:
<TABLE>
<CAPTION>
1999 1998
------- --------
<S> <C> <C>
Computer Equipment $56,548 $ --
Office Furniture 16,065 --
------- --------
$72,613 $ --
Less: Accumulated Depreciation 2,114 --
------- --------
Net Property and Equipment $70,499 $ --
======= ========
</TABLE>
Depreciation expense for the years ended March 31, 1999, 1998, and
1997 was $2,114, $-0-, and $-0-, respectively.
Note D - Web Site Design - In Progress
Costs of Web site design are capitalized and amortized over the life
of licensing contracts sold to customers. Web site design - in progress
consisted of the following at March 31, 1999 and 1998:
<TABLE>
<CAPTION>
1999 1998
-------- -----------
<S> <C> <C>
Web Site Development Costs $131,568 $ --
Less: Accumulated Amortization -- --
-------- ----------
Net Web Site Design - In Progress $131,568 $ --
======== ==========
</TABLE>
Amortization expense for each of the years ended March 31, 1999, 1998,
and 1997 was $-0-.
F-21
<PAGE> 82
Note E - Goodwill
The Corporation acquired goodwill with INRG's purchase of Cybermusic
Acquisition Corp. in December, 1998. Goodwill is being amortized over
ten years and consisted of the following at March 31, 1999 and 1998:
<TABLE>
<CAPTION>
1999 1998
---------- ---------
<S> <C> <C>
Goodwill $ 78,513 $ 78,513
Less: Accumulated Amortization 1,963 ---
---------- --------
Net Goodwill $ 76,550 $ 78,513
========== ========
</TABLE>
Amortization expense for the years ended March 31, 1999, 1998, and
1997 was $1,963, $-0-, and $-0-, respectively.
Note F - Minority Interest
The minority interest in INRG has two components:
1. Preferred Stock of Subsidiary
INRG issued 40,637 shares of Series A Preferred Stock with par
value of $.001, to the former shareholders of Cybermusic
Acquisition Corp. upon acquisition of the wholly-owned subsidiary
in December, 1998. The minority interest in the Preferred Stock
of INRG was recorded at the stock's liquidation value of $10 per
share and goodwill was recorded for $78,513. Rights, privileges,
and restrictions of the Series A Preferred Stock are as follows:
i. The stock ranks senior to Common Stock and any other class
or series of capital stock of the Corporation with respect
to liquidation, dissolution, or winding up of the
business.
ii. Holders of the stock are not entitled to receive dividends
or other distributions except on liquidation, dissolution,
or winding up of the business.
iii. Holders of the stock have the right to vote with the
Common stockholders as a single class, unless the Delaware
General Corporation Law requires the Series A Preferred
stockholders to vote separately as a single class.
iv. Holders have the option to convert their stock to Common
shares equal to the Series A Preferred Stock liquidation
value anytime after September 9, 2000, or to Common Stock
of a parent corporation if more than 80% of the issued and
outstanding Common Stock of INRG is owned by another
corporation.
v. Holders may redeem their stock for cash equal to the
liquidation value anytime after December 7, 2001. INRG may
elect to redeem any or all of the outstanding shares of
Series A Preferred Stock anytime, at the liquidation
value.
vi. The liquidation value of each share of Series A Preferred
Stock is $10, increased with interest compounded annually
at 7.5% for three years, commencing on the date of
issuance. The Corporation recorded interest expense on the
liquidation value in the amount of $9,519 during the year
ended March 31, 1999. The Series A Preferred Stock
liquidation value consisted of the following at March 31,
1999:
F-22
<PAGE> 83
Note F - Minority Interest - continued
<TABLE>
<CAPTION>
<S> <C> <C>
Liquidation Value at Issuance $ 406,370
Accrued Interest to Date 9,519
-----------
Total Liquidation Value $ 415,889
===========
</TABLE>
2. Common Stock of Subsidiary
On March 31, 1999, Redwood acquired 90.85% of the issued and
outstanding Common Stock of INRG. The remaining 9.15% of Common
Stock represents a minority interest in INRG. The parent
corporation and the minority interest share pro rata in the net
income or loss of the Corporation.
On March 31, 1999, subsequent to the acquisition, INRG recorded
$2,883,897 received in cash for a private placement offering for
960,616 Common shares, which were issued thereafter.
Consequently, subsequent to March 31, 1999, the minority interest
in the subsidiary will increase to approximately 24.14% and will
increase further if additional Common shares are issued through
private offerings. The $2,883,897 of INRG Common Stock subscribed
for as of March 31, 1999 is included in the balance sheet under
Minority Interest - Common Stock of Subsidiary.
Note G - Related Party Transactions
The Corporation entered into a management agreement to pay consulting
fees on a monthly basis to Ingenious Enterprises, Inc., a Nevada
corporation, in the amount of $120,000 annually, beginning October 1,
1998, for the services provided by Ron Conquest, President and Chief
Executive Officer of the Corporation. Consulting fees paid in
accordance with this management agreement during the years ended March
31, 1999, 1998, and 1997 were $60,000, $-0-, and $-0-, respectively.
The Corporation paid consulting fees to Don Mundo, Secretary and
Treasurer of INRG, in the amount of $13,500, $-0-, and $-0- during the
years ended March 31, 1999, 1998 and 1997, respectively.
Note H - Income Taxes
The Corporation has $1,235,857 of consolidated net operating loss
carryforwards for federal tax purposes as of March 31, 1999, which are
available to offset future taxable income and expire during the years
2011 through 2019. The Corporation has fully reserved for any future
tax benefits from the net operating loss carryforwards since it has not
generated any revenues to date.
Note I - Year 2000
The Corporation's computer systems are currently year 2000 compliant.
The Corporation has not been informed of any material risks associated
with its vendors regarding year 2000 compliance, however, there is no
guarantee that such risks do not exist and will not have an adverse
effect on operations. Management is continuing to assess any impact
that the transition to the year 2000 will have on operations. It is not
anticipated that any impact would be material, however the cost of a
potential impact is not determinable.
Note J - Subsequent Events
Subsequent to March 31, 1999, 52,765 shares of Redwood's Common Stock
were forfeited by the shareholders and cancelled.
Subsequent to March 31, 1999, Redwood established the following
designations of Preferred Stock at $.04 par value:
F-23
<PAGE> 84
Note J - Subsequent Events - continued
800,000 Shares of Series A Convertible Preferred Stock
400,000 Shares of Series B Convertible Preferred Stock
1,300,000 Shares of Undesignated Preferred Stock
=========
2,500,000 Total Shares of Preferred Stock
On June 15, 1999, Redwood sold 267,522 shares of Series B Convertible
Preferred Stock at a purchase price of $5.85 per share. Terms of the
Series B Convertible Preferred Stock are as follows:
1. The stock ranks senior to Common Stock and any other class or
series of capital stock of the Corporation with respect to
liquidation, dissolution, or winding up of the business unless
such other class or series constitutes Parity Stock or Senior
Stock.
2. Holders of the stock are entitled to receive dividends prior and
in preference to any declaration or payment of any cash dividend
on the Common Stock or any other Junior Stock of the Corporation.
3. Holders of the stock have no voting rights except for those
minimum rights required by the Colorado Business Corporation Act,
in which case the stock shall vote together with the Common Stock
as a single class, unless the Colorado Business Corporation Act
requires the Series B Convertible Preferred
Stock to vote separately as a single class.
4. Holders have the option to convert their stock to Common shares
equal to the conversion rate in effect at the time of conversion.
The conversion rate shall be an amount equal to $5.85 divided by
the conversion price. The conversion price shall equal $5.85
minus the multiple of the aggregate unpaid accrued dividends per
share times 0.64103.
5. The Corporation may elect to cause each share to be automatically
converted into a number of fully paid and non-assessable Common
shares equal to the conversion rate then in effect as of any date
on which the closing price for each of the twenty trading days
preceding such date equals or exceeds $8.35 per share.
F-24
<PAGE> 85
A-1
ANNEX A
AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER, dated as of September 24, 1999 (this
"AGREEMENT"), by and between Interactive Radio Group, Inc., a Delaware
corporation ("INRG"), and FTM Media, Inc., a Delaware corporation ("FTM").
WITNESSETH:
WHEREAS, FTM is a wholly owned subsidiary of FTM Media, Inc., a Colorado
corporation ("FTM COLORADO") and INRG is a majority owned subsidiary of FTM
Colorado;
WHEREAS, the Boards of Directors of INRG and FTM have determined that it
is in the best interests of their respective companies and their stockholders to
consummate the business combination transaction provided for herein in which
INRG will, subject to the terms and conditions set forth herein, merge (the
"MERGER") with and into FTM, so that FTM is the surviving corporation in the
Merger;
WHEREAS, immediately prior to the Merger, FTM Colorado will
reincorporate into Delaware by merging with and into FTM, with FTM as the
surviving corporation (such merger, the "REINCORPORATION MERGER")
WHEREAS, the parties desire to make certain representations, warranties
and agreements in connection with the Merger and also to prescribe certain
conditions to the Merger; and
NOW, THEREFORE, in consideration of the mutual covenants,
representations, warranties and agreements contained herein, and intending to be
legally bound hereby, the parties agree as follows:
ARTICLE I
CERTAIN DEFINITIONS
1.01 CERTAIN DEFINITIONS. As used in this Agreement, the following terms shall
have the meanings set forth below:
"CODE" shall mean the Internal Revenue Code of 1986, as amended.
"FTM" shall have the meaning set forth in the recitals to this
Agreement.
"FTM BOARD" shall mean the Board of Directors of FTM.
"FTM STOCK" shall mean FTM Common Stock and FTM Preferred Stock.
"INRG BOARD" shall mean the Board of Directors of INRG.
A-1
<PAGE> 86
"INRG OPTION PLAN" shall mean the 1999 Interactive Radio Group, Inc.
Stock Option Plan.
"INRG STOCK" shall mean INRG Common Stock and INRG Preferred Stock.
"PERSON" or "PERSONS" shall mean any individual, bank, corporation,
partnership, association, joint-stock company, business trust or
unincorporated organization.
"SEC" shall mean the Securities and Exchange Commission.
"TREASURY SHARES" shall mean shares of INRG Stock held by INRG or any of
its Subsidiaries, FTM Media, Inc., a Colorado corporation ("OLD FTM"), or by FTM
or any of its Subsidiaries, in each case other than in a fiduciary capacity or
as a result of debts previously contracted in good faith.
ARTICLE II
THE MERGER; EFFECTS OF THE MERGER
2.01 THE MERGER.
(a) THE SURVIVING CORPORATION. At the Effective Time, INRG shall merge
with and into FTM (the "MERGER"), the separate corporate existence of INRG shall
cease and FTM shall survive and continue to exist as a Delaware corporation
(FTM, as the surviving corporation in the Merger, sometimes being referred to
herein as the "SURVIVING CORPORATION").
(b) EFFECTIVENESS AND EFFECTS OF THE MERGER. Subject to the satisfaction
or waiver of the conditions set forth in ARTICLE VI in accordance with this
Agreement, the Merger shall become effective upon the occurrence of both (i) the
filing in the office of the Secretary of State of Delaware of articles of merger
in accordance with Section 275 of the Delaware General Corporation Law (the
"DGCL") and (ii) the filing in the office of the Secretary of State of the State
of Delaware of a certificate of merger in accordance with Section 252 of the
DGCL, or such later date and time as may be set forth in such articles and
certificate. The Merger shall have the effects prescribed in the DGCL.
(c) CERTIFICATE OF INCORPORATION AND BY-LAWS. The certificate of
incorporation and by-laws of the Surviving Corporation shall be those of FTM, as
in effect immediately prior to the Effective Time.
2.02 EFFECTIVE DATE AND EFFECTIVE TIME.
Subject to the satisfaction or waiver of the conditions as set forth in
ARTICLE VI in accordance with this Agreement, the parties shall cause the
effective date of the Merger (the "EFFECTIVE DATE") to occur on (i) the third
business day to occur after the last of the conditions set forth in ARTICLE VI
shall have been satisfied or waived in accordance with the terms of this
Agreement or (ii) such other date to which the parties may agree. The time on
the
A-2
<PAGE> 87
Effective Date when the Merger shall become effective is referred to as the
"EFFECTIVE TIME."
2.03 TAX CONSEQUENCES. It is intended that the Merger shall qualify as a
reorganization under Section 368(a) of the Code.
ARTICLE III
MERGER CONSIDERATION; EXCHANGE PROCEDURES
3.01 MERGER CONSIDERATION. Subject to the provisions of this Agreement,
at the Effective Time, automatically by virtue of the Merger and without any
action on the part of any party or stockholder:
(a) OUTSTANDING INRG COMMON STOCK. Each share, excluding Treasury
Shares, of the common stock, par value $.0001 per share, of INRG (the "INRG
COMMON STOCK"), issued and outstanding immediately prior to the Effective Time
shall become and be converted into the right to receive 1.25 shares (the
"EXCHANGE RATIO") of the common stock, par value $.001 per share, of FTM ("FTM
COMMON STOCK").
(b) OUTSTANDING INRG PREFERRED STOCK. Each share of INRG Series A
Preferred Stock, par value $.001, (the "INRG PREFERRED STOCK"), excluding any
Treasury Shares, issued and outstanding immediately prior to the Effective Time,
shall become and be converted into one share of a new series of preferred stock
of FTM, par value $.001 ("FTM SERIES A PREFERRED STOCK") having terms
substantially similar to those of the INRG Preferred Stock.
(c) OUTSTANDING FTM COMMON STOCK. Each share of FTM Common Stock issued
and outstanding immediately prior to the Effective Time shall be unchanged and
shall remain issued and outstanding as common stock of the Surviving
Corporation.
(d) TREASURY SHARES. Each of the shares of INRG Stock held as Treasury
Shares immediately prior to the Effective Time shall be canceled and retired at
the Effective Time and no consideration shall be issued in exchange therefor.
3.02 RIGHTS AS STOCKHOLDERS; STOCK TRANSFERS.
At the Effective Time, holders of INRG Stock shall cease to be, and
shall have no rights as, stockholders of INRG, other than to receive any
dividend or other distribution with respect to such INRG Stock with a record
date occurring prior to the Effective Time and the consideration provided under
this Article III. After the Effective Time, there shall be no transfers on the
stock transfer books of INRG or the Surviving Corporation of shares of INRG
Stock.
3.03 FRACTIONAL SHARES.
Notwithstanding any other provision hereof, no fractional shares of FTM
Common Stock and no certificates or scrip therefor, or other evidence of
ownership thereof, will be issued in the Merger; instead, FTM shall pay to each
holder of INRG Common Stock who would otherwise be
A-3
<PAGE> 88
entitled to a fractional share of FTM Common Stock (after taking into account
all Old Certificates delivered by such holder) an amount in cash (without
interest) determined by multiplying such fraction by the average of the last
sale prices of Old FTM Common Stock, as reported by the OTC Bulletin Board for
the five trading days immediately preceding the Effective Date.
3.04 EXCHANGE PROCEDURES.
(a) At or prior to the Effective Time, FTM shall deposit, or shall cause
to be deposited, with a bank or trust company (the "EXCHANGE AGENT"), for the
benefit of the holders of certificates formerly representing shares of INRG
Common Stock ("OLD CERTIFICATES"), for exchange in accordance with this Article
III, certificates representing the shares of FTM Common Stock ("NEW
CERTIFICATES") and an estimated amount of cash (such cash and New Certificates,
together with any dividends or distributions with a record date occurring after
the Effective Date with respect thereto (without any interest on any such cash,
dividends or distributions), being hereinafter referred to as the "EXCHANGE
FUND") to be paid pursuant to this Article III in exchange for outstanding
shares of INRG Common Stock.
(b) As promptly as practicable after the Effective Date, FTM shall send
or cause to be sent to each former holder of record of shares (other than
Treasury Shares) of INRG Common Stock immediately prior to the Effective Time
transmittal materials for use in exchanging such stockholder's Old Certificates
for the consideration set forth in this Article III. FTM shall cause the New
Certificates into which shares of a stockholder's INRG Common Stock are
converted on the Effective Date and/or any check in respect of any fractional
share interests or dividends or distributions which such person shall be
entitled to receive to be delivered to such stockholder upon delivery to the
Exchange Agent of Old Certificates representing such shares of INRG Common Stock
(or indemnity reasonably satisfactory to FTM and the Exchange Agent, if any of
such certificates are lost, stolen or destroyed) owned by such stockholder. No
interest will be paid on any such cash to be paid in lieu of fractional share
interests or in respect of dividends or distributions which any such person
shall be entitled to receive pursuant to this Article III upon such delivery.
(c) Notwithstanding the foregoing, neither the Exchange Agent nor any
party hereto shall be liable to any former holder of INRG Stock for any amount
properly delivered to a public official pursuant to applicable abandoned
property, escheat or similar laws.
(d) No dividends or other distributions with respect to FTM Common Stock
with a record date occurring after the Effective Time shall be paid to the
holder of any unsurrendered Old Certificate representing shares of INRG Common
Stock converted in the Merger into the right to receive shares of such FTM
Common Stock until the holder thereof shall be entitled to receive New
Certificates in exchange therefor in accordance with this Article III, and no
such shares of FTM Common Stock shall be eligible to vote until the holder of
Old Certificates is entitled to receive New Certificates in accordance with this
Article III. After becoming so entitled in accordance with this Article III, the
record holder thereof also shall be entitled to receive any such dividends or
other distributions, without any interest thereon, which theretofore had become
payable with respect to shares of FTM Common Stock such holder had the right to
receive upon surrender of the Old Certificate.
A-4
<PAGE> 89
(e) Any portion of the Exchange Fund that remains unclaimed by the
stockholders of INRG for twelve months after the Effective Time shall be paid to
FTM. Any stockholders of INRG who have not theretofore complied with this
Article III shall thereafter look only to FTM for payment of the shares of FTM
Common Stock, cash in lieu of any fractional shares and unpaid dividends and
distributions on the FTM Common Stock deliverable in respect of each share of
INRG Common Stock such stockholder holds as determined pursuant to this
Agreement, in each case, without any interest thereon.
3.05 OPTIONS.
At the Effective Time, all stock options to purchase shares of INRG
Common Stock (each, a "INRG STOCK OPTION"), which are then outstanding and
unexercised, shall cease to represent a right to acquire shares of INRG Common
Stock and shall be converted automatically into options to purchase shares of
FTM Common Stock, and FTM shall assume each such INRG Stock Option subject to
the terms thereof, (i) PROVIDED, HOWEVER, that from and after the Effective
Time, (ii) the number of shares of FTM Common Stock purchasable upon exercise of
such INRG Stock Option shall be equal to 1.25 times the number of shares of INRG
Common Stock that were purchasable under such INRG Stock Option immediately
prior to the Effective Time and there shall be no change in the aggregate
exercise price of each INRG Stock Option. The terms of each INRG Stock Option
shall, in accordance with its terms, be subject to further adjustment as
appropriate to reflect any stock split, stock dividend, recapitalization or
other similar transaction with respect to FTM Common Stock on or subsequent to
the Effective Date. Notwithstanding the foregoing, each INRG Stock Option which
is intended to be an "incentive stock option" (as defined in Section 422 of the
Code) shall be adjusted in accordance with the requirements of Section 424 of
the Code. Accordingly, with respect to any incentive stock options, fractional
shares shall be rounded down to the nearest whole number of shares and where
necessary the per share exercise price shall be rounded down to the nearest
cent.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
4.01 REPRESENTATIONS AND WARRANTIES. INRG hereby represents and
warrants to FTM, and FTM hereby represents and warrants to INRG as follows:
(a) ORGANIZATION, STANDING AND AUTHORITY. Such party is a corporation
duly organized, validly existing and in good standing under the laws of the
jurisdiction of its organization. Such party is duly qualified to do business
and is in good standing in the states of the United States and foreign
jurisdictions where its ownership or leasing of property or assets or the
conduct of its business requires it to be so qualified. It has in effect all
federal, state, local, and foreign governmental authorizations necessary for it
to own or lease its properties and assets and to carry on its business as it is
now conducted.
(b) CORPORATE POWER. Such party and each of its Subsidiaries has the
corporate power and authority to carry on its business as it is now being
conducted and to own all its properties and assets; and it has the corporate
power and authority to execute, deliver and
A-5
<PAGE> 90
perform its obligations under this Agreement, and to consummate the
transactions contemplated hereby and thereby.
(c) CORPORATE AUTHORITY. (i) In the case of the representations and
warranties of INRG, (A) subject to receipt of the requisite approval and
adoption of this Agreement and the Merger by the holders of a majority of the
outstanding shares of INRG Common Stock entitled to vote thereon, this Agreement
and the transactions contemplated hereby and thereby have been authorized by all
necessary corporate action of INRG and the INRG Board prior to the date hereof
and (B) this Agreement is a legal, valid and binding agreement of INRG,
enforceable in accordance with its respective terms (except as such
enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium, fraudulent transfer and similar laws of general
applicability relating to or affecting creditors' rights or by general equity
principles). (ii) In the case of the representations and warranties of FTM, (A)
subject in the case of this to receipt of the requisite approval and adoption of
this Agreement and the Merger by the holders of a majority of the outstanding
shares of FTM Common Stock entitled to vote thereon, this Agreement is a legal,
valid and binding agreement of FTM, enforceable in accordance with its
respective terms (except as such enforceability may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium, fraudulent transfer and
similar laws of general applicability relating to or affecting creditors' rights
or by general equity principles).
ARTICLE V
COVENANTS
INRG hereby covenants to and agrees with FTM, and FTM hereby covenants
to and agrees with INRG, that:
5.01 REASONABLE BEST EFFORTS.
Subject to the terms and conditions of this Agreement, it shall use its
reasonable best efforts in good faith to take, or cause to be taken, all
actions, and to do, or cause to be done, all things necessary, proper or
desirable, or advisable under applicable laws, so as to permit consummation of
the Merger as promptly as practicable and otherwise to enable consummation of
the transactions contemplated hereby and shall cooperate fully with the other
party hereto to that end.
5.02 STOCKHOLDER APPROVALS.
Each of them shall take, in accordance with applicable law, and its
respective articles or certificate of incorporation and by-laws, all action
necessary to convene, respectively, (i) an appropriate meeting of stockholders
of FTM to consider and vote upon (A) the approval and adoption of this Agreement
A-6
<PAGE> 91
and the Merger (including the issuance of the shares of FTM Common Stock to be
issued in the Merger pursuant to this Agreement) and (B) any other matters
required to be approved by FTM stockholders for consummation of the Merger
(including any adjournment or postponement, the "FTM MEETING"), and (ii) an
appropriate meeting of stockholders of INRG to consider and vote upon the
approval and adoption of this Agreement and the Merger and any other matters
required to be approved by INRG's stockholders for consummation of the Merger
(including any adjournment or postponement, the "INRG MEETING"; and each of the
FTM Meeting and the INRG Meeting, a "MEETING"), respectively, as promptly as
practicable after the Registration Statement is declared effective. The FTM
Board and the INRG Board shall recommend such approval, and each of FTM and INRG
shall take all reasonable lawful action to solicit such approval by its
respective stockholders. Notwithstanding the foregoing, the approval of the
Merger by the stockholders of FTM and INRG may take the form of action by
written consent.
5.03 REGISTRATION STATEMENT. Each of FTM and INRG agrees to cooperate
in the preparation of a registration statement on Form S-4 (the "REGISTRATION
STATEMENT") to be filed by FTM with the SEC in connection with the issuance of
FTM Common Stock in the Merger (including the proxy statement and prospectus and
other proxy solicitation materials of INRG constituting a part thereof (the
"PROXY STATEMENT") and all related documents).
ARTICLE VI
CONDITIONS TO CONSUMMATION OF THE MERGER
The obligations of each of the parties to consummate the Merger is
conditioned upon the satisfaction at or prior to the Effective Time of each of
the following:
6.01 STOCKHOLDER VOTE. Approval and adoption of this Agreement and the
Merger by the requisite vote of the stockholders of INRG and approval and
adoption of this Agreement and the Merger (including the issuance of shares of
FTM Common Stock to be issued in the Merger pursuant to this Agreement) by the
requisite vote of the stockholders of FTM.
6.02 REGULATORY APPROVALS. All regulatory approvals required to
consummate the transactions contemplated hereby shall have been obtained and
shall remain in full force and effect and all statutory waiting periods in
respect thereof shall have expired and no such approvals shall contain any
conditions or restrictions which either the FTM Board or the INRG Board
reasonably determines in good faith would, following the Effective Time, have a
material adverse effect on the Surviving Corporation and its Subsidiaries taken
as a whole.
6.03 THIRD PARTY CONSENTS. All consents or approvals of all persons
(other than Regulatory Authorities) required for the consummation of the Merger
shall have been obtained and shall be in full force and effect, unless the
failure to obtain any such consent or approval is not reasonably likely to have,
individually or in the aggregate, a material adverse effect on INRG or FTM.
6.04 NO INJUNCTION, ETC. No order, decree or injunction of any court or
agency of competent jurisdiction shall be in effect, and no law, statute or
regulation shall have been enacted or adopted, that enjoins, prohibits or makes
illegal the consummation of any of the transactions contemplated hereby.
6.05 EFFECTIVE REGISTRATION STATEMENT. The Registration Statement shall
have become effective and no stop order suspending the effectiveness of the
Registration
A-7
<PAGE> 92
Statement shall have been issued and no proceedings for that purpose shall have
been initiated or threatened by the SEC or any other Regulatory Authority.
6.06 TAX OPINION. INRG and FTM shall have received an opinion from Irell
& Manella LLP, tax counsel, dated as of the Effective Time, substantially to the
effect that, on the basis of the facts, representations and assumptions set
forth in such opinions which are consistent with the state of facts existing at
the Effective Time, the Merger will be treated for Federal income tax purposes
as a reorganization within the meaning of Section 368(a) of the Code and that
accordingly:
(i) No gain or loss will be recognized by FTM or INRG as a result
of the Merger;
(ii) No gain or loss will be recognized by the stockholders of
INRG who exchange their INRG Stock solely for FTM Stock pursuant to the
Merger (except with respect to cash received in lieu of a fractional
share interest in FTM Stock); and
(iii) The tax basis of the FTM Stock received by stockholders who
exchange all of their INRG Stock solely for FTM Stock in the Merger will
be the same as the tax basis of the INRG Stock surrendered in exchange
therefor.
In rendering such opinion, such counsel may require and rely upon
representations and covenants including those contained in certificates of
officers of FTM, INRG and others.
6.07 The Reincorporation Merger shall have been consummated.
ARTICLE VII
TERMINATION
7.01 TERMINATION. This Agreement may be terminated, and the Merger may
be abandoned at any time prior to the Effective Time (either before or after the
approval of the shareholders of either or both of FTM or INRG), by the mutual
consent of FTM and INRG.
7.02 EFFECT OF TERMINATION AND ABANDONMENT. In the event of termination
of this Agreement and the abandonment of the Merger pursuant to this ERROR!
REFERENCE SOURCE NOT FOUND., no party to this Agreement shall have any liability
or further obligation to any other party hereunder.
ARTICLE VIII
MISCELLANEOUS
8.01 SURVIVAL. All representations, warranties, agreements and covenants
contained in this Agreement shall not survive the Effective Time or termination
of this Agreement if this Agreement is terminated prior to the Effective Time.
A-8
<PAGE> 93
8.02 WAIVER; AMENDMENT. Prior to the Effective Time, any provision of
this Agreement may be (i) waived by the party benefited by the provision, or
(ii) amended or modified at any time, by an agreement in writing between the
parties hereto and executed in the same manner as this Agreement.
8.03 COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to constitute an original.
8.04 GOVERNING LAW. This Agreement shall be governed by, and interpreted
in accordance with, the laws of the State of California, without regard to the
conflict of law principles thereof (except to the extent that mandatory
provisions of Federal law or of the corporation laws of the State of Delaware
are applicable).
8.05 NOTICES. All notices, requests and other communications hereunder
to a party shall be in writing and shall be deemed given if personally
delivered, telecopied (with confirmation) or mailed by registered or certified
mail (return receipt requested) to such party at its address set forth below or
such other address as such party may specify by notice to the parties hereto.
If to INRG, to: Interactive Radio Group
6991 East Camelback Road
Suite D-103
Scottsdale, Arizona 85251
If to FTM, to: FTM Media, Inc.
6991 East Camelback Road
Suite D-103
Scottsdale, Arizona 85251
With copies to: Irell & Manella LLP
1800 Avenue of the Stars
Suite 900
Los Angeles, CA 90067
Attn: Richard C. Wirthlin, Esq.
8.06 ENTIRE UNDERSTANDING; NO THIRD PARTY BENEFICIARIES. This Agreement
represents the entire understanding of the parties hereto with reference to the
transactions contemplated hereby and thereby and this Agreement supersedes any
and all other oral or written agreements (other than the INRG Option Agreement)
heretofore made. Nothing in this Agreement expressed or implied, is intended to
confer upon any person, other than the parties hereto or their respective
successors, any rights, remedies, obligations or liabilities under or by reason
of this Agreement.
A-9
<PAGE> 94
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed in counterparts by their duly authorized officers, all as of the day
and year first above written.
INTERACTIVE RADIO GROUP
By: /s/ Ron Conquest
-----------------------------------------
Name: Ron Conquest
Title: Chief Executive Officer and President
FTM MEDIA, INC.
By: /s/ Ron Conquest
-----------------------------------------
Name: Ron Conquest
Title: Chief Executive Officer and President
A-10
<PAGE> 95
ANNEX B
CERTIFICATE OF INCORPORATION
OF
FTM MEDIA, INC.
A DELAWARE CORPORATION
FIRST: The name of the corporation is FTM Media, Inc.
SECOND: The address of the corporation's registered office in the State
of Delaware is 30 Old Rudnick Lane, in the City of Dover, County of Kent, 19901.
The name of the corporation's registered agent at such address is CorpAmerica,
Inc.
THIRD: The purpose of the corporation is to engage in any lawful act or
activity for which corporations may be organized under the Delaware General
Corporation Law.
FOURTH: The total number of shares of all classes of stock which the
corporation shall have authority to issue is Fifty-Five Million (55,000,000),
consisting of:
1. Fifty Million (50,000,000) shares of common stock, par value $0.001
(the "Common Stock");
2. Five Million (5,000,000) shares of preferred stock, par value $0.001
("Preferred Stock"), Fifty Thousand (50,000) of which are designated as "Series
A Preferred Stock" and Four Hundred Thousand (400,000) of which are designated
as "Series B Convertible Preferred Stock."
A. COMMON STOCK. The powers, preferences and rights of the Common Stock
shall be as follows:
1. DIVIDENDS. Subject to the preferential rights of the Preferred Stock
(if any), dividends may be paid on the Common Stock, as and when they may be
declared by the Board of Directors, out of any funds of the corporation legally
available for the payment of such dividends.
2. DISTRIBUTIONS ON DISSOLUTION, ETC. Upon any liquidation, dissolution
or winding up of the corporation, whether voluntary or involuntary, the
remaining net assets of the corporation shall, after payment in full of the
liquidation preference of any Preferred Stock, be distributed pro rata to the
holders of the Common Stock in accordance with their respective interests.
B-1
<PAGE> 96
B. PREFERRED STOCK. The Preferred Stock may be issued in one or more
series. The Board of Directors is authorized to fix the number of any such
series of preferred shares and to determine the designation of any such series.
The Board of Directors is further authorized to determine or alter the rights,
privileges and restrictions granted to or imposed upon any wholly unissued
series of Preferred Stock and, within the limits and restrictions stated in any
resolution or resolutions of the Board of Directors originally fixing the number
of shares constituting any series, to increase or decrease (but not below the
number of shares of such series then outstanding) the number of shares of any
such series subsequent to the issue of shares of that series.
C. SERIES A PREFERRED STOCK. The rights, privileges and restrictions of
the Series A Preferred Stock shall be as follows:
1. PRIORITY. The Series A Preferred Stock shall, with respect to rights
on liquidation, dissolution or winding up, rank (i) senior to the Common Stock,
the Series B Convertible Preferred Stock, and to any other class or series of
the capital stock of the corporation (unless such other class or series of
capital stock constitutes "Parity Stock" or "Senior Stock," as defined below)
(collectively including the Common Stock, for purposes of Section C of Article
Four only, "Junior Stock"), (ii) on a parity with any class or series of the
capital stock of the corporation if the terms of such class or series of capital
stock specifically provide that the holders thereof and the holders of Series A
Preferred Stock shall be entitled to the receipt of amounts distributable upon
liquidation, dissolution or winding up, as the case may be, in proportion to
their respective amounts of accrued and unpaid dividends per share or
liquidation preferences, as the case may be, without one having preference or
priority over the other (for purposes of Section C of Article Four only, "Parity
Stock"), and (iii) junior to any class or series of capital stock of the
corporation, if the terms of such class or series of capital stock specifically
provide that the holders thereof shall be entitled to the receipt of amounts
distributable on liquidation, dissolution or winding up, as the case may be, in
preference or priority to the holders of Series A Preferred Stock (for purposes
of Section C of Article Four only, "Senior Stock").
2. DIVIDENDS AND DISTRIBUTIONS. The holders of shares of Series A
Preferred Stock shall not be entitled to receive any dividends or other
distributions except on liquidation, dissolution or winding up of the
corporation as provided in Section C.7 of this Article Four and except as
provided in Section C.5 of this Article Four.
3. VOTING RIGHTS. The holders of shares of Series A Preferred Stock
shall not have any voting rights, except as follows:
a. The holders of shares of Series A Preferred Stock shall have
the minimum voting rights required by the Delaware General Corporation Law,
voting together with the Common Stock as a single class, unless the Delaware
General Corporation Law requires that the Series A Preferred Stock has the right
to vote separately as a single class.
b. The rights of holders of shares of Series A Preferred Stock to
vote with respect to any matters as provided in this Section C.3 may be
exercised in person or by proxy at any annual meeting of stockholders or at a
special meeting of stockholders held for such
B-2
<PAGE> 97
purpose as hereinafter provided or at any adjournment thereof, or by written
consent, delivered to the Secretary of the corporation, of the holders of the
minimum number of shares of Series A Preferred Stock required to take such
action at a meeting at which all of the holders of Series A Preferred Stock were
present and voted.
c. At each meeting of stockholders at which the holders of shares
of Series A Preferred Stock shall have the right, voting separately as a single
class, to take any action as provided in this Section C.3, the presence in
person or by proxy of the holders of record of one-half of the total number of
shares of Series A Preferred Stock then outstanding and entitled to vote on the
matter shall be necessary and sufficient to constitute a quorum. At any such
meeting or at any adjournment thereof:
(i) the absence of a quorum of the holders of shares of
Series A Preferred Stock shall not prevent the taking of any vote
or other action by the stockholders of the corporation, other
than such votes or actions to be taken by the holders of shares
of Series A Preferred Stock separately as a single class, and the
absence of a quorum of the holders of shares of any other class
or series of capital stock shall not prevent the taking of any
vote or any other action by the holders of shares of Series A
Preferred Stock as provided in this Certificate of Incorporation;
and
(ii) in the absence of a quorum of the holders of shares
of Series A Preferred Stock, a majority of the holders of such
shares present in person or by proxy shall have the power to
adjourn the meeting as to the actions to be taken by the holders
of shares of Series A Preferred Stock separately as a single
class, from time to time and place to place without notice, other
than announcement at the meeting, until a quorum shall be
present.
For the taking of any action as provided in this Certificate of
Incorporation by the holders of shares of Series A Preferred Stock in their
capacity as such, each of such holders shall have, for each such share standing
in his name on the transfer books of the corporation as of any record date fixed
for such purpose or, if no such date be fixed, at the close of business on the
Business Day next preceding the day on which notice is given, or if notice is
waived, at the close of business on the Business Day next preceding the day on
which the meeting is held, the number of votes equal to vote of the number of
shares of Common Stock into which such holder's shares of Series A Preferred
Stock are convertible.
4. CONVERSION.
a. Each share of Series A Preferred Stock shall be convertible at
the option of the holder thereof into fully paid and nonassessable shares of
Common Stock at any time after September 9, 2000. Conversion of the Series A
Preferred Stock may be effected by any holder thereof upon the surrender to the
corporation at the principal office of the corporation, or at the office of any
agent or agents of the corporation, as may be designated by the Board of
Directors (the "Transfer Agent", which may be the corporation), of the
certificate for such shares
B-3
<PAGE> 98
of Series A Preferred Stock to be converted accompanied by a written notice (the
"Conversion Notice") stating that such holder elects to convert all or a
specified whole number of such shares in accordance with the provisions of this
Section C.4 and specifying the name or names in which such holder wishes the
certificate or certificates for shares of Common Stock to be issued. (The date
upon which such items are surrendered to the corporation is the "Conversion
Notice Date".)
(i) Each share of Series A Preferred Stock shall be
convertible into that number of shares of Common Stock equal to
the Series A Liquidation Value (as hereinafter defined) per share
of Series A Preferred Stock divided by the Common Stock Fair
Market Value (as hereinafter defined), each as of the Conversion
Notice Date. If more than one share of Series A Preferred Stock
shall be surrendered for conversion by the same holder at the
same time, the number of full shares of Common Stock issuable to
such holder on conversion thereof shall be computed on the basis
of the total number of shares of Series A Preferred Stock so
surrendered.
(ii) In connection with the conversion of any shares of
Series A Preferred Stock, no fractions of shares of Common Stock
shall be issued, but in lieu thereof the corporation shall pay a
cash adjustment in respect of such fractional interest in an
amount equal to such fractional interest multiplied by the Common
Stock Fair Market Value as of the Conversion Notice Date.
b. In case the Conversion Notice shall specify a name or names
other than that of such holder, such notice shall be accompanied by payment of
all transfer taxes payable upon the issuance of shares of Common Stock in such
names or names. As promptly as practicable after the surrender of such
certificate or certificates and the receipt of such Conversion Notice relating
thereto and, if applicable, payment of all transfer taxes (or the demonstration
to the satisfaction of the corporation that such taxes have been paid), the
corporation shall deliver or cause to be delivered (i) certificates representing
the number of validly issued, fully paid and nonassessable full shares of Common
Stock to which the holder of the shares of Series A Preferred Stock being
converted shall be entitled, (ii) if less than the full number of shares of
Series A Preferred Stock evidenced by the surrendered certificate or
certificates is being converted, a new certificate or certificates, of like
tenor, for the number of shares of Series A Preferred Stock evidenced by such
surrendered certificate or certificates less the number of shares of Series A
Preferred Stock being converted and (iii) a check for any cash adjustment to be
paid to such holder pursuant to Section C.4.a. The rights of the holder of
shares of Series A Preferred Stock as to the shares being converted shall cease
as of the Conversion Notice Date except for the right to receive shares of
Common Stock in accordance herewith upon surrender of the certificate or
certificates representing the shares of Series A Preferred Stock to be
converted. The person entitled to receive the shares of Common Stock shall be
treated for all purposes as having become the record holder of such shares of
Common Stock at the time of such surrender.
c. The right of conversion provided in this Section C.4 of this
Article Four shall immediately cease and terminate as to any shares of Series A
Preferred Stock upon (i)
B-4
<PAGE> 99
delivery to the corporation of a Notice of Redemption with respect to any such
shares of Series A Preferred Stock pursuant to Section C.5 of this Article Four,
or (ii) upon the 25th day following mailing by the corporation of the Company
Redemption Notice (as defined in Section C.5 of this Article Four) with respect
to any such shares of Series A Preferred Stock.
d. The corporation shall at all times reserve and keep available
for issuance upon the conversion of the Series A Preferred Stock, free from any
preemptive rights, such number of its authorized but unissued shares of Common
Stock as will from time to time be sufficient to permit the conversion of all
outstanding shares of Series A Preferred Stock, and shall take all action
required to increase the authorized number of shares of Common Stock (if
necessary) to permit the conversion of all outstanding shares of Series A
Preferred Stock.
(i) In case of any capital reorganization or
reclassification of outstanding shares of Common Stock
or in case of any merger of the corporation with or
into another corporation, or in case of any sale or
conveyance to another corporation of all or
substantially all of the assets or property of the
corporation (each of the foregoing being referred to
as a "Transaction"), each share of Series A Preferred
Stock then outstanding shall thereafter be convertible
into, in lieu of the Common Stock issuable upon such
conversion prior to consummation of such Transaction,
the kind and amount of shares of stock and other
securities and property receivable (including cash)
upon the consummation of such Transaction by a holder
of that number of shares of Common Stock into which
one share of Series A Preferred Stock was convertible
immediately prior to such Transaction; provided,
however, that, if in connection with the Transaction a
tender or exchange offer shall have been made and
there shall have been acquired pursuant thereto more
than 50% of the outstanding shares of Common Stock,
each share of Series A Preferred Stock then
outstanding shall thereafter be convertible into the
kind and amount of shares of stock and other
securities and property (including cash) receivable by
a holder of Series A Preferred Stock had the holder
thereof (i) immediately prior to such tender or
exchange offer converted that portion of the shares of
Series A Preferred Stock equal to the percentage of
shares of the then outstanding Common Stock so
purchased in the tender or exchange offer and accepted
such offer and sold therein all of such shares of
Common Stock obtained upon such conversion and (ii)
converted the remaining portion of the Series A
Preferred Stock into shares of Common Stock
immediately prior to the consummation of such
Transaction. In any such case, if necessary,
appropriate adjustment (as determined by the Board of
Directors) shall be made in the application of the
provisions set forth in this C.4 with respect to
rights and interests thereafter of the holders of
shares of Series A Preferred Stock to the end that the
provisions set forth herein for the protection of the
conversion rights of the Series A Preferred
B-5
<PAGE> 100
Stock shall thereafter be applicable, as nearly as
reasonably may be, to any such other shares of stock and
other securities and property (other than cash)
deliverable upon conversion of the shares of Series A
Preferred Stock remaining outstanding (with such
adjustments in the conversion price and number of shares
issuable upon conversion and such other adjustments in the
provisions hereof as the Board of Directors shall
determine to be appropriate). In case securities or
property (including cash) other than Common Stock shall be
issuable or deliverable upon conversion as aforesaid, then
all references in this Section C.4 shall be deemed to
apply, so far as appropriate and as nearly as may be, to
such other securities or property.
(ii) Notwithstanding anything contained herein to the
contrary, the corporation will not effect any Transaction
unless, prior to the consummation thereof, the surviving
or resulting person (if not the corporation) thereof shall
assume, by written instrument delivered to each holder of
shares of Series A Preferred Stock, the obligation to
deliver to such holder such cash or other securities to
which, in accordance with the foregoing provisions, such
holder is entitled.
e. In case at any time there shall be any capital reorganization
or reclassification of the Common Stock or merger of the corporation with or
into another corporation, or any sale or conveyance to another corporation of
the property of this corporation as an entirety or substantially as an entirety,
or there shall be a voluntary or involuntary dissolution, liquidation or winding
up of the corporation, then, in any one or more of said cases the corporation
shall give at least twenty days prior written notice (the time of mailing of
such notice shall be deemed to be the time of giving thereof) to the registered
holders of the Series A Preferred Stock at the addresses of each as shown on the
books of the corporation maintained by the Transfer Agent thereof as of the date
on which (i) the books of the corporation shall close or a record shall be taken
for such stock dividend, distribution or subscription rights or (ii) such
reorganization, reclassification, merger, sale or conveyance, dissolution,
liquidation or winding up shall take place, as the case may be. Such notice
shall also specify the date as of which the holders of the Common Stock of
record shall participate in said dividend, distribution or subscription rights
or shall be entitled to exchange their Common Stock for securities or other
property deliverable upon such reorganization, reclassification, merger, sale or
conveyance or participate in such dissolution, liquidation or winding up, as the
case may be. Failure to give such notice shall not invalidate any action so
taken.
5. REDEMPTION.
a. Subject to and in accordance with the provisions of this
Section C.5, the corporation shall redeem, out of the assets legally available
therefor, a portion of the shares of Series A Preferred Stock (determined as
provided below) owned by such record holder at a redemption price (the
"Redemption Price") payable in cash initially equal to the Series A Liquidation
Value (as of the date of receipt by the corporation of the Notice of Redemption
(a
B-6
<PAGE> 101
"Redemption Notice Date") or as of the Company Redemption Date, as the case may
be) of the shares to be redeemed, adjusted as provided in Section C.5.b of this
Article Four.
b. (i) The holders of shares Series A Preferred Stock may elect
redemption with respect to any amount of such holders' shares of Series A
Preferred Stock at any time after March 9, 2001.
c. (ii) Any record holder of shares of Series A Preferred Stock
electing to redeem shares of Series A Preferred Stock pursuant to Section C.5.b
of this Article Four shall deliver to the corporation a written notice of such
holder's election to redeem such shares (a "Notice of Redemption"), accompanied
by one or more certificates representing the number of shares desired to be
redeemed. Upon receipt of a Notice of Redemption, completed and duly executed by
such record holder, and such certificates, the election of such record holder to
redeem shares of Series A Preferred Stock shall be irrevocable.
d. (iii) The corporation shall mail the Redemption Price to each
holder promptly within 30 days after the Redemption Notice Date in question.
e.(i) The corporation may elect, at any time, to redeem any or
all of the outstanding shares of Series A Preferred Stock, pro rata from each
holder thereof in accordance with the number of shares of Series A Preferred
Stock held by such holder.
f. (ii) In order to exercise its redemption rights pursuant to
Section C.5.c.(i) of this Article Four, the corporation shall mail to the
holders of Series A Preferred Stock, at their addresses of record on the books
and records of the corporation, a notice informing such holder of the
corporation's election to redeem a specified number of such holder's shares of
Series A Preferred Stock (a "Notice of Company Redemption").
g. (iii) If the corporation mails a Notice of Company Redemption
to a holder of Series A Preferred Stock, and the holder does not convert, on or
before the expiration of the 25 day period following mailing of the Notice of
Company Redemption, and in the manner required in Section C.4 of this Article
Four, such shares of Series A Preferred Stock into Common Stock, then (i) the
holder shall be required to deliver the certificates representing such shares to
the corporation and shall no longer be entitled to convert such shares into
Common Stock, and (ii) the Company shall, upon receipt of such certificates,
(but not prior to the 30th day following mailing of the Notice of Company
Redemption (such date, the "Company Redemption Date"), mail the Redemption Price
to each holder.
6. REACQUIRED SHARES. Any shares of Series A Preferred Stock
redeemed, purchased or otherwise acquired by the corporation in any manner
whatsoever shall be retired and cancelled promptly after the acquisition
thereof. All of such shares of Series A Preferred Stock shall, upon their
cancellation, in accordance with the Delaware General Corporation Law, become
authorized but unissued shares of Preferred Stock of the corporation, and may be
reissued as part of another class or series of Preferred Stock of the
corporation.
B-7
<PAGE> 102
7. LIQUIDATION, DISSOLUTION OR WINDING UP.
a. If the corporation shall commence a voluntary case under the
United States bankruptcy laws or any other applicable United States or state
bankruptcy, insolvency or similar law, or consent to the entry of an order for
relief in an involuntary case under such law or to the appointment of a
receiver, liquidator, assignee, custodian, trustee, sequestrator (or other
similar official) of the corporation, or of any substantial part of its
property, or make an assignment for the benefit of its creditors, or admit in
writing its inability to pay its debts generally as they become due, or if a
decree or order for relief in respect of the corporation shall be entered by a
court having jurisdiction in the premises in an involuntary case under the
United States or state bankruptcy, insolvency or similar law, or appointing a
receiver, liquidator, assignee, custodian, trustee, sequestrator (or other
similar official) of the corporation or of any substantial part of its property,
or ordering the winding up or liquidation of its affairs, and on account of such
event the corporation shall liquidate, dissolve or wind up, or if the
corporation shall otherwise liquidate, dissolve or wind up, no distribution
shall be made (i) to the holders of shares of Series B Convertible Preferred
Stock or any other Junior Stock unless, prior thereto, the holders of shares of
Series A Preferred Stock shall have received the Series A Liquidation Value with
respect to each share, or (ii) to the holders of shares of Parity Stock unless
the holders of shares of Series A Preferred Stock shall have received
distributions made ratably to the holders of the Series A Preferred Stock and
the Parity Stock in proportion to the total amounts to which the holders of all
such shares of Series A Preferred Stock and Parity Stock would be entitled upon
such liquidation, dissolution or winding up.
b. Neither the consolidation, merger or other business
combination of the corporation with or into any other Person or Persons nor the
sale of all or substantially all of the assets of the corporation shall be
deemed to be a liquidation, dissolution or winding up of the corporation for
purposes of this Section C.7.
8. DEFINITIONS. For the purpose of Section C of Article Four of
this Certificate of Incorporation, the following terms shall have the meanings
indicated:
a. "Business Day" shall mean any day other than a Saturday,
Sunday or any other day in which commercial banks are authorized to close in the
County of Los Angeles, California.
b. "Common Stock Fair Market Value" shall mean, in connection
with the conversion of Series A Preferred Stock into Common Stock, the fair
market value of a share of the Common Stock of the corporation, determined as
follows: (i) if the corporation's Common Stock is publicly traded on the
relevant date, the fair market value of each share of Common Stock shall be the
closing market "bid" price of such shares on the day immediately preceding such
date; and (ii) if the corporation's Common Stock is not publicly traded on the
relevant date, the fair market value of each share of Common Stock shall be
determined by the mutual agreement of a holder of Series A Preferred Stock and
the corporation or, if no such mutual agreement can be reached, by mediation or
arbitration in accordance with the provisions of Section 9 of that certain
Internet and Web Site Services Agreement by and among Interactive Radio Group,
Inc., CBS Radio, and Infinity Broadcasting Corporation dated as of March 9,
1998.
B-8
<PAGE> 103
c. "Series A Liquidation Value" shall mean, with respect to a
share of Series A Preferred Stock on any particular date, $10 increased with
interest at an annual rate of 7.5% compounded annually commencing on the date of
issuance of such share through March 9, 2001; provided, however, the Series A
Liquidation Value shall not increase after March 9, 2001.
d. "Person" shall mean any individual, firm, corporation or other
entity, and shall include any successor (by merger or otherwise) of such entity.
D. SERIES B CONVERTIBLE PREFERRED STOCK. The rights, privileges and
restrictions of the Series B Convertible Preferred Stock shall be as follows:
1. DIVIDENDS. The holders of shares of the Series B Convertible
Preferred Stock shall be entitled to receive dividends, out of any assets
legally available therefor, prior and in preference to any declaration or
payment of any cash dividend on the Common Stock or any other Junior Stock of
this corporation and if any dividend shall have not been declared and paid when
due, pari passu with the payment of any cash dividend on any Parity Stock, at
the rate of $0.702 per share per annum and no more (as adjusted for any stock
dividends, combinations or splits with respect to such shares) payable on each
semi-annual anniversary of the Series B Issue Date; provided, however,
notwithstanding the foregoing, the dividends payable for the twelve-month period
immediately following the Series B Issue Date shall be paid on the Series B
Issue Date. All such dividends shall be paid in cash; provided, however,
dividends payable with respect to any period beginning on or after the first
anniversary of the Series B Issue Date may be paid, at the option of the
corporation, 50% in cash and 50% in shares of Common Stock which shall be valued
for these purposes at the Average Fair Market Value of the Common Stock as of
the date such dividend is paid.
2. VOTING RIGHTS. The holders of shares of Series B Convertible
Preferred Stock shall have no voting rights except for those minimum voting
rights required by the Delaware General Corporation Law, in which case the
Series B Convertible Preferred Stock shall vote together with the Common Stock
as a single class, unless the Delaware General Corporation Law requires that the
Series B Convertible Preferred Stock has the right to vote separately as a
single class.
3. CONVERSION.
a. Holder's Right to Convert. Subject to compliance with any
applicable governmental rules and regulations, each share of Series B
Convertible Preferred Stock shall be convertible, at the option of the holder
thereof, at any time after the date of issuance of such share at the office of
this corporation or any transfer agent for the Series B Convertible Preferred
Stock, into a number of fully paid and nonassessable share(s) of Common Stock
equal to the Conversion Rate (as defined below) in effect at the time of
conversion. Conversion of the Series B Convertible Preferred Stock may be
effected by any holder thereof upon the surrender to the corporation at the
principal office of the corporation, or at the Transfer Agent, of the
certificate for such shares of Series B Convertible Preferred Stock to be
converted accompanied by a Conversion Notice stating that such holder elects to
convert all or a specified whole number of such shares in accordance with the
provisions of this Section D.3 and specifying the name or
B-9
<PAGE> 104
names in which such holder wishes the certificate or certificates for shares of
Common Stock to be issued.
b. In case the Conversion Notice shall specify a name or names
other than that of such holder, such notice shall be accompanied by payment of
all transfer taxes payable upon the issuance of shares of Common Stock in such
names or names. As promptly as practicable after the surrender of such
certificate or certificates and the receipt of such Conversion Notice relating
thereto and, if applicable, payment of all transfer taxes (or the demonstration
to the satisfaction of the corporation that such taxes have been paid), the
Corporation shall deliver or cause to be delivered (i) certificates representing
the number of validly issued, fully paid and nonassessable full shares of Common
Stock to which the holder of the shares of Series B Convertible Preferred Stock
being converted shall be entitled, and (ii) if less than the full number of
shares of Series B Convertible Preferred Stock evidenced by the surrendered
certificate or certificates is being converted, a new certificate or
certificates, of like tenor, for the number of shares of Series B Convertible
Preferred Stock evidenced by such surrendered certificate or certificates less
the number of shares of Series B Convertible Preferred Stock being converted.
The rights of the holder of shares of Series B Convertible Preferred Stock as to
the shares being converted shall cease as of the Conversion Notice Date except
for (i) the right to receive shares of Common Stock in accordance herewith upon
surrender of the certificate or certificates representing the shares of Series B
Convertible Preferred Stock to be converted, and (ii) the right to receive any
accrued and unpaid dividends thereon. In the event of any conversion pursuant to
Section D.3.a, any accrued and unpaid dividends with respect to the shares of
Series B Convertible Preferred Stock converted shall be paid, at the option of
the corporation (i) by issuing an additional number of shares of Common Stock to
each holder equal to the aggregate amount of accrued and unpaid dividends with
respect to such shares divided by the Conversion Price in effect as of the
Conversion Notice Date, (ii) by paying such dividends either in cash or in
Common Stock, as permitted pursuant to Section D.3 on or before the date which
is 30 days after the Conversion Notice Date, or (iii) any combination of (i) and
(ii). The person entitled to receive the shares of Common Stock shall be treated
for all purposes as having become the record holder of such shares of Common
Stock at the time of such surrender.
c. The Corporation's Election to Cause Conversion. The
corporation may, at its election, cause each share of Series B Convertible
Preferred Stock to be automatically converted into a number of fully paid and
nonassessable share(s) of Common Stock equal to the Conversion Rate (as defined
below) then in effect as of any date (an "Automatic Conversion Date") on which
the Closing Price for each of the twenty trading days preceding such date equals
or exceeds $8.35 per share. The Corporation shall effectuate the election
described in the preceding sentence by mailing notice of the corporation's
election to cause the conversion of the Series B Convertible Preferred Stock to
the holders of record thereof not less than five (5) days following the
Automatic Conversion Date. Notwithstanding the foregoing, in no event shall such
shares be converted pursuant to this Section D.3(b) prior to the first
anniversary of the Series B Issue Date or at any time when there are any accrued
and unpaid dividends outstanding on the Series B Convertible Preferred Stock.
Effective immediately upon such conversion, the rights of the holders of shares
of Series B Convertible Preferred Stock as to all such shares shall cease,
except for (i) the right to receive shares of Common Stock in accordance
herewith upon surrender of the certificate or certificates representing the
shares of Series B Convertible
B-10
<PAGE> 105
Preferred Stock to be converted, and (ii) the right to receive any accrued and
unpaid dividends thereon. The person entitled to receive the shares of Common
Stock shall be treated for all purposes as having become the record holder of
such shares of Common Stock at the Automatic Conversion Date. Upon surrender by
the holders of Series B Convertible Preferred Stock of their certificate(s)
representing such stock, and, if applicable, payment of all transfer taxes (or
the demonstration to the satisfaction of the corporation that such taxes have
been paid), the corporation shall deliver or cause to be delivered certificates
representing the number of validly issued, fully paid and nonassessable full
shares of Common Stock to which such holder is entitled.
d. "Conversion Rate". The "Conversion Rate" shall equal, subject
to the adjustments set forth in Sections D.3.g and D.3.h, an amount equal to
$5.85 divided by the Conversion Price. The "Conversion Price" shall equal, at
any time, (i) $5.85 minus (ii) (x) the aggregate amount of accrued dividends per
share which are then unpaid (excluding any dividends that accrued less than
fifteen (15) days prior to such time), times (y) 0.64103; provided, however, for
the purposes of computing the Conversion Price with respect to any conversion
pursuant to Sections D.3.a or D.3.b, any dividends that are paid on or before
the date which is thirty (30) days after the Conversion Notice Date shall be
treated as having been paid immediately prior to the time of such conversion.
e. The corporation shall at all times reserve and keep available
for issuance upon the conversion of the Series B Convertible Preferred Stock,
free from any preemptive rights, such number of its authorized but unissued
shares of Common Stock as will from time to time be sufficient to permit the
conversion of all outstanding shares of Series B Convertible Preferred Stock,
and shall take all action required to increase the authorized number of shares
of Common Stock (if necessary) to permit the conversion of all outstanding
shares of Series B Convertible Preferred Stock.
f. In connection with the conversion of any shares of Series B
Convertible Preferred Stock, no fractions of shares of Common Stock shall be
issued, but in lieu thereof the Corporation shall pay a cash adjustment in
respect of such fractional interest in an amount equal to such fractional
interest multiplied by the Average Fair Market Value as of the Conversion Notice
Date.
g. Adjustments. In the event this Corporation subdivides the
outstanding shares of Common Stock, or issues additional shares of Common Stock
as a dividend on shares of Common Stock, the Conversion Rate shall be
proportionately increased, and in the event the Corporation combines the
outstanding shares of Common Stock, the Conversion Rate shall be proportionately
decreased.
h. Effect of Certain Transactions. In case of any
Transaction, each share of Series B Convertible Preferred Stock then
outstanding shall thereafter be convertible into, in lieu of the Common Stock
issuable upon such conversion prior to consummation of such Transaction, the
kind and amount of shares of stock and other securities and property receivable
(including cash) upon the consummation of such Transaction by a holder of that
number of shares of Common Stock into which one share of Series B Convertible
Preferred Stock was convertible immediately prior to such Transaction;
provided, however, that, if in connection with
B-11
<PAGE> 106
the Transaction a tender or exchange offer shall have been made and there shall
have been acquired pursuant thereto more than 50% of the outstanding shares of
Common Stock, each share of Series B Convertible Preferred Stock then
outstanding shall thereafter be convertible into the kind and amount of shares
of stock and other securities and property (including cash) receivable by a
holder of Series B Convertible Preferred Stock had the holder thereof (i)
immediately prior to such tender or exchange offer converted that portion of the
shares of Series B Convertible Preferred Stock equal to the percentage of shares
of the then outstanding Common Stock so purchased in the tender or exchange
offer and accepted such offer and sold therein all of such shares of Common
Stock obtained upon such conversion and (ii) converted the remaining portion of
the Series B Convertible Preferred Stock into shares of Common Stock immediately
prior to the consummation of such Transaction. In any such case, if necessary,
appropriate adjustment (as determined by the Board of Directors) shall be made
in the application of the provisions set forth in this Section D.3.h with
respect to rights and interests thereafter of the holders of shares of Series B
Convertible Preferred Stock to the end that the provisions set forth herein for
the protection of the conversion rights of the Series B Convertible Preferred
Stock shall thereafter be applicable, as nearly as reasonably may be, to any
such other shares of stock and other securities and property (other than cash)
deliverable upon conversion of the shares of Series B Convertible Preferred
Stock remaining outstanding (with such adjustments in the conversion price and
number of shares issuable upon conversion and such other adjustments in the
provisions hereof as the Board of Directors shall determine to be appropriate).
In case securities or property (including cash) other than Common Stock shall be
issuable or deliverable upon conversion as aforesaid, then all references in
this Section D.3.h shall be deemed to apply, so far as appropriate and as nearly
as may be, to such other securities or property.
i. Notwithstanding anything contained herein to the contrary, the
corporation will not effect any Transaction unless, prior to the consummation
thereof, the surviving or resulting person (if not the corporation) thereof
shall assume, by written instrument delivered to each holder of shares of Series
B Convertible Preferred Stock, the obligation to deliver to such holder such
cash or other securities to which, in accordance with the foregoing provisions,
such holder is entitled.
4. LIQUIDATION, DISSOLUTION OR WINDING UP.
a. If the corporation shall commence a voluntary case under the
United States bankruptcy laws or any other applicable United States or state
bankruptcy, insolvency or similar law, or consent to the entry of an order for
relief in an involuntary case under such law or to the appointment of a
receiver, liquidator, assignee, custodian, trustee, sequestrator (or other
similar official) of the corporation, or of any substantial part of its
property, or make an assignment for the benefit of its creditors, or admit in
writing its inability to pay its debts generally as they become due, or if a
decree or order for relief in respect of the corporation shall be entered by a
court having jurisdiction in the premises in an involuntary case under the
United States or state bankruptcy, insolvency or similar law, or appointing a
receiver, liquidator, assignee, custodian, trustee, sequestrator (or other
similar official) of the corporation or of any substantial part of its property,
or ordering the winding up or liquidation of its affairs, and on account of such
event the corporation shall liquidate, dissolve or wind up, or if the
corporation shall otherwise liquidate, dissolve or wind up, no distribution
shall be made (i) to the holders of Series B Convertible Preferred Stock unless,
prior thereto, the holders of shares of Series A
B-12
<PAGE> 107
Preferred Stock or any other Senior Stock shall have received the Series A
Liquidation Value or other liquidation value with respect to each share, or (ii)
to the holders of shares of Junior Stock unless, prior thereto, the holders of
shares of Series B Convertible Preferred Stock shall have received the Series B
Liquidation Value with respect to each share, or (ii) to the holders of shares
of Parity Stock unless the holders of shares of Series B Convertible Preferred
Stock shall have received distributions made ratably to the holders of the
Series B Convertible Preferred Stock and the Parity Stock in proportion to the
sum of the total Series B Liquidation Value of all outstanding shares of Series
B Convertible Preferred Stock and the total amounts to which the holders of all
shares of Parity Stock would be entitled upon such liquidation, dissolution or
winding up.
b. Neither the consolidation, merger or other business
combination of the corporation with or into any other entity nor the sale of all
or substantially all of the assets of the corporation shall be deemed to be a
liquidation, dissolution or winding up of the corporation for purposes of this
Section D.4.
5. NO PREEMPTIVE RIGHTS. No holder of the Series B Convertible
Preferred Stock of the corporation shall be entitled, as of right, to purchase
or subscribe for any part of any unissued stock of the corporation or of any
stock of the corporation to be issued by reason of any increase of the
authorized capital stock of the corporation, or to purchase or subscribe for any
bonds, certificates of indebtedness, debentures or other securities convertible
into or carrying options or warrants to purchase stock or other securities of
the corporation or to purchase or subscribe for any stock of the corporation
purchased by the corporation or its nominee or nominees, or to have any other
preemptive rights now or hereafter defined by the laws of the State of Delaware.
6. REACQUIRED SHARES.
Any shares of Series B Convertible Preferred Stock acquired by the
corporation by reason of purchase, conversion or otherwise shall be retired and
cancelled promptly after the acquisition thereof. All such shares of Series B
Convertible Preferred Stock shall, upon their cancellation, become authorized
but unissued shares of Preferred Stock of the corporation.
7. DEFINITIONS. For the purpose of Section D of Article Four, the
following terms shall have the meanings indicated:
a. "Average Fair Market Value" means, with respect to any date,
the average of the Closing Price of a share of Common Stock for the
twenty trading days preceding such date; provided, however, if there are not
publicly reported trades of the Common Stock for at least twenty days during
the forty-five day period preceding any such date, the "Average Fair Market
Value" shall be the fair market value of the Common Stock as of such date as
reasonably determined by the Board of Directors.
b. "Board of Directors" shall mean the Board of Directors of the
corporation.
B-13
<PAGE> 108
c. "Closing Price" means, with respect to any date, the publicly
reported closing sales price for a share of Common Stock on such date on the
primary market or exchange where the Common Stock is then traded.
d. "Common Stock" means the Common Stock, par value $0.001 per
share, of the corporation.
e. "Junior Stock" shall mean the Common Stock and any other class
or series of the capital stock of the corporation (unless such other class or
series of capital stock constitutes "Parity Stock" or "Senior Stock").
g. "Series B Liquidation Value" shall mean, with respect to each
share of Series B Convertible Preferred Stock, an amount equal to $5.85 per
share (as adjusted for any stock dividends, combinations or splits with respect
to such shares) plus the amount of any accrued but unpaid dividends with respect
to such share.
h. "Parity Stock" shall mean any class or series of the capital
stock of the corporation, if the terms of such class or series of capital stock
specifically provide that the holders thereof and the holders of Series B
Convertible Preferred Stock shall be entitled to the receipt of amounts
distributable upon liquidation, dissolution or winding up, as the case may be,
in proportion to their respective amounts of accrued and unpaid dividends per
share and/or liquidation preferences, as the case may be, without one having
preference or priority over the other.
h. "Series B Issue Date" shall mean June 15, 1999.
i. "Senior Stock" shall mean the Series A Preferred Stock of the
corporation and any other class or series of capital stock of the corporation,
if the terms of such class or series of capital stock specifically provide that
the holders thereof shall be entitled to the receipt of amounts distributable on
liquidation, dissolution or winding up, as the case may be, in preference or
priority to the holders of Series B Convertible Preferred Stock.
j. "Transaction" shall have the meaning set forth in Section
C.4.d of Article Four.
FIFTH: The business and affairs of the corporation shall be managed by
or under the direction of the Board of Directors, and the directors need not be
elected by written ballot unless required by the Bylaws of the corporation.
SIXTH: In furtherance and not in limitation of the powers conferred by
the laws of the State of Delaware, the Board of Directors is expressly empowered
to adopt, amend or repeal the Bylaws of the corporation.
SEVENTH: A director of the corporation shall not be personally liable to
the corporation or its stockholders for monetary damages for breach of fiduciary
duty as a director, except for liability (i) for any breach of the director's
duty of loyalty to the corporation or its stockholders, (ii) for acts or
omissions not in good faith or which involve intentional misconduct or a knowing
violation of law, (iii) under Section 174 of the Delaware General Corporation
Law,
B-14
<PAGE> 109
or (iv) for any transaction from which the director derived an improper personal
benefit. If the Delaware General Corporation Law is amended to authorize
corporate action further eliminating or limiting the personal liability of
directors, then the liability of a director of the corporation shall be
eliminated or limited to the fullest extent permitted by the Delaware General
Corporation Law, as so amended. Any repeal or modification of this provision
shall not adversely affect any right or protection of a director of the
corporation existing at the time of such repeal or modification.
Dated: September 1, 1999
/s/ Ron Conquest
---------------------------------
Ron Conquest, Incorporator
B-15
<PAGE> 110
ANNEX C
BYLAWS
OF
FTM MEDIA, INC.
A DELAWARE CORPORATION
(HEREINAFTER CALLED THE "CORPORATION")
ARTICLE I.
OFFICES
Section 1. Registered Office. The registered office of the Corporation
shall be in the City of Dover, County of Kent, State of Delaware.
Section 2. Other Offices. The Corporation may also have offices at such
other places both within and without the State of Delaware as the Board of
Directors may from time to time determine.
ARTICLE II.
MEETINGS OF STOCKHOLDERS
Section 1. Place of Meetings. Meetings of the stockholders for the
election of directors or for any other purpose shall be held at such time and
place, either within or without the State of Delaware, as shall be designated
from time to time by the Board of Directors and stated in the notice of the
meeting or in a duly executed waiver of notice thereof.
Section 2. Annual Meetings. The Annual Meetings of Stockholders shall
be held on such date and at such time as shall be designated from time to time
by the Board of Directors and stated in the notice of the meeting, at which
meetings the stockholders shall elect by a plurality vote a Board of Directors,
and transact such other business as may properly be brought before the meeting.
Section 3. Special Meetings. Special meetings of the stockholders may
be called by the Board of Directors, the Chairman of the Board, the President,
or by the holders of shares entitled to cast not less than ten (10) percent of
the votes at the meeting. Upon request in writing to the Chairman of the Board,
the President, any Vice President or the Secretary by any person (other than the
board) entitled to call a special meeting of stockholders, the officer forthwith
shall cause notice to be given to the stockholders entitled to vote that a
meeting will be held at a time requested by the person or persons calling the
meeting, not less than thirty-five (35) nor more than sixty (60) days after the
receipt of the request. If the notice is not given within twenty (20) days after
receipt of the request, the persons entitled to call the meeting may give the
notice.
C-1
<PAGE> 111
Section 4. Notice of Meetings. Written notice of the place, date, and
hour of all stockholder meetings, and in the case of a special meeting, the
purpose or purposes for which the meeting is called, shall be given not less
than ten (10) nor more than sixty (60) days before the date on which the meeting
is to be held, to each stockholder entitled to vote at such meeting, except as
otherwise provided herein or as required from time to time by the Delaware
General Corporation Law or the Certificate of Incorporation.
Section 5. Quorum; Adjournment. At any meeting of the stockholders, the
holders of a majority of all of the shares of the stock entitled to vote at the
meeting, present in person or by proxy, shall constitute a quorum for all
purposes, unless or except to the extent that the presence of a larger number
may be required by law or the Certificate of Incorporation. If a quorum shall
fail to attend any meeting, the chairman of the meeting or the holders of a
majority of the shares of stock entitled to vote who are present, in person or
by proxy, may adjourn the meeting to another place, date, or time without notice
other than announcement at the meeting, until a quorum shall be present or
represented.
When a meeting is adjourned to another place, date or time, written
notice need not be given of the adjourned meeting if the place, date and time
thereof are announced at the meeting at which the adjournment is taken;
provided, however, that if the date of any adjourned meeting is more than thirty
(30) days after the date for which the meeting was originally noticed, or if a
new record date is fixed for the adjourned meeting, written notice of the place,
date, and time of the adjourned meeting shall be given in conformity herewith.
At any adjourned meeting, any business may be transacted which might have been
transacted at the original meeting.
Section 6. Proxies and Voting. At any meeting of the stockholders,
every stockholder entitled to vote may vote in person or by proxy authorized by
an instrument in writing filed in accordance with the procedure established for
the meeting.
Each stockholder shall have one (1) vote for every share of stock
entitled to vote which is registered in his name on the record date for the
meeting, except as otherwise provided herein or required by law or the
Certificate of Incorporation.
All voting, including on the election of directors but excepting where
otherwise provided herein or required by law or the Certificate of
Incorporation, may be by a voice vote; provided, however, that upon demand
therefor by a stockholder entitled to vote or such stockholder's proxy, a stock
vote shall be taken. Every stock vote shall be taken by ballots, each of which
shall state the name of the stockholder or proxy voting and such other
information as may be required under the procedure established for the meeting.
Every vote taken by ballots shall be counted by an inspector or inspectors
appointed by the chairman of the meeting.
All elections shall be determined by a plurality of the votes cast, and
except as otherwise required by law or the Certificate of Incorporation, all
other matters shall be determined by a majority of the votes cast.
Section 7. Stock List. A complete list of stockholders entitled to vote
at any meeting of stockholders, arranged in alphabetical order for each class of
stock and showing the address of each such stockholder and the number of shares
registered in such stockholder's name, shall be
C-2
<PAGE> 112
open to the examination of any such stockholder, for any purpose germane to the
meeting, during ordinary business hours for a period of at least ten (10) days
prior to the meeting, either at a place within the city where the meeting is to
be held, which place shall be specified in the notice of the meeting, or if not
so specified, at the place where the meeting is to be held.
The stock list shall also be kept at the place of the meeting during
the whole time thereof and shall be open to the examination of any such
stockholder who is present. This list shall presumptively determine the identity
of the stockholders entitled to vote at the meeting and the number of shares
held by each of them.
Section 8. Actions by Stockholders. Unless otherwise provided in the
Certificate of Incorporation, any action required to be taken at any annual or
special meeting of stockholders of the Corporation, or any action which may be
taken at any annual or special meeting of such stockholders, may be taken
without a meeting, without prior notice and without a vote, if a consent in
writing, setting forth the action so taken, shall be signed by the holders of
outstanding stock having not less than the minimum number of votes that would be
necessary to authorize or take such action at a meeting at which all shares
entitled to vote thereon were present and voted. Prompt notice of the taking of
the corporate action without a meeting by less than unanimous written consent
shall be given to those stockholders who have not consented in writing.
ARTICLE III.
BOARD OF DIRECTORS
Section 1. Duties and Powers. The business of the Corporation shall be
managed by or under the direction of the Board of Directors which may exercise
all such powers of the Corporation and do all such lawful acts and things as are
not by law or by the Certificate of Incorporation or by these Bylaws directed or
required to be exercised or done by the stockholders.
Section 2. Number and Term of Office. The Board of Directors shall
consist of one (1) or more members. The number of directors shall be fixed and
may be changed from time to time by resolution duly adopted by the Board of
Directors or the stockholders, except as otherwise provided by law or the
Certificate of Incorporation. Except as provided in Section 3 of this Article,
directors shall be elected by the holders of record of a plurality of the votes
cast at Annual Meetings of Stockholders, and each director so elected shall hold
office until the next Annual Meeting and until his or her successor is duly
elected and qualified, or until his or her earlier resignation or removal. Any
director may resign at any time upon written notice to the Corporation.
Directors need not be stockholders.
Section 3. Vacancies. Vacancies and newly created directorships
resulting from any increase in the authorized number of directors may be filled
by a majority of the directors then in office, although less than a quorum, or
by a sole remaining director or by the stockholders entitled to vote at any
Annual or Special Meeting held in accordance with Article II, and the directors
so chosen shall hold office until the next Annual or Special Meeting duly called
for that purpose and until their successors are duly elected and qualified, or
until their earlier resignation or removal.
C-3
<PAGE> 113
Section 4. Meetings. The Board of Directors of the Corporation may hold
meetings, both regular and special, either within or without the State of
Delaware. The first meeting of each newly elected Board of Directors shall be
held immediately following the Annual Meeting of Stockholders and no notice of
such meeting shall be necessary to be given the newly elected directors in order
legally to constitute the meeting, provided a quorum shall be present. Regular
meetings of the Board of Directors may be held without notice at such time and
at such place as may from time to time be determined by the Board of Directors.
Special meetings of the Board of Directors may be called by the Chairman of the
Board, the President or a majority of the directors then in office. Notice
thereof stating the place, date and hour of the meeting shall be given to each
director either by mail not less than forty-eight (48) hours before the date of
the meeting, by telephone, facsimile or telegram on twenty-four (24) hours'
notice, or on such shorter notice as the person or persons calling such meeting
may deem necessary or appropriate in the circumstances. Meetings may be held at
any time without notice if all the directors are present or if all those not
present waive such notice in accordance with Section 2 of Article VI of these
Bylaws.
Section 5. Quorum. Except as may be otherwise specifically provided by
law, the Certificate of Incorporation or these Bylaws, at all meetings of the
Board of Directors, a majority of the directors then in office shall constitute
a quorum for the transaction of business and the act of a majority of the
directors present at any meeting at which there is a quorum shall be the act of
the Board of Directors. If a quorum shall not be present at any meeting of the
Board of Directors, the directors present thereat may adjourn the meeting from
time to time, without notice other than announcement at the meeting, until a
quorum shall be present.
Section 6. Actions of Board Without a Meeting. Unless otherwise
provided by the Certificate of Incorporation or these Bylaws, any action
required or permitted to be taken at any meeting of the Board of Directors or of
any committee thereof may be taken without a meeting if all members of the Board
of Directors or committee, as the case may be, consent thereto in writing, and
the writing or writings are filed with the minutes of proceedings of the Board
of Directors or committee.
Section 7. Meetings by Means of Conference Telephone. Unless otherwise
provided by the Certificate of Incorporation or these Bylaws, members of the
Board of Directors of the Corporation, or any committee designated by the Board
of Directors, may participate in a meeting of the Board of Directors or such
committee by means of a conference telephone or similar communications equipment
by means of which all persons participating in the meeting can hear each other,
and participation in a meeting pursuant to this Section 7 shall constitute
presence in person at such meeting.
Section 8. Committees. The Board of Directors may, by resolution passed
by a majority of the directors then in office, designate one (1) or more
committees, each committee to consist of one (1) or more of the directors of the
Corporation. The Board of Directors may designate one (1) or more directors as
alternate members of any committee, who may replace any absent or disqualified
member at any meeting of any such committee. In the absence or disqualification
of a member of a committee, and in the absence of a designation by the Board of
Directors of an alternate member to replace the absent or disqualified member,
the member or members thereof present at any meeting and not disqualified from
voting, whether or not such members constitute
C-4
<PAGE> 114
a quorum, may unanimously appoint another member of the Board of Directors to
act at the meeting in the place of any such absent or disqualified member. Any
committee, to the extent allowed by law and provided in the Bylaw or resolution
establishing such committee, shall have and may exercise all the powers and
authority of the Board of Directors in the management of the business and
affairs of the Corporation, and may authorize the seal of the Corporation to be
affixed to all papers which may require it. Each committee shall keep regular
minutes and report to the Board of Directors when required.
Section 9. Compensation. Unless otherwise restricted by the Certificate
of Incorporation or these Bylaws, the Board of Directors shall have the
authority to fix the compensation of directors. The directors may be paid their
expenses, if any, of attendance at each meeting of the Board of Directors and
may be paid a fixed sum for attendance at each meeting of the Board of Directors
or a stated salary as director. No such payment shall preclude any director from
serving the Corporation in any other capacity and receiving compensation
therefor. Members of special or standing committees may be allowed like
compensation for attending committee meetings.
Section 10. Removal. Unless otherwise restricted by the Certificate of
Incorporation or Bylaws, any director or the entire Board of Directors may be
removed, with or without cause, by the holders of a majority of shares entitled
to vote at an election of directors.
ARTICLE IV.
OFFICERS
Section 1. General. The officers of the Corporation shall be appointed
by the Board of Directors and shall consist of a Chairman of the Board or a
President, or both, a Secretary and a Treasurer (or a position with the duties
and responsibilities of a Treasurer). The Board of Directors may also appoint
one (1) or more vice presidents, assistant secretaries or assistant treasurers,
and such other officers as the Board of Directors, in its discretion, shall deem
necessary or appropriate from time to time. Any number of offices may be held by
the same person, unless the Certificate of Incorporation or these Bylaws
otherwise provide.
Section 2. Election; Term of Office. The Board of Directors at its
first meeting held after each Annual Meeting of Stockholders shall elect a
Chairman of the Board or a President, or both, a Secretary and a Treasurer (or a
position with the duties and responsibilities of a Treasurer), and may also
elect at that meeting or any other meeting, such other officers and agents as it
shall deem necessary or appropriate. Each officer of the Corporation shall
exercise such powers and perform such duties as shall be determined from time to
time by the Board of Directors together with the powers and duties customarily
exercised by such officer; and each officer of the Corporation shall hold office
until such officer's successor is elected and qualified or until such officer's
earlier resignation or removal. Any officer may resign at any time upon written
notice to the Corporation. The Board of Directors may at any time, with or
without cause, by the affirmative vote of a majority of directors then in
office, remove any officer.
Section 3. Chairman of the Board. The Chairman of the Board, if there
shall be such an officer, shall be the chief executive officer of the
Corporation. The Chairman of the Board shall
C-5
<PAGE> 115
preside at all meetings of the stockholders and the Board of Directors and shall
have such other duties and powers as may be prescribed by the Board of Directors
from time to time.
Section 4. President. The President shall be the chief operating
officer of the Corporation, shall have general and active management of the
business of the Corporation and shall see that all orders and resolutions of the
Board of Directors are carried into effect. The President shall have and
exercise such further powers and duties as may be specifically delegated to or
vested in the President from time to time by these Bylaws or the Board of
Directors. In the absence of the Chairman of the Board or in the event of his
inability or refusal to act, or if the Board has not designated a Chairman, the
President shall perform the duties of the Chairman of the Board, and when so
acting, shall have all of the powers and be subject to all of the restrictions
upon the Chairman of the Board.
Section 5. Vice President. In the absence of the President or in the
event of his inability or refusal to act, the Vice President (or in the event
there be more than one (1) vice president, the vice presidents in the order
designated by the directors, or in the absence of any designation, then in the
order of their election) shall perform the duties of the President, and when so
acting, shall have all the powers of and be subject to all the restrictions upon
the President. The vice presidents shall perform such other duties and have such
other powers as the Board of Directors or the President may from time to time
prescribe.
Section 6. Secretary. The Secretary shall attend all meetings of the
Board of Directors and all meetings of stockholders and record all the
proceedings thereat in a book or books to be kept for that purpose; the
Secretary shall also perform like duties for the standing committees when
required. The Secretary shall give, or cause to be given, notice of all meetings
of the stockholders and special meetings of the Board of Directors, and shall
perform such other duties as may be prescribed by the Board of Directors or the
President. If the Secretary shall be unable or shall refuse to cause to be given
notice of all meetings of the stockholders and special meetings of the Board of
Directors, and if there be no Assistant Secretary, then either the Board of
Directors or the President may choose another officer to cause such notice to be
given. The Secretary shall have custody of the seal of the Corporation and the
Secretary or any Assistant Secretary, if there be one, shall have authority to
affix the same to any instrument requiring it and when so affixed, it may be
attested by the signature of the Secretary or by the signature of any such
Assistant Secretary. The Board of Directors may give general authority to any
other officer to affix the seal of the Corporation and to attest the affixing by
his or her signature. The Secretary shall see that all books, reports,
statements, certificates and other documents and records required by law to be
kept or filed are properly kept or filed, as the case may be.
Section 7. Assistant Secretaries. Except as may be otherwise provided
in these Bylaws, Assistant Secretaries, if there be any, shall perform such
duties and have such powers as from time to time may be assigned to them by the
Board of Directors, the President, or the Secretary, and shall have the
authority to perform all functions of the Secretary, and when so acting, shall
have all the powers of and be subject to all the restrictions upon the
Secretary.
Section 8. Treasurer. The Treasurer shall be the Chief Financial
Officer, shall have the custody of the corporate funds and securities, shall
keep complete and accurate accounts of all receipts and disbursements of the
Corporation, and shall deposit all monies and other valuable
C-6
<PAGE> 116
effects of the Corporation in its name and to its credit in such banks and other
depositories as may be designated from time to time by the Board of Directors.
The Treasurer shall disburse the funds of the Corporation, taking proper
vouchers and receipts for such disbursements, and shall render to the Board of
Directors, at its regular meetings, or when the Board of Directors so requires,
an account of all his or her transactions as Treasurer and of the financial
condition of the Corporation. The Treasurer shall, when and if required by the
Board of Directors, give and file with the Corporation a bond, in such form and
amount and with such surety or sureties as shall be satisfactory to the Board of
Directors, for the faithful performance of his or her duties as Treasurer. The
Treasurer shall have such other powers and perform such other duties as the
Board of Directors or the President shall from time to time prescribe.
Section 9. Assistant Treasurers. Except as may be otherwise provided in
these Bylaws, Assistant Treasurers, if there be any, shall perform such duties
and have such powers as from time to time may be assigned to them by the Board
of Directors, the President, or the Treasurer, and shall have the authority to
perform all functions of the Treasurer, and when so acting, shall have all the
powers of and be subject to all the restrictions upon the Treasurer.
Section 10. Other Officers. Such other officers as the Board of
Directors may choose shall perform such duties and have such powers as from time
to time may be assigned to them by the Board of Directors. The Board of
Directors may delegate to any other officer of the Corporation the power to
choose such other officers and to prescribe their respective duties and powers
ARTICLE V.
STOCK
Section 1. Form of Certificates. Every holder of stock in the
Corporation shall be entitled to have a certificate signed, in the name of the
Corporation (i) by the Chairman of the Board or the President or a Vice
President and (ii) by the Treasurer or an Assistant Treasurer, or the Secretary
or an Assistant Secretary of the Corporation, certifying the number of shares
owned by such holder in the Corporation.
Section 2. Signatures. Any or all the signatures on the certificate may
be a facsimile. In case any officer, transfer agent or registrar who has signed
or whose facsimile signature has been placed upon a certificate shall have
ceased to be such officer, transfer agent or registrar before such certificate
is issued, it may be issued by the Corporation with the same effect as if such
person were such officer, transfer agent or registrar at the date of issue.
Section 3. Lost Certificates. The Board of Directors may direct a new
certificate to be issued in place of any certificate theretofore issued by the
Corporation alleged to have been lost, stolen or destroyed, upon the making of
an affidavit of that fact by the person claiming the certificate of stock to be
lost, stolen or destroyed. When authorizing such issue of a new certificate, the
Board of Directors may, in its discretion and as a condition precedent to the
issuance thereof, require the owner of such lost, stolen or destroyed
certificate, or such owner's legal representative, to advertise the same in such
manner as the Board of Directors shall require and/or to give the Corporation a
bond in such sum as it may direct as indemnity against any
C-7
<PAGE> 117
claim that may be made against the Corporation with respect to the certificate
alleged to have been lost, stolen or destroyed.
Section 4. Transfers. Stock of the Corporation shall be transferable in
the manner prescribed by law and in these Bylaws. Transfers of stock shall be
made on the books of the Corporation only by the person named in the certificate
or by such person's attorney lawfully constituted in writing and upon the
surrender of the certificate therefor, which shall be cancelled before a new
certificate shall be issued.
Section 5. Record Date. In order that the Corporation may determine the
stockholders entitled to notice of or to vote at any meeting of stockholders or
any adjournment thereof, or entitled to receive payment of any dividend or other
distribution or allotment of any rights, or entitled to exercise any rights in
respect of any change, conversion or exchange of stock, or for the purpose of
any other lawful action, the Board of Directors may fix, in advance, a record
date, which shall not be more than sixty (60) days nor less than ten (10) days
before the date of such meeting, nor more than sixty (60) days prior to any
other action. A determination of stockholders of record entitled to notice of or
to vote at a meeting of stockholders shall apply to any adjournment of the
meeting; provided, however, that the Board of Directors may fix a new record
date for the adjourned meeting.
Section 6. Beneficial Owners. The Corporation shall be entitled to
recognize the exclusive right of a person registered on its books as the owner
of shares to receive dividends, and to vote as such owner, and to hold liable
for calls and assessments a person registered on its books as the owner of
shares, and shall not be bound to recognize any equitable or other claim to or
interest in such share or shares on the part of any other person, whether or not
it shall have express or other notice thereof, except as otherwise provided by
law.
Section 7. Voting Securities Owned by the Corporation. Powers of
attorney, proxies, waivers of notice of meeting, consents and other instruments
relating to securities owned by the Corporation may be executed in the name of
and on behalf of the Corporation by the Chairman of the Board, the President,
any Vice President or the Secretary and any such officer may, in the name of and
on behalf of the Corporation, take all such action as any such officer may deem
advisable to vote in person or by proxy at any meeting of security holders of
any corporation in which the Corporation may own securities and at any such
meeting shall possess and may exercise any and all rights and power incident to
the ownership of such securities and which, as the owner thereof, the
Corporation might have exercised and possessed if present. The Board of
Directors may, by resolution, from time to time confer like powers upon any
other person or persons.
ARTICLE VI.
NOTICES
Section 1. Notices. Whenever written notice is required by law, the
Certificate of Incorporation or these Bylaws, to be given to any director,
member of a committee or stockholder, such notice may be given by mail,
addressed to such director, member of a committee or stockholder, at such
person's address as it appears on the records of the
C-8
<PAGE> 118
Corporation, with postage thereon prepaid, and such notice shall be deemed to be
given at the time when the same shall be deposited in the United States mail.
Written notice may also be given personally or by telegram, telex, facsimile or
cable and such notice shall be deemed to be given at the time of receipt thereof
if given personally or at the time of transmission thereof if given by telegram,
telex, facsimile or cable.
Section 2. Waiver of Notice. Whenever any notice is required by law,
the Certificate of Incorporation or these Bylaws to be given to any director,
member or a committee or stockholder, a waiver thereof in writing, signed by the
person or persons entitled to such notice, whether before or after the time
stated therein, shall be deemed equivalent to notice.
ARTICLE VII.
GENERAL PROVISIONS
Section 1. Dividends. Dividends upon the capital stock of the
Corporation, subject to the provisions of the Certificate of Incorporation, if
any, may be declared by the Board of Directors at any regular or special meeting
or by any Committee of the Board of Directors having such authority at any
meeting thereof, and may be paid in cash, in property, in shares of the capital
stock or in any combination thereof. Before payment of any dividend, there may
be set aside out of any funds of the Corporation available for dividends such
sum or sums as the Board of Directors from time to time, in its absolute
discretion, deems proper as a reserve or reserves to meet contingencies, or for
equalizing dividends, or for repairing or maintaining any property of the
Corporation, or for any proper purpose, and the Board of Directors may modify or
abolish any such reserve.
Section 2. Disbursements. All notes, checks, drafts and orders for the
payment of money issued by the Corporation shall be signed in the name of the
Corporation by such officers or such other persons as the Board of Directors may
from time to time designate.
Section 3. Corporation Seal. The corporate seal, if the Corporation
shall have a corporate seal, shall have inscribed thereon the name of the
Corporation, the year of its organization and the words "Corporate Seal,
Delaware". The seal may be used by causing it or a facsimile thereof to be
impressed or affixed or reproduced or otherwise.
ARTICLE VIII.
DIRECTORS' LIABILITY AND INDEMNIFICATION
Section 1. Directors' Liability. A director of the Corporation shall
not be personally liable to the Corporation or its stockholders for monetary
damages for breach of fiduciary duty as a director, except for liability (i) for
any breach of the director's duty of loyalty to the Corporation or its
stockholders, (ii) for acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law, (iii) under Section 174 of
the Delaware General Corporation Law, or (iv) for any transaction from which the
director derived an improper personal benefit. If the Delaware General
Corporation Law is amended to authorize corporate action further eliminating or
limiting the personal liability of directors, then the
C-9
<PAGE> 119
liability of a director of the Corporation shall be eliminated or limited to the
fullest extent permitted by the Delaware General Corporation Law, as so amended.
Any repeal or modification of this provision shall not adversely affect any
right or protection of a director of the Corporation existing at the time of
such repeal or modification.
This Section 1 is also contained in Article SEVENTH of the
Corporation's Certificate of Incorporation, and accordingly, may be altered,
amended or repealed only to the extent and at the time such Certificate Article
is altered, amended or repealed.
Section 2. Right to Indemnification. Each person who was or is made a
party to or is threatened to be made a party to or is involuntarily involved in
any action, suit or proceeding, whether civil, criminal, administrative or
investigative (a "Proceeding"), by reason of the fact that he or she is or was a
director or officer of the Corporation, or is or was serving (during his or her
tenure as director and/or officer) at the request of the Corporation as a
director, officer, employee or agent of another corporation or of a partnership,
joint venture, trust or other enterprise, whether the basis of such Proceeding
is an alleged action or inaction in an official capacity as a director or
officer or in any other capacity while serving as a director or officer, shall
be indemnified and held harmless by the Corporation to the fullest extent
authorized by the Delaware General Corporation Law (or other applicable law), as
the same exists or may hereafter be amended, against all expense, liability and
loss (including attorneys' fees, judgments, fines, ERISA excise taxes or
penalties and amounts paid or to be paid in settlement) reasonably incurred or
suffered by such person in connection with such Proceeding. Such director or
officer shall have the right to be paid by the Corporation for expenses incurred
in defending any such Proceeding in advance of its final disposition; provided,
however, that, if the Delaware General Corporation Law (or other applicable law)
requires, the payment of such expenses in advance of the final disposition of
any such Proceeding shall be made only upon receipt by the Corporation of an
undertaking by or on behalf of such director or officer to repay all amounts so
advanced if it should be determined ultimately that he or she is not entitled to
be indemnified under this Article or otherwise.
Section 3. Right of Claimant to Bring Suit. If a claim under Section 2
of this Article is not paid in full by the Corporation within ninety (90) days
after a written claim has been received by the Corporation, the claimant may at
any time thereafter bring suit against the Corporation to recover the unpaid
amount of the claim, together with interest thereon, and, if successful in whole
or in part, the claimant shall also be entitled to be paid the expense of
prosecuting such claim, including reasonable attorneys' fees incurred in
connection therewith. It shall be a defense to any such action (other than an
action brought to enforce a claim for expenses incurred in defending any
Proceeding in advance of its final disposition where the required undertaking,
if any is required, has been tendered to the Corporation) that the claimant has
not met the standards of conduct which make it permissible under the Delaware
General Corporation Law (or other applicable law) for the Corporation to
indemnify the claimant for the amount claimed, but the burden of proving such
defense shall be on the Corporation. Neither the failure of the Corporation (or
of its full Board of Directors, its directors who are not parties to the
Proceeding with respect to which indemnification is claimed, its stockholders,
or independent legal counsel) to have made a determination prior to the
commencement of such action that indemnification of the claimant is proper in
the circumstances because he or she has met the applicable standard of conduct
set forth in the Delaware General Corporation Law (or other applicable law), nor
an
C-10
<PAGE> 120
actual determination by any such person or persons that such claimant has not
met such applicable standard of conduct, shall be a defense to such action or
create a presumption that the claimant has not met the applicable standard of
conduct.
Section 4. Non-Exclusivity of Rights. The rights conferred by this
Article shall not be exclusive of any other right which any director, officer,
representative, employee or other agent may have or hereafter acquire under the
Delaware General Corporation Law or any other statute, or any provision
contained in the Corporation's Certificate of Incorporation or Bylaws, or any
agreement, or pursuant to a vote of stockholders or disinterested directors, or
otherwise.
Section 5. Insurance and Trust Fund. In furtherance and not in
limitation of the powers conferred by statute:
(1) the Corporation may purchase and maintain insurance on behalf of
any person who is or was a director, officer, employee or agent of the
Corporation, or is serving at the request of the Corporation as a director,
officer, employee or agent of another corporation, partnership, joint venture,
trust or other enterprise, against any liability asserted against him and
incurred by him in any such capacity, or arising out of his status as such,
whether or not the Corporation would have the power to indemnify him against
such liability under the provisions of law; and
(2) the Corporation may create a trust fund, grant a security
interest and/or use other means (including, without limitation, letters of
credit, surety bonds and/or other similar arrangements), as well as enter into
contracts providing indemnification to the fullest extent permitted by law and
including as part thereof provisions with respect to any or all of the
foregoing, to ensure the payment of such amount as may become necessary to
effect indemnification as provided therein, or elsewhere.
Section 6. Indemnification of Employees and Agents of the Corporation.
The Corporation may, to the extent authorized from time to time by the Board of
Directors, grant rights to indemnification, including the right to be paid by
the Corporation the expenses incurred in defending any Proceeding in advance of
its final disposition, to any employee or agent of the Corporation to the
fullest extent of the provisions of this Article VIII or otherwise with respect
to the indemnification and advancement of expenses of directors and officers of
the Corporation.
Section 7. Amendment. Any repeal or modification of this Article
VIII shall not change the rights of an officer or director to indemnification
with respect to any action or omission occurring prior to such repeal or
modification.
ARTICLE IX.
AMENDMENTS
Except as otherwise specifically stated within an Article to be
altered, amended or repealed, these Bylaws may be altered, amended or repealed
and new Bylaws may be adopted at any meeting of the Board of Directors or of the
stockholders.
C-11
<PAGE> 121
ANNEX D
DELAWARE CODE TITLE 8. CORPORATIONS
CHAPTER 1. GENERAL CORPORATION LAW
SUBCHAPTER IX. MERGER OR CONSOLIDATION
Section 262. APPRAISAL RIGHTS.
(a) Any stockholder of a corporation of this State who holds shares of
stock on the date of the making of a demand pursuant to subsection (d) of this
section with respect to such shares, who continuously holds such shares through
the effective date of the merger or consolidation, who has otherwise complied
with subsection (d) of this section and who has neither voted in favor of the
merger or consolidation nor consented thereto in writing pursuant to (S) 228 of
this title shall be entitled to an appraisal by the Court of Chancery of the
fair value of the stockholder's shares of stock under the circumstances
described in subsections (b) and (c) of this section. As used in this section,
the word "stockholder" means a holder of record of stock in a stock corporation
and also a member of record of a nonstock corporation; the words "stock" and
"share" mean and include what is ordinarily meant by those words and also
membership or membership interest of a member of a nonstock corporation; and the
words "depository receipt" mean a receipt or other instrument issued by a
depository representing an interest in one or more shares, or fractions thereof,
solely of stock of a corporation, which stock is deposited with the depository.
(b) Appraisal rights shall be available for the shares of any class or
series of stock of a constituent corporation in a merger or consolidation to be
effected pursuant to Section 251 (other than a merger effected pursuant to
Section 251(g) of this title), Section 252, Section 254, Section 257, Section
258, Section 263 or Section 264 of this title:
(1) Provided, however, that no appraisal rights under this
section shall be available for the shares of any class or series of stock, which
stock, or depository receipts in respect thereof, at the record date fixed to
determine the stockholders entitled to receive notice of and to vote at the
meeting of stockholders to act upon the agreement of merger or consolidation,
were either (i) listed on a national securities exchange or designated as a
national market system security on an interdealer quotation system by the
National Association of Securities Dealers, Inc. or (ii) held of record by more
than 2,000 holders; and further provided that no appraisal rights shall be
available for any shares of stock of the constituent corporation surviving a
merger if the merger did not require for its approval the vote of the
stockholders of the surviving corporation as provided in subsection (f) of
Section 251 of this title.
(2) Notwithstanding paragraph (1) of this subsection, appraisal
rights under this section shall be available for the shares of any class or
series of stock of a constituent corporation if the holders thereof are required
by the terms of an agreement of merger or consolidation pursuant to Sections
251, 252, 254, 257, 258, 263 and 264 of this title to accept for such stock
anything except:
Shares of stock of the corporation surviving or resulting from such merger or
consolidation, or depository receipts in respect thereof;
D-1
<PAGE> 122
Shares of stock of any other corporation, or depository receipts in respect
thereof, which shares of stock or depository receipts at the effective date of
the merger or consolidation will be either listed on a national securities
exchange or designated as a national market system security on an interdealer
quotation system by the National Association of Securities Dealers, Inc. or held
of record by more than 2,000 holders;
Cash in lieu of fractional shares or fractional depository receipts
described in the foregoing subparagraphs a. and b. of this paragraph; or
Any combination of the shares of stock, depository receipts and cash in lieu of
fractional shares or fractional depository receipts described in the foregoing
subparagraphs a., b. and c. of this paragraph.
(3) In the event all of the stock of a subsidiary Delaware
corporation party to a merger effected under Section 253 of this title is not
owned by the parent corporation immediately prior to the merger, appraisal
rights shall be available for the shares of the subsidiary Delaware corporation.
(c) Any corporation may provide in its certificate of incorporation that
appraisal rights under this section shall be available for the shares of any
class or series of its stock as a result of an amendment to its certificate of
incorporation, any merger or consolidation in which the corporation is a
constituent corporation or the sale of all or substantially all of the assets of
the corporation. If the certificate of incorporation contains such a provision,
the procedures of this section, including those set forth in subsections (d) and
(e) of this section, shall apply as nearly as impracticable.
(d) Appraisal rights shall be perfected as follows:
(1) If a proposed merger or consolidation for which appraisal
rights are provided under this section is to be submitted for approval at a
meeting of stockholders, the corporation, not less than 20 days prior to the
meeting, shall notify each of its stockholders who was such on the record date
for such meeting with respect to shares for which appraisal rights are available
pursuant to subsection (b) or (c) hereof that appraisal rights are available for
any or all of the shares of the constituent corporations, and shall include in
such notice a copy of this section. Each stockholder electing to demand the
appraisal of his shares shall deliver to the corporation, before the taking of
the vote on the merger or consolidation, a written demand for appraisal of his
shares. Such demand will be sufficient if it reasonably informs the corporation
of the identity of the stockholder and that the stockholder intends thereby to
demand the appraisal of his shares. A proxy or vote against the merger or
consolidation shall not constitute such a demand. A stockholder electing to take
such action must do so by a separate written demand as herein provided. Within
10 days after the effective date of such a merger or consolidation, the
surviving or resulting corporation shall notify each stockholder of each
constituent corporation who has complied with this subsection and has not voted
in favor of or consented to the merger or consolidation of the date that the
merger or consolidation has become effective; or
D-2
<PAGE> 123
(2) If the merger or consolidation was approved pursuant to
Section 228 or Section 253 of this title, each constituent corporation, either
before the effective date of the merger or consolidation or within ten days
thereafter, shall notify each of the holders of any class or series of stock of
such constituent corporation who are entitled to appraisal rights of the
approval of the merger or consolidation and that appraisal rights are available
for any or all shares of such class or series of stock of such constituent
corporation, and shall include in such notice a copy of this section; provided
that, if the notice is given on or after the effective date of the merger or
consolidation, such notice shall be given by the surviving or resulting
corporation to all such holders of any class or series of stock of a constituent
corporation that are entitled to appraisal rights. Such notice may, and, if
given on or after the effective date of the merger or consolidation, shall, also
notify such stockholders of the effective date of the merger or consolidation.
Any stockholder entitled to appraisal rights may, within 20 days after the date
of mailing of such notice, demand in writing from the surviving or resulting
corporation the appraisal of such holder's shares. Such demand will be
sufficient if it reasonably informs the corporation of the identity of the
stockholder and that the stockholder intends thereby to demand the appraisal of
such holder's shares. If such notice did not notify stockholders of the
effective date of the merger or consolidation, either (i) each such constituent
corporation shall send a second notice before the effective date of the merger
or consolidation notifying each of the holders of any class or series of stock
of such constituent corporation that are entitled to appraisal rights of the
effective date of the merger or consolidation or (ii) the surviving or resulting
corporation shall send such a second notice to all such holders on or within 10
days after such effective date; provided, however, that if such second notice is
sent more than 20 days following the sending of the first notice, such second
notice need only be sent to each stockholder who is entitled to appraisal rights
and who has demanded appraisal of such holder's shares in accordance with this
subsection. An affidavit of the secretary or assistant secretary or of the
transfer agent of the corporation that is required to give either notice that
such notice has been given shall, in the absence of fraud, be prima facie
evidence of the facts stated therein. For purposes of determining the
stockholders entitled to receive either notice, each constituent corporation may
fix, in advance, a record date that shall be not more than 10 days prior to the
date the notice is given, provided, that if the notice is given on or after the
effective date of the merger or consolidation, the record date shall be such
effective date. If no record date is fixed and the notice is given prior to the
effective date, the record date shall be the close of business on the day next
preceding the day on which the notice is given.
(e) Within 120 days after the effective date of the merger or
consolidation, the surviving or resulting corporation or any stockholder who has
complied with subsections (a) and (d) hereof and who is otherwise entitled to
appraisal rights, may file a petition in the Court of Chancery demanding a
determination of the value of the stock of all such stockholders.
Notwithstanding the foregoing, at any time within 60 days after the effective
date of the merger or consolidation, any stockholder shall have the right to
withdraw his demand for appraisal and to accept the terms offered upon the
merger or consolidation. Within 120 days after the effective date of the merger
or consolidation, any stockholder who has complied with the requirements of
subsections (a) and (d) hereof, upon written request, shall be entitled to
receive from the corporation surviving the merger or resulting from the
consolidation a statement setting forth the aggregate number of shares not voted
in favor of the merger or consolidation and with respect to which demands for
appraisal have been received and the aggregate number of holders of such shares.
Such written statement shall be mailed to the stockholder within 10 days after
his written
D-3
<PAGE> 124
request for such a statement is received by the surviving or resulting
corporation or within 10 days after expiration of the period for delivery of
demands for appraisal under subsection (d) hereof, whichever is later.
(f) Upon the filing of any such petition by a stockholder, service of a
copy thereof shall be made upon the surviving or resulting corporation, which
shall within 20 days after such service file in the office of the Register in
Chancery in which the petition was filed a duly verified list containing the
names and addresses of all stockholders who have demanded payment for their
shares and with whom agreements as to the value of their shares have not been
reached by the surviving or resulting corporation. If the surviving or resulting
corporation shall file the petition, the petition shall be accompanied by such a
duly verified list. The Register in Chancery if so ordered by the Court, shall
give notice of the time and place fixed for the hearing of such petition by
registered or certified mail to the surviving or resulting corporation and to
the stockholders shown on the list at the addresses therein stated. Such notice
shall also be given by 1 or more publications at least 1 week before the day of
the hearing, in a newspaper of general circulation published in the City of
Wilmington, Delaware or such publication as the Court deems advisable. The forms
of the notices by mail and by publication shall be approved by the Court, and
the costs thereof shall be borne by the surviving or resulting corporation.
(g) At the hearing on such petition, the Court shall determine the
stockholders who have complied with this section and who have become entitled to
appraisal rights. The Court may require the stockholders who have demanded an
appraisal for their shares and who hold stock represented by certificates to
submit their certificates of stock to the Register in Chancery for notation
thereon of the pendency of the appraisal proceedings; and if any stockholder
fails to comply with such direction, the Court may dismiss the proceedings as to
such stockholder.
(h) After determining the stockholders entitled to an appraisal, the
Court shall appraise the shares, determining their fair value exclusive of any
element of value arising from the accomplishment or expectation of the merger or
consolidation, together with a fair rate of interest, if any, to be paid upon
the amount determined to be the fair value. In determining such fair value, the
Court shall take into account all relevant factors. In determining the fair rate
of interest, the Court may consider all relevant factors, including the rate of
interest which the surviving or resulting corporation would have had to pay to
borrow money during the pendency of the proceeding. Upon application by the
surviving or resulting corporation or by any stockholder entitled to participate
in the appraisal proceeding, the Court may, in its discretion, permit discovery
or other pretrial proceedings and may proceed to trial upon the appraisal prior
to the final determination of the stockholder entitled to an appraisal. Any
stockholder whose name appears on the list filed by the surviving or resulting
corporation pursuant to subsection (f) of this section and who has submitted his
certificates of stock to the Register in Chancery, if such is required, may
participate fully in all proceedings until it is finally determined that he is
not entitled to appraisal rights under this section.
(i) The Court shall direct the payment of the fair value of the shares,
together with interest, if any, by the surviving or resulting corporation to the
stockholders entitled thereto. Interest may be simple or compound, as the Court
may direct. Payment shall be so made to each such stockholder, in the case of
holders of uncertificated stock forthwith, and the case of holders of shares
represented by certificates upon the surrender to the corporation of the
certificates
D-4
<PAGE> 125
representing such stock. The Court's decree may be enforced as other decrees in
the Court of Chancery may be enforced, whether such surviving or resulting
corporation be a corporation of this State or of any state.
(j) The costs of the proceeding may be determined by the Court and taxed
upon the parties as the Court deems equitable in the circumstances. Upon
application of a stockholder, the Court may order all or a portion of the
expenses incurred by any stockholder in connection with the appraisal
proceeding, including, without limitation, reasonable attorney's fees and the
fees and expenses of experts, to be charged pro rata against the value of all
the shares entitled to an appraisal.
(k) From and after the effective date of the merger or consolidation, no
stockholder who has demanded his appraisal rights as provided in subsection (d)
of this section shall be entitled to vote such stock for any purpose or to
receive payment of dividends or other distributions on the stock (except
dividends or other distributions payable to stockholders of record at a date
which is prior to the effective date of the merger or consolidation); provided,
however, that if no petition for an appraisal shall be filed within the time
provided in subsection (e) of this section, or if such stockholder shall deliver
to the surviving or resulting corporation a written withdrawal of his demand for
an appraisal and an acceptance of the merger or consolidation, either within 60
days after the effective date of the merger or consolidation as provided in
subsection (e) of this section or thereafter with the written approval of the
corporation, then the right of such stockholder to an appraisal shall cease.
Notwithstanding the foregoing, no appraisal proceeding in the Court of Chancery
shall be dismissed as to any stockholder without the approval of the Court, and
such approval may be conditioned upon such terms as the Court deems just.
(l) The shares of the surviving or resulting corporation to which the
shares of such objecting stockholders would have been converted had they
assented to the merger or consolidation shall have the status of authorized and
unissued shares of the surviving or resulting corporation.
D-5
<PAGE> 126
ANNEX E
INTERACTIVE RADIO GROUP, INC.
1999 STOCK OPTION PLAN
1. Purposes of the Plan. The purposes of this Plan are:
(a) to attract and retain the best available personnel for positions of
substantial responsibility,
(b) to provide additional incentive to selected key Employees,
Consultants and Directors, and
(c) to promote the success of the Company's business.
2. Definitions. For the purposes of this Plan, the following terms will have the
following meanings:
(a) "ADMINISTRATOR" means the Board or any of its Committees that
administer the Plan, in accordance with Section 4.
(b) "APPLICABLE LAWS" means the legal requirements relating to the
administration of and issuance of securities under stock incentive plans,
including, without limitation, the requirements of state corporations law,
federal and state securities law, federal and state tax law, and the
requirements of any stock exchange or quotation system upon which the Shares may
then be listed or quoted.
(c) "BOARD" means the Board of Directors of the Company.
(d) "CODE" means the Internal Revenue Code of 1986, as amended.
(e) "COMMITTEE" means a Committee appointed by the Board in accordance
with Section 4.
(f) "COMMON STOCK" means the Common Stock of the Company.
(g) "COMPANY" means Interactive Radio Group, Inc., a Delaware
corporation.
(h) "CONSULTANT" means any person, including an advisor, engaged by the
Company or a Parent or Subsidiary to render services and who is compensated for
such services, provided that the term "Consultant" does not include (i)
Employees, or (ii) Directors who are paid only a director's fee by the Company
or who are not compensated by the Company for their services as Directors.
(i) "CONTINUOUS STATUS AS AN EMPLOYEE OR CONSULTANT" means that the
employment or consulting relationship is not interrupted or terminated by the
Company, any Parent or Subsidiary, or by the Employee or Consultant. Continuous
Status as an Employee or Consultant will not be considered interrupted in the
case of: (i) any leave of absence approved by
E-1
<PAGE> 127
the Board, including sick leave, military leave, or any other personal leave,
provided, that for purposes of Incentive Stock Options, any such leave may not
exceed 90 days, unless reemployment upon the expiration of such leave is
guaranteed by contract (including certain Company polices) or statute; or (ii)
transfers between locations of the Company or between the Company, its Parent,
its Subsidiaries or its successor.
(j) "DIRECTOR" means a member of the Board.
(k) "DISABILITY" means total and permanent disability as defined in
Section 22(e)(3) of the Code.
(l) "EMPLOYEE" means any person, including Officers and Directors
employed as a common law employee by the Company or any Parent or Subsidiary of
the Company. Neither service as a Director nor payment of a director's fee by
the Company will be sufficient, in and of itself, to constitute "employment" by
the Company.
(m) "EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended.
(n) "FAIR MARKET VALUE" means, as of any date, the value of Common Stock
determined as follows:
(i) If the Common Stock is listed on any established stock
exchange or a national market system, including without
limitation, the National Market System of NASDAQ, the Fair
Market Value of a Share of Common Stock will be the
closing sales price for such stock (or the closing bid, if
no sales are reported) as quoted on that system or
exchange (or the exchange with the greatest volume of
trading in Common Stock) on the last market trading day
prior to the day of determination, as reported in the Wall
Street Journal or any other source the Administrator
considers reliable.
(ii) If the Common Stock is quoted on the NASDAQ System (but
not on the NASDAQ National Market System), the Fair Market
Value of a Share of Common Stock will be the mean between
the high bid and low asked prices for the Common Stock on
the last market trading day prior to the day of
determination, as reported in the Wall Street Journal or
any other source the Administrator considers reliable.
(iii) If the Common Stock is not traded as set forth above, the
Fair Market Value will be determined in good faith by the
Administrator with reference to the earnings history, book
value and prospects of the Company in light of market
conditions generally, and any other factors the
Administrator considers appropriate.
(o) "GRANTEE" shall mean (i) any Optionee or (ii) any Employee,
Consultant or Director to whom a Stock Award has been granted pursuant to this
Plan.
E-2
<PAGE> 128
(p) "INCENTIVE STOCK OPTION" means an Option intended to qualify as an
incentive stock option within the meaning of Section 422 of the Code and the
regulations promulgated thereunder.
(q) "NASDAQ" means the National Association of Securities Dealers, Inc.
Automated Quotation System.
(r) "NONSTATUTORY STOCK OPTION" means an Option not intended to qualify
as an Incentive Stock Option.
(s) "NOTICE OF GRANT" means a written notice evidencing certain terms
and conditions of an individual Option grant. The Notice of Grant is part of the
Option Agreement.
(t) "OFFICER" means a person who is an officer of the Company within the
meaning of Section 15 of the Exchange Act and the rules and regulations
promulgated thereunder.
(u) "OPTION" means a stock option granted under this Plan.
(v) "OPTION AGREEMENT" means a written agreement between the Company and
an Optionee evidencing the terms and conditions of an individual Option grant.
The Option Agreement is subject to the terms and conditions of this Plan.
(w) "OPTION EXCHANGE PROGRAM" means a program in which outstanding
Options are surrendered in exchange for Options with a lower exercise price.
(x) "OPTIONED STOCK" means the Common Stock subject to an Option.
(y) "OPTIONEE" means an Employee, Consultant or Director who holds an
outstanding Option.
(z) "PARENT" means a "parent corporation" with respect to the Company,
whether now or later existing, as defined in Section 424(e) of the Code.
(aa) "PLAN" means this 1999 Stock Option Plan.
(bb) "PUBLICLY TRADED" means that the Shares are traded on an
established stock exchange or on the National Market System of NASDAQ.
(cc) "SECTION" means, except as otherwise specified, a section of this
Plan.
(dd) "SHARE" means a share of the Common Stock, as adjusted in
accordance with Section 13.
(ee) "STOCK AWARD" shall mean a grant by the Company of a specified
number of shares of Common Stock upon terms and conditions determined by the
Administrator.
(ff) "SUBSIDIARY" means a "subsidiary corporation" with respect to the
Company, whether now or later existing, as defined in Section 424(f) of the
Code.
E-3
<PAGE> 129
3. Stock Subject to the Plan.
Subject to the provisions of Section 13 of the Plan, the maximum
aggregate number of Shares which may be issued under the Plan will be 1,750,000
Shares of Common Stock; provided, however, that at no time while the Shares are
not Publicly Traded will the total number of Shares issuable upon the exercise
of all outstanding Options and the total number of Shares provided for under any
stock bonus or similar plan of the Company exceed the applicable percentage
permitted pursuant to Rule 260.140.45 promulgated under the California
Corporations Code. The Shares may be authorized, but unissued, or reacquired
Common Stock. If the Company reacquires Shares which were issued pursuant to the
exercise of an Option, however, those reacquired Shares will not be available
for future grant under the Plan.
If an Option expires or becomes unexercisable without having been
exercised in full, or is surrendered pursuant to an Option Exchange Program, or
if a Stock Award shall be cancelled or surrendered or expire for any reason
without having been received in full, the Shares that were not purchased or
received which were subject thereto will become available for future grant or
sale under the Plan (unless the Plan has terminated).
4. Administration of the Plan.
(a) Procedure.
(i) Composition of the Administrator. The Plan will be
administered by (A) the Board, or (B) a Committee
designated by the Board, which Committee will be
constituted to satisfy Applicable Laws. Once appointed, a
Committee will serve in its designated capacity until
otherwise directed by the Board. The Board may increase
the size of the Committee and appoint additional members,
remove members (with or without cause) and substitute new
members, fill vacancies (however caused), and remove all
members of the Committee and thereafter directly
administer the Plan, all to the extent permitted by
Applicable Laws. Notwithstanding the foregoing, from and
after such time as the Company is registered pursuant to
Section 12 of the Exchange Act, the Plan will be
administered only by a Committee, which will then consist
solely of persons who are both "non-employee directors"
within the meaning of Rule 16b-3 promulgated under the
Exchange Act and "outside directors" within the meaning of
Section 162(m) of the Code.
(ii) Multiple Administrative Bodies. The Plan may be
administered by different bodies with respect to
Directors, Officers who are not Directors, and Employees
and Consultants who are neither Directors nor Officers.
(b) Powers of the Administrator. Subject to the provisions of the Plan,
and in the case of a Committee, subject to the specific duties delegated by the
Board to that Committee, the Administrator will have the authority, in its
discretion:to determine the Fair Market Value of the Common Stock, in accordance
with Section 2(n);
E-4
<PAGE> 130
(i) to select the Consultants and Employees to whom Options or
Stock Awards may be granted;
(ii) to determine whether and to what extent Options or Stock
Awards are granted;
(iii) to determine the number of shares of Common Stock to be
covered by each Option or Stock Award granted;
(iv) to approve forms of Option Agreement and agreements
governing Stock Awards;
(v) to determine the terms and conditions, not inconsistent
with the terms of this Plan, of any grant of Options or
Stock Awards, including, but not limited to, (A) the
Options' exercise price, (B) the time or times when
Options may be exercised or Stock Awards will be vested,
which may be based on performance criteria or other
reasonable conditions such as Continuous Status as an
Employee or Consultant or continuous service as a
Director; provided, however, that while the Shares are not
Publicly Traded, Options or Stock Awards granted to an
Employee who is neither a Director nor an Officer will
vest at a rate of at least 20% per year over five years
from the date of grant, subject to reasonable conditions
such as Continuous Status as an Employee, (C) any vesting
acceleration or waiver of forfeiture restrictions, and any
restriction or limitation regarding any Option, Optioned
Stock or Stock Award, based in each case on factors that
the Administrator determines in its sole discretion,
including but not limited to a requirement subjecting the
Optioned Stock to (i) certain restrictions on transfer
(including without limitation a right of first refusal in
favor of the Company), and (ii) a right of repurchase in
favor of the Company upon termination of the Optionee's
employment, which right will terminate no later than the
date on which the Company's securities become Publicly
Traded and will satisfy the requirements of Rule
260.140.41(k) promulgated under the California
Corporations Code, as amended;
(vi) to determine whether, to what extent and under what
circumstances Common Stock and other amounts payable with
respect to a grant of Options under this Plan will be
deferred either automatically or at the election of the
participant (including providing for and determining the
amount, if any, of any deemed earnings on any deferred
amount during any deferral period);
(vii) to reduce the exercise price of any Option to the Fair
Market Value at the time of the reduction, if the Fair
Market Value of the Common Stock covered by that Option
has declined since the date it was granted;
(viii) to construe and interpret the terms of this Plan;
E-5
<PAGE> 131
(ix) to prescribe, amend, and rescind rules and regulations
relating to the administration of this Plan;
(x) to modify or amend each Option or Stock Award, subject to
Section 15(c);
(xi) to authorize any person to execute on behalf of the
Company any instrument required to effect the grant of an
Option previously granted by the Administrator;
(xii) to institute an Option Exchange Program;
(xiii) to accelerate the vesting or exercisability of an Option
or Stock Award;
(xiv) to determine the terms and restrictions applicable to
Options or Stock Awards; and
(xv) to make all other determinations it considers necessary or
advisable for administering this Plan.
(c) Effect of Administrator's Decision. The Administrator's decisions,
determinations and interpretations will be final and binding on all Grantees and
any other holders of Options or Stock Awards.
5. Eligibility.
Options granted under this Plan may be Incentive Stock Options or
Nonstatutory Stock Options, as determined by the Administrator at the time of
grant. Nonstatutory Stock Options and Stock Awards may be granted to Employees,
Consultants and Directors. Incentive Stock Options may be granted only to
Employees. If otherwise eligible, an Employee or Consultant who has been granted
an Option may be granted additional Options.
6. Limitations.
(a) Designation. Each Option will be designated in the Notice of Grant
as either an Incentive Stock Option or a Nonstatutory Stock Option. However,
notwithstanding such designations, if the Shares subject to an Optionee's
Incentive Stock Options (granted under all plans of the Company or any Parent or
Subsidiary), which become exercisable for the first time during any calendar
year, have a Fair Market Value in excess of $100,000, the Options accounting for
this excess will be treated as Nonstatutory Stock Options. For purposes of this
Section 6(a), Incentive Stock Options will be taken into account in the order in
which they were granted, and the Fair Market Value of the Shares will be
determined as of the time of grant.
(b) Individual Limit. From and after such time as the Company is subject
to the reporting requirements of Sections 13 or 15(d) of the Exchange Act, no
Optionee may receive grants, during any fiscal year of the Company or portion
thereof, of Incentive Stock Options and Nonstatutory Stock Options which, in the
aggregate, cover more than 200,000 Shares, subject to adjustment as provided in
Section 13. If an Option expires or terminates for any reason without having
been exercised in full, the unpurchased shares subject to that expired or
terminated
E-6
<PAGE> 132
Option will continue to count against the maximum numbers of shares for which
Options may be granted to an Optionee during any fiscal year of the Company or
portion thereof.
(c) No Employment Rights. Neither this Plan nor any Option or Stock
Award will confer upon an Optionee any right with respect to continuing the
Optionee's employment or consulting relationship with the Company, or continuing
service as a Director, nor will they interfere in any way with the Optionee's
right or the Company's right to terminate such employment or consulting
relationship or directorship at any time, with or without cause.
7. Term of the Plan.
Subject to Section 19, this Plan will become effective upon the earlier
to occur of its adoption by the Board or its approval by the shareholders of the
Company as described in Section 19. It will continue in effect for a term of ten
years unless terminated earlier under Section 15. Unless otherwise provided in
this Plan, its termination will not affect the validity of any Option Agreement
or Stock Award outstanding at the date of termination.
8. Term of Option.
The term of each Option will be stated in the Notice of Grant; provided,
however, that in no event may the term be more than ten years from the date of
grant. In addition, in the case of an Incentive Stock Option granted to an
Optionee who, at the time the Incentive Stock Option is granted, owns stock
representing more than ten percent of the voting power of all classes of capital
stock of the Company or any Parent or Subsidiary, the term of the Incentive
Stock Option will be five years from the date of grant or any shorter term
specified in the Notice of Grant.
9. Option Exercise Price and Consideration.
(a) Exercise Price. The price per share exercise price for the Share to
be issued pursuant to exercise of an Option will be determined by the
Administrator, subject to the following:
(i) In the case of an Incentive Stock Option
(A) granted to an Employee who, at the time the
Incentive Stock Option is granted, owns stock
representing more than ten percent of the voting
power of all classes of capital stock of the
Company or any Parent or Subsidiary, the per Share
exercise price will be no less than 110% of the
Fair Market Value per Share on the date of grant.
(B) granted to any other Employee, the per Share
exercise price will be no less than 100% of the
Fair Market Value per Share on the date of grant.
(ii) In the case of a Nonstatutory Stock Option granted while
the Shares are not Publicly Traded
E-7
<PAGE> 133
(A) granted to an Employee, Consultant or Director who,
at the time the Nonstatutory Stock Option is
granted, owns stock representing more than ten
percent of the voting power of all classes of
capital stock of the Company or any Parent or
Subsidiary, the per Share exercise price will be no
less than 110% of the Fair Market Value per Share
on the date of grant.
(B) granted to any other Employee, Consultant or
Director, the per Share exercise price will be no
less than 85% of the Fair Market Value per Share on
the date of grant.
(b) Waiting Period and Exercise Dates. At the time an Option is granted,
the Administrator will fix the period within which the Option may be exercised
and will determine any conditions which must be satisfied before the Option may
be exercised. Subject to Section 4(b)(iv), exercise of an Option may be
conditioned upon performance criteria or other reasonable conditions such as
Continuous Status as an Employee or Consultant or continuous service as a
Director.
(c) Form of Consideration. The Administrator will determine the
acceptable form of consideration for exercising an Option, including the method
of payment. Such consideration may consist partially or entirely of:
(i) cash;
(ii) a promissory note made by the Optionee in favor of the
Company;
(iii) other Shares which have a Fair Market Value on the date of
surrender equal to the aggregate exercise price of the
Shares as to which an Option will be exercised;
(iv) delivery of a properly executed exercise notice together
with any other documentation as the Administrator and the
Optionee's broker, if applicable, requires to effect an
exercise of the Option and delivery to the Company of the
sale or loan proceeds required to pay the exercise price;
or
(v) any other consideration and method of payment for the
issuance of Shares to the extent permitted by Applicable
Laws.
10. Exercise of Option.
(a) Procedure for Exercise; Rights as a Shareholder. Any Option granted
hereunder will be exercisable according to the terms of the Plan and at times
and under conditions determined by the Administrator and set forth in the Option
Agreement; provided, however, that an Option may not be exercised for a fraction
of a Share.
An Option will be deemed exercised when the Company receives: (i)
written notice of exercise (in accordance with the Option Agreement) from the
person entitled to exercise the
E-8
<PAGE> 134
Option, (ii) full payment for the Shares with respect to which the Option is
exercised, and (iii) all representations, indemnifications and documents
reasonably requested by the Administrator. Full payment may consist of any
consideration and method of payment authorized by the Administrator and
permitted by the Option Agreement and this Plan. Shares issued upon exercise of
an Option will be issued in the name of the Optionee or, if requested by the
Optionee, in the name of the Optionee and his or her spouse. Until the stock
certificate evidencing such Shares is issued (as evidenced by the appropriate
entry on the books of the Company or of a duly authorized transfer agent of the
Company), no right to vote or receive dividends or any other rights as a
shareholder will exist with respect to the Optioned Stock, notwithstanding the
exercise of the Option. Subject to the provisions of Sections 12, 16, and 17,
the Company will issue (or cause to be issued) such stock certificate promptly
after the Option is exercised. No adjustment will be made for a dividend or
other right for which the record date is prior to the date the stock certificate
is issued, except as provided in Section 13 of the Plan. Notwithstanding the
foregoing, the Administrator in its discretion may require the Company to retain
possession of any certificate evidencing Shares of Common Stock acquired upon
exercise of an Option, if those Shares remain subject to repurchase under the
provisions of the Option Agreement or any other agreement between the Company
and the Optionee, or if those Shares are collateral for a loan or obligation due
to the Company.
Exercising an Option in any manner will decrease the number of Shares
thereafter available, both for purposes of this Plan and for sale under the
Option, by the number of Shares as to which the Option is exercised.
(b) Termination of Employment or Consulting Relationship or
Directorship. If an Optionee holds exercisable Options on the date his or her
Continuous Status as an Employee or Consultant or continuous service as a
Director terminates (other than because of death or Disability), the Optionee
may exercise those Options until the earlier of (i) their expiration as set
forth in the Notice of Grant, and (ii) 30 days after the date of such
termination (or a longer period determined by the Administrator). If the
Optionee is not entitled to exercise his or her entire Option at the date of
such termination, the Shares covered by the unexercisable portion of the Option
will revert to the Plan. If the Optionee does not exercise an Option within the
time specified above after termination, that Option will expire, and the Shares
covered by it will revert to the Plan.
(c) Disability of Optionee. If an Optionee holds exercisable Options on
the date his or her Continuous Status as an Employee or Consultant or continuous
service as a Director terminates because of Disability, the Optionee may
exercise those Options until the earlier of (i) their expiration as set forth in
the Notice of Grant, and (ii) six months after the date of such termination (or
a longer period determined by the Administrator). If the Optionee is not
entitled to exercise his or her entire Option at the date of such termination,
the Shares covered by the unexercisable portion of the Option will revert to the
Plan. If the Optionee does not exercise an Option within the time specified
above after termination, that Option will expire, and the Shares covered by it
will revert to the Plan.
(d) Death of Optionee. If an Optionee holds exercisable Options on the
date his or her death, the Optionee's estate or a person who acquired the right
to exercise the Option by bequest or inheritance may exercise those Options
until the earlier of (i) their expiration as set forth in the
E-9
<PAGE> 135
Notice of Grant, and (ii) six months after the date of death (or a longer period
determined by the Administrator). If the Optionee is not entitled to exercise
his or her entire Option at the date of death, the Shares covered by the
unexercisable portion of the Option will revert to the Plan. If the Optionee's
estate or a person who acquired the right to exercise the Option by bequest or
inheritance does not exercise an Option within the time specified above after
termination, that Option will expire, and the Shares covered by it will revert
to the Plan.
(e) Disqualifying Dispositions of Incentive Stock Options. If Common
Stock acquired upon exercise of any Incentive Stock Option is disposed of in a
disposition that, under Section 422 of the Code, disqualifies the holder from
the application of Section 421(a) of the Code, the holder of the Common Stock
immediately before the disposition will comply with any requirements imposed by
the Company in order to enable the Company to secure the related income tax
deduction to which it is entitled in such event.
11. Non-Transferability of Options.
(a) No Transfer. An Option may not be sold, pledged, assigned,
hypothecated, transferred, or disposed of in any manner other than by will or by
the laws of descent or distribution and may be exercised, during the lifetime of
the Optionee, only by the Optionee. Notwithstanding the foregoing, to the extent
that the Committee so authorizes at the time a Nonstatutory Stock Option is
granted or amended after the Shares are Publicly Traded, (a) such Nonstatutory
Stock Option may be assigned pursuant to a qualified domestic relations order as
defined by the Code, and exercised by the spouse of the Optionee who obtained
such Nonstatutory Stock Option pursuant to such qualified domestic relations
order, and (b) such Nonstatutory Stock Option may be assigned, in connection
with the Optionee's estate plan, in whole or in part, during the Optionee's
lifetime to one or more members of the Optionee's immediate family or to a trust
established exclusively for one or more of such immediate family members. Rights
under the assigned portion may be exercised by the person or persons who acquire
a proprietary interest in such Nonstatutory Stock Option pursuant to the
assignment. The terms applicable to the assigned portion shall be the same as
those in effect for the Nonstatutory Stock Option immediately before such
assignment and shall be set forth in such documents issued to the assignee as
the Committee deems appropriate. For purposes of this Section 0, the term
"immediate family" means an individual's spouse, children, stepchildren,
grandchildren and parents.
(b) Designation of Beneficiary. An Optionee may file a written
designation of a beneficiary who is to receive any Options that remain
unexercised in the event of the Optionee's death. If a participant is married
and the designated beneficiary is not the spouse, spousal consent will be
required for the designation to be effective. The Optionee may change such
designation of beneficiary at any time by written notice to the Administrator,
subject to the above spousal consent requirement.
(c) Effect of No Designation. If an Optionee dies and there is no
beneficiary, validly designated under Section 00 and living at the time of the
Optionee's death, the Company will deliver such Optionee's Options to the
executor or administrator of his or her estate, or if no such executor or
administrator has been appointed (to the knowledge of the Company), the Company,
in its discretion, may deliver such Options to the spouse or to any one or more
dependents or
E-10
<PAGE> 136
relatives of the Optionee, or if no spouse, dependent or relative is known to
the Company, then to such other person as the Company may designate.
(d) Death of Spouse or Dissolution of Marriage. If an Optionee
designates his or her spouse as beneficiary under Section 11(b), that
designation will be deemed automatically revoked if the Optionee's marriage is
later dissolved. Similarly, any designation of a beneficiary under Section 11(b)
will be deemed automatically revoked upon the death of the beneficiary if the
beneficiary predeceases the Optionee. Without limiting the generality of the
preceding sentence, the interest in Options of a spouse of an Optionee who has
predeceased the Optionee or (except as provided in Section 11(a) regarding
qualified domestic relations orders) whose marriage has been dissolved will
automatically pass to the Optionee, and will not be transferable by such spouse
in any manner, including but not limited to such spouse's will, nor will any
such interest pass under the laws of intestate succession.
12. Stock Awards.
(a) Grant. Subject to the express provisions and limitations of the
Plan, the Administrator, in its sole and absolute discretion, may grant Stock
Awards to Employees, Consultants or Directors for a number of shares of Common
Stock on the terms and conditions and to such Employees, Consultants or
Directors as it deems advisable and specifies in the respective grants. Subject
to the limitations and restrictions set forth in the Plan, an Employee,
Consultant or Director who has been granted a Option or Stock Award may, if
otherwise eligible, be granted additional Options or Stock Awards if the
Administrator shall so determine.
(b) Restrictions. The Administrator, in its sole and absolute
discretion, may impose restrictions in connection with any Stock Award,
including without limitation, (i) imposing a restricted period during which all
or a portion of the Common Stock subject to the Stock Award may not be sold,
assigned, transferred, pledged or otherwise encumbered (the "Restricted
Period"), (ii) providing for a vesting schedule with respect to such Common
Stock such that if a Grantee ceases to be an Employee, Consultant or Director
during the Restricted Period, some or all of the shares of Common Stock subject
to the Stock Award shall be immediately forfeited and returned to the
Corporation. The Administrator may, at any time, reduce or terminate the
Restricted Period. Each certificate issued in respect of shares of Common Stock
pursuant to a Stock Award which is subject to restrictions shall be registered
in the name of the Grantee, shall be deposited by the Grantee with the Company
together with a stock power endorsed in blank and shall bear an appropriate
legend summarizing the restrictions imposed with respect to such shares of
Common Stock.
(c) Rights As Shareholder. Subject to the terms of any agreement
governing a Stock Award, the Grantee of a Stock Award shall have all the rights
of a shareholder with respect to the Common Stock issued pursuant to a Stock
Award, including the right to vote such shares; provided, however, that
dividends or distributions paid with respect to any such shares which have not
vested shall be deposited with the Company and shall be subject to forfeiture
until the underlying shares have vested unless otherwise released by the
Administrator in its sole discretion. A Grantee shall not be entitled to
interest with respect to the dividends or distributions so deposited.
E-11
<PAGE> 137
13. Withholding Taxes.
The Company will have the right to take whatever steps the Administrator
deems necessary or appropriate to comply with all applicable federal, state,
local, and employment tax withholding requirements, and the Company's
obligations to deliver Shares upon the exercise of an Option or in connection
with a Stock Award will be conditioned upon compliance with all such withholding
tax requirements. Without limiting the generality of the foregoing, upon the
exercise of an Option, the Company will have the right to withhold taxes from
any other compensation or other amounts which it may owe to the Optionee, or to
require the Optionee to pay to the Company the amount of any taxes which the
Company may be required to withhold with respect to the Shares issued on such
exercise. Without limiting the generality of the foregoing, the Administrator in
its discretion may authorize the Grantee to satisfy all or part of any
withholding tax liability by (a) having the Company withhold from the Shares
which would otherwise be issued in connection with a Stock Award or on the
exercise of an Option that number of Shares having a Fair Market Value, as of
the date the withholding tax liability arises, equal to or less than the amount
of the Company's withholding tax liability, or (b) by delivering to the Company
previously-owned and unencumbered Shares of the Common Stock having a Fair
Market Value, as of the date the withholding tax liability arises, equal to or
less than the amount of the Company's withholding tax liability.
14. Adjustments Upon Changes in Capitalization, Dissolution, Merger, Asset Sale
or Change of Control.
(a) Changes in Capitalization. Subject to any required action by the
shareholders of the Company, if the outstanding shares of Common Stock are
increased, decreased, changed into or exchanged for a different number or kind
of shares or securities of the Company or a successor entity, or for other
property (including without limitation, cash), through reorganization,
recapitalization, reclassification, stock combination, stock dividend, stock
split, reverse stock split, spin off or other similar transaction, an
appropriate and proportionate adjustment will be made in the maximum number and
kind of shares as to which Options and Stock Awards may be granted under this
Plan. A corresponding adjustment changing the number or kind of shares allocated
to Stock Awards or unexercised Options which have been granted prior to any such
change will likewise be made. Any such adjustment in the outstanding Options
will be made without change in the aggregate purchase price applicable to the
unexercised portion of the Options but with a corresponding adjustment in the
price for each share or other unit of any security covered by the Option. Such
adjustment will be made by the Administrator, whose determination in that
respect will be final, binding, and conclusive.
Where an adjustment under this Section 1313(a) is made to an Incentive
Stock Option, the adjustment will be made in a manner which will not be
considered a "modification" under the provisions of subsection 424(h)(3) of the
Code.
(b) Dissolution or Liquidation. In the event of the proposed dissolution
or liquidation of the Company, to the extent that an Option had not been
previously exercised, it will terminate immediately prior to the consummation of
such proposed dissolution or liquidation. In such instance, the Administrator
may, in the exercise of its sole discretion, declare that any Option will
E-12
<PAGE> 138
terminate as of a date fixed by the Administrator and give each Optionee
the right to exercise his or her Option as to all or any part of the Optioned
Stock, including Shares as to which the Option would not otherwise be
exercisable.
(c) Corporate Transaction. Upon the happening of a merger,
reorganization or sale of substantially all of the assets of the Company, the
Administrator, may, in its discretion, do one or more of the following: (i)
shorten the period during which Options are exercisable (provided they remain
exercisable for at least 30 days after the date notice of such shortening is
given to the Optionees); (ii) accelerate any vesting schedule to which an Option
or Stock Award is subject; (iii) arrange to have the surviving or successor
entity assume the Stock Awards and the Options or grant replacement options with
appropriate adjustments in the option prices and adjustments in the number and
kind of securities issuable upon exercise or adjustments so that the Options or
their replacements represent the right to purchase the shares of stock,
securities or other property (including cash) as may be issuable or payable as a
result of such transaction with respect to or in exchange for the number of
Shares of Common Stock purchasable and receivable upon exercise of the Options
had such exercise occurred in full prior to such transaction; or (iv) cancel
Options upon payment to the Optionees in cash, with respect to each Option to
the extent then exercisable (including any Options as to which the exercise has
been accelerated as contemplated in clause (ii) above), of any amount that is
the equivalent of the excess of the Fair Market Value of the Common Stock (at
the effective time of the merger, reorganization, sale or other event) over the
exercise price of the Option. The Administrator may also provide for one or more
of the foregoing alternatives in any particular Option Agreement or agreement
governing a Stock Award.
15. Date of Grant.
The date of grant of an Option or Stock Award will be, for all purposes,
the date as of which the Administrator makes the determination granting such
Option or Stock Award, or any other, later date determined by the Administrator
and specified in the Notice of Grant. Notice of the determination will be
provided to each Grantee within a reasonable time after the date of grant.
16. Amendment and Termination of the Plan.
(a) Amendment and Termination. The Board may at any time amend, alter or
suspend or terminate the Plan.
(b) Shareholder Approval. The Company will obtain shareholder approval
of any Plan amendment that increases the number of Shares for which Options or
Stock Awards may be granted, or to the extent necessary and desirable to comply
with Section 422 of the Code (or any successor statute) or other Applicable
Laws, or the requirements of any exchange or quotation system on which the
Common Stock is listed or quoted. Such shareholder approval, if required, will
be obtained in such a manner and to such a degree as is required by the
Applicable Law or requirement.
(c) Effect of Amendment or Termination. No amendment, alteration,
suspension or termination of the Plan will impair the rights of a Grantee,
unless mutually agreed otherwise
E-13
<PAGE> 139
between the Grantee and the Administrator. Any such agreement must be in
writing and signed by the Grantee and the Company.
17. Conditions Upon Issuance of Shares.
(a) Legal Compliance. Shares will not be issued in connection with a
Stock Award or pursuant to the exercise of an Option unless the exercise of such
Option and the issuance and delivery of such Shares will comply with all
Applicable Laws, and will be further subject to the approval of counsel for the
Company with respect to such compliance. Any securities delivered under the Plan
will be subject to such restrictions, and the person acquiring such securities
will, if requested by the Company, provide such assurances and representations
to the Company as the Company may deem necessary or desirable to assure
compliance with all Applicable Laws. To the extent permitted by Applicable Laws,
the Plan and Options and Stock Awards granted hereunder will be deemed amended
to the extent necessary to conform to such laws, rules and regulations.
(b) Investment Representation. As a condition to the exercise of an
Option or grant of a Stock Award, the Company may require the person exercising
such Option to represent and warrant at the time of any such exercise that the
Shares are being acquired only for investment and without any present intention
to sell, transfer, or distribute such Shares.
18. Liability of Company.
(a) Inability to Obtain Authority. If the Company cannot, by the
exercise of commercially reasonable efforts, obtain authority from any
regulatory body having jurisdiction for the sale of any Shares under this Plan,
and such authority is deemed by the Company's counsel to be necessary to the
lawful issuance of those Shares, the Company will be relieved of any liability
for failing to issue or sell those Shares.
(b) Grants Exceeding Allotted Shares. If the Optioned Stock covered by
an Option or Shares subject to a Stock Award exceed, as of the date of grant,
the number of Shares which may be issued under the Plan without additional
shareholder approval, that Option or Stock Award will be void with respect to
such excess Optioned Stock or Shares, unless shareholder approval of an
amendment sufficiently increasing the number of Shares subject to this Plan is
timely obtained in accordance with Section 0.
(c) Rights of Participants and Beneficiaries. The Company will pay all
amounts payable under this Plan only to the Grantee or beneficiaries entitled
thereto pursuant to this Plan. The Company will not be liable for the debts,
contracts, or engagements of any Grantee or his or her beneficiaries, and rights
to cash payments under this Plan may not be taken in execution by attachment or
garnishment, or by any other legal or equitable proceeding while in the hands of
the Company.
19. Reservation of Shares.
The Company will at all times reserve and keep available a number of
Shares sufficient to satisfy this Plan's requirements during its Term.
E-14
<PAGE> 140
20. Shareholder Approval.
Continuance of this Plan will be subject to approval by the shareholders
of the Company within 12 months before or after the date of its adoption. Such
shareholder approval will be obtained in the manner and to the degree required
under Applicable Laws. Options or Stock Awards may be granted but Options may
not be exercised prior to shareholder approval of the Plan. If any Options or
Stock Awards are so granted and shareholder approval is not obtained within 12
months of the date of adoption of this Plan by the Board of Directors, those
Options or Stock Awards will terminate retroactively as of the date they were
granted.
21. Information to Grantees.
While the Shares are not Publicly Traded, each Grantee will be provided
with a copy of financial statements of the Company at least annually, and, in
any event, prior to his or her acquisition of Common Stock pursuant to the
exercise of an Option. The provisions of this Section 0 are intended to comply
with the requirements of Rule 260.140.46 promulgated under the California
Corporations Code.
22. Legending Share Certificates.
In order to enforce any restrictions imposed upon Common Stock issued in
connection with a Stock Award or upon exercise of an Option granted under this
Plan or to which such Common Stock may be subject, the Administrator may cause a
legend or legends to be placed on any share certificates representing such
Common Stock, which legend or legends will make appropriate reference to such
restrictions, including, but not limited to, a restriction against sale of such
Common Stock for any period of time as may be required by Applicable Laws.
Additionally, and not by way of limitation, the Administrator may impose such
restrictions on any Common Stock issued pursuant to the Plan as it may deem
advisable.
23. Governing Law.
The Plan will be governed by, and construed in accordance with the laws
of the State of Delaware (without giving effect to conflicts of law principles).
E-15
<PAGE> 141
ANNEX F
FTM MEDIA, INC.
1999 STOCK OPTION PLAN
1. Purposes of the Plan. The purposes of this Plan are:
(a) to attract and retain the best available personnel for positions of
substantial responsibility,
(b) to provide additional incentive to selected key Employees,
Consultants and Directors, and
(c) to promote the success of the Company's business.
2. Definitions. For the purposes of this Plan, the following terms will have the
following meanings:
(a) "Administrator" means the Board or any of its Committees that
administer the Plan, in accordance with Section 4.
(b) "APPLICABLE LAWS" means the legal requirements relating to the
administration of and issuance of securities under stock option plans,
including, without limitation, the requirements of state corporations law,
federal and state securities law, federal and state tax law, and the
requirements of any stock exchange or quotation system upon which the Shares may
then be listed or quoted.
(c) "BOARD" means the Board of Directors of the Company.
(d) "CODE" means the Internal Revenue Code of 1986, as amended.
(e) "COMMITTEE" means a Committee appointed by the Board in accordance
with Section 4.
(f) "COMMON STOCK" means the Common Stock of the Company.
(g) "COMPANY" means FTM Media, Inc., a Colorado corporation.
(h) "CONSULTANT" means any person, including an advisor, engaged by the
Company or a Parent or Subsidiary to render services and who is compensated for
such services, provided that the term "Consultant" does not include (i)
Employees, or (ii) Directors who are paid only a director's fee by the Company
or who are not compensated by the Company for their services as Directors.
(i) "CONTINUOUS STATUS AS AN EMPLOYEE OR CONSULTANT" means that the
employment or consulting relationship is not interrupted or terminated by the
Company, any Parent or Subsidiary, or by the Employee or Consultant. Continuous
Status as an Employee or Consultant will not be considered interrupted in the
case of: (i) any leave of absence approved by
F-1
<PAGE> 142
the Board, including sick leave, military leave, or any other personal leave,
provided, that for purposes of Incentive Stock Options, any such leave may not
exceed 90 days, unless reemployment upon the expiration of such leave is
guaranteed by contract (including certain Company polices) or statute; or (ii)
transfers between locations of the Company or between the Company, its Parent,
its Subsidiaries or its successor.
(j) "DIRECTOR" means a member of the Board.
(k) "DISABILITY" means total and permanent disability as defined in
Section 22(e)(3) of the Code.
(l) "EMPLOYEE" means any person, including Officers and Directors
employed as a common law employee by the Company or any Parent or Subsidiary of
the Company. Neither service as a Director nor payment of a director's fee by
the Company will be sufficient, in and of itself, to constitute "employment" by
the Company.
(m) "EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended.
(n) "FAIR MARKET VALUE" means, as of any date, the value of Common
Stock determined as follows:
(i) If the Common Stock is listed on any established stock
exchange or a national market system, including without
limitation, the National Market System of NASDAQ, the Fair
Market Value of a Share of Common Stock will be the closing
sales price for such stock (or the closing bid, if no sales
are reported) as quoted on that system or exchange (or the
exchange with the greatest volume of trading in Common
Stock) on the last market trading day prior to the day of
determination, as reported in the Wall Street Journal or any
other source the Administrator considers reliable.
(ii) If the Common Stock is quoted on the NASDAQ System (but not
on the NASDAQ National Market System) or is regularly quoted
by recognized securities dealers but selling prices are not
reported, the Fair Market Value of a Share of Common Stock
will be the mean between the high bid and low asked prices
for the Common Stock on the last market trading day prior to
the day of determination, as reported in the Wall Street
Journal or any other source the Administrator considers
reliable.
(iii) If the Common Stock is not traded as set forth above, the
Fair Market Value will be determined in good faith by the
Administrator with reference to the earnings history, book
value and prospects of the Company in light of market
conditions generally, and any other factors the
Administrator considers appropriate.
(o) "INCENTIVE STOCK OPTION" means an Option intended to qualify as an
incentive stock option within the meaning of Section 422 of the Code and the
regulations promulgated thereunder.
F-2
<PAGE> 143
(p) "NASDAQ" means the National Association of Securities Dealers, Inc.
Automated Quotation System.
(q) "NONSTATUTORY STOCK OPTION" means an Option not intended to qualify
as an Incentive Stock Option.
(r) "NOTICE OF GRANT" means a written notice evidencing certain terms
and conditions of an individual Option grant. The Notice of Grant is part of the
Option Agreement.
(s) "OFFICER" means a person who is an officer of the Company within
the meaning of Section 15 of the Exchange Act and the rules and regulations
promulgated thereunder.
(t) "OPTION" means a stock option granted under this Plan.
(u) "OPTION AGREEMENT" means a written agreement between the Company
and an Optionee evidencing the terms and conditions of an individual Option
grant. The Option Agreement is subject to the terms and conditions of this Plan.
(v) "OPTION EXCHANGE PROGRAM" means a program in which outstanding
Options are surrendered in exchange for Options with a lower exercise price.
(w) "OPTIONED STOCK" means the Common Stock subject to an Option.
(x) "OPTIONEE" means an Employee, Consultant or Director who holds an
outstanding Option.
(y) "PARENT" means a "parent corporation" with respect to the Company,
whether now or later existing, as defined in Section 424(e) of the Code.
(z) "PLAN" means this 1999 Stock Option Plan.
(aa) "PUBLICLY TRADED" means that the Shares are traded on an
established stock exchange or on the National Market System of NASDAQ.
(bb) "SECTION" means, except as otherwise specified, a section of this
Plan.
(cc) "SHARE" means a share of the Common Stock, as adjusted in
accordance with Section 13.
(dd) "SUBSIDIARY" means a "subsidiary corporation" with respect to the
Company, whether now or later existing, as defined in Section 424(f) of the
Code.
3. Stock Subject to the Plan.
Subject to the provisions of Section 13 of the Plan, the maximum
aggregate number of Shares which may be optioned under the Plan will be
1,750,000 Shares of Common Stock; provided, however, that at no time while the
Shares are not Publicly Traded will the total number of Shares issuable upon the
exercise of all outstanding Options and the total number of Shares provided for
under any stock bonus or similar plan of the Company exceed the applicable
F-3
<PAGE> 144
percentage (generally 30%) of all of the outstanding Shares of Common Stock, as
calculated in accordance with the conditions and exclusions of Rule 260.140.45
promulgated under the California Corporations Code. The Shares may be
authorized, but unissued, or reacquired Common Stock. If the Company reacquires
Shares which were issued pursuant to the exercise of an Option, however, those
reacquired Shares will not be available for future grant under the Plan.
If an Option expires or becomes unexercisable without having been
exercised in full, or is surrendered pursuant to an Option Exchange Program, the
unpurchased Shares which were subject thereto will become available for future
grant or sale under the Plan (unless the Plan has terminated).
4. Administration of the Plan.
(a) Procedure.
(i) Composition of the Administrator. The Plan will be
administered by (A) the Board, or (B) a Committee designated
by the Board, which Committee will be constituted to satisfy
Applicable Laws. Once appointed, a Committee will serve in
its designated capacity until otherwise directed by the
Board. The Board may increase the size of the Committee and
appoint additional members, remove members (with or without
cause) and substitute new members, fill vacancies (however
caused), and remove all members of the Committee and
thereafter directly administer the Plan, all to the extent
permitted by Applicable Laws. Notwithstanding the foregoing,
from and after such time as the Company is subject to the
reporting requirements of Section 13 or 15(d) of the
Exchange Act, the Plan will be administered only by a
Committee, which will then consist solely of persons who are
both "non-employee directors" within the meaning of Rule
16b-3 promulgated under the Exchange Act and "outside
directors" within the meaning of Section 162(m) of the Code.
(ii) Multiple Administrative Bodies. The Plan may be administered
by different bodies with respect to Directors, Officers who
are not Directors, and Employees and Consultants who are
neither Directors nor Officers.
(b) Powers of the Administrator. Subject to the provisions of the Plan,
and in the case of a Committee, subject to the specific duties delegated by the
Board to that Committee, the Administrator will have the authority, in its
discretion:
(i) to determine the Fair Market Value of the Common Stock, in
accordance with Section 2(n);
(ii) to select the Consultants and Employees to whom Options may
be granted;
(iii) to determine whether and to what extent Options are granted;
F-4
<PAGE> 145
(iv) to determine the number of shares of Common Stock to be
covered by each Option granted;
(v) to approve forms of Option Agreement;
(vi) to determine the terms and conditions, not inconsistent with
the terms of this Plan, of any grant of Options, including,
but not limited to, (A) the Options' exercise price, (B) the
time or times when Options may be exercised, which may be
based on performance criteria or other reasonable conditions
such as Continuous Status as an Employee or Consultant or
continuous service as a Director; provided, however, that
while the Shares are not Publicly Traded, Options granted to
an Employee who is neither a Director nor an Officer will
become exercisable at a rate of at least 20% per year over
five years from the date of grant, subject to reasonable
conditions such as Continuous Status as an Employee, (C) any
vesting acceleration or waiver of forfeiture restrictions,
and any restriction or limitation regarding any Option or
the Optioned Stock, based in each case on factors that the
Administrator determines in its sole discretion, including
but not limited to a requirement subjecting the Optioned
Stock to (i) certain restrictions on transfer (including
without limitation a right of first refusal in favor of the
Company), and (ii) a right of repurchase in favor of the
Company upon termination of the Optionee's employment, which
right will terminate no later than the date on which the
Company's securities become Publicly Traded and will satisfy
the requirements of Rule 260.140.41(k) promulgated under the
California Corporations Code, as amended;
(vii) to determine whether, to what extent and under what
circumstances Common Stock and other amounts payable with
respect to a grant of Options under this Plan will be
deferred either automatically or at the election of the
participant (including providing for and determining the
amount, if any, of any deemed earnings on any deferred
amount during any deferral period);
(viii) to reduce the exercise price of any Option to the Fair
Market Value at the time of the reduction, if the Fair
Market Value of the Common Stock covered by that Option has
declined since the date it was granted;
(ix) to construe and interpret the terms of this Plan;
(x) to prescribe, amend, and rescind rules and regulations
relating to the administration of this Plan;
(xi) to modify or amend each Option, subject to Section 15(c);
(xii) to authorize any person to execute on behalf of the Company
any instrument required to effect the grant of an Option
previously granted by the Administrator;
F-5
<PAGE> 146
(xiii) to institute an Option Exchange Program;
(xiv) to determine the terms and restrictions applicable to
Options; and
(xv) to make all other determinations it considers necessary or
advisable for administering this Plan.
(c) Effect of Administrator's Decision. The Administrator's decisions,
determinations and interpretations will be final and binding on all Optionees
and any other holders of Options.
5. Eligibility.
Options granted under this Plan may be Incentive Stock Options or
Nonstatutory Stock Options, as determined by the Administrator at the time of
grant. Nonstatutory Stock Options may be granted to Employees, Consultants and
Directors. Incentive Stock Options may be granted only to Employees. If
otherwise eligible, an Employee or Consultant who has been granted an Option may
be granted additional Options.
6. Limitations.
(a) Designation. Each Option will be designated in the Notice of Grant
as either an Incentive Stock Option or a Nonstatutory Stock Option. However,
notwithstanding such designations, if the Shares subject to an Optionee's
Incentive Stock Options (granted under all plans of the Company or any Parent or
Subsidiary), which become exercisable for the first time during any calendar
year, have a Fair Market Value in excess of $100,000, the Options accounting for
this excess will be treated as Nonstatutory Stock Options. For purposes of this
Section 6(a), Incentive Stock Options will be taken into account in the order in
which they were granted, and the Fair Market Value of the Shares will be
determined as of the time of grant.
(b) Individual Limit. From and after such time as the Company is
subject to the reporting requirements of Sections 13 or 15(d) of the Exchange
Act, no Optionee may receive grants, during any fiscal year of the Company or
portion thereof, of Incentive Stock Options and Nonstatutory Stock Options
which, in the aggregate, cover more than 200,000 Shares, subject to adjustment
as provided in Section 13. If an Option expires or terminates for any reason
without having been exercised in full, the unpurchased shares subject to that
expired or terminated Option will continue to count against the maximum numbers
of shares for which Options may be granted to an Optionee during any fiscal year
of the Company or portion thereof.
(c) No Employment Rights. Neither this Plan nor any Option will confer
upon an Optionee any right with respect to continuing the Optionee's employment
or consulting relationship with the Company, or continuing service as a
Director, nor will they interfere in any way with the Optionee's right or the
Company's right to terminate such employment or consulting relationship or
directorship at any time, with or without cause.
7. Term of the Plan.
Subject to Section 19, this Plan will become effective upon the earlier
to occur of its adoption by the Board or its approval by the shareholders of the
Company as described in
F-6
<PAGE> 147
Section 19. It will continue in effect for a term of ten years unless terminated
earlier under Section 15. Unless otherwise provided in this Plan, its
termination will not affect the validity of any Option Agreement outstanding at
the date of termination.
8. Term of Option.
The term of each Option will be stated in the Notice of Grant;
provided, however, that in no event may the term be more than ten years from the
date of grant. In addition, in the case of an Incentive Stock Option granted to
an Optionee who, at the time the Incentive Stock Option is granted, owns stock
representing more than ten percent of the voting power of all classes of capital
stock of the Company or any Parent or Subsidiary, the term of the Incentive
Stock Option will be five years from the date of grant or any shorter term
specified in the Notice of Grant.
9. Option Exercise Price and Consideration.
(a) Exercise Price. The price per share exercise price for the Share to
be issued pursuant to exercise of an Option will be determined by the
Administrator, subject to the following:
(i) In the case of an Incentive Stock Option
(A) granted to an Employee who, at the time the Incentive
Stock Option is granted, owns stock representing more
than ten percent of the voting power of all classes
of capital stock of the Company or any Parent or
Subsidiary, the per Share exercise price will be no
less than 110% of the Fair Market Value per Share on
the date of grant.
(B) granted to any other Employee, the per Share exercise
price will be no less than 100% of the Fair Market
Value per Share on the date of grant.
(ii) In the case of a Nonstatutory Stock Option granted while the
Shares are not Publicly Traded
(A) granted to an Employee, Consultant or Director who,
at the time the Nonstatutory Stock Option is granted,
owns stock representing more than ten percent of the
voting power of all classes of capital stock of the
Company or any Parent or Subsidiary, the per Share
exercise price will be no less than 110% of the Fair
Market Value per Share on the date of grant.
(B) granted to any other Employee, Consultant or
Director, the per Share exercise price will be no
less than 85% of the Fair Market Value per Share on
the date of grant.
(b) Waiting Period and Exercise Dates. At the time an Option is
granted, the Administrator will fix the period within which the Option may be
exercised and will determine
F-7
<PAGE> 148
any conditions which must be satisfied before the Option may be exercised.
Exercise of an Option may be conditioned upon performance criteria or other
reasonable conditions such as Continuous Status as an Employee or Consultant or
continuous service as a Director; provided, however, that Options granted to an
Employee who is neither a Director nor an Officer will become exercisable at a
rate of at least 20% per year over five years from the date of grant, subject to
reasonable conditions such as Continuous Status as an Employee.
(c) Form of Consideration. The Administrator will determine the
acceptable form of consideration for exercising an Option, including the method
of payment. Such consideration may consist partially or entirely of:
(i) cash;
(ii) a promissory note made by the Optionee in favor of the
Company;
(iii) other Shares which have a Fair Market Value on the date of
surrender equal to the aggregate exercise price of the
Shares as to which an Option will be exercised;
(iv) delivery of a properly executed exercise notice together
with any other documentation as the Administrator and the
Optionee's broker, if applicable, requires to effect an
exercise of the Option and delivery to the Company of the
sale or loan proceeds required to pay the exercise price; or
(v) any other consideration and method of payment for the
issuance of Shares to the extent permitted by Applicable
Laws.
10. Exercise of Option.
(a) Procedure for Exercise; Rights as a Shareholder. Any Option granted
hereunder will be exercisable according to the terms of the Plan and at times
and under conditions determined by the Administrator and set forth in the Option
Agreement; provided, however, that an Option may not be exercised for a fraction
of a Share.
An Option will be deemed exercised when the Company receives: (i)
written notice of exercise (in accordance with the Option Agreement) from the
person entitled to exercise the Option, (ii) full payment for the Shares with
respect to which the Option is exercised, and (iii) all representations,
indemnifications and documents reasonably requested by the Administrator. Full
payment may consist of any consideration and method of payment authorized by the
Administrator and permitted by the Option Agreement and this Plan. Shares issued
upon exercise of an Option will be issued in the name of the Optionee or, if
requested by the Optionee, in the name of the Optionee and his or her spouse.
Until the stock certificate evidencing such Shares is issued (as evidenced by
the appropriate entry on the books of the Company or of a duly authorized
transfer agent of the Company), no right to vote or receive dividends or any
other rights as a shareholder will exist with respect to the Optioned Stock,
notwithstanding the exercise of the Option. Subject to the provisions of
Sections 12, 16 , and 17, the Company will issue (or cause to be issued) such
stock certificate promptly after the Option is exercised. No adjustment
F-8
<PAGE> 149
will be made for a dividend or other right for which the record date is prior to
the date the stock certificate is issued, except as provided in Section 13 of
the Plan. Notwithstanding the foregoing, the Administrator in its discretion may
require the Company to retain possession of any certificate evidencing Shares of
Common Stock acquired upon exercise of an Option, if those Shares remain subject
to repurchase under the provisions of the Option Agreement or any other
agreement between the Company and the Optionee, or if those Shares are
collateral for a loan or obligation due to the Company.
Exercising an Option in any manner will decrease the number of Shares
thereafter available, both for purposes of this Plan and for sale under the
Option, by the number of Shares as to which the Option is exercised.
(b) Termination of Employment or Consulting Relationship or
Directorship. If an Optionee holds exercisable Options on the date his or her
Continuous Status as an Employee or Consultant or continuous service as a
Director terminates (other than because of death or Disability), the Optionee
may exercise those Options until the earlier of (i) their expiration as set
forth in the Notice of Grant, and (ii) 30 days after the date of such
termination (or a longer period determined by the Administrator). If the
Optionee is not entitled to exercise his or her entire Option at the date of
such termination, the Shares covered by the unexercisable portion of the Option
will revert to the Plan. If the Optionee does not exercise an Option within the
time specified above after termination, that Option will expire, and the Shares
covered by it will revert to the Plan.
(c) Disability of Optionee. If an Optionee holds exercisable Options on
the date his or her Continuous Status as an Employee or Consultant or continuous
service as a Director terminates because of Disability, the Optionee may
exercise those Options until the earlier of (i) their expiration as set forth in
the Notice of Grant, and (ii) six months after the date of such termination (or
a longer period determined by the Administrator). If the Optionee is not
entitled to exercise his or her entire Option at the date of such termination,
the Shares covered by the unexercisable portion of the Option will revert to the
Plan. If the Optionee does not exercise an Option within the time specified
above after termination, that Option will expire, and the Shares covered by it
will revert to the Plan.
(d) Death of Optionee. If an Optionee holds exercisable Options on the
date his or her death, the Optionee's estate or a person who acquired the right
to exercise the Option by bequest or inheritance may exercise those Options
until the earlier of (i) their expiration as set forth in the Notice of Grant,
and (ii) six months after the date of death (or a longer period determined by
the Administrator). If the Optionee is not entitled to exercise his or her
entire Option at the date of death, the Shares covered by the unexercisable
portion of the Option will revert to the Plan. If the Optionee's estate or a
person who acquired the right to exercise the Option by bequest or inheritance
does not exercise an Option within the time specified above after termination,
that Option will expire, and the Shares covered by it will revert to the Plan.
(e) Disqualifying Dispositions of Incentive Stock Options. If Common
Stock acquired upon exercise of any Incentive Stock Option is disposed of in a
disposition that, under Section 422 of the Code, disqualifies the holder from
the application of Section 421(a) of the Code, the holder of the Common Stock
immediately before the disposition will comply with any
F-9
<PAGE> 150
requirements imposed by the Company in order to enable the Company to secure the
related income tax deduction to which it is entitled in such event.
11. Non-Transferability of Options.
(a) No Transfer. An Option may not be sold, pledged, assigned,
hypothecated, transferred, or disposed of in any manner other than by will or by
the laws of descent or distribution and may be exercised, during the lifetime of
the Optionee, only by the Optionee. Notwithstanding the foregoing, to the extent
that the Committee so authorizes at the time a Nonstatutory Stock Option is
granted or amended after the Shares are Publicly Traded, (a) such Nonstatutory
Stock Option may be assigned pursuant to a qualified domestic relations order as
defined by the Code, and exercised by the spouse of the Optionee who obtained
such Nonstatutory Stock Option pursuant to such qualified domestic relations
order, and (b) such Nonstatutory Stock Option may be assigned, in connection
with the Optionee's estate plan, in whole or in part, during the Optionee's
lifetime to one or more members of the Optionee's immediate family or to a trust
established exclusively for one or more of such immediate family members. Rights
under the assigned portion may be exercised by the person or persons who acquire
a proprietary interest in such Nonstatutory Stock Option pursuant to the
assignment. The terms applicable to the assigned portion shall be the same as
those in effect for the Nonstatutory Stock Option immediately before such
assignment and shall be set forth in such documents issued to the assignee as
the Committee deems appropriate. For purposes of this Section 11, the term
"immediate family" means an individual's spouse, children, stepchildren,
grandchildren and parents.
(b) Designation of Beneficiary. An Optionee may file a written
designation of a beneficiary who is to receive any Options that remain
unexercised in the event of the Optionee's death. If a participant is married
and the designated beneficiary is not the spouse, spousal consent will be
required for the designation to be effective. The Optionee may change such
designation of beneficiary at any time by written notice to the Administrator,
subject to the above spousal consent requirement.
(c) Effect of No Designation. If an Optionee dies and there is no
beneficiary, validly designated under Section 11(b) and living at the time of
the Optionee's death, the Company will deliver such Optionee's Options to the
executor or administrator of his or her estate, or if no such executor or
administrator has been appointed (to the knowledge of the Company), the Company,
in its discretion, may deliver such Options to the spouse or to any one or more
dependents or relatives of the Optionee, or if no spouse, dependent or relative
is known to the Company, then to such other person as the Company may designate.
(d) Death of Spouse or Dissolution of Marriage. If an Optionee
designates his or her spouse as beneficiary under Section 11(b), that
designation will be deemed automatically revoked if the Optionee's marriage is
later dissolved. Similarly, any designation of a beneficiary under Section 11(b)
will be deemed automatically revoked upon the death of the beneficiary if the
beneficiary predeceases the Optionee. Without limiting the generality of the
preceding sentence, the interest in Options of a spouse of an Optionee who has
predeceased the Optionee or (except as provided in Section 11(a) regarding
qualified domestic relations orders) whose marriage has been dissolved will
automatically pass to the Optionee, and will not be transferrable
F-10
<PAGE> 151
by such spouse in any manner, including but not limited to such spouse's will,
nor will any such interest pass under the laws of intestate succession.
12. Withholding Taxes.
The Company will have the right to take whatever steps the
Administrator deems necessary or appropriate to comply with all applicable
federal, state, local, and employment tax withholding requirements, and the
Company's obligations to deliver Shares upon the exercise of an Option will be
conditioned upon compliance with all such withholding tax requirements. Without
limiting the generality of the foregoing, upon the exercise of an Option, the
Company will have the right to withhold taxes from any other compensation or
other amounts which it may owe to the Optionee, or to require the Optionee to
pay to the Company the amount of any taxes which the Company may be required to
withhold with respect to the Shares issued on such exercise. Without limiting
the generality of the foregoing, the Administrator in its discretion may
authorize the Optionee to satisfy all or part of any withholding tax liability
by (a) having the Company withhold from the Shares which would otherwise be
issued on the exercise of an Option that number of Shares having a Fair Market
Value, as of the date the withholding tax liability arises, equal to or less
than the amount of the Company's withholding tax liability, or (b) by delivering
to the Company previously-owned and unencumbered Shares of the Common Stock
having a Fair Market Value, as of the date the withholding tax liability arises,
equal to or less than the amount of the Company's withholding tax liability.
13. Adjustments Upon Changes in Capitalization, Dissolution, Merger, Asset Sale
or Change of Control.
(a) Changes in Capitalization. Subject to any required action by the
shareholders of the Company, if the outstanding shares of Common Stock are
increased, decreased, changed into or exchanged for a different number or kind
of shares or securities of the Company or a successor entity, or for other
property (including without limitation, cash), through reorganization,
recapitalization, reclassification, stock combination, stock dividend, stock
split, reverse stock split, spin off or other similar transaction, an
appropriate and proportionate adjustment will be made in the maximum number and
kind of shares as to which Options may be granted under this Plan. A
corresponding adjustment changing the number or kind of shares allocated to
unexercised Options which have been granted prior to any such change, will
likewise be made. Any such adjustment in the outstanding Options will be made
without change in the aggregate purchase price applicable to the unexercised
portion of the Options but with a corresponding adjustment in the price for each
share or other unit of any security covered by the Option. Such adjustment will
be made by the Administrator, whose determination in that respect will be final,
binding, and conclusive.
Where an adjustment under this Section 13(a) is made to an Incentive
Stock Option, the adjustment will be made in a manner which will not be
considered a "modification" under the provisions of subsection 424(h)(3) of the
Code.
(b) Dissolution or Liquidation. In the event of the proposed
dissolution or liquidation of the Company, to the extent that an Option had not
been previously exercised, it will terminate immediately prior to the
consummation of such proposed dissolution or liquidation. In such
F-11
<PAGE> 152
instance, the Administrator may, in the exercise of its sole discretion, declare
that any Option will terminate as of a date fixed by the Administrator and give
each Optionee the right to exercise his or her Option as to all or any part of
the Optioned Stock, including Shares as to which the Option would not otherwise
be exercisable.
(c) Corporate Transaction. Upon the happening of a "Corporate
Transaction" (as defined below), the Administrator, may, in its discretion, do
one or more of the following: (i) shorten the period during which Options are
exercisable (provided they remain exercisable for at least 30 days after the
date notice of such shortening is given to the Optionees); (ii) accelerate any
vesting schedule to which an Option is subject; (iii) arrange to have the
surviving or successor entity assume the Options or grant replacement options
with appropriate adjustments in the option prices and adjustments in the number
and kind of securities issuable upon exercise or adjustments so that the Options
or their replacements represent the right to purchase the shares of stock,
securities or other property (including cash) as may be issuable or payable as a
result of such Corporate Transaction with respect to or in exchange for the
number of Shares of Common Stock purchasable and receivable upon exercise of the
Options had such exercise occurred in full prior to such Corporate Transaction;
or (iv) cancel Options upon payment to the Optionees in cash, with respect to
each Option to the extent then exercisable (including any Options as to which
the exercise has been accelerated as contemplated in clause (ii) above), of any
amount that is the equivalent of the excess of the Fair Market Value of the
Common Stock (at the effective time of the merger, reorganization, sale of other
event) over the exercise price of the Option. The Administrator may also provide
for one or more of the foregoing alternatives in any particular Option
Agreement. In the case of a Corporate Transaction, the Administrator may, in
considering the advisability or the terms and conditions of any acceleration of
the exercisability of any Option pursuant to this Section 13(c), take into
account the penalties that may result directly or indirectly from such
acceleration to either the Company or the Optionee, or both, under Sections 280G
and 4999 of the Code, and may decide to limit such acceleration to the extent
necessary to avoid or mitigate such penalties or their effects. For purposes of
this Section 13(c), a "CORPORATE TRANSACTION" means the occurrence of any of the
following:
(1) Any "Person" or "Group" (as such terms are defined in Section 13(d)
of the Exchange Act and the rules and regulations promulgated
thereunder) is or becomes the "Beneficial Owner" (within the meaning of
Rule 13d-3 under the Exchange Act), directly or indirectly, of
securities of the Company, or of any entity resulting from a merger or
consolidation involving the Company, representing more than 50% of the
combined voting power of the then outstanding securities of the Company
or such entity.
(2) The individuals who, as of the date hereof, are members of the
Board (the "EXISTING DIRECTORS"), cease, for any reason, to constitute
more than 50% of the number of authorized directors of the Company as
determined in the manner prescribed in the Company's Certificate of
Incorporation and Bylaws; provided, however, that if the election, or
nomination for election, by the Company's stockholders of any new
director was approved by a vote of at least 50% of the Existing
Directors, such new director will be considered an Existing Director;
provided further, however, that no individual will be considered an
Existing Director if such individual initially assumed office as a
result of either an actual or
F-12
<PAGE> 153
threatened "Election Contest" (as described in Rule 14a-11 promulgated
under the Exchange Act) or other actual or threatened solicitation of
proxies by or on behalf of anyone other than the Board (a "PROXY
CONTEST"), including by reason of any agreement intended to avoid or
settle any Election Contest or Proxy Contest.
(3) The consummation of (a) a merger, consolidation or reorganization
to which the Company is a party, whether or not the Company is the
Person surviving or resulting therefrom, or (b) a sale, assignment,
lease, conveyance or other disposition of all or substantially all of
the assets of the Company, in one transaction or a series of related
transactions, to any Person other than the Company, where any such
transaction or series of related transactions as is referred to in
clause (a) or clause (b) of this Section 13(c)(3) (a "TRANSACTION")
does not otherwise result in a "Corporate Transaction" pursuant to
Section 13(c)(1); provided, however, that no such Transaction will
constitute a "Corporate Transaction" under this Section 13(c)(3) if the
Persons who were the stockholders of the Company immediately before the
consummation of such Transaction are the Beneficial Owners, immediately
following the consummation of such Transaction, of 50% or more of the
combined voting power of the then outstanding voting securities of the
Person surviving or resulting from any merger, consolidation or
reorganization referred to in clause (a) of this Section 13(c)(3) or
the Person to whom the assets of the Company are sold, assigned,
leased, conveyed or disposed of in any transaction or series of related
transactions referred in clause (b) of this Section 13(c)(3).
14. Date of Grant.
The date of grant of an Option will be, for all purposes, the date on
which the Administrator makes the determination granting such Option, or any
other, later date determined by the Administrator and specified in the Notice of
Grant. Notice of the determination will be provided to each Optionee within a
reasonable time after the date of grant.
15. Amendment and Termination of the Plan.
(a) Amendment and Termination. The Board may at any time amend, alter
or suspend or terminate the Plan.
(b) Shareholder Approval. The Company will obtain shareholder approval
of any Plan amendment that increases the number of Shares for which Options may
be granted, or to the extent necessary and desirable to comply with Section 422
of the Code (or any successor statute) or other Applicable Laws, or the
requirements of any exchange or quotation system on which the Common Stock is
listed or quoted. Such shareholder approval, if required, will be obtained in
such a manner and to such a degree as is required by the Applicable Law or
requirement.
(c) Effect of Amendment or Termination. No amendment, alteration,
suspension or termination of the Plan will impair the rights of an Optionee,
unless mutually agreed otherwise between the Optionee and the Administrator. Any
such agreement must be in writing and signed by the Optionee and the Company.
F-13
<PAGE> 154
16. Conditions Upon Issuance of Shares.
(a) Legal Compliance. Shares will not be issued pursuant to the
exercise of an Option unless the exercise of such Option and the issuance and
delivery of such Shares will comply with all Applicable Laws, and will be
further subject to the approval of counsel for the Company with respect to such
compliance. Any securities delivered under the Plan will be subject to such
restrictions, and the person acquiring such securities will, if requested by the
Company, provide such assurances and representations to the Company as the
Company may deem necessary or desirable to assure compliance with all Applicable
Laws. To the extent permitted by Applicable Laws, the Plan and Options granted
hereunder will be deemed amended to the extent necessary to conform to such
laws, rules and regulations.
(b) Investment Representation. As a condition to the exercise of an
Option, the Company may require the person exercising such Option to represent
and warrant at the time of any such exercise that the Shares are being purchased
only for investment and without any present intention to sell, transfer, or
distribute such Shares.
17. Liability of Company.
(a) Inability to Obtain Authority. If the Company cannot, by the
exercise of commercially reasonable efforts, obtain authority from any
regulatory body having jurisdiction for the sale of any Shares under this Plan,
and such authority is deemed by the Company's counsel to be necessary to the
lawful issuance of those Shares, the Company will be relieved of any liability
for failing to issue or sell those Shares.
(b) Grants Exceeding Allotted Shares. If the Optioned Stock covered by
an Option exceeds, as of the date of grant, the number of Shares which may be
issued under the Plan without additional shareholder approval, that Option will
be void with respect to such excess Optioned Stock, unless shareholder approval
of an amendment sufficiently increasing the number of Shares subject to this
Plan is timely obtained in accordance with Section 15(b).
(c) Rights of Participants and Beneficiaries. The Company will pay all
amounts payable under this Plan only to the Optionee or beneficiaries entitled
thereto pursuant to this Plan. The Company will not be liable for the debts,
contracts, or engagements of any Optionee or his or her beneficiaries, and
rights to cash payments under this Plan may not be taken in execution by
attachment or garnishment, or by any other legal or equitable proceeding while
in the hands of the Company.
18. Reservation of Shares.
The Company will at all times reserve and keep available a number of
Shares sufficient to satisfy this Plan's requirements during its Term.
19. Shareholder Approval.
Continuance of this Plan will be subject to approval by the
shareholders of the Company within 12 months before or after the date of its
adoption. Such shareholder approval will be obtained in the manner and to the
degree required under Applicable Laws. Options may be
F-14
<PAGE> 155
granted but may not be exercised prior to shareholder approval of the Plan. If
any Options are so granted and shareholder approval is not obtained within 12
months of the date of adoption of this Plan by the Board of Directors, those
Options will terminate retroactively as of the date they were granted.
20. Information to Optionees.
While the Shares are not Publicly Traded, each Optionee will be
provided with a copy of financial statements of the Company at least annually,
and, in any event, prior to his or her purchase of Common Stock pursuant to the
exercise of an option. The provisions of this Section 20 are intended to comply
with the requirements of Rule 260.140.46 promulgated under the California
Corporations Code.
21. Legending Share Certificates.
In order to enforce any restrictions imposed upon Common Stock issued
upon exercise of an Option granted under this Plan or to which such Common Stock
may be subject, the Administrator may cause a legend or legends to be placed on
any share certificates representing such Common Stock, which legend or legends
will make appropriate reference to such restrictions, including, but not limited
to, a restriction against sale of such Common Stock for any period of time as
may be required by Applicable Laws. If any restriction with respect to which a
legend was placed on any certificate ceases to apply to Common Stock represented
by such certificate, the owner of the Common Stock represented by such
certificate may require the Company to cause the issuance of a new certificate
not bearing the legend. Additionally, and not by way of limitation, the
Administrator may impose such restrictions on any Common Stock issued pursuant
to the Plan as it may deem advisable.
22. Governing Law.
The Plan will be governed by, and construed in accordance with the laws
of the State of Delaware (without giving effect to conflicts of law principles).
F-15
<PAGE> 156
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
As permitted by Section 145 of the Delaware General Corporation Law, FTM
Delaware's Amended and Certificate of Incorporation, as amended, include a
provision that eliminates the personal liability of its directors for monetary
damages for breach or alleged breach of their duty of care. In addition, the
Delaware General Corporation Law and FTM Delaware's Amended and Restated Bylaws
provide for indemnification of FTM Delaware's directors and officers for
liabilities and expenses that they may incur in such capacities. In general,
directors and officers are indemnified with respect to actions taken in good
faith in a manner reasonably believed to be in, or not opposed to, the best
interests of FTM Delaware, and with respect to any criminal action or
proceeding, actions that the indemnitee has no reasonable choice to believe were
unlawful. FTM Delaware has purchased insurance with respect to, among other
things, the liabilities that may arise under the provisions referred to above.
The directors and officers of FTM Delaware are also insured against certain
liabilities arising under the Securities Act of 1933, as amended, which might be
incurred by them in such capacities and against which they are not indemnified
by FTM Delaware.
FTM Delaware has entered into separate indemnification agreements with
its directors and officers. The indemnification agreements create certain
indemnification obligations of FTM Delaware in favor of the directors and
officers and, as permitted by applicable law, will clarify and expand the
circumstances under which a director or officer will be indemnified.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
The exhibits as indexed below are included as part of this Registration
Statement pursuant to item 601 of Regulation S-B:
EXHIBIT NO. TITLE
----------- -----
2.1 Agreement and Plan of Merger dated as of September 24,
1999 by and between FTM Media, Inc., a Delaware
corporation, and Interactive Radio Group, Inc., a
Delaware corporation. (see Annex A)
3.1 Certificate of Incorporation of FTM Media, Inc, a
Delaware corporation (see Annex B)
3.2 Bylaws of FTM Media, Inc. a Delaware Corporation (see
Annex C)
4.1 Specimen Certificate of Common Stock
4.2 Interactive Radio Group, Inc. 1999 Stock Option Plan
(see Annex E)
4.3 FTM Media, Inc. 1999 Stock Option Plan (see Annex F)
5.1 Opinion of Counsel
* 10.1 Stock Purchase Agreement with Andaman Investments, Inc.
** 10.2 Contribution Agreement
*** 10.3 Stock Purchase Agreement made as of May 25, 1999 relating
to Series B Convertible Preferred Stock between the
Company and the parties listed on Exhibit A thereto.
**** 16.1 Letter on Change and Certifying Accountant
21.1 Subsidiaries
23.1 Consent of Independent Accountants
II-1
<PAGE> 157
* Incorporated by reference from the Company's Current Report on Form 8-K
dated December 31, 1998 as filed with the Commission on January 14,
1999.
** Incorporated by reference from the Company's Current Report on Form 8-K
dated March 29, 1999 as filed with the Commission on April 15, 1999.
*** Incorporated by reference from the Company's Current Report on Form 8-K
dated June 15, 1999 as filed with the Commission on June 29, 1999.
**** Incorporated by reference from the Company's Current Report on From 8-K
dated May 17, 1999 as filed with the Commission on May 19, 1999.
FINANCIAL STATEMENTS
Schedules have been omitted since the required information is not
present, or not present in amounts sufficient to require submission of the
schedule, or because the information is included in the financial statements or
notes thereto.
ITEM 22. UNDERTAKINGS.
1. The undersigned registrant hereby undertakes:
(a) To file, during any period in which offers or sales are being made,
a post-effective amendment to this registration statement:
(1) To include any prospectus required by section 10(a)(3) of the
Securities Act of 1933;
(2) To reflect in the prospectus any facts or events arising
after the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the registration
statement. Notwithstanding the foregoing, any increase or decrease in volume of
securities offered (if the total dollar value of securities offered would not
exceed that which was registered) and any deviation from the low or high end of
the estimated maximum offering range may be reflected in the form of prospectus
filed with the Commission pursuant to Rule 424(b) if, in the aggregate, the
changes in volume and price represent no more than a 20% change in the maximum
aggregate offering price set forth in the "Calculation of Registration Fee"
table in the effective registration statement.
(3) To include any material information with respect to the plan
of distribution not previously disclosed in the registration statement or any
material change to such information in the registration statement;
(b) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed to be
a new registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(c) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the termination of
the offering.
II-2
<PAGE> 158
2. The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to section 13(a) or section 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
3. The undersigned registrant hereby undertakes as follows: that prior to any
public reoffering of the securities registered hereunder through use of a
prospectus which is a part of this registration statement, by any person or
party who is deemed to be an underwriter within the meaning of Rule 145(c), the
issuer undertakes that such reoffering prospectus will contain the information
called for by the applicable registration form with respect to reofferings by
persons who may be deemed underwriters, in addition to the information called
for by the other Items of the applicable form.
4. The registrant undertakes that every prospectus: (i) that is filed pursuant
to paragraph (3) immediately preceding, or (ii) that purports to meet the
requirements of section 10(a)(3) of the Securities Act of 1933 and is used in
connection with an offering of securities subject to Rule 415, will be filed as
a part of an amendment to the registration statement and will not be used until
such amendment is effective, and that, for purposes of determining any liability
under the Securities Act of 1933, each such post-effective amendment shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
5. Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the registrant of expenses incurred
or paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act of 1933 and will be governed by the
final adjudication of such issue.
6. The undersigned registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Items 4, 10(b), 11 or 13 of this Form, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the registration statement through the
date of responding to the request.
7. The undersigned registrant hereby undertakes to supply by means of
post-effective amendment all information concerning a transaction, and the
company being acquired involved
II-3
<PAGE> 159
therein, that was not the subject of and included in the registration
statement when it became effective.
II-4
<PAGE> 160
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant has
duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Scottsdale, State of
Arizona, on this fourth day of October, 1999.
FTM DELAWARE, INC.
By:/s/ Scott Manson
-------------------------------------------
Scott Manson
Chief Financial Officer & General Counsel
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below hereby severally constitutes and appoints Ron Conquest, Scott
Manson and Greg Mastroieni, and each of them, his or her true and lawful
attorney-in-fact and agent, with full power of substitution and resubstitution
for him or her and in his or her name, place and stead, in any and all
capacities to sign any and all amendments (including post-effective amendments)
to the Registration Statement, and to file the same, with all exhibits thereto,
and other documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorney-in-fact and agents, and each of them,
full power and authority to do and perform each and every act and thing
requisite or necessary fully to all intents and purposes as he or she might or
could do in person, hereby ratifying and confirming all that each said
attorneys-in-fact and agents or any of them or their or his or her substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signatures Title Date
---------- ----- ----
<S> <C> <C>
/s/ Ron Conquest Chief Executive Officer, October 4, 1999
- -------------------- President and Director (Principal
Ron Conquest Executive Officer)
/s/ Greg Mastroieni Director October 4, 1999
- --------------------
Greg Mastroieni
</TABLE>
II-5
<PAGE> 161
EXHIBIT INDEX
EXHIBIT NO. TITLE
2.1 Agreement and Plan of Merger dated as of September 24,
1999 by and between FTM Media, Inc., a Delaware
corporation, and Interactive Radio Group, Inc., a Delaware
corporation. (see Annex A)
3.1 Certificate of Incorporation of FTM Media, Inc., a
Delaware corporation (see Annex B)
3.2 Bylaws of FTM Media, Inc. a Delaware Corporation (see
Annex C)
4.1 Specimen Certificate of Common Stock
4.2 Interactive Radio Group, Inc. 1999 Stock Option Plan (See
Annex E)
4.3 FTM Media, Inc. 1999 Stock Option Plan (See Annex F)
5.1 Opinion of Counsel
* 10.1 Stock Purchase Agreement with Andaman Investments, Inc.
** 10.2 Contribution Agreement
*** 10.3 Stock Purchase Agreement made as of May 25, 1999 relating
to Series B Convertible Preferred Stock between the
Company and the parties listed on Exhibit A thereto.
**** 16.1 Letter on Change and Certifying Accountant
21.1 Subsidiaries
23.1 Consent of Independent Accountants
* Incorporated by reference from the Company's Current Report on Form 8-K
dated December 31, 1998 as filed with the Commission on January 14, 1999.
** Incorporated by reference from the Company's Current Report on Form 8-K
dated March 29, 1999 as filed with the Commission on April 15, 1999.
*** Incorporated by reference from the Company's Current Report on Form 8-K
dated June 15, 1999 as filed with the Commission on June 29, 1999.
**** Incorporated by reference from the Company's Current Report on Form 8-K
dated May 17, 1999 as filed with the Commission on May 19, 1999.
II-6
<PAGE> 1
EXHIBIT 4.1
[SPECIMEN]
- --------------------------------------------------------------------------------
September 1, 1999
Incorporated Under the Laws of the State of Delaware
PB- *
FTM MEDIA, INC.
Authorized: 55,000,000 Shares
50,000,000 Shares Common Stock 5,000,000 Shares Preferred Stock
$.01 Par Value Each $.01 Par Value Each
50,000 Shares Series A Preferred
Stock $.01 Par Value
400,000 Shares Series B Convertible
Preferred Stock $.01 Par Value
This Certifies that
is the registered holder of * * * * * * * * * Shares of the Common Stock of
FTM MEDIA, INC.
HEREINAFTER DESIGNATED "THE CORPORATION", TRANSFERABLE ON THE SHARE REGISTER OF
THE CORPORATION UPON SURRENDER OF THIS CERTIFICATE PROPERLY ENDORSED OR
ASSIGNED.
This certificate and the shares represented thereby shall be held subject
to all of the provisions of the Articles of Incorporation and the Bylaws of
said Corporation, a copy of each of which is on file at the officer of the
Corporation.
Any shareholder may obtain from the principal office of the Corporation,
upon written request and without charge, a statement of the number of shares
constituting each class or series of stock and the designation thereof; and a
copy of the designations, preferences, limitations and relative rights
applicable to each class, the variations in preferences, limitations, and
rights determined for each series, and the authority of the Board of Directors
to determine variations for future classes or series, and the Bylaws.
The address of the principal office of the Corporation is 6991 East Camelback
Road, Suite D-103, Scottsdale, Arizona 85251.
WITNESS THE SIGNATURES OF THE DULY AUTHORIZED OFFICERS OF THE CORPORATION.
DATED: , 1999
_________________________ [CORPORATE SEAL] _________________________
Scott Manson, Secretary Ron Conquest, President
- -------------------------------------------------------------------------------
<PAGE> 1
EXHIBIT 5.1
OPINION OF COUNSEL
Interactive Radio Group, Inc. FTM Media, Inc.
6991 East Camelback Road 6991 East Camelback Road
Suite D-103 Suite D-103
Scottsdale, AZ 85251 Scottsdale, AZ 85251
Shareholders of Interactive Radio Group, Inc.
----------------------------------------------------------------------
Re: Merger Agreement between Interactive Radio Group, Inc. and FTM
Media, Inc. Ladies and Gentlemen:
----------------------------------------------------------------------
We have acted as counsel for each of FTM Media, Inc., a Delaware
corporation ("ACQUIRER"), and Interactive Radio Group, Inc., a Delaware
corporation ("TARGET"), in connection with the preparation, execution, and
delivery of the Merger Agreement (the "AGREEMENT"), dated as of September 24,
1999, between Acquirer and Target (Acquirer and Target are sometimes referred to
collectively as the "PARTIES"), and certain documents related or incidental
thereto and transactions to be effected thereunder. You have requested our
opinion concerning certain United States federal income tax consequences of the
statutory merger of Target with and into Acquirer (the "MERGER") pursuant to the
Agreement. Capitalized terms not defined herein have the meanings specified in
the Agreement.
In connection with this opinion, we have reviewed such documents as we
have found necessary or appropriate, including the Agreement, and related
documents pertaining to the Merger. In expressing our opinion, we are relying
upon, and the opinion stated in this letter is expressly based upon, the
information and representations contained in the documents provided to us by the
Parties and related entitites and the information and representations provided
in our discussions with representatives of the Parties and related entities.
Certain of the representations of the Parties and FTM Colorado are set forth in
the Officer's Certificates for Acquirer, Target and FTM Colorado (the "OFFICER'S
CERTIFICATES"), which are appended hereto as Exhibits A, B and C, respectively.
We assume (without any independent investigation), and have relied on the
assumptions, (i) that the Officer's Certificates will be executed by appropriate
officers of Acquirer, Target and FTM Colorado and delivered to us at or before
the time we render this opinion, and (ii) that the Officer's Certificates will
be true and correct at the time delivered and will be true and correct on the
date of the Merger. We assume that the documents and information provided to us
present an accurate and complete description of all of the facts relevant to the
Merger. Finally, we assume that the Merger will be reported by each of Acquirer,
Target and FTM Colorado on their respective federal income tax returns in a
manner consistent with the opinion set forth below.
Based upon the foregoing, and assuming that the transactions
contemplated by the documents referred to above are consummated in accordance
with their terms, we are of the opinion that, subject to all the qualifications,
limitations, and assumptions set forth herein, (i) the
5.1-1
<PAGE> 2
discussion under the caption "Material United States Federal Income Tax
Consequences of the Merger" in the Registration Statement, insofar as such
discussion relates to statements of law or legal conclusions (the "DISCUSSION"),
is correct in all material respects and (ii) the Merger will constitute a
"reorganization" for federal income tax purposes within the meaning of Section
368(a) of the Internal Revenue Code of 1986, as amended (the "CODE") and
accordingly:
(i) Acquirer and Target will each be parties to the
reorganization;
(ii) No gain or loss will be recognized by Acquirer or Target
as a result of the Merger; and
(iii) No gain or loss will be recognized by the shareholders of
Target who exchange their Target Common Stock for Acquirer
Common Stock pursuant to the Merger (except with respect
to cash received in lieu of a fractional share interest in
Acquirer Common Stock);
We express no opinion as to any compensation income that might be realized by
any stockholders or option holders of Target in respect of their shares of
Target, whether vested or unvested, as a consequence of the Merger.
In expressing this opinion, we mean that, if the IRS were to assert a
position contrary to the conclusions described herein and in the Discussion, the
conclusions described herein and in the Discussion, if properly presented to a
court, should prevail. The IRS may take positions contrary to the conclusions
expressed herein and in the Discussion, including contrary positions as to the
applicable facts, and there is a risk that such positions might ultimately be
sustained by the courts. Our opinion is not binding on the IRS or the courts. It
merely represents our best judgment and thus should not be construed as a
guarantee of ultimate results.
We hereby consent to the use of the name of our firm under the caption
"Material United States Federal Income Tax Consequences of the Merger" in the
Registration Statement and the related Prospectus and consent to the filing of
this opinion as an exhibit to the Registration Statement. In giving these
consents, we do not thereby admit that we come within the category of persons
whose consent is required under Section 7 of the Securities Act or the rules and
regulations of the SEC promulgated thereunder.
The opinion set forth herein is based on our interpretation of the
applicable provisions of the Code, the Income Tax Regulations promulgated
thereunder (the "Regulations"), and administrative and judicial interpretations
of the Code and the Regulations, all as currently in effect. Any or all of these
could change, and any such change could require a conclusion or
5.1-2
<PAGE> 3
conclusions different from the opinion expressed herein. We do not undertake to
advise you as to any future changes in the Code, the Regulations, or
administrative or judicial interpretations of either that may affect our opinion
unless we are specifically retained to do so.
This opinion is being delivered to you in our capacity as counsel for
each of Acquirer and Target and is being delivered to you for the purposes of
satisfying the requirements of the Agreement and of being included as an exhibit
to the Registration Statement. This opinion is solely for the benefit of
Acquirer, Target, and the shareholders of Target and may not be used or relied
upon by any other person.
Very truly yours,
/s/ Irell & Manella LLP
----------------------------
Irell & Manella LLP
5.1-3
<PAGE> 1
EXHIBIT 21.1
SUBSIDIARIES
Cybermusic Acquisition Corp., a Delaware corporation.
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
TO THE BOARD OF DIRECTORS OF FTM DELAWARE AND ITS SUBSIDIARIES:
We hereby consent to the use in this Registration Statement on Form S-4
of FTM Media, Inc., a Delaware corporation, of our report dated March 31, 1999
relating to the financial statements of Interactive Radio Group, Inc., a
Delaware corporation, and FTM Media, Inc., a Colorado corporation, at March 31,
1999, and for each of the three years in the period ended March 31, 1999, which
appears in such Registration Statement. We also consent to the reference to us
under the heading "Experts" in such Registration Statement.
By: /s/ Rotenberg & Company
-------------------------
Rotenberg & Company
Rochester, New York
October 4, 1999
